Was the election result a manifestation of the wisdom of the masses? Was it really the case that 714 million voters with their different preferences (religious nationalists, social democrats, ideological dogmatists, caste politik champions, confrontational types, regional diehards, specific agendists, and of course people like us) pooled their preferences in the ballot box and spontaneously paved the way for a government that has every chance of delivering stability? The doctrine of wisdom of the crowds (which states that aggregating individual choices over large groups leads to decisions that are better than those made by any single person) depends on the premise that diverse voters make their choices independently. When electorates comprise vote banks (broadly defined), choices are not independent and the theory is not satisfactory.
Here is a more appealing explanation (in the language of game theory): the result was a focal point solution to a co-ordination problem! The broad brush story is the following. The electorate held a widely shared view, based on past experience, that a patchy and large coalition government would serve nobody?s purpose. Each group of voters was loyal to its own, but crucially everyone also recognised the mutual gain from a strong national government. Each voter wanted the aggregate verdict to go in favour of her/his own champion, but recognised that the chance of driving the outcome in a national election was zero. Under these circumstances, the desire for a strong verdict points each voter to an optimal choice: vote for the party you believe to be the likeliest to attract most votes from other voters. If everyone followed this rule, then the identity of the party that wins decisively over the rest follows from salient focal points in the political and policy terrain. I would venture that the focal point that helped to resolve indeterminacy was the ?inclusive growth? manifesto.
Looking forward, the important question is how well the government can actually deliver inclusive growth. What are the practical strategies to usher in such growth?to bring people trapped in poverty to markets as producers and consumers? This question is one that development specialists have grappled with forever. Direct government intervention has not been an answer. It might well be getting business to buy into the vision.
Research that followed CK Prahalad?s seminal arguments has shown that companies that focus on business with the poor, both from the demand side and from the supply side, can in fact be quite profitable. There are well known proofs of concept from India and across the world?the Inclusive Markets research programme of the UNDP has highlighted a number of these.
No one can be blind to the huge economic potential of people who happen to be trapped in poverty. An often cited example is the (necessarily) intense economic activity among the self-employed in Dharavi, in thousands of single-room factories, turning pottery, tailoring garments, recycling cardboard and plastic and so on. It is also now well known that India is a fertile wellspring of innovations with inclusion potential. Thanks to the initiatives of Anil Gupta among others, there is systematic documentation of the rich flow of ?grass roots innovations? from across the country.
The challenge of course is to engineer business models around business opportunities in environments of poverty?business models that can be profitable and value-creating by selling products and services to the poor, and on the supply side, by linking people up at many different levels of value chains. Standard corporate business models miss a trick in this. A clear and valuable lesson here is offered by the micro-finance industry: the social capital of the poor is a valuable economic resource, at least as valuable as physical and financial capital. Microfinance firms pull together social networks, community and group norms and local knowledge of the poor to reduce costs of operation hugely (in initiating business, in monitoring, in enforcing contracts and reducing probability of default). There is scope for architectures that can leverage such social capital in contexts of businesses belonging to other industries. On the demand side too, commercially profitable strategies based on aggregating uncertain cash flows of networks of poor customers into stable revenues are not beyond the ingenuity of business architects.
It is well known that the poor pay much higher prices for essential goods and services than the non-poor?highly inelastic demand props up extreme price discrimination. Competition among suppliers will reduce this poverty penalty. But competition will pick up only with high rates of entry by firms into this arena. Entrants will wait till they see the potential for high returns. Smart policy support, including tax benefits, can encourage private businesses to take the plunge. Inclusive growth will arrive when the initial trickle of such businesses grows into a surge.
The author is reader in economics at the Judge Business School, University of Cambridge, and fellow of Corpus Christi College