This week, the UN Private Sector Forum will discuss the role of the private sector in implementing the Sustainable Development Goals (SDGs). Here Erinch Sahan, Private Sector Policy Adviser, argues that business partnerships are not a catch-all solution for development, and to deliver truly transformative change we must transform business itself.
In aid and development, business is fast becoming the new black. If business can do the heavy-lifting of creating jobs and wealth, societies can be transformed and people can lift themselves out of poverty.
This Saturday (26 Sep), Ban Ki-moon is bringing together captains of industry, civil society and the UN itself for the UN Private Sector Forum. The gathering will pursue the worthy aim of exploring the role of the private sector in implementing the Sustainable Development Goals. If it’s to produce real conversations about transformative change, participants would be well advised to
read the latest IDS Bulletin: Business, State and Society: Changing Perspectives, Roles and Approaches. Here’s why…
We, and the leaders gathering in New York, need to pause and scrutinise our enthusiasm for throwing development resources at the promise of business-led development. This scrutiny should be based on two questions – a what and a how:
1) What does pro-poor business look like?
This is not just about achieving reformed practices, but about the identity of companies. By this, I mean, what are the incentives, governance models and ownership structures inherent to businesses – the DNA of companies if you will – that create the kind of businesses that make the kinds of decisions we think will lead to sustainable and inclusive, ‘pro-poor’ development?
2) How can development actors promote pro-poor business?
How we in the development community answer these questions is too often dictated by the ideologies, assumptions and suspicions we carry around within us. While few people believe that business uncompromisingly valuing profit above all else is what’s best for the world and society, the sector seems ambivalent to the nature of the business models it promotes.
There’s a ‘more business is always better’ philosophy emerging, one which doesn’t ask about the nature of the businesses being promoted. The sector needs to unpack the types of models that are most pro-poor, and allow that to drive the private sector development agenda.…business doesn’t automatically have a net positive impact on people living in poverty
Let’s lay to rest the extremes of the debate surrounding the business and development narrative driving gatherings like the UN Forum. Business is undoubtedly a key driver of economic development and can create and spread wealth, opportunity and jobs far and wide; whilst generating revenue for governments and providing much needed goods and services to society.
But business doesn’t automatically have a net positive impact on people living in poverty. Businesses can destroy natural resources, entrench or legitimise practices that keep women marginalised, replace quality jobs with precarious jobs on poverty-wages, fuel corruption, and drive a race-to-the-bottom between governments on policies that would otherwise protect the most vulnerable (to list a few negative impacts).
Meanwhile, business is far from homogenous, not just in its impacts but also in its structure. Companies and enterprises vary greatly on how they spread profits, the nature of their products and services, whether they’re driven by the long-term business-case, and how they make decisions when profits are pitted against pro-poor outcomes (e.g. there may be less profit in avoiding polluting a river or paying workers a living wage). In other words, businesses vary greatly in their ownership and governance models, with profound implications for their impacts. With such
diversity in the business world, being either pro or anti business, per se, is plain silly.
Key lessons from the collection of papers in the IDS bulletin include:
- the importance of inclusive processes (especially in public-private partnerships);
- understanding incentives (particularly of the companies involved);
- recognising the complexity of market systems (including the unintended consequences of market interventions); and
- the need for interventions to think long-term.
The papers also pick up several key themes that cut across the business and development space.
Public-private partnerships (PPPs)
An increasingly fashionable mechanism among crowds like the UN one gathering in New York, PPPs are explored in several articles, with the need for inclusive processes and a thorough understanding of incentives highlighted. The approach of partnering with business to bring in new goods and services is also explored, highlighting the need to work through existing markets and market-actors where possible to ensure sustainability and effectiveness of interventions.
Throughout the issue, the themes of power in markets (i.e. watch out for situations of greater power disparity – e.g. smallholder farmers and large companies) and the complexity of systems recur. This reminds us that development actors must be cautious before assuming a single intervention with a single company can achieve transformative development impact.
The plain truth is that most businesses are driven by the absolute maximisation of profit. This can have positive and negative impacts – but ignoring the negative or assuming a prevailing benevolence is perhaps the most naive of mistakes development practitioners make. If you’re working with social enterprises, community-owned businesses, B-corps or other enterprise structures that are the exception, then incentives may be clearer. But as profit-maximisers (most companies in the room in New York will be), business incentives rarely align neatly with those of
development actors, and a commercial savviness is needed by UN, government, aid agency and NGO bosses to ensure that social impact remains a priority.
We need to take a cold shower before assuming that business partnerships are a silver bullet for development. Unless we can transform it, business is not a panacea for development, it’s a panacea for profit maximisation.
Business led development projects may send ripple effects through the market system and have unintended consequences – such as displacing jobs or investments elsewhere or helping to legitimise unethical practices. Economic development needs business to expand, but we will fail to deliver transformative change if we don’t look to transform business itself.
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Photo: Sukitha, a member of a dairy cooperative which Oxfam helped set up in Muruganwr Si Lanka, buying fruit and vegetables at a local shop. Credit: Abir Abdullah/Oxfam
Author: Erinch Sahan
Archive blog. Originally posted on Oxfam Policy & Practice.