Theme 4: New Research on the Relationships of Economic Development, Freedom and Peace

Peace
1
Home | About | Community | Discussions | Blog | Speakers | Brochure | FAQs

A discussion moderated by Kim Bettcher, Knowledge Management Officer, Center for International Private Enterprise

Visit Biographies for more about presenters

What does the latest research on development, freedom and peace tell us about the potential for peace through commerce?
At the heart of the peace through commerce literature is the emphasis on the importance of economic freedom. That freedom provides the opportunity for the poor to enter the market and it is often thwarted by a variety of institutional, cultural, and political factors. This session focuses on new research in this area.

Presentations:
New Academic Research on the Relationships of Economic Development, Freedom and Peace
 Watch the four videos and join the discussion with presenters below.

Raymond Gilpin, U.S. Institute of Peace

"Economic Development and Alleviation of Poverty"(4:40)

Elena Panaritis, Director, Panel Group

"Peace through Basic Security of Property
Rights"(4:55)

Borany Penh, Senior Political Economist, Office of Poverty Reduction, United States Agency for International Development (USAID)

"Economic Incentives for Peace: Contributions of Micro-finance and Livelihoods Support"(4:56)

Pete Tashman, George Washington University, Department of Strategic Management and Public Policy

"Dynamic Capabilities and Pro-Poor Business Strategies"(2:45)

Resources


Discussion: What does the latest research on development, freedom and peace tell us about the potential for peace through commerce?
Discussion Questions
1. What reforms are needed to allow the poor and others outside the formal economy to gain access to economic opportunities? What are the roles of the private sector (local or international), NGOs, and the public sector in advancing these reforms?
2. What are the social and institutional prerequisites for economic development that can sustain peace?
3. How does economic freedom contribute to political freedom and peace?

2

Greetings everyone. We have now passed having over 700 members for our discussion and over 200 posts. I am pleasantly surprised and encouraged about what this means for this topic.

This week our eConference heads further into scholarly research on specific topics. Most of the papers presented over the next six weeks will end up as a special issue of The Journal of Business Ethics. What you will largely see are working papers from authors. So they are still in the process of development and your comments will help to make these papers richer.

Our moderator this week is Kim Bettcher, who is the Chief Knowledge Officer of the Center for International Private Enterprise. Affiliated with the Chamber of Commcerce, CIPE has deep experience in fostering business development in developing regions. Its leader, John Sullivan, was one of the participants in the first week of our eConference. I welcome Kim’s and CIPE’s leadership of this week’s discussion.

Tim

Theme 4: New Research on the Relationships of Economic Development, Freedom and Peace

Timothy L. Fort, PhD, JD
Exec. Director, Institute for Corporate Responsibility
Lindner-Gambal Professor of Business Ethics
George Washington University School of Business
Professorial Lecturer, George Washington Law School

3

Welcome!

The relationship between economic development, freedom, and peace is a classic topic that has occupied scholars for a long time. This week we have an opportunity to bring fresh insights to this fundamental question. I believe we can move the debate forward by bringing a nuanced understanding to the individual pieces of this equation. When we speak of development, are we referring to economic growth, individual well-being, access to opportunity, or sustainability? The answers we get depend largely on how we understand our independent variable.

Also, I invite you to consider an intervening variable that has strong implications for the results we get, and that is the quality of governance. We can discuss governance in many contexts, but I have in mind the quality of institutions—that is, the rules of the game—that foster healthy commerce, expand opportunities, and prevent corruption. Examples of economic institutions include property rights, contracts, and the various factors that make it easier to do business, while political examples include the policy making process, channels for public-private dialogue, and freedom of information.

These are some things to think about—I welcome other perspectives from our guests and presenters. Whether you’re a scholar, student, or practitioner, I look forward to your contribution.

Kim

Kim Bettcher, Knowledge Management Officer, Center for International Private Enterprise

4

The recent increased level of research on development, freedom and peace signifies a strong potential for peace to be achieved through commerce. In order to effectively promote peace through commerce in underdeveloped nations it is essential to understand the core cause of poverty which is highly influenced by violent conflict. Businesses tend to be reluctant in expanding their operations in underdeveloped markets due to various risks and uncertainties but they must realize the potential gain in entering a new market. I agree with Pete Tashman, that businesses could view social issues in underdeveloped markets as an unmet market demand which could be satisfied by properly addressing those concerns in a strategic way, thus making a profit out of it. The role of businesses is crucial in order to enable those excluded from the formal economy to gain access to diverse economic opportunities. Business organizations could aid the process of creating long term peace through economic developments which will eventually mitigate and hopefully eliminate the sources of poverty. I also agree with Pete Tashman that businesses could promote peace through their existing Corporate Social Responsibility programs by discovering ways to form institutionalized government mechanism in a volatile market.
The role of national government is also significant in advancing these economic developments since lack of political governance negatively impacts the meaningful operations of businesses. As Raymond Gilpin stated, a more proactive role in strategic planning is required by the national government to successfully bring peace through commerce. I also agree with Elena Panaritis that economic development could be enhanced by transferring illiquid assets into liquid property market. This process will enable population from underdeveloped nation to enhance their socioeconomic status while making the presence of middle class stronger. A high level of research should be conducted on the market that an institution wishes to enter as a prerequisite to facilitate economic development. The institutions entering the market must not only know but understand its current economic, political, legal and social condition in order to perform an effective reform. I believe that economic freedom is highly correlated to political freedom and peace since well structured political governance enables various organizations to enjoy lucrative economic opportunities while it leads to a world without violence, thus a peaceful one.

5

This is great topic.
I wish to learn a lot out of it.
Mahmood Tufail-Pakistan

6

Thank you, Kim, for moderating!

As a part of this discussion, I would like to bring to everybody’s attention a new and exciting educational resource, the CIPE Development Institute, which addresses precisely the themes of peaceful economic development and the role of political and economic freedom. It is a joint effort with Center for International Private Enterprise (CIPE) partners and distinguished global scholars such as Nobel Prize-winning economist Douglass North, Hernando de Soto, and Larry Diamond. This platform provides self-study and classroom materials, with case studies from a variety of developing and developed countries. The resources include: multimedia presentations from international speakers, accessible lesson plans and readings, and an open forum on development issues. The curriculum focuses on 12 topics important to development, such as democratic governance, economic freedom, entrepreneurship, and anti-corruption.

Please visit: www.developmentinstitute.org for more details – I trust you will find the perspectives of the Institute’s international presenters interesting and well worth discussing.

Anna

Anna Nadgrodkiewicz, Program Officer, Global Programs, Center for International Private Enterprise
481-introBannerLogo_lg.JPG (62.2 KB)

7

I agree that businesses can utilize their already in place Corporate Social Responsibility programs to create peace and to access an untapped market that may prove to be profitable; but I think they would have to do so in a market in which they already conduct business. Often times for a company to invest in an area with an unstable political economic and social condition would be altogether too risky for a company to invest in; unless they have a single philanthropic goal of attaining peace. It seems to me that often times the risks are too great for a company to invest in because the expected returns over the goodwill that the company may receive for social responsibility is not enough to prompt a company to invest. One way around this, as I believe SungAe was touching upon is to have a government system setup that may help reduce these risks of investment to companies, in the form of tax breaks or even partially guaranteeing the investment.
I also agree with Mr. Gilpin in that tourism is a means that can be utilized to bring wealth directly to those who need it; through the bottom up. I would also like to say that I believe that there should be a focus on a positive type of tourism; that is tourism that is based on the preservation and enhancement of a culture. While stamping prints on T-shirts and pushing them to tourists may bring in short term improvements, it may be detrimental in the long run. Also, as Mr. Gilpin touched upon, one of the main keys to tourism is stability. Wealth cannot increase through tourism if no one is willing to go to an area and spend money because of volatility in a country. It is then also the governments job to do their part to increase peace and decrease potential risk factors to outsiders.

8

I think that Vito is correct to suggest that the risks for businesses in impoverished markets, or perhaps more aptly, communities are a signficant deterrent for them to make meaningful investments. And, while market incentives from governments in the form of tax breaks or investment guarantees could be good policy prescriptions (although I think of all the developing country governments that cannot repay loans from multilateral institutions and wonder if this type of policy is feasible on a large international scale), I believe Kim introduces the key to inducing businesses to invest in the poor, which is better governance. Governance and investor confidence are directly related in a generalizable way.

But there are also some real examples of businesses investing in entirely new markets and implementing very successful win-win business models. I think of Nestle and their Milk District program, in which they have developed now dozens of dairy industries in developing countries, greatly expanding both producer and consumer markets while substantially improving livelihoods. They did this by partnering with preexisting industries that had their potential suppressed by conditions of poverty. In the process, they also created numerous “governance” institutions that taught people how to conduct honest business, cocreate value with one another (that is they set the conditions of trust through which meaningful collective actions could occur), and sustain this type of business behavior over time. A great case that I think holds many clues as to how win-win strategies can be done correctly, as well as what institutional conditions are necessary, and which need to be developed to ensure that such business ventures succeed in the long run. Cheers

9

Thank you very much to all the participants.

1.First of all, the reforms desirable to achieve the empowerment of the poor demand that the “pyramid of fortune” be inverted to percolate opportrunities to all those down the ladder.In other words, when the wheel of fortune turns, it should momentarily stop and for longer at the stage of the poor to enable them board.For the poor and those shut out from the formal ecomonomy to be incorporated, there is need for massive investements in education, health services,water provision, better nutrition,enviromental sustainability,fair trade and agriculture and empowement for example of the genders.The millenium Development goals provide very good policy infratstrucure to attain this goal but the challenge still remains how to implement.

There is also a need to aggresivley pursue welath generation and distribution mecahnisms that take account of the relative streanghts and weaknesses of various segments of societies and in this case the poor.For example land reforms,the ownsership of mines and industrial wealth can be rationalized in a way that does not chaotically usher in a socialist state but takes cognisance of the different talents and endowments of various people.

The NGOs, public and private sectors can aid this process through research,advocacy,litigation,lobbying the authorities and forging strategic patnerships that synergize policy cordination as well as doing consultancy work.

2.The Social and Institutional prerequisites for development and peace sustananc are:Democracy,The Rule of law,Gender equity,social justice,Economic freedoms,liberties and democracy, and of course an agile, educated and informed citizenry.This is an argument valid from classical times and of course carries a lot of water in the modern globalized world.In human socities, since time immemorial, the fundamental cause of conflicts has always revolved around the need to control natural and economic resources.Therefore if a formula can be found to justly distribute economic resources in the world then conflicts would be contained.They persist because of the absence of this intervention,sometimes culminating into full scale wars including world wars.As a requisite therefore socities need to cohere and the economic frameworks of socities need to be inclusive and responsive to the interests of all rather than exclusive and repelant.

3.The Indian Economist and nobel prize winner Armatya Sen has propounded the theory of capability in which he argues that poverty and deprivation in socities arise due to the denial of the right to control the potentials and wherewithal to generate wealth so that we are able to realize our full functionings and lead the lives we would want to.Central to these are economic freedoms which if granted would surely enhance political and in turn peace.A hungry man is an angry man and likewise, a satisfied man is a humble and happy man.The answer therefore lies in capacitating humans economically through unlocking their potentials.the mechanisms vary from affirmative action,state interventions, provision of welfare directly by the state,subsidizing welfare provision and other methods,tried and tetsed over time.

Solomon Mpapale,
London,UK.

10

Pete Tashman mentioned that he is studying the roles that businesses can play within their existing corporate social responsibly programs to profitably engage in poverty alleviation. Specifically, he mentions that businesses are able to address social issues in a strategic way, treating them as unmet market demands. By meeting these market demands businesses are able to no only make a profit, but begin to create competitive advantages. This idea of making a profit while also reducing poverty is a great concept. But it appears to me to be a difficult task to accomplish as there are many challenges associated with working in poverty stricken environments. Pete mentions a few of these obstacles and Borany Penh outlines a few more of them in her presentation. She mentions that these environments usually have low capacities, that there is often bitter feelings between the occupying parties, and as a result it is often difficult for businesses to implement social political concerns into their programs. She also notes that there is often fear of a return to conflict in these regions, making it difficult to attract investors for these projects. Pete, how would you respond to these challenges? In your continuing research have you seen any consistent strategies that businesses have been using to develop these capabilities? If so how successful have they been?

11

On the post-conflict question, it is of course difficult to attract investment while conflict is in progress, but business–especially the local private sector–must be encouraged early on to play vital roles during reconstruction (as opposed to long-term dependence on humanitarian aid). There is a “Post-Conflict Primer” in the latest issue of the Journal of International Security Affairs.

I echo Pete’s view of CSR, or corporate citizenship, namely that companies should engage in CSR where they have a comparative advantage and where it makes sense to their own enlightened or long-term interest.

I am glad that Solomon Mpapale refers to wealth generation in conjunction with distribution. Without wealth generation, there is no real prospect of ending poverty. Solomon asks the million dollar question: How to implement?? Let’s hear some views on that.

This brings me to the importance of property rights, because inclusive, well-defined, and liquid property rights provide a means for the poor to participate in wealth creation. So Elena Panaritis’s topic is crucial! Of course, property rights are one piece of a larger puzzle that includes rule of law, freedom to do business, participation in policymaking, and other factors. After reading Elena’s pieces, I strongly urge you to read, if you haven’t already, the Mystery of Capital, by Hernando de Soto, the pioneer in this area.

12

Thanks to all for very informative and thought-provoking comments. The importance of commerce as a driver for peace and development needs to be explored and analyzed much more closely. To my mind, this must not ONLY be done within the context of corporate social responsibility (CSR). Unfortunately, many companies view CSR in philanthropic terms - another box that needs to be checked to satisfy local constituencies. As such, some of these well-meaning initiatives are neither effective nor sustainable. There is an urgent need for the business community to approach this issue from a business perspective. Finding creative ways to do business in a way that is peace-promoting. One way to do this is by integrating local economic activities in their value-chains. In this way, they would not be providing handouts or performing philanthropic acts. They will be helping core competencies in the local economy to grow organically, while also addressing underlying and proximate causes of conflict. For example, a large textile firm could choose to use local fabric, rather than importing reams of fabric. Or a mining company could choose to buy all its paper from local manufacturers. In both examples, the linkages with the local economy will help reduce tensions between the community and investors, create a constituency for peace and help grow local businesses. A lot of the recent work on value-chain analysis focuses on this approach and helps investors and communities to identify productive synergies. I guess my point is that we need to move away from philanthropic CSR and engage local economies more productively.

13

I would like to also highlight a new initiative by USIP’s training department — a suite of interactive training programs (see: http://www.usip.org/etc/expansion/index.html). The course on economics and conflict addresses the development-conflict nexus, and helps practitioners think through creative ways in which economic levers could be used to prevent/manage conflict and promote peace.

14

Thanks for highlighting the risk element Vito. Governments must do a better job of providing both security and necessary services/infrastructure. This is where effective sensitization comes in. Hopefully, the more they recognize the economy-wide benefits that are likely to accrue (e.g. employment, income generation, increased government revenue), the more amenable they would become to prioritizing commerce as a peace-promotion tool.

15

Hi Mitchell, Thanks for the questions. They are at the core of the issues holding back capitalism in impoverished markets. I’m not sure I have the answers, but I will attempt to advance the conversation with an extremely length answer.

  1. First I think that those conducting or thinking of conducting business in these markets need to keep in mind the latent wealth of poor. It is by all accounts a massive marginalized economy. This fact should be constantly emphasized in the dialogue, so that even if business ideas prove too risky to implement, enterpreneurs and business strategists will retain their focus on the potential and continue to develop new ideas that might be feasible given the environmental risk factors. I believe that the economic opportunity justifies an “at first if you don’t succeed, try again” attitude.
  2. Second I think that increasingly, for better or for worse, the CSR discourse in becoming strategic; that is it is focused on win-win outcomes which see businesses as embedded in communities and dependent upon them, rather than simply an ethical thing to do. So, businesses seeing social issues as market opportunities are not only programming social concerns into their business initiatives, but basing these initiative entirely on addressing social concerns. I believe that in many markets, the business that does not do this has no reason to be there at all, since consumer preferences in impoverished markets likely revolve only around business activities that meet social demands (job creation, hygene, nutrition, disease mitigation, etc…). But to get more to your question, how does a business implement such an idea given the risks, even if the idea is implicitly social at the core? Based on the “at first if you don’t succeed” idea and that these markets are worth trying to capture in the long run, scholars have identified some intuitive corporate behaviors.

Stuart Hart and Sanjay Sharma wrote an article called “Engaging Fringe Stakeholders For Competitive Imagination” which describes how companies like Unilever and Hewlett Packard have developed routines for engaging the poor (by having managers live in poor communities as part of their training in some cases), learning about their environment and issues and aniticpate the challenges of working there, integrating this knowledge in strategic planning and finding fit with their business’ core competencies. Essentially they argue that developing a detailed understanding of the needs of communities as well as the local norms that guide trust in social relationships will help business develop plans that meet community needs, adhere to their norms (since a lack of understanding of informal social rules can derail a business’ legitimacy), while doing what it is presumably good at already. Mark Milstein, another scholar, has discussed in more detail how businesses can do this. He suggests that they should experiment with new ideas on a small scale, that these ideas should be radical (that is not tried and tested ideas for rich markets), that they should invove input and testing with fringe stakeholders (the poor), and that they should have a chance of becoming scalable, because people have low incomes, there are many of them, and many of them will require jobs when the idea is brought to production.
3) Political concerns are more difficult to address in CSR I believe, especially in areas of conflict. I believe that at the level of the community, a business that engages people and understands their norms can create trust. When it has trust, it can begin to become a mediating institution, where people come together in the workplace and are subjected to new norms involving governance, and then hopefully institutionalize these behaviors in them. When people start developing these governance routines as habits, they are more like to accept and work towards establishing more political institutions that protect their governance routines. This is an idea that is well-theorized in Tim Fort and CIndy Schipani’s work on businesses as mediating institutions for peace. In terms of addressing political turmoil, I am far from an expect, but I believe that engaging NGOs and government agents in dialogue, joint ventures or other types of collaborations can help a business or industry create more certainty, if the goal is to more closely align the interests of the institutional players so they are willing to support each others goals.
4) I believe there may be many opportunities to implement ideas that do not require political stability. For example, Unilever marketed Annapurna Salt in India, a product which has the potential to vastly reduce the prevalance of iodine deficiency disorder. They are now marketing it in Chad. Since Unilever is by all accounts a multinational-domestic firm that generally develops domestic supply chains in the countries in which it operates, if the demand for Annapurna reaches its potential in Chad, they will produce it there. Since the product clearly improves livelihoods and has job creation potential, Unilever has two sources of legitimacy that can help to shield it from political risk. Combine this with their efforts at collaborating with public and civil sectors and Unilever has both a business and a political strategy for mitigating their political risk. But, it all rests upon the having the right idea (salt that reduces the prevalance of a common and destructive disease) that can easily be marketing via existing channels.

Cheers

16

The recent foreign policy shift by the Obama administration towards Cuba is a good example of how economic freedom can contribute to political freedom and peace. The removal of restrictions against Cuban-Americans visiting and transferring money to family in Cuba will hopefully foster an environment of decreased public reliance on the Cuban government. Opponents of the recent American foreign policy change argue that this will have a negative effect on the pro-democracy movements that already exist in Cuba, which are groups that are vital for political change. However, American policy towards Cuba over the past fifty years has done little to promote more freedoms in Cuba and the time has come to change direction. President Obama’s decision is an important first step towards further normalization of relations with Cuba, which has the potential to benefit both the American and Cuban economies. Cubans will experience with economic freedoms not felt since the 1950s, which will inevitably lead to similar political freedoms as the public gains control and takes advantage of the new situation. A continued effort towards the normalization of US-Cuban relations is necessary for these changes to occur, and a country that has experienced dismal economic conditions for decades can be revived.

17

I used to be skeptical about the effects of tourism but throughout this conference, my ideas started to change. I will disagree to an extend with Vito on one point: the short term improvements of tourism. Vito is definitely correct when he argues for preservation and enhancement of the culture. However, we shouldn’t be overlooking at the positive aspects of the - let me say - tourism with more commercial aims. Firstly, especially in less developed regions, the short term income might be used to accumulate capital. Mr. Gilpin was also discussing the capital intensive nature of tourism, thus, this income might be used. Secondly, tourism is a great opportunity for societies to get to know each other. Tourism provides an opportunity to get first-hand experience about other countries. Shortly, even though I support Vita’s point about tourism that is based on preservation of culture, I argue that we should also pay attention to the social and financial outcomes of “tourism with more commercial aims”

18

I think this partnership with local economies is an important point in terms of perception. Borany Penh was also telling us that it is possible for locals to see all these attempts as intervention. In the case of businesses, they might be perceived as threats to the local economy.

With the local business integration, businesses will enjoy positive perception of the local people, as well as developing them in financial and social terms.

19

I don’t know whether the attached file was available somewhere on this website but I found it while I was doing a small literature review about economic freedom and political freedom.

This is an empirical research over the subject carried out by Wenbo Wu, Assistant Professor of Public Policy, Faculty of Arts & Social Sciences, National University of Singapore and Otto A. Davis, William W. Cooper University Professor of Economics and Public Policy, Department of Social and Decision Sciences, Carnegie Mellon University entitled “Economic Freedom and Political Freedom”.

www.spp.nus.edu.sg/Handler.ashx?path=Data/Site/SiteDocuments/wp/2003/wp48.pdf

“The linkages depicted in these empirical studies relate economic freedom to economic growth, and economic development to political freedom. … these two links seem to be well established. Moreover, these linkages suggest a less well established empirical the influence of economic freedom on political freedom. Such a link between economic freedom and political freedom would certainly confirm certain theoretical insights in the literature.”

20

I agree with the points that you have made. Tourism is definitely important in developing countries, this helps them develop and implement more infrastructure, as we know many countries rely heavily on their tourism. Also, the point that was made that tourism is based on preservation of a culture is a point that I had never really thought about until it was brought to my attention. From this, it brings a country’s culture more relevant in everyday activities.