Tuesday, 22 January 2013

A measuring stick for good businesses in development

By Noshua Watson

The Initiative for Global Development (IGD) is a network of Fortune 500 CEO-types who are interested in making investments in Africa and other developing regions. Their July 2012 report, “The Business Case for Development”, claims three ways that business can lead to development: achieving growth, improving efficiency, and enhancing the operating environment.

This is a rather interesting way of framing the role of business in development. We know a lot about how business can lead to economic growth (employment, taxes, innovation, investment, creating new markets) and not as much about the extent to which they improve efficiency or enhance the operating environment. In fact, much of the case AGAINST business in development is about how larger companies may stifle smaller, local ones or how corporate activities destabilise fragile regimes.

That said, what if we took businesses at their word and held them accountable to these criteria? Of course, the development community should continue to monitor the human development impacts of achieving growth, increasing efficiency or enhancing the operating environment.  But shareholders and stakeholders alike would benefit from businesses meeting the IGD’s claims that businesses achieve growth through product innovation and development and marketing; or improve efficiency through better supply chains and local workforce development or enhance the operating environment through stakeholder dialogue and stability, increased institutional capacity and better governance.

This criteria is also be a useful litmus test for governments. In fact, we already rate them in several ways (e.g. the World Bank Doing Business index,  the Legatum Prosperity Index) by the extent to which they create the environment for businesses to generate growth, efficiency and better operations. So why not evaluate businesses by those standards too?


Peter Chowla said...

Interesting idea, but at a time when many stakeholders (including civil society, academics, governments, and businesses themselves) are complaining about the Doing Business Index (see summary, policy brief) we might wanmt to be careful about holding it up as a model to follow in the private sector field.

Accountability makes sense and is needed. But then you have to measure the right things - not some seemingly related indicators, which actually do little to tell you about what you might be interested in.

Noshua Watson said...

Thanks for the comment. The point I hoped to make was about evaluating businesses based on criteria that they promote themselves, such as the claimed contributions to growth and productivity in the IGD paper. I was not advocating the Doing Business index specifically, but merely making the point that governments are already judged by similar criteria.

Matthew Harman said...

Thanks for the mention of our paper. You may want to take a look at our most recent report, where we've begun to lay out specific frameworks for measuring the kinds of business-driven impacts outlined in your post. We'll be continuing to develop this work over the coming year.

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