Implementing Scale-Free Network and Holarchy for Developing Inclusive Business

Abstract

Following the 1997 financial crisis in Asia, Indonesia has experienced uninterrupted growth. This growth has succeeded in reducing poverty and creating a new middle class. Nevertheless, this growth has also resulted in widening the gap between the richest and poorest, and inducing inequality among regions. Poverty reduction efforts in the last few years have suffered and leveled off, even worse, almost no poverty reduction has been attained in 2014. Therefore, the benefits of development likely can be utilized only by people who have power, both economically and politically. In addition, rural and remote areas still lag urban areas due to lack of business activities and good infrastructure.

Inclusive Business is one way to include people who have been excluded in development process through business activities. In general, most inclusive business involves large companies integrating the process of poverty reduction into their value chain. In this paper, the role of local small and medium enterprises is proposed as perpetrators of inclusive business. Modeling inclusive business is carried out using free scale network. based on the establishment of hub. Hub is formed naturally because the new node tends to connect to the node that has the largest network. The hub can be an individual, a small business unit, or an institution. New institutions can be created. Further, holarchy is used to include smaller units (holon) into larger units (super holon), without the need for both to be identic.

Posdaya (Movement of Family Empowerment) and contract farming can be regarded as inclusive business if dealing with business process. Posdaya involve people directly. Yet, the Posdaya movement still lacks a systematic model, whilst contract farming is very market oriented and mostly directed by corporations. Therefore, contract farming is less democratic and farmers have less freedom since they are bounded by the contract for a specified time.

Graph mathematics, social network analysis, and artificial neural network are used in this paper. Previous work indicated that network in Posdaya movement following free scale networks, with hub mainly conducted by formal leader. The role of hub can be leveraged by introducing new institution or revitalized the existing institution. In addition, farmer with large land ownership is not suitable to be appointed as multi-part representative, who will link the existing holon with super holon. This task is more appropriate to be carried out by people or farmer who has off farm activities. Based on this finding, holonic model for small and medium enterprise is proposed which is based on communality.