Tuesday, 27 September 2011

Ed Miliband speech: business and growth

By Noshua Watson

I’ve just been listening to Labour Party leader Ed Miliband’s speech to the Labour Party Conference in Liverpool this afternoon. 

As well as setting himself apart from previous leaders Tony Blair and Gordon Brown, reflecting on the UK riots this summer, and criticising corporation tax cuts, Miliband said a couple of sentences that really caught my attention….

“You’ve been told all growth is the same, all ways of doing business are the same.

But it’s not.

You’ve been told that the choice in politics is whether parties are pro-business or anti-business.

But all parties must be pro-business today.” 

The reason these phrases stood out is that although Ed Miliband is of course referring to the UK economy, what he said seems to me to reflect the changes we’ve seen over the last few years in international development thinking.

Here at IDS we’ve been looking at the conditions required for growth that benefits poor people. And increasingly we’re examining what types of business models have real development impact. There aren’t easy solutions to these questions, and we’re going to keep working on them. We hope that Ed Miliband will offer up some specific solutions for the UK based on the global evidence.

Monday, 26 September 2011

Who will help the people? How philanthropic organisations can meet aid needs

By Noshua Watson

If governments are struggling to meet common needs, who will? I’ve written an article for The Guardian (UK) newspaper on how philanthropic foundations can cooperate to fund public goods that benefit multiple countries, social classes or generations. The piece focuses on the role of foundations in funding malaria prevention and peace initiatives.

Friday, 23 September 2011

The stubborn arithmetic of growth

By Stephen Spratt

Last week saw the release of the latest Annual Report by the Carbon Disclosure Project (CDP). As the name suggests, the CDP aims to get companies to disclose their carbon emissions, as well as information on things like policies or targets. The CDP sends an annual survey to leading global companies on behalf of 551 institutional investors, who manage US$71 trillion in assets.

The basic idea is straightforward enough – the more that is known about companies’ performance on carbon emissions, the more discerning investors can be about where they allocate their funds. As companies come to appreciate this, they will be incentivised to reduce their emissions so as to attract investment.

Underpinning all this is the assumption that there is a relationship between financial and ‘carbon’ performance – what’s good for the environment is good for the bottom line. And this year’s report appears to bear this out, with companies that have emission-reduction targets in place performing better on stock exchanges than those without such policies.

A number of other areas of progress are reported. More than half of Global 500 companies have emission reducing policies in place for the first time, for example, and 45 percent saw emissions decline over the year, up from 19 percent in the previous year. The number of companies refusing the answer the survey also continues to fall.

This is all very much to be welcomed...up to a point.
  • The first caveat is the old chestnut of causality – do companies that reduce carbon emissions perform well on stock markets because of this, or are companies that do well on stock markets more likely to have ‘enlightened’ policies on climate change? Intuitively, the latter seems more plausible.
  • Second, we need to distinguish between efficiency and scale. Clearly, using energy more efficiently is good for the bottom line, so we would expect companies to be making efforts in this department. And so they are. 76 percent of Global 500 companies have emission reduction targets in place. Interestingly, however, only 44 percent of these targets relate to ‘absolute’ emissions.
This is where the relationship between environmental and financial performance may start to break down. Any company that improves its productive efficiency can reduce costs and boost profits, but this is not the same as reducing total emissions. It is perfectly possible to increase efficiency year on year, but still generate more absolute emissions. To avoid this, efficiency gains need to be greater than increases in the scale of production. As was compellingly demonstrated in Tim Jackson’s Prosperity Without Growth?, there is no evidence that this is happening.

Globally, it is absolute emissions that matter of course, but if efficiency cannot outstrip scale, the only way to reduce total emissions is to make less stuff. While all companies want to produce goods as efficiently as possible, none seek to reduce the amount of goods they produce. Moreover, it is highly unlikely that the 551 institutional investors supporting the CDP would reward them with increased investments if they were do so.

As developed economies do everything they can to boost growth, the implications of this stubborn arithmetic have been forgotten for now. This doesn’t mean the problem has gone away though.

Tuesday, 20 September 2011

Is business the new aid?

By Noshua Watson

Yesterday, IDS hosted a panel titled “Is Business the New Aid?” at the Liberal Democrat Party Conference Fringe in Birmingham, UK.  We were fortunate to have Christine Svarer from Care International UK, Zahid Torres-Rahman from Business Action for Africa and two Liberal Democrat Members of Parliament, the Rt Hon Malcolm Bruce and Martin Horwood

The panelists first responded to the provocative question by defining what “aid” means and what it is intended to do. Official development assistance from government to government will continue to be important, but the volume of private flows that affect development, such as foreign direct investment and remittances (which are frequently invested in small businesses) cannot be ignored.  Most importantly, if the goal of aid is to advance economic development, it is difficult to do without business. Including the private sector in development also means monitoring and improving the impact of business and development.
The audience of party members, government officials, NGO executives, corporate executives and students, challenged the panel with questions including:
  • Why doesn’t the conversation around aid to Africa include more discussion about industry and investment instead of disasters and relief?
  • To what extent do inclusive business initiatives address women?
  • When governments partner with business, should they really be giving money to for-profit organisations to finance development programmes?
  • What is the role of business in fragile states or conflict areas?
The panelists drew attention to research done by IDS on African regional trade and investment initiatives and the intensive Chinese investment in Africa. They pointed out that Coca-Cola and Danone have programmes that specifically aim to integrate women into global value chains.  With respect to public-private partnerships, they generally tend to be “obligation-style”, rather than “opportunity-style” and they won’t be effective unless they clearly contract with businesses for specific tasks that play to their strengths.  The panelists confessed that there is much to be learned about the role of business in conflict areas.

For more discussion of ‘the new Aid’, check out this dialogue on Tales from the Hood.
*The third seminar series on business and development at the Institute of Development Studies ‘Conflicting Interests’ will begin on 18 October with a presentation from Mike Davis, Campaigner at Global Witness - everyone is welcome.

Monday, 19 September 2011

On the multilateral trading system and less developed countries

By Xavier Cirera

World Trade Organization Director-General Pascal Lamy, in a speech on 6 September to CUTS International in Delhi, said that the multilateral trading system of the future would have to address the pressing challenge of advancing the Doha Round: ‘to find the political courage and the pragmatic steps which will lead our Members to have an honest negotiation'.

It is very unrealistic to expect any progress in the Doha Round. There is clearly not enough willingness on the side of developed and emerging markets to conclude the Round. In addition, the current economic climate of slow growth in OECD countries is not the most conducive environment within which to reach any agreement, since it is in times of crisis and slow growth that protectionist constituencies gain strength.

So what are the implications for the poorer countries of no agreement? Clearly, the liberalisation commitments for the poorer countries of a hypothetical Doha agreement would have been minimal. So not much action on this area. In addition, these countries already have significant preferential access in developed countries’ markets via preferential schemes. Therefore, little additional access to these markets would have been achieved, although an agreement on the reduction of agricultural subsidies in developed countries could have been a very positive outcome for some least-developed countries (LDCs). In general, one may be tempted to conclude that as far as LDCs are concerned, the failure of the Doha Round is not a big deal.

However, the financial crisis of 2008 has shown two important things. The first is the central role of exports in the recovery. The second is the growing importance of South-South trade. The multilateral trading system is not only about North-South trade, but also about South-South trade, and it is important to reduce trade barriers between emerging and developing countries in order to foster South-South trade integration. Therefore, with or without Doha, it is important that the multilateral trading system ensures advances in this area and, more importantly, that no new protectionist measures are introduced that affect LDCs’ access to Southern markets.

Thursday, 1 September 2011

Tackling inequality: Where do we start?

By Noshua Watson

Timothy Noah at Slate magazine wrote a fantastic series on the history and sources of income inequality in the US.  Based on inequality research and extensive conversations with economists, he allocated blame to various causes of the increase in income inequality in the US since the 1970s:
  • Racial and gender discrimination 0%
  • Single parenthood 0%
  • Information technology and computers (increased productivity of skilled workers) 0%
  • Immigration (downward pressure on wages) 5%
  • Tax policy (lower marginal tax rates for the rich) 5%
  • Trade (decreased wages for unskilled workers) 10%
  • The decline of labour (decreased labour union membership) 20%
  • Wall Street and the ultra-wealthy (Winner Take All markets and superstar pay) 30%
  • Poor primary and secondary education (increasing returns to tertiary education) 30%
What do you think?  Is this an effective way of prioritising our resources? Some causes are more global than others.  Which ones can we actually influence with development policy?