There are many discussions about CSR. Yes it is critical for corporation to consider CSR; however, this should not be the only source of responsibilities. In order to gain access to poor countries, corporations should create job opportunities and economic prosperity in addition to CSR. For example, China is a communist country; however, nowadays they are one of the countries who welcome outside businesses and free trade because they have experience economic success and prosperity. Providing poor countries with financial success will open doors to gain access to those countries. At the same time, NGOs should work their expertise to advocate peace and freedom. However, it is important for the NGOs to not to cross any lines. For example, if a country is sensitive about certain NGO advocating freedom and peace, those NGO should be very careful not to cross any lines so that the government does not turn against other businesses and foreign government aid coming in. Everything takes times to change and adjust so NGOs should be very careful not to frustrate governments. In order to develop and advocate freedom and peace, wealthy governments should continue to support poor nations without any expectations of return favor. By doing so, those countries will slowly open doors to foreign commerce and NGOs. The best example of economic freedom contributing to political and peace is China. Although China is still a communist country with many steps to improve; however, it is clear that China have changed dramatically in recent years due to economic success. Simply to say, I believe when money enters into a under developed country, eventually they will start to change for the better and China is a great example.
Jun Kun Kim:
You raise very pertinent points about CSR — a prelude to next week’s discussion focusing on CSR (which I will be moderating). A broader look at the effects and implications of foreign business involvement in fragile and developing countries is an important dimension. While their investments and business activities could definitely be beneficial to the economy (through jobs, opportunity and externalities) and to the budget (via taxes and royalties), it is certainly makes sense to consider the political-economy. Relationships between freedom/human rights and economic prosperity are worth considering. Another aspect would be environmental protection. An over-arching question could be: what trade-offs should the business sector contemplate when investing in developing countries? Any thoughts?
Raymond Gilpin brings up a very interesting point that is only recently becoming a topic of greater concern: environmental protection. It was a previously held belief that companies stood to lose economically through implementing positive environmental reforms or procedures because those practices result in greater costs or less efficient means of operational procedures. This fact was true for its time, as economic costs were for the most part the only ones considered. As observing and accounting for environmental impact is increasingly being considered an important, but unaccounted for loss, the role of environmental regulation and limitation will become ever more present. This changes the game for companies as it leaves them with strict regulations that their business practices cannot currently conform to, and in need of a cost effective way to alter their operational procedures.
A unique opportunity presented to companies by developing or emerging markets is the opportunity to begin operations in those countries while implementing new, environmentally-friendly standards of practices. Understanding that they will have to meet new regulations in the future, companies can capitalize on the opportunity to develop new styles of business, while not disrupting the business or operational procedures of other markets. Two facts make this an attractive option. One is that companies would have the ability to invest in new procedures that if proven unsuccessful or economically unattractive can eliminate them relatively unnoticed. And the second is that developing an innovative strategy that is proven to work in other markets is easier to implement in more developed markets, and in a less risky way. Also, Companies stand to benefit from the positive societal image created through facilitating positive environmental reform and initiative.
There are two major components involved in improving the condition of informal economies, namely third world countries: education and ethics. The process in doing so however is largely a collective or global operation. In order for foreign direct investment to occur in these unstable economies, there needs to be a steady foundation with which to build on. In other words, there needs to be some sort of sustainable business structure in place already. This occurs first with the government but ultimately ends with the workforce. And the quality of the workforce is dependent upon education. This becomes especially important for countries already in their industrial stages such as India and China who are quickly becoming more and more dependent on their service sectors and thus more reliant on a technical workforce. However, for less developed nations such as Uganda and Cambodia struggling to grow into their industrial cocoons, the simple utilization of their workforce is a primary concern.
As some have mentioned already, investors would need incentives to risk putting money into an unstable economy. These incentives would most likely not come from the country itself but from outside organizations such as NGO’s and the World Bank. Stability in terms of quelling civil wars and providing a more peaceful environment is the government’s responsibility. After a steady foundation has been laid down, foreign direct investment should occur. This is where the issue of ethics and regulation comes in. International laws would have to be put in place in order to regulate FDI and to ensure that invested nations are not taken advantage of by foreign companies. Ultimately, peace will come through a steady process of economic growth with government oversight.
Thanks for this fascinating discussion. Reading the points made in this discussion has helped me to broaden my views on a number of issues I’ve been thinking about recently. While my following questions are tangential to the core of this discussion, I think there are important theoretical links.
I would like to ask if there are examples out there which illustrate where foreign business (TNCs) have assisted peace processes and reaching peace agreements by becoming involved in negotiations around the economic aspects of a peace agreement? Also to what extent TNCs may have encouraged or helped to include within agreements measures to attract, regulate, and renegotiate foreign investment? Originally, I am thinking of say, Sudan and DRC’s mining code……Were TNCs involved at all, and are there other examples? Could this be a way for foreign business to help peace processes along using their strengths as economic actors?..
Yes you are spot on - regarding your comments and assessment. One of the challenges in this area is that it was traditionally perceived as a soft area of research by traditional economists, as a result the space was not well defined. As an economist I felt very much out of place when I started working in the topic of property rights and illiquid markets in 1990. Your request to establish further research in the area is actually there - much of it documented in my book Prosperity Unbound: Building Prosperity Markets with Trust and a new methodology called Reality Check Analysis on how to help establish a robust analysis of the market - before entering and of policy reform solution to transform illiquid assets to liquid ones.
The problem is not one of the developing world but that of developed rich countries including the US.
if you like check more www.prosperityunbound.com/blog
Dexter: You make very interesting points about the importance of education and ethics. The importance of a sound foundation cannot be overemphasized. You are right in stating the importance of international support — but I hasten to add that effective coordination and sequencing of such support is paramount.
I do not agree that a “simple utilization” of the workforce is the prescription for less developed economies is the answer. Examine how some post-war economies (including Uganda) made significant strides in the aftermath of their crises. Focusing on building the foundation (to which you wisely allude) is key. The business sector has a vital role to play in this regard — making smart investments to sustain peace.
Your comment opens by characterizing developing economies as “informal”. A keen understanding about the nature and scope of informality is critical for practitioners and policy-makers. I am raising this because this is a common mis-characterization that makes us miss the vitality that is hidden in these economies. I would refer you to a recent UNDP report titled: “Creating Value for All: Strategies for Doing Business with the Poor” http://www.undp.org/gimlaunch/download.shtml. This volume contains some innovative strategies and useful case studies. I would also recommend the following, to provide some insight into the scope and nature of the informal sector (some documents are uploaded):
Feige (ed.) The Unobserved Economy (Cambridge: Cambridge University Press),
OECD, 2002, Measuring the Non-Observed Economy: A Handbook. OECD Publications
Service, Paris, France.
Schneider, F., 2002, “Size and Measurement of the Informal Economy in 110 Countries
Around the World,” Rapid Response Unit, World Bank.
Blunch, N-H, Canagarajah, S and Raju, 2001, The Informal Sector Revisited: A Synthesis Across Space and time, World Bank
478-InformalSectorRevisited.pdf (2.01 MB)
479-DoingBusinesswiththePoor.pdf (1.48 MB)
480-SidaInformaleconomy.pdf (387 KB)
I have argued that in addition to individual economic freedom, political freedom (by which I broadly mean democracy) also requires sound economic and political institutions that provide equal opportunities for participation and competition. You can get the whole story in Helping Build Democracy That Delivers.
Hallo everyone! I’m glad to welcome all participants of discussion. Here some of my ideas concerning a question.
First of all it is necessary to develop all forms of citizens’ economic initiative. It is necessary not only stimulate, but improve forms of self-employment support and reception of skills for entrepreneur knowledge development. It is important to stimulate small business development and to provide fair competition at the labor, goods and services markets. The role of nongovernmental organizations, political parties, movements who in their reports can direct authorities instead of populist slogans create institutions and programs of economic initiatives support is extremely important. Great influence have business-associations that have to give correct examination of factors that harm the development of small and medium business initiatives and form national agenda for the governmental and civil society.
The rate on the factor of education has to be made. We need institutes that can expect conflicts of groups, regions, countries interests and prevent the disputed script of succession of events. If we want to achieve this, we have to develop program cooperation, interregional development. International organizations (UN, IMF) have to raise efficiency. Not only scientists and diplomats have to participate in such organizations, but representatives of society and socially responsible business. It will create preconditions of social progress by democratic way.
Economic freedom lets a person to realize his potential and accustoms to responsibility not only for his own fate, but the fate of all people. Economically free person expands the horizons of problem vision and most of all directs in the future.
If you care to learn on this there is a long literature in institutional and behavioral economics. Only the challenge is to find information that can marry theory and practice in a way that can be useful in policy reform to sustainably combat poverty and secure the wealth of those perceived poor.
Depending on what topic you like to focus I could make some suggetions.
Best of luck
The issue of risk, so well presented and discussed by Vito, Pete, and Ray is the constant challenge of any country that is facing a rather precarious economic foundation and becomes even more of a problem when it also faces political instabilities.
A usual way to tackle these issues is when government suggests enabling environment reforms and policies - including those of applying security of contracts, tenure, enforcement etc and / or suggest models of Public Private Partnerships.
In my experience little of the above attempts succeed unless all stakeholding parties are seriously involved. These parties are 1. the citizens, 2. the public sector, 3 and the private investors. It is this triangular relationship that will need to be created first - well established - that will built the needed trust necessary for mitigating risks in private or even public investments. (chapter 5 of Prosperity Unbound)
I am delighted that you raise the role of business associations. Too often we consider the role of multinationals without looking at the important contributions local businesses can make, through associations, to the development of good economic policy. For more on the role of associations, I invite people to read “Business Associations, Business Climate, and Economic Growth: Evidence from Transition Economies”
A notable example of an association directly engaging in peace negotiations is the response by the Kenya Association of Manufacturers (KAM) to the conflict following the 2008 elections. KAM negotiated and communicated the message “Save the nation; share power” to help bring about the power-sharing deal signed in February 2008.
The issue of what I call “Unreal Estate” (lack of secure property rights) is as you say crucial. It’s what allows the closing of the gap between those who have and those who have not.
It is what internationally acclaimed economist Willem Buiter called a few days ago at the Financial Times “Useful Finance” http://blogs.ft.com/maverecon/2009/04/useless-finance-harmful-finance-and-useful-finance/#more-1357
The question though that can make or break the topic is not only that property rights matter for the robust development of economies and wealth across the board, but also HOW can we transform UNREAL (or as others call INFORMAL) to REAL (or FORMAL).?
I think the HOW is crucial and it’s what can finally move us from the advocacy to the actual creation of real middle classes of people with real wealth and real presents and futures.
Apologies for joining late. I was out of the office earlier this week and preparing to be out part of next week. There are many interesting threads going on but I’d like to pick up on 3 in particular: Mitchell’s question on challenges in a conflict environment, Efe’s comment on utilizing local capacity, and Vito’s comment on risk. These actually are all related issues for the context we are discussing, which is not just about poor countries but poor countries in or just emerging from conflict. My paper covers much of this already but just in case you haven’t read it yet :), here are some key points:
The unique challenges in a conflict/fragile environment usually have to do with the serious missing institutional capacities, threat of massive violence or social instability, and immense level and scope of need for assistance. Every case is different but I think these are three typical characteristics. For entities that want to pursue a “double bottom-line” of profit and the promotion of peace, there needs to be an acute awareness of these challenges and how to overcome or transform them. Knowledge of what works to reduce poverty in “normal contexts” is not likely to be sufficient in conflict/fragile contexts. Security of operations, impact on political/social tensions, ability to meet or influence local expectations about gains, etc. are examples of some considerations that have to be made. Many of these issues were debated indepth at a 2006 conference I led, see: http://www.povertyfrontiers.org/ev.php?ID=1598_201&ID2=DO_TOPIC
So the real issue of risk in operating in these environments has plagued many actors. Entities willing and knowledgeable about managing these risks can succeed in these environments and do good things. A new (to donors) area that is getting more attention is that of the development impact of diaspora in their countries of origin (COOs). Members of diaspora are known to be more risk tolerant and resilient when it comes to crises in their COOs. This is not only because of their emotional ties to the COO but also their long-term outlook and close knowledge of the local dynamics.
This brings me to the issue of purposively including local community in economic recovery efforts. Most development actors understand that economic inclusion not only offers the local population economic opportunity but a key way of helping rebuild social cohesion, if done properly. One of my favorite stories is the case of Roshan, the leading telecom provider in Afghanistan. The company, partially owned by the Aga Khan Foundation, is headed by Afghan expats and mostly staffed by Afghans, including Afghan women. The company outsources many of its operational needs to local companies, generating jobs while reducing their holding risks. Not only has Roshan brought the ability to communicate nationwide to common Afghans, through their new mobile banking service (M-Paisa) they are able to extend financial services to the many previously “unbanked.” M-Paisa lets customers remit money to family members (domestically for now), facilitates financial transactions between farmers and their customers, etc. For more on this see: http://www.microlinks.org/ev02.php?ID=29735_201&ID2=DO_TOPIC
However, I agree that there is a need for much more research into this area at both the theoretical and practical levels. I hope to hear more from the community here about their thoughts on specific priority areas. I also welcome any comments on my paper as it would only benefit from a diversity of perspectives.
Sr. Political Economist
U.S. Agency for International Development
I’ve found a lot of this discussion very interesting, especially in relation to the risk and tourism topics. I feel that a serious downfall when it comes to economic development and political turmoil is the loss of contracts and policies based upon specific governments. If the government or political system abruptly changes in a developing country and all contracts are lost it can pose a serious threat to any entering companies and I feel that if measures could be taken to greaten the insurance of entering a developing country it would promote entry. I also feel that if companies that aren’t rooted in corporate responsibility and community development then their entry won’t add economic or political worth to that country. In terms of tourism I feel that emerging markets are opening for developing countries due the appeal of their geography and potential for tourism success. In developing countries, such as the Dominican Republic and Nicaragua, tourism has experienced growth in visitation and resort stays. While the countries may be experiencing political or economic issues they still gain visitation due to their geographic appeal. The risk associated with these countries and destinations still does need to be monitored but if tourism can continue to grow and better the community in the process then I feel that it’s a great venue for continued entry success for other corporations as well as the promotion of local companies success.
Pete, thank you very much for your detailed response. It was very insightful and provided me a much more detailed perspective on the underlying issues. I would like to comment on your second point; I think that the CSR discourse becoming more strategic is for the better not the worse. In capitalist societies private entities exist to earn profits. The fact that businesses are seeing opportunities to earn profits in impoverished regions means that they will continue to “try again.” Through continued attempts if businesses keep basing their initiatives on addressing social concerns and keep on improving their strategies, eventually they will succeed. This success will be the result of capitalizing on a “win-win” situation rather than an ethical act. I think this is a good thing because it will provide incentive for more businesses to engage in these endeavors, whereas, the sole purpose of an ethical act although nice will not offer the same incentives. As a result, this “win-win” situation will be the source of far greater amounts of poverty alleviation. Therefore, to me it appears to be a decisive factor. Good luck to you on your continued research.
Thanks for drawing attention to this resource, Anna.
I read through a large part of “Business Associations, Business CLimate, and Economic Growth: Evidence From Transition Economies.” I agree with the notion that interest generally looking out for themselves, and not other interest groups. At least that’s the way tradition has made them seem. I thought the examples of Eastern and Central Europe in the 1980s and 1990s where economic disasters caused reform, and fueled movement towards collective action. Some of these countries are now working towards integration in the global economy. Business Associations seem to be an extremely efficient way to change business environments for the better. I liked this a lot.
It’s great to know that economists are engaging in higher level of research and analysis of various markets. These research findings would be highly beneficial for firms and governments when they are making decisions on which markets to enter. I think the Reality Check Analysis that you introduce in your book is an effective form of mechanism in developing strong analysis of markets by identifying the actual origination of problems that eventually lead to poverty. It was interesting to learn that most conflicts in society originate due to various institutional breakdowns in the area of property and proper reform is only achieved when people are able to understand why the property right system was violated. This highlights the significance of preserving strong property rights in order to sustain economic stability and peace in the nation.
Thank you for your focused contribution - As you also notice such a basic issue, that of rights to ones property is unfortunately taken for granted but most traditional analysts - I would include all professions. We tend to point our fingers to economists but unfortunately this also applies to others (lawyers, engineers etc) that have been trained in a traditional way.
If we manage to figure our how to apply secure rights to our property (i.e. wealth) then we are half way there. My approach Reality Check Analysis helps - but we need to apply it more and then implement it.
Thank you again for your contribution