Inclusive business, business for inclusion: new directions in development?

 The role of the private sector in development, of course, is no new theme. But it has received growing attention, and rightly so. I have a feeling that it’s the old aid industry, and I count myself as part of that camp, that has been catching up. Fortunately, there are five points of intersection that allows us to do so.

The old discussion about whether growth is good for the poor, and ‘still is’ good, has caused a lot of smoke, but also fire around what types of growth are more, or less exclusive or pro-poor. Lesson are clear: growth, as defined by increases in GDP or average consumption, is a necessary thought not sufficient condition for growth. Research on the importance of equality for growth, and the contribution of public policy, demonstrates what kind of conditions need to accompany economic growth.

Second, there is now a great deal of consensus (in research, not, of course, in politics), on the causes of economic growth. While civil and public services and even state-owned enterprises remain critical, including at decentralized levels, most of growth comes from the private sector. Supported by public policies, that is where innovation takes place, and jobs are created. This thus means that understanding of what enables access to these opportunities is critical for development policy (and therefore our work on inclusive growth at IDRC focuses on participation in economic growth, through decent jobs and entrepreneurship).

Coming back to the traditional aid community, it is now well-established that private flows (FDI, remittances) have rapidly outpaced near-stagnant official aid flows. Private philanthropies now form a big and often integral part of aid efforts: for example, the Gates Foundation is the 4th largest funder in the health sector. These have not only brought the additional money, but also new ideas and motivations to a sector many thought were plagued by aid fatigue. The way OECD countries report aid is now updated, accounting for diversity in developing contexts, and contributions of non-traditional development finance.

Fourth, there is a rapidly growing trend of private sector investment in and for development, which donors are now trying to promote through non-traditional financing mechanism, and public-private partnership. Evidence on new donor experiences, perhaps inevitably, is mixed, and the agenda is very broad. But it is an emerging and unstoppable force, which now needs to be an integral part of the development debate and research.

The final intersection is in the changing practices of companies. Enhancing equity can be good for business (our IDRC work on gender equality focuses on how empowerment can promote economic growth). Enhancing women’s opportunities is now seen as not only a right, but also as contributing to the economy and productivity, strengthening voices to enhance percentages of women on company boards for example. The number of companies promoting supplier diversity – committing themselves to renew supply networks working with small business and minority groups facing disadvantages in accessing opportunities – is growing rapidly.

The latter is new, lessons needs to be learned, and two things are very exciting. One, it broadens development focus from charitable to seeing poor countries citizens as contributors to development. Second, as a leader of a supplier diversity program in Canada (a very diverse country already) explained to me, this is seen as an opportunity of infusing daily work practices with commitment to equality and diversity.