Doing Business Responsibly: The New Role of Corporate Leadership in International Development
To align profitable and self-sustaining business ventures with the needs of society!
The intent that follows offers a business perspective on some of the key challenges and opportunities inherent in doing responsible business in ways that bring sustainable development to all.
A Whole New World
The Economist in a September 2006 report The New Titans had breathlessly pointed out that for the first time the economies of the globe’s emerging and developing countries in 2005 accounted for more than half of the world’s combined gross domestic product (GDP).
This shift in economic balance was the biggest stimulus in history.
As these newcomers became more integrated into the global economy and their incomes caught up with the rich countries, they provided the biggest boost to the world economy since the Industrial Revolution, which involved only one-third of the world’s population.
By contrast, this new revolution covered most of the globe, so the economic gains — as well as the adjustment pains — will be far bigger.
Population Shift and Poverty Trap
Today, population is a major issue in the economic considerations of all nations. One big change is the population stagnation in many traditionally wealthy nations. However, populations in many poor countries are growing so fast that they overwhelm even well-planned efforts at economic development. By 2050, some 85% of this larger population will reside in what are today called the developing countries.
Economic development lowers the percentage of the global population in extreme poverty (income of less than US$ 1 per day), but population growth keeps overall numbers high and the poverty gap continues to grow. And despite overall GDP growth, long-term trends show an ever-widening gap between rich and poor countries.
Poverty remains the main challenge facing countries that will be home to 85% of the world’s 9 billion population. Persistent widespread poverty turns nation states into poverty traps.
Business leaders today need to think differently about development, the developing world and the obstacles and opportunities inherent in both. That thus calls for a new way of doing business and a new role of corporate leadership in global development.
A New Development
For decades development has been the monopoly of selected institutions.
Universities and think tanks have controlled the study of development, and these rarely incorporate the roles that business does and can play. Governments and related organizations such as the development banks have tried to control the doing of development, and the civil servants in these organizations rarely understand the roles and realities of business.
Fortunately, both academia and governments are beginning to take a more business-centered view of development. A good example is the World Bank’s regular Doing Business reports, which track how well nations and regions are doing in terms of creating the sorts of policy environments that let enterprise be a force for development.
New thinking has emerged, appropriately from the developing world, which in their different ways offers models of bottom-up development based on private enterprise development. The idea dovetails neatly with the development focus — business done in responsible ways can help bring sustainable development to all.
Pro-poor Business and Inclusive Globalization
Multinational companies based in Europe, North America, Japan and other developed areas face a very real challenge. They cannot continue to do business only in traditional markets that are stagnating and shrinking, at least in relative terms. They recognize that business should flow to areas where populations are growing, and especially in areas where both populations and economies are growing, in order to enhance its sustainability.
Doing business with the base-of-the-pyramid in ways that are profitable, and thus potentially growable without limit, but also that help people create their own ‘sustainable livelihoods’ can only demonstrate that globalization can be more inclusive.
Economic Growth and Sustainable Development
No country has ever achieved development in the absence of economic growth. The key to poverty alleviation rests in wealth creation. Under the Bretton Woods system established in the aftermath of World War II, the onus for development fell mainly on rich country governments, who were to fund it through multilateral and bilateral aid donations.
Yet budgets were never large enough, and development projects devised by and for governments rarely seemed to meet the needs of ordinary people in the developing world. At the time large corporations and private sector were perceived as part of the problem rather than the solution.
Today, the international aid budget falls short of commitments and one thing has changed — business is now seen as a necessary part of the equation.
Implications for the Private Sector
Business is the main driver of economic development. Given the right conditions, the private sector can improve the lives of people in the low-income segment through direct employment, procurement and delivery of basic services.
However, in many developing countries private sector activities remain relatively small-scale and localized, more often than not operating in the informal sector. Companies lack the capacity, the infrastructure, the financial resources and often the incentives to scale-up their operations and fulfill their potential.
This is where large corporations can make a difference by building on their expertise and access to capital, and engaging with the low-income segment in countries like Nepal in ways that are both favorable for sustainable development and good for business.
Implications for Framework Conditions
Private sector-led activities are necessary, but not sufficient to achieve sustainable economic development. Economic growth needs to be more equitable, and not at the expense of the ecosystems upon which life depends. Guiding economic growth along these pathways requires regulatory frameworks that only governments can provide.
Policies and legislation are required to establish the necessary framework conditions, including financial and taxation legislation, business regulations, societal and environmental compliance, and clearly defined consumer, property and ownership rights.
Dhiraj Karki is the founder and senior consultant at dkompany, a specialized economic consultancy providing strategic advisory services in the field of trade, investment and development, as well as law, regulation and compliance. Karki is a Nepalese national and has worked on private sector development and inclusive economic growth issues in Kathmandu for the past ten years. He can be reached at firstname.lastname@example.org