DFID’s report last month, The Engine of Development: the private sector and prosperity for poor people puts engagement with the private sector to the fore of its pro-poor growth strategy, positing job-creation a major development tool. The report highlights three key reasons (pp.6-7) why private enterprise matters as an engine, not just for economic growth, but reducing poverty:
- rising incomes reduce poverty, and the means to increase incomes is investment in business;
- more private investment will multiply its reach and create more opportunities for the poor to earn an income;
- the private sector can offer innovative ways to provide services and deliver aid, and thereby increase the reach of donors
Cynics will, of course, see more than a measure of self-interest in the embrace of the private sector by the Coalition government, and indeed the report doesn’t disappoint by stressing the benefits that could accrue to the UK from improved business environments in developing countries:
“It is in the emerging markets that were poor just 10 or 20 years ago that UK companies are now winning new business and which are expanding at unprecedented rates. …. Investing now in jobs and enterprise in these poorer countries means investing in the people and societies who will be the mass consumers of the future.” (p.7)
However, to give the benefit of the doubt here, the report stresses the untied nature of UK aid, and its primary objectives of poverty reduction and meeting the MDGs. What is actually a rather muted defence of British self-interest is probably more to placate critics of increased aid expenditure and apparent growing public hostility to the government’s determination to protect international aid from budget cuts, than a call to neo-imperialism.
One could also challenge some of the logic underlying the approach, not least its assumptions as to the automatic linkage between individual property rights and development, the scope for private (for profit) welfare service provision to meet the needs of the most vulnerable and hardest to reach, and the effectiveness of public-private partnerships (which have not had a particularly happy – or economically efficient – history in the UK). But there are few who would argue that poverty reduction in sub-Saharan African can be reached without generating employment and boosting incomes.
With that in mind, here are a few issues for DFID to look out for when it cosies up to the private sector with poverty reduction in mind:
Some jobs are better than others
Of course having a regular income is a major factor in moving out of conditions of absolute poverty. But more important than having or not having a job is what kind of job it is and the full range of benefits that accrue from it.
The ILO’s notion of ‘decent work’ is useful in this regard, suggesting as it does that work is not sufficient in itself to promote development and help people escape poverty. A number of criteria are required for work to have an impact on poverty, including: wage levels; the development of skills through training; respect for the rights of workers (including the provision of a safe place to work); ensuring an appropriate balance between family and work; and ensuring access to welfare services.
Minimum salaries in the manufacturing sector in Tanzania, for example, are around $51 per month (80,000/-), or around $1.7 per day. Better than nothing, perhaps, but surely aspirations need to be more ambitious than trapping people in a low-paid work with little scope for advancement and acquisition of skills.
The ILO estimates that some 2.3 million work-related deaths and 337 million work-based accidents occur each year, the majority in developing countries:
“Deaths and injuries take a particularly heavy toll in developing countries, where a large part of the population is engaged in hazardous activities, such as agriculture, fishing and mining. Throughout the world, the poorest and least protected – often women, children and migrants – are among the most affected.”
Some private sector investors are interested in setting up operations in developing countries because health and safety regulations are minimal or poorly implemented. Whilst the report says that DFID will demand partners comply with regulations and laws, this may not mean much where those regulations are themselves insufficient. More dangerous jobs will simply put more people in danger, not pull them out of poverty.
Low-income jobs, with little regard for the safety and welfare of workers, but taking advantage of cheap labour and poor regulatory regimes, is not a route to poverty reduction, but further entrenching poverty traps and vulnerability. Nor would such jobs put upward pressure on income levels. So by all means seek ways to boost employment opportunities, but do not simply equate the possession of a job, any job, as a pro-poverty strategy in itself.
Increased private investment & business does not necessarily boost jobs
Encouraging a friendlier climate for business across sub-Saharan Africa through reforms to bureaucratic hurdles and legislation governing property rights, efforts to contain corruption, ease transfer of profits across borders, etc, may well increase foreign direct investment in the region (as well as see more domestic resources invested in new businesses). But in itself this will not necessarily create more jobs for poor Africans. Some industries are likely to lead to more employment opportunities than others (of both the decent and non-decent kind). Chinese investment in infrastructure development and extractive industries, for example, has not seen the numbers of Africans employed as was envisioned by governments when signing investment deals. Private investment in agriculture, such as foreign governments or companies buying long-leases over substantial parcels of productive land, have similarly failed to generate the promised employment of members of local communities most affected. In countries with low numbers of people with skills, manufacturing industries import workers to fill gaps.
The private sector isn’t the only force for innovation in delivery & efficiency
With the current focus on results-based development, aid efficiency, and improving delivery mechanisms, the private sector is trumpeting loudly its expertise as a model to be adopted by donors and other non-profit development actors. The new breed of philanthrocapitalist organisations (the Gates and Clinton Foundations, and a range of smaller but still influential bodies), based on adapting private sector practices to the dilemmas of aid, champion such approaches.
However, whilst there are indeed significant gains that could be made from partnerships with for-profit social enterprises, the lessons of venture capitalism are not as easily applicable to the needs and objectives of poverty reduction as some promise. Nor are non-profit and public development actors as inherently inefficient, out-of-touch and lacking in innovative ideas as the loudest supporters of private-sector solutions would have us believe.
So by all means encourage a greater engagement with the private sector. But don’t see it as an all-seeing oracle whose whims and ideas must be followed without question. Obvious, perhaps, but politicians are increasingly sounding like giddy teenagers, entranced with the seductive power of their new paramour.
Poverty is not just about money
It is important, of course, to seek ways to increase the opportunity for the poor and vulnerable to secure sustainable incomes in jobs that help improve their lives. However, people are not poor just because they lack an income. Again, an obvious point. But recognising this has implications for how resources are allocated. If DFID increases its budget for partnerships with private sector actors, it is money that is not going to perhaps equally (or more) important, even if less tangible and less easily measured, areas.
This isn’t really a critique of what is, in essence, a rather sensible approach, if taken as one strategy that needs to work with others to promote poverty reduction. But the danger is, if one listens to speeches from Andrew Mitchell and other politicians and thinkers advocating greater reliance with the private sector, that we are moving back to a public sector bad, private sector good mentality – one that has done so much damage in the past. We’re certainly not there yet, and may not get there. And to take the opposite line (private sector bad, public sector good) would be equally limiting. As always, and a somewhat boring conclusion I know, balance is the key. Yes, the glittery baubles of private enterprise are seductive, especially when compared with the time-worn fabric of traditional development actors. But they are no more than a part of an overall strategy, to be engaged with where there is synergy between objectives, to be kept at a distance where not.