Inequality as risk: Davos 2014

What should business do about inequality?

Global patterns in income disparity between richest and poorest topped the agenda for global business and government leaders at Davos last week.

Expert respondents to the World Economic Forum's 2014 Global Risks report cited income inequality as the risk most likely, over the coming decade, to cause significant global disruptions, volatility and harm.

Many of the statements and media reports from Davos pointed out the (fairly obvious) 'business case' for paying attention to growing inequality: that at least for serious, longer-view businesspeople it is not merely a moral social issue but also a core strategic commercial  issue.

This is so both in terms of social and political risks, and opportunities to expand and deepen consumer markets. Very unequal societies exhibit distorted and uneven growth patterns, especially in terms of more broad-based demand. Especially for consumer-focused firms, the issue thus belongs not just to sustainability or CSR policy but to hard business strategy. In addition, as is clearly evident in parts of Africa today, as inequality becomes more tangible and visible it places governments under pressure. They respond by rolling out the sort of knee-jerk populist taxation and other policies that are anathema to business planning, rather than pursuing sustainable programmes to distribute some appropriate portion of wealth and to support those, especially the less privileged, who may seek opportunities to improve their economic status.

Conventional views would hold that the business of business in society is to help the economy grow, including by employing and taxpaying. It is then for government to redistribute some of the proceeds of growth in order to reduce any inequality that results. Beyond this basic role-division is the concept that if it is concerned about (the consequences of) insufficient action to address inequality, business can collectively lobby government to apportion taxed funds to doing so.

But what about a less conventional role -- business helping African governments not only to tax more effectively, consistently and fairly, but also to spend the proceeds more effectively in addressing social ills like income inequality?

At first glance it is assumed that businesses are not interested in having a more effective taxman. Yet in previous posts (especially here last May, also here) I have discussed the initially counter-intuitive idea that businesses can help strengthen their own regulator. Either by sector or in some other collective, representative grouping, firms with longer-term horizons in the region can and should explore ways to help governments build the capacity to assess, plan and execute social policy. Even a single firm (for example, the dominant mining firm in a single-commodity country) can do so: although this increases the risk of the firm 'capturing' the state, other institutions can be brought in to triangulate the relationship. These sorts of partnerships would at least give more meat to the rhetoric that public-private partnerships (PPPs) will transform Africa's economic and social development.

Last week's post on 'Africapitalism' reflected on the role of business in Africa in promoting inclusive growth -- not just calling for governments to ensure it.

Low or compromised state capacity in Africa impairs the state's ability to tax fairly and consistently, and to deploy and distribute those resources. In such settings it is perhaps not enough for firms to argue that they pay their dues and nothing more can thus be expected of them. It would be good (socially valuable) of business instead to look for ways to help the state make better use of taxed funds, including to promote programmes to boost incomes and income-generating capacity for lower earners and the poor. It would be smart and strategic for business to do so, too.

Jo

See an earlier post on PPPs, and on corporate responsibility and taxation -- including the view that strategic firms might help strengthen their tax authority: here.

The WEF's 2014 Global Risks report is here.

See for example this organisation dedicated to the role of business in addressing inequality.

Postscript: see Tobias Webb's post last week, also on Davos, and also on practical ways for business to help tackle inequality as part of a strategic approach.

'Africapitalism': the business of development

The idea is appealing that business, done differently, can transform Africa's social development path in ways that generations of aid have not.

 

This first post for 2014 responds to an interview last week with Tony Elumelu on his concept of 'Africapitalism'.

I discussed this in a post ('Doing good by doing well') last year: here.

 

The Africapitalism notion attempts to grapple with something that is, of course, partly a subset of broader global debates on fostering new, more moderate strains of capitalism. These debates inevitably involve argument on the appropriate role of the state in generating and/or distributing wealth; in Africa's case we certainly see today a hunger among policymakers (and donors) for new meta-models of the developmental state that balance various imperatives.

Whatever the merits of Elumelu's own ideas, it is hard to think of a more significant topic in contemporary Africa than something implicit in the Africapitalism concept: inclusive growth. Despite current headlines on ethnic and religious conflict, for the vast majority of the continent's people the big issue of the day is securing a material share in Africa's rise: reconciling the good-news story of Africa's fast-growing economies with the realities of often markedly increased inequality, stubborn unemployment, and persistent developmental problems. For this reason alone, the catchy term is a welcome addition to the 'Africa Rising' debate.

'Africapitalism' is not just an alternative to traditional aid programmes -- although traditional donors are certainly now explicitly looking to harness both the private sector's contribution to development goals, and the developmental impact of fostering a local private sector (see various previous posts). Instead, Elumelu's concept would seem to suggest that wealth-creation by the private sector must be done differently in Africa if it is to have any meaningful impact on the continent's development. Implicit in that is acknowledgment of the risks of non-inclusive growth. This is because social and political conflict in Africa can be something that happens because of fast growth, not despite it.

 

To my mind, also implicit in the concept is not just risk but opportunity: at first glance, 'Africapitalism' connotes in my mind the idea that because Africa's economic rise is relatively recent and still very incomplete, scope exists to shape a form of free enterprise that avoids the less desirable manifestations of capitalism experienced in the developed world. Or are we already a half-decade or more too late, given entrenched structural patterns especially around resource extraction, to conceive of this as a vast laboratory (if that is an appropriate mindset) for a form of capitalism that is more inclusive without stifling private incentive?

Is 'Africapitalism' about using the fruits of hard, conventional business to create social value (for example, sponsoring skills-acquisition or entrepreneurialism)? Or is it about an altogether different tone of business activity to begin with, one that is explicit about social contributions and is pursued according to certain ethical, social and environmental criteria? Ideally, there is no trade-off between 'hard business' and 'tree-hug business' -- ideally an ethical business model creates social value in various ways beyond job-creation and tax-paying while also generating the hard results (profits) that can then also be the basis for philanthropy.

 

Elumelu describes Africapitalism as a "middle point between business and philanthropy", although later he talks of "catalytic philanthropy". That would suggest an approach using the fruits of conventional business activities (like Elumelu's to date) to sponsor programmes supporting economic self-reliance and prosperity. If so, the approach is not radically different in conception to aid donors' private sector development and economic empowerment programmes.

Elumelu seems to suggest something more than catalytic philanthropy, although it is not entirely clear what. Investment in social infrastructure (in his case, electrification) may sometimes both make business sense and have massive developmental benefits, but does 'Africapitalism' mean no more than freeing up the private sector to provide Africa's public goods?

If so -- and whether one agrees or not -- missing from Elumelu's ideas is a clearer outline for the role of the state. He suggests that the private sector must lead Africa's development, and the public sector simply provide an enabling environment for that; beyond that, he suggests in the interview, "what is good for business is good for people".
 

What is needed is discussion reconciling this approach, which tends to imply a belief that wealth will 'trickle-down' to wider society, with contemporary discussions and patterns of taxation in Africa. Those discussions, and the models in favour in much of the continent, posit a central developmental and distributional role for the state, not the 'light and steering hand' that Elumelu seems to suggest.

Business may assume greater responsibilities, but how much serious developmental benefit is possible without a more capable state alongside? How is such a state to be built or reformed? If Africapitalism is to be more credible -- and so get the momentum and uptake this potentially inspiring notion deserves -- it needs to address this issue. Traditional donors were not just being old-fashioned in supporting governance reforms: they understood that the state (still) matters.
 

Jo

Corporates, communities, communications

The inimitable, irreplaceable Nelson Mandela will be buried this week.

 

Despite his message (or because of his distinctiveness), very few South Africans expect the leadership that has followed to rise to the same level, but one thing both government and the private sector in his country will nevertheless continue to struggle with is managing the high expectations of especially younger people in terms of job-creation and service provision.

 

Questions of expectations management arose this week at the 'governance of natural resources' session of the Blavatnik School's 'Challenges of Government' conference I attended  in Oxford (here). This focus was somewhat natural since the conference theme looked at issues of people-power and access and accountability and legitimacy. Yet even if that were not the theme, any contemporary discussion of governance and resources in Africa would need to focus strongly on expectations management issues by communities, governments and investors -- especially in countries that have only recently made significant discoveries of sub-soil mineral wealth.

 

Managing community and other expectations in the extractive sectors is not solely about communication strategies, but they are a big part of it. Firms would be advised not to confuse rolling-out social investment and responsibility strategies with handling short- and longer-term expectations: mollifying expectations is not necessarily managing them.

The challenge is not just aligning with community needs and wants those initiatives and investments that firms think would be and look good. It is also to communicate in credible, accessible ways information that helps communities understand realities such as the long timeframes between discovery and production, and between production and profit, or the difference between government's duties and corporate responsibilities, with all the delicate and political balances involved where the host governments at various levels also face and hold high expectations.

 

Firms still tend to focus on external audiences (the market, or activists back in the first world) in terms of their efforts towards communication strategies on corporate responsibility issues; one question discussed at the conference was whether that focus needs to shift more towards firms communicating what they are doing, can do, cannot do, etc., to (a) local community and government audiences and (b) internally with the firm in terms of explaining social engagement issues in ways that are shown to protect and enhance, not distract from, longer-term shareholder value.

 

Moreover, corporate responsibility issues (beyond the more narrow phenomenon of CSR programmes) arguably lie at the heart of firms' risk-management and value-creation concerns, especially in some sectors. Yet in many cases the issues are dealt with as aspects of corporate communications -- non-core and essentially addressed to external audiences.

 

This week saw the publication of KPMG's annual survey of corporate responsibility reporting (here). This follows trends in reporting on corporate responsibility (by over 200 of the world's largest firms, and the 100-biggest firms across 41 countries).

 

This does not necessarily reflect trends in corporate responsibility practices per se, including how these practices or the issues they represent are treated by boards and executives within these firms. Nevertheless, by assessing firms' reports against several criteria (including whether and how a firm's reporting shows how its management governs responsibility / sustainability issues within corporate governance), the KPMG survey does offer some insight into the extent to which these issues may be migrating from the relative periphery to more core areas of strategic and commercial consideration. One sign of that might be where a firm incorporates these issues into its general reporting to the market, rather than (or in addition to) distinct responsibility / sustainability reports.

 

The report is worth a read. In an ideal world firms and governments are managing problems, not just managing (through communication strategies) expectations about problems. In the real world, the latter will continue to matter a great deal to firms invested in places where formal reports of the sort surveyed by KPMG do not necessarily speak to the issues that lead to political and security pressures on firms and the governments that host them.

 

Jo

 

The politics of the private sector's role in development

This blog largely shares the evident current enthusiasm for exploring more imaginatively, as a matter of public policy, the potential explicit developmental contributions of the private sector.

By this I mean not the process of using aid to develop a more functional local private sector (for the development cascade that may bring), but harnessing the potential contributions of especially big business to the achievement of development goals, as well as including business voices -- as and where appropriate -- in debates about what those goals should be and how they should be achieved.

Many posts to date on this blog deal with the issues arising in such encounters and relationships. A major theme of those posts is that far from being enthusiastic about such engagements, many policymakers either overlook their potential or, if they consider the business community, are unduly ambivalent about exploring working together on issues of mutual interest.

There is, nevertheless, a wave of at least official policy interest from OECD aid donors in these issues.

(There is alot of material being produced. Perhaps the most comprehensive and reflective survey of global bilateral approaches is a Canadian one from January this year, Investing in the Business of Development (here)).

Thus having argued in many previous posts that the problem is arguably too little attention by policymakers to the potential 'synergies' and shared goals, I use my blogger's prerogative to suggest that in many respects there exists in parallel a contrary problem: an approach that sees engaging the private sector as a development panacea, without applying the same caution and critical thinking that is applied to donor-government relations.

Indeed one thing particularly commending the 2013 report referenced above is that it rightly expresses skepticism about this new policy orientation as a development 'silver bullet', arguing that many current advocates assume that from harnessing business's interest and attributes, a 'win-win-win-win' situation must result for communities, companies, donor and recipient governments.

Such assumptions (and the enthusiasm they engender) pay too little attention to just how political, as with 'regular' development, pro-development interactions with business will be at both the general and project-specific level; in pointing out the obviously huge shared public and private sector interests in peace and prosperity, they can tend to gloss over how politicised is the question of who one means by 'the private sector' (who gets a seat at debates to shape the post-2015 development agenda? Which companies does a donor agency engage or neglect? And so on).

Thus current enthusiasm for orienting development policy in search of alignments with business tends to underplay how political, indeed ideological, will be the questions merely of choice -- choosing development partners from among the diverse 'private sector' (for working with on goals, or for discussing those goals), and indeed choosing the overall policy of building such relationships. Such choices go directly to large questions about the role of business in society generally, or the role of the state vs business in providing public goods.

In previous posts I have lamented the narrow-mindedness of most public policy for not thinking imaginatively enough about engaging with business (and vice versa). This reticence does, however, reflect very real awareness of the policy dilemmas involved and often well-founded reservations about explicitly tying-in business to development projects and policies.

Still, I'll conclude in a tone that continues the lament: yes, the decision to engage business, and then the process of doing so, is full of policy minefields and trade-offs and problems; but these are not that different from the problems and dilemmas encountered in dealing with governments and other familiar development actors. The challenges of our century are too big and inter-connected to be left to public policymaking alone, quite apart from the reality of the huge de facto development impact (for better or worse) that business activity has. One needs as many 'wins' as one can reasonably find. Public and aid policy in Africa should embrace embracing the private sector, and figure it out as we go.

Jo

Megacities and the development impact of business

This post is written in Cairo -- where the developmental challenges of current and future megacities are manifest even to an untrained eye.

It is a fitting place to read a new book ('The Turnaround Challenge') co-written by Mick Blowfield. Subtitled 'Business and the city of the future', it deals with a host of sustainability and social challenges, and the potential for innovative business practices and models of capitalism that might mitigate or address these.

That is the point of this short post, really: rather than reading my thoughts, I commend the work itself.

This post also comes ahead of a visit next week to North America for various roundtables on the role of business in meeting development goals; next week includes a debate on 'corporate social enterprises' at CSIS under Chevron's 'Forum for Development' speaker programme: see here. For a primer on the sort of things under discussion, see the IDG's report (about a year old now) on the topic of business contributions to pressing development issues: here.
  

The role of the private sector in meeting global development goals is a recurrent them of my blog -- see some posts grouped here.

[Cairo traffic hooted and crawled throughout the making of this blog-post ...]

Jo