Wednesday, 25 April 2012

How do we make business work for development... and development work for business?

By Spencer Henson

Having just taken over as Leader of the Globalisation Team at the Institute of Development Studies (IDS), I have been reflecting on the interface between business and development. Members of the Globalisation Team, as well as others at IDS, see the ongoing dialogue on business and development as a critical issue for international development, and an issue on which our research and teaching efforts need squarely to focus.

Answering the sceptics
Historically, there has been considerable scepticism (and in some quarters even animosity) towards business amongst those engaged in international development, including at IDS. The notion of commercial enterprises making profits ‘on the back of the poor’ was something that many find hard to swallow.  Thus, business has often not even been regarded as a development actor.  Such views apparently reflect the confluence of business with large (often multinational) corporations rather than micro and small enterprises (MSEs) that languish in the informal sector. This is despite the fact that many of the poor in developing countries make their living operating businesses. Perhaps a more expansive and inclusive view of business, including the portfolio of private enterprises from smallholder farmers to large multinationals, may ‘open the door’ to the sceptics. This is one tack the Globalisation Team should follow.

Whilst I am all for some ‘door opening’, I would argue it is more important to consider head-on the role of the large and formal sector corporations (including multinationals) that many in development love to hate.  Yes, such firms are profit-seeking. However, at the same time they are centres of considerable resources, skills and expertise (remember that is how they make a profit) which, some would argue, can play a key role in development. Most who have a more positive view on business and development would not deny that large corporations can undermine the quest for sustainable development. However, should we paint all large firms with the same brush? Thus, is it inevitable that large profit-seeking firms are bad for development, or can we discern instances where large corporations are integral to positive development processes? If so, how do we make this come about and ensure it is the norm rather than the exception?

Aligning the goals of business to international development 
For me, the key question for the Globalisation Team and for those with an interest in development studies more generally, is how to align better the goals of international development with the incentives that drive the actions of business. I am interested in all sorts of business, big and small, informal and formal. However, I do feel that the predominant focus of our work should be on larger formal sector firms, including multinationals but not forgetting firms within developing countries themselves.  Of course, this is a not a new area.  Copious amounts have been written on the scope for Corporate Social Responsibility (CSR) and Making Markets Work for the Poor (M4P). However, I would argue that these approaches essentially skirt around the real issue; when and how can the mainstream activities of business contribute to long-term sustainable development?

I would argue that the day-to-day activities of business (and as economies grow and transform this increasingly means bigger businesses) are critical to development, and indeed are integral to development processes themselves.  Of course, both the actual and potential impacts of business on development depend on what we think development entails (and how it is measured): economic growth, employment, poverty, working conditions, human rights, management of environmental resources......? Across those who work on international development perspectives on this will differ. That is fine. Regardless, the key question is under what conditions can business make a positive contribution to development? An even more critical set of questions then follows; how can these conditions be put in place through the actions of government, donors, civil society and businesses themselves, and in so doing what is the appropriate balance of incentives and constraints on business activities? If we can even begin to ‘scratch the surface’ of these questions I believe we can have a real and profound impact on the international development, however that is conceptualised.