Sustainable Development Goals, the Private Sector, and choices for development agencies

The Millennium Development Goals were formulated, mostly, by UN bureaucrats behind closed doors; not that they necessarily wanted to be secretive, but the public interest was limited. Since the MDGs were agreed, there has been much development progress. But also, the interest in development has expanded enormously. The Sustainable Development Goals agreed at the end of 2015 were formulated in broad consultation. And there are now surveys (MyWorld, Afrobarometer) that show citizens priorities amongst those goals.

The private sector has come to play an important role in this global development practice. As Gerhard Pries, founder and CEO of Sarona Asset Management, mentioned at a public debate in Waterloo on sustainable agriculture, business is no longer seen as a problem, and corporations are increasingly taking responsibility for public goods. While official aid flows have been almost stagnant, private flows have become increasingly important. They come in different forms: philanthropic, remittances, trade and investment, and ‘impact investment’ or ‘inclusive business’.

‘Impact investors’ are among the newest actors in the field. They are not entirely new, but are receiving a lot of attention, in part because the public aid flows remains stagnant – while the estimates of resources needed to achieve the SDGs have increased enormously – and development agencies are increasingly looking to leverage private actors’ efforts and funding. Impact investors (and similarly blended finance), put simply, combine profit motives with a desire to have beneficial impacts on environmental and social goals.

How much do we know so far about this new terrain? In a paper that I first presented at ISS in The Hague, I trace the various concepts and their origins. The new practices are making very important contributions: apart from additional finance, they shift the focus of development practice from ‘charitable’ to seeing poor countries citizens as contributors to development. Shared value approaches are an opportunity of infusing business practices with commitment to equality and diversity. Instruments like impact bonds help to strengthen the focus on results.

At the same time, we need to deepen our understanding of this new field, and development studies have a role to play but has not engaged much. It is commonly asserted that the supply of investment is much larger than what can be absorbed: the number of ‘bankable projects’ is generally thought to be limited. Regulatory environments are key in the promotion of inclusive business. Measurement of results is still in its infancy, despite a number of initiatives, and for example what constitutes ‘pro-poor’ products remain inherently difficult to assess. Development agencies need to better understand additionality (and distortive effects), and be able to compare and situate collaboration with business. Finally, while impact investment has a strong focus on ‘emerging markets’, the experience so far suggests that it tends to focus on certain sectors and countries; this brings us back to the question of the role of (pure) public investments, for most marginalized groups in least developed countries.

 

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Does economic transformation lead to social exclusion?

Does economic transformation lead to social exclusion? This question, which occupies many minds currently, is surprisingly old, and occupied the minds of many of the great social scientists. But – as I discovered in writing a paper for the UNIDO Industrial Development Report – the views have been radically different, marked by optimism versus pessimism, and individualism versus structuralism oppositions. Technology has had radical impacts on forms of social cohesion, and de-skilling and unemployment has generated anomie and protests. But groups and societies have adapted and regenerated social relations. New ICTs are changing social relations, but they are not evaporating. Thus, there is a need for a multi-sector and disciplinary view, on how the interaction between structural change and cohesion evolve in different contexts, and the institutions that mediate social outcomes.

A growing body of literature and data that allows empirical analysis of links between economic change (with GDP as main indicator), and various aspects of social cohesion, at individual, group and institutional level. However, and particularly for developing countries, data is still very limited, it limits cross-country analysis (which in any case has its own limitations), variations around means (e.g., in gender equality) are large, and the understanding of causation is very limited indeed. Nevertheless, there is evidence that gives ground to optimism, in the sense that what may be considered progress in economic factors goes together with progress in social cohesion (though this may be associated with greater collective action). There are suggestions that forms of social cohesion can contribute to economic progress as well as vice versa. Perhaps most surprising, the international data does not show that the growing income inequalities since the 1980s – the subject of another paper for the UNIDO Report – has led to a decline in social cohesion in a broader sense.

International data provides indications that public policy (economic, industrial) has the potential to promote growth or technological change and inclusion simultaneously. Analysis emerging from the World Value Survey indicate such a secular complementary trends, as do the initial findings from the Indices of Social Development. Political institutions develop and evolve mediating conflicts that may arise from structural transformation, including the social policies and welfare states that emerged across the OECD.

These are of course very broad generalisations, focusing on averages and long-term trends. But context-specific research, particularly on industrial relations indicates how these complementarities may emerge. Even in low-skilled occupations there are possibilities to strengthen as sense of identity or belonging, which can contribute to productivity. Trade union organization – like state intervention – is not necessarily anathema to economic growth or structural change; most likely such forms of organization help mediation of possible trade-offs and interest groups.

 

Inclusive Growth: What’s in a Name?

Since the financial crisis in 2008, and the Arab Spring in 2011, equality and inclusion have been major themes in global debates. Development Banks and IMF added to the voices and concerns about the unsustainability of high and rising inequalities, and it became the subject of debate within the private sector and fora like the World Economic Forum. Studies like Piketty’s Capital in the Twenty-First Century, Wilkinson and Pickett’s The Spirit Level, and Acemoglu and Robinson’s Why Nations Fail stress the negative consequences of inequality, and the need for inclusive institutions for economic transformation.

Half a decade after the financial crisis, concerns about inequality and exclusion remain equally important. However, economic uncertainty, and political and ideological shifts, seem to pose critical policy questions. Many of the imbalances that caused the crisis and remain responsible for persistent deprivation continue to exist. The extended recession and austerity measures in many OECD countries reduce confidence that inclusiveness will be a high priority – despite public protests about ‘the other 99%’. Emerging economies did relatively well throughout the financial crisis, but are now experiencing the impacts of the downturn. The post-crisis fiscal expansion has given way to contraction. The need to find policies that promote growth and inclusion, thus, is as urgent as ever.

My recent paper in the European Journal of Development Research argues there is a need to take growth-poverty debates beyond issues of outcomes measures, and policy analysis beyond questions of redistribution. It proposes to put inclusiveness at the core of analysis of how growth is created, of investment, business and particularly employment and conditions and recognition of work. For this, and building on our work at IDRC, it uses the concept of inclusive growth: the paper discusses the ascendency of the notion, the place of governance and social development in its definition and measurement, and the critical question of visioning the poor, and non-poor, as the people who create and sustain growth.

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.

Entrepreneurship in developing countries: GEM 2014

The Global Entrepreneurship Monitor (GEM) 2014 report is a very important one indeed. As a very nice short video explains, GEM has created a growing network of scholars and evidence base comparing entrepreneurial activity across the world. The 2014 report is important as it includes growing coverage of and information on African countries.

As the global report and the Africa Report highlight, African economies show high social valuation of entrepreneurship (while European economies show the lowest). Pages 44-45 describe the growing evidence on African entrepreneurship. One’s initial reaction might be that you’d expect this to be the case, as people in poorer countries simply don’t have any other opportunities.

But the story is more complex. While 22% of male entrepreneurs and 31% of female entrepreneurs in Africa (table A.5) start enterprises out of necessity rather than opportunity, this is not much higher than in other regions (for example, in Canada too20% of women who started a business did so out of necessity). Of course, as circumstances and expectations are different, comparisons of valuation are not easily made particularly across contexts with hugely varying income levels.

But there is also a remarkable difference across lower-income countries in terms of entrepreneurship rates, which does seem to give reason for an optimism about and in Africa. The Table below reproduces data for a selection of developing countries. From these data, one can only speculate, but it definitely seems worth exploring why rates in India are so much lower than in Botswana and Cameroon, and what – if these data do indeed reflect differences on the ground – what this might mean for policy.

Another gold mine of information from GEM is the gender-disaggregated data. GEM surveys how that early-stage entrepreneurial activity is gender sensitive, and that this is die to cultural, societal and economic reasons. While there are no differences in individual attributes, according to previous surveys, more men than women start enterprises, and they more often do this driven by opportunity rather than necessity. This gap varies too and is particularly high in for example Burkina Faso and Chile. Only in a few cases, including India, do men more often than women start business out of necessity. Again, this is only the aggregated data, and the surveys provide much more information to better understand both individual motives and country environment for entrepreneurship.

Early stage entrepreneurship (TEA), selection of countries , 2014
TEA TEA female TEA male
Angola 21.5 20.4 22.8
Argentina 14.4 11.2 17.8
Bolivia 27.4 25.0 29.9
Botswana 32.8 30.9 34.8
Brazil 17.2 17.5 17.0
Burkina Faso 21.7 18.7 25.4
Cameroon 37.4 34.1 40.9
Chile 26.8 23.7 30.1
China 15.5 14.2 16.8
Colombia 18.6 14.6 22.8
Costa Rica 11.3 11.0 11.7
Ecuador 32.6 32.2 33.0
El Salvador 19.5 19.7 19.3
Guatemala 20.4 16.9 24.4
India 6.6 4.6 8.5
Indonesia 14.2 15.2 13.2
Peru 28.8 28.0 29.7
Philippines 18.4 20.8 15.9
Puerto Rico 10.0 9.1 11.1
South Africa 7.0 6.3 7.7
Thailand 23.3 22.1 24.5
Uganda 35.5 37.2 33.7
Uruguay 16.1 13.2 19.2
Vietnam 15.3 15.5 15.1
Source: http://www.gemconsortium.org/key-indicators

More evidence on gender equality and growth?

Our IDRC program GrOW has just issued a new call for research proposal, to synthesize what we know about whether and how women’s economic empowerment impacts growth. Here are my own thoughts about why this exercise is important.

This is a call for a review of evidence. This partly follows a practical consideration: primary research is expensive and takes a long time. And we know there already is much research out there – by Naila Kabeer, Ester Duflo, Akram-Lodi, amongst others – and we believe it is important we produce a good and updated summary of what we already know. The research will follow principles of systematic review, and while there has been some critique of this methodology, we believe in the basics of this: that we need apply the same rigorous principles in literature reviews as we expect in primary data collection (see the great in the Journal of Development Effectiveness on this).

That’s just the methodology. What about the subject: why do we need and want to know about the impact of women’s economic empowerment on economic growth? Isn’t it enough to identify what barriers hinder women to develop their capabilities, as is done in most of the current projects under GrOW, or at the Gender Innovation Lab? The answer to this hinges on two things.

First, has been much emphasis on the smart economics of women’s economics. This stresses the positive benefits of investing on women’s economic empowerment for societies and economies as a whole. The World Economic Forum argues that closing gender gaps is good for countries competitiveness. But these relationships are not extremely strong, and of course they are correlations not causation. They are very complex, context-dependent, and influenced by a wide range of factors. Thus even if the basic correlations holds, which it possibly does, our best research to understand these in detail can be of great value.

Second, the case for this work hinges on appreciation of the instrumental versus the intrinsic value of equality. The intrinsic value is key: we believe that all women should have equal access, and we believe that public policies should support that all should be able to fully develop their capabilities. While the fundamental rights are non-negotiable, there will always be debates about the means and resource allocations. Amartya Sen’s argument with respect to ‘freedoms’ I believe applies here: “It is indeed the combination of the intrinsic considerations and instrumental analyses that can lead the way to an adequate examination of what should be done and why.”

For me, it is because the topic is so important that we need the best evidence available. Hence, this call for proposals: http://alturl.com/6gq8d

Politics of Inclusive Development

The new book The Politics of Inclusive Development focuses on the politics and institutions that matter for inclusive development, the specific ways in which they shape possibilities in different contexts. It argues that guidance is needed about what could be done to make political contexts more responsive to inclusive development.

The chapter by Ward Warmerdam and myself in this book focuses on the politics of development in in the aid industry, substantiating the books thesis on the relative lack of political understanding. Our chapter shows there is little analysis of how donors, even where they do start adopting a political perspective, influence local institutions and the people they work with.

We believe that better understanding of the ‘impact of aid’ – and going beyond the polarisation in the debate – has the potential to directly inform practices of international development. But this requires we learn more about the way donors interact with formal and informal institutions in the countries where they work. This is particularly – but not only – relevant in aid-dependent countries, where donors have been integral part of local politics for decades.

However, for this it is crucial that we take aid itself out of political isolation, and see it as part of a spectrum of international exchange. Developing local narratives of aid relationships are essential to inform this ongoing debate, including regarding how the differing views and approaches within and across donors (and the new donors are by no means unique in this respect) lead to unexpected outcomes.