04 October 2011

Is Business the New development?

IDS organised a fringe event at the Conservative Party conference called “Is business the new aid?” The title was deliberately focused on getting a sharp response from the panel members (chaired by Lanre Akinola, Editor of This is Africa, Financial Times with Barbara Stocking, CEO of Oxfam, Sue Clark, Director of Corporate Affairs, SAB Miller, Stephen O’Brien, the DFID Minister, and me).

Everyone on the panel agreed that the answer to the question was “no”. For me the answer was “no” and “no”. No because businesses creating jobs and tax revenues are much more powerful than aid in reducing poverty and no because unlike businesses, aid has a responsibility to work for the most vulnerable.

We want aid to create the conditions where progressive growth can flourish—helping with governance (legitimate political stability, inclusive property and user rights, transparent recourse and justice mechanisms), with infrastructure (to reduce transactions costs for everyone), and with pro-poor institutional innovations (e.g. supporting smallholder farmers to work together to enter and influence value chain rules). The business schools call this reducing “beta risk” to allow (small and medium) enterprises to continue taking their own “alpha” risks. By progressive growth I mean growth that generates decent jobs (Stephen O’Brien called this “jobful” growth), that reduces poverty and is environmentally responsible.

I was struck by how relaxed the audience at the fringe event was about the role of business in development (I was also reminded that all 3 DFID Ministers have substantial business experience). The experiences of the BRICS countries seem to have changed the development community’s attitudes to business.

But the problem remains: how to tell whether the "business and development" success stories on display at panels such as these are: (a) genuine successes (have they been as independently and rigorously assessed as aid interventions are?) and (b) not just window dressing?

There is no way of knowing this at the moment. We need much more independent research on this issue. Collectively DFID, 3ie and Aus Aid have recently funded about 200 systematic reviews on development interventions—each of these will focus on 20 or so studies, making for at least 4000 high quality studies of development interventions. My guess is that there are less than 40 such rigorous studies of the impacts on business on poverty. That is why IDS will focus on building up the evidence base in this area over the next 5 years.

After our event, there was a reception hosted by the Conservative Friends of International Development. It was packed. Andrew Mitchell has clearly been very effective in building support for development within his party—certainly with the elder statesmen and stateswomen and the younger members of the party who have experienced the Umubano work in Rwanda. The strong support from David Cameron is important too. But what about those in the middle? Their resolve will surely be tested in the next 2 years as it dawns on the UK public that the aid budget will increase by 40% by 2014-15. George Osborne’s speech to Conference yesterday “we’re not going to save the planet by putting our country out of business” is a sign that the UK is reining in its green leadership ambitions and provides a contrast to Andrew Mitchell’s frequently repeated phrase “we’re not going to balance the books on the backs of the poorest”.

Encouragingly, there are no signals that the government’s stance is softening on the importance of DFID’s efforts to support international development. (Indeed the close out of the Conference by David Cameron will be dedicated to mobilising support from the membership for famine relief for the most vulnerable in Somalia.) But perhaps an even more important test of the Government’s resolve on development will materialise if it emerges that its development efforts are holding back UK businesses. That is why it is so important for DFID to work across government to head off these potential tradeoffs and identify the things that BIS, DECC, DEFRA and the rest can do to support development without damaging UK business interests.

When does business have the biggest positive impact on development? That is the research question. Is development bad for UK businesses? That is the political one.

56 comments:

shantanu gupta said...

Social entrepreneurship is a buzz work in India from last 4-5 years. Providing education, health, water and sanitation solution to rural and semi-urban India at "affordable cost" (debatable what's affordable for the most vulnerable ?) is gaining huge grounds. Awards, workshops, forums around it are gaining grounds. Private equity funds like Acumen Fund are investing money in such ventures...


On a different side, people are talking about using capitalism (read dalit lead businesses) to reduce the caste divide and using businesses as a tool for equality. Read the following piece in TOI for the same...


http://timesofindia.indiatimes.com/home/sunday-toi/all-that-matters/Caste-and-capital-cant-coexist/articleshow/10202564.cms

richard manning said...

I would say that the key is probably the enabling environment in poor countries that can attract business that creates jobs on a reasonable scale.
In that connection, a recent lecture by the Chinese Chief Economist of the World Bank is well worth reading, as an indication of the possible
options for Africa. I'd be interested in what the globalisation team thinks
about his thesis (which picks up IDS work on the Asian model under Robert Wade a while back).

I would also try to argue to UK business that the enabling environment and economic growth in poor countries are much more in their interest than would be a return to mixed credit competition of the kind I used to manage in the 1980s: there is however a risk that aggressive Chinese export promotion (see the $13 billion finance for Ghana: Google 'China Ghana loan') will drag us in that direction.

Anonymous said...

Your blog really touches on issues that have been bothering me around the role of the private sector and poverty alleviation and development and this naïve belief that the private sector brings new and innovative solutions to the world's hungry and malnourished. I'm not sure where to begin-perhaps with the fact the smallholders (as farmers and consumers) have conducted their transactions in the domain of the 'private sector' and it has failed them miserably. Development interventions supported by donors, governments and NGOs step in where the market and its private sector partners fail.

Yet, suddenly there is a reframing of the private sector and their role in agriculture, as if this is something new. The private sector (the usual food corporations, and even now Coca cola and Pepsi Cola, as well as some interesting new players, such as, Vestergaard-Frandsen) have been pulled in as development partners in a number of African settings, under the guise that private sector is more efficient than delivering services (delivering inputs, goods and extension services, providing credit) than NGOs.

Consistent with what you suggest, I really don't think there has been any evaluation of any of these projects and impact on health or nutrition outcomes anyway-maybe there is more evidence of impact on agriculture indicators. I wonder why there is a double standard? Many of these corporations are actually receiving scarce development funds from BMGF, USAID, other bilateral donors and multilateral donors, and they should be transparent and demonstrate impact, just as any grant other grant recipient.

And lastly, there is a difference between supplying goods and services and creating demand for those (and understanding the factors that constrain demand). Social marketing in health builds on principles used by private sector, but experience and lessons learned on how to effectively reach poor consumers with large income constraints and strong social barriers has taken over two decades for increasing the uptake of healthy practices and the use of health goods and services for reproductive health, malaria prevention, HIV/AIDS, etc. And in some cases, struggles remain for potentially simple wins (what can be cheaper and more life-saving than ORS? Yet demand is low and kids keep dying from diarrheal disease). Private sector has a role, but I agree with your premise that there is little evidence that they would be any more effective than NGOs or government in creating demand for goods and services to help the poor increase their incomes, productivity and health, when behaving as a development implementer. I'd rather have them stick to creating an enabling environment.

business consultant said...
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business consultants said...

"No because businesses creating jobs and tax revenues are much more powerful than aid in reducing poverty and no because unlike businesses, aid has a responsibility to work for the most vulnerable." - I would agree with your statement because poverty can never be resolved by just having a social entrepreneurship. People must work hard in order to live and stay away from poverty. The more business entities are, the more people will get the jobs and the lesser people will experience poverty.

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Hannah Wilson said...

Seeing the world that we live in today and how poverty have increased over the years, I wish I could say yes. Unfortunately, most business will always be more concerned in generating income rather than finding a solution for poverty. There are several corporation in Nevada, and if at least half of these have the goal to solve poverty then it might make a huge difference in our society. But as they would say, "Business is business."

Carmen Johnson said...

thanks

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Mitchell Sparks said...

If business is the aid, then it is expected to reap profits. What's surprising is when the aid becomes a business that it's reaping profits. The profits that aid should have is human development and independence from poverty.

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Lucy White said...

A very good post

Rachel said...

Indeed an amazing post. I really loved it.