Transformational Business Network 15 th November 2008.

Transformational Business Network

15th November 2008

Summary

Challenge of extreme poverty still enormous Issues and challenges shaping fight against extreme poverty

The challenge of environmental sustainability (Climate change, water, resource wars, disasters, food security, energy)

The challenge of economic slowdown (and credit crunch) Revisiting the goal of poverty reduction The growing role of economic enterprise The improving role of the state and aid effectiveness The re-discovered role of empowered civil society Accountability in a complex system

Some issues for those seeking to harness the potential of economic enterprise to tackle poverty

Many MDGs likely to be missed

The proportion of people in sub-Saharan Africa living on less than $1 per day is unlikely to be reduced by the target of one-half;

About one quarter of all children in developing countries are considered to be underweight and are at risk of having a future blighted by the long term effects of under-nourishment;

Of the 113 countries that failed to achieve gender parity in both primary and secondary school enrolment by the target date of 2005, only 18 are likely to achieve the goal by 2015;

Almost two thirds of employed women in the developing world are in vulnerable jobs as own-account or unpaid family workers; In one third of developing countries, women account for less than 10 per cent of parliamentarians;

More than 500,000 prospective mothers in developing countries die annually in childbirth or of complications from pregnancy;

Some 2.5 billion people, almost half the developing world’s population, live without improved sanitation;

More than one third of the growing urban population in developing countries live in slum conditions;

Carbon dioxide emissions have continued to increase, despite the international timetable for addressing the problem;

Developed countries’ foreign aid expenditures declined for the second consecutive year in 2007 and risk falling short of the commitments made in 2005;

International trade negotiations are years behind schedule and any outcome seems likely to fall far short of the initial high hopes for a development-oriented outcome.

Across sub-Saharan Africa as a whole all MDGs are off-track

Paul Colliers ‘bottom billion’

Almost a billion people – 70 per cent of whom live in sub-Saharan Africa – are in economically stagnant or declining countries. In all, 58 countries are in this desperate condition.

Collier remarks: “An impoverished ghetto of 1bn people will be increasingly impossible for a comfortable world to tolerate.”

Average life expectancy for the bottom billion is just 50 years Around one in seven children dies before the age of 5. Four traps:

73% of people in the bottom billion have been through civil war 29 % are in countries dominated by the malign politics of natural

resources 30 % are in landlocked, resource-poor countries with bad neighbours 76% are in countries that have suffered long periods of bad governance

and poor economic policies

Recap - causes of poverty according to Sachs, Easterly, Collier

Protectionism

Poor governancePoor governance

Natural challengesNatural challenges

Cultural issuesCultural issues

International failuresInternational failures

Corrupt governance, leadershipIncompetent, weak public institutionsNo property rights, no rule of lawLocal, regional conflict and civil warsAbundant natural resources

Landlocked countries, geographic barriers, no natural infrastructure

Diseases, notably HIV and virulent malaria

Gender inequalityEthnic and racial inequalityCultural and historical heritage

Challenge of environmental sustainabilityEnvironmental issues are undermining efforts to tackle poverty

Human induced climate changeHuman induced climate change

Water scarcityWater scarcity

Resource warsResource wars

Food securityFood security

EnergyEnergy

Natural disastersNatural disasters

Hits the poorest hardestErratic rainfall patterns, extreme weather events, crop yields in tropics may fall by 30%

by 2050Political implications, mass migration, 20m environmental refugees

Peak oil; dependency on imported oilDeforestation & growing scarcity of firewoodNeed for microscale and renewables

Deaths resulting from flooding and cyclones are humankind’s worst natural disasters (2/3 of all deaths)

Droughts every 2-3 years in many parts of Africa; by 2050 12% of land subject to extreme drought

505 million living with severe water shortage; rise to 2.4 billion+ by 2025

850m people live in severe food insecurity; similar number chronically malnourishedCauses: Climate impacting yields; biofuels; growing demand from Asia; restrictions on

trade; oil price increase

Majority of conflicts rooted in competition for scarce natural resources: oil & gas, diamonds, copper, lead, land, water. 420 million people have insufficient cropland

E.g. Darfur: conflict over land & water, increasing population, deteriorating land productivity

Challenge of economic slowdownPoorest countries will be hit hard by the financial & economic crisis

Life is already toughLife is already tough

Outflow of investmentOutflow of investment

However…However…

Weak safety-netsWeak safety-nets

Collapse of remittancesCollapse of remittances

Impact on FDI and tradeImpact on FDI and trade

Food and energy price rises (still very high compared to few years ago)High vulnerability - no savings and social safety nets

In 2007, remittances were $250bn, twice the figure for ODIRecorded declines in 2008 vs. 2007 are already as high as 20%

Italy has already cut ODI by 50%; France is likely to do much the sameMany developing counties are hugely reliant on trade (Vietnam 73% of GDP)Knock on impact on demand for commodities from Latin America and Africa

30% decline in flows of private capital to emerging market expected (IIF)Stock markets in developing countries falling further than developedAccess to credit even tougher in emerging markets

Very few resources in developing countries to cope with external shocksCuts in public spendingDisproportionate impact on women

Impact on poorest countries (notably sub-Saharan Africa) is probably less, since they are less integrated into world trade/financial system

Reform of IFIs may benefit poorest countries

Political instabilityPolitical instabilityAs economic growth slows, civil unrest increases, and domestic pressure on

governments increases

Many other challenges we could focus on…

Fair trade Trade & environment clash International institutional reform MDGs – implications of success or failure Changing international power balance (rise of

China, India, …) Population growth Urbanisation Gender HIV and AIDS Risk and vulnerability …

Fair trade Trade & environment clash International institutional reform MDGs – implications of success or failure Changing international power balance (rise of

China, India, …) Population growth Urbanisation Gender HIV and AIDS Risk and vulnerability …

Revisiting the goal of poverty reduction

Economic needs are focus

Much of debate is still driven by the premise that economic growth is the objective and key to tackling poverty

No doubt economic needs are vitalMeans or ends?Pre-conditions? (educated & healthy

people, stable macro-economic environment, property rights, …)

Externalities and unintended side-effects, trading-off other human needs? (social, environmental costs)

Economic needsPhysical needs

Relational needs+ Relational

+ Social

+ Emotional

+ Spiritual

The ultimate goal is not a narrow economic one

Wellbeing debateSustainability is also key

Is goal economic growth?Is goal economic growth? Or something broader?Or something broader?

Build strong relationships and self-worth

Escape absolute material poverty

Five principles of sustainable development (HM Govt. 2005, Securing the Future)

Promoting Good Governance

Actively promoting effective,participative systems of governance in all levels of society – engaging people’s creativity,energy, and diversity.

Promoting Good Governance

Actively promoting effective,participative systems of governance in all levels of society – engaging people’s creativity,energy, and diversity.

Living Within Environmental Limits

Respecting the limits of the planet’s environment, resources and biodiversity – to improve ourenvironment and ensure that thenatural resources needed for lifeare unimpaired and remain so forfuture generations.

Living Within Environmental Limits

Respecting the limits of the planet’s environment, resources and biodiversity – to improve ourenvironment and ensure that thenatural resources needed for lifeare unimpaired and remain so forfuture generations.

Ensuring a Strong, Healthy and Just Society

Meeting the diverse needs of allpeople in existing and futurecommunities, promoting personalwellbeing, social cohesion andinclusion, and creating equalopportunity for all.

Ensuring a Strong, Healthy and Just Society

Meeting the diverse needs of allpeople in existing and futurecommunities, promoting personalwellbeing, social cohesion andinclusion, and creating equalopportunity for all.

Achieving a Sustainable Economy

Building a strong, stable andsustainable economy which provides prosperity and opportunities for all, and in which environmental and social costs fall on those who impose them (polluter pays), and efficientresource use is incentivised.

Achieving a Sustainable Economy

Building a strong, stable andsustainable economy which provides prosperity and opportunities for all, and in which environmental and social costs fall on those who impose them (polluter pays), and efficientresource use is incentivised.

Using Sound Science Responsibly

Ensuring policy is developedand implemented on the basisof strong scientific evidence, whilsttaking into account scientificuncertainty (through theprecautionary principle) as wellas public attitudes and values.

Using Sound Science Responsibly

Ensuring policy is developedand implemented on the basisof strong scientific evidence, whilsttaking into account scientificuncertainty (through theprecautionary principle) as wellas public attitudes and values.

Goals

Means

Three primary sectors in the development equation need each other

Empowered Civil Society

Economic Enterprise

Enabling State

E P R E P R

E P R

EconomicPhysicalRelational (inc. social, emotional, spiritual

Met needs Met needs

Met needs

Growing role of economic enterprise

Economic Enterprise

Primary human need met:EconomicIncluding:Income, wealth creationEmploymentScientific, economic

advancesConsumer goodsProblems if given free reignExploitation of people,

natural resources, commons

ExternalitiesAbuse of economic power

Primary human need met:EconomicIncluding:Income, wealth creationEmploymentScientific, economic

advancesConsumer goodsProblems if given free reignExploitation of people,

natural resources, commons

ExternalitiesAbuse of economic power

Critical to harness the power of market forces to serve the poor (evidence of China, India, etc)

Economic growth can only be driven by economic enterprise, entrepreneurs, capital, etc

Increasing interest from development community: Affirming critical role of economic enterprise; Enabling communities to engage in markets on favourable and

sustainable terms; Advocating for fairer economic policies at national and international

level CSR, remodelling supply chains, philanthropy

Challenges for economic growth Pre-conditions need to be met Inequality – making sure that wealth trickles down Green growth

Critical dependencies: State brings: stable macro-economic environment; legal & regulatory

system; security; access to international markets; resolution of market failures; public infrastructure

Civil society brings: people (whose physical and relational needs are met); means to hold economic enterprise to account on social and environmental externalities; distribution; peer pressure; consumer voice

Reflections

Improving role of enabling state 1/2

Enabling State

Aid flows have largely been channelled to the state, and have focused on meeting physical needs

Many success stories: anti-malarial bed-nets, ARVs, mass-immunisation, infant mortality, river-blindness, leprosy, anti-diarrhoea, average life expectancy, primary education enrolment, etc.

However aid effectiveness in meeting economic needs is poor Empirical evidence suggests that aid has little effect on economic

growth – not surprisingly Aid can undermine economic enterprise through: breeding corruption;

ex-rate effect makes exports uncompetitive

Reflections

Primary human need met:Physical (inc. health and

educationIncluding:Justice, security, property

rights, regulatory frameworkHealthcare and educationSafety-net, wealth

redistributionFreedom of religion,

expression Public infrastructureProblems if given free reignCorruptionInefficiency, incompetence

Primary human need met:Physical (inc. health and

educationIncluding:Justice, security, property

rights, regulatory frameworkHealthcare and educationSafety-net, wealth

redistributionFreedom of religion,

expression Public infrastructureProblems if given free reignCorruptionInefficiency, incompetence

Improving role of enabling state 2/2

Enabling State

Consensus that systems for delivering aid must improve, in meeting physical needs, and in not undermining enterprise in meeting economic needs Use market based mechanisms whenever possible Ensure aid flows to front-line - greater use of NGOs Focus/link direct ODA on state-building that engages, build front-line

civil society (e.g. property rights, local church/community mobilisation), key governance institutions (e.g. office of statistics, judiciary, independent media)

Develop internationally accepted charters, laws, statutues Bring in voice of front-line civil society into equation, shaping agenda,

provision, giving feedback Introduce more external validation of effectiveness across sector Measure outcomes, however tough this is

Critical dependencies: Economic enterprise brings: tax revenues Civil society brings: people (whose physical and relational needs are

met) to work in state sector and to build community capacity to provide services; voice for accountability on social, economic, political and environmental performance; voice on needs; tax revenue

Reflections

Primary human need met:Physical (inc. health and

educationIncluding:Justice, security, property

rights, regulatory frameworkHealthcare and educationSafety-net, wealth

redistributionFreedom of religion,

expression Public infrastructureProblems if given free reignCorruptionInefficiency, incompetence

Primary human need met:Physical (inc. health and

educationIncluding:Justice, security, property

rights, regulatory frameworkHealthcare and educationSafety-net, wealth

redistributionFreedom of religion,

expression Public infrastructureProblems if given free reignCorruptionInefficiency, incompetence

Re-discovered role of empowered civil society

Empowered Civil Society

Empowered Civil Society includes local faith groups, local communities, NGOs (inc. independent media)

Beyond NGOs, this sector is largely forgotten and ignored in development thinking; even NGOs do so

Ignoring this sector implies we: Fail to tackle relational needs in a sustainable or effective

way, with all huge implications for human/social capital Ignore the enormous potential of community level capacity in:

distribution and market access; service provision; peer pressure; and the potential for sustainability this brings

Settle for few checks on power of state or economic enterprise

Fail to give voice and listen to the front-line in shaping service provision, advocating for rights and injustice

In much of the majority world, especially in the poorest areas, the only form of organised front-line civil society is local churches and other local faith groups

Critical dependencies: The state brings: security, service provision, property rights, rule of law Economic enterprise brings: employment & income; consumer goods

Reflections

Primary human need met:Social, emotional, relational,

spiritualIncluding:Love, mutual support,

encouragement, acceptanceRelationshipsVoice for justiceVolunteeringService provisionSource of meaning,

purpose, hopeEthical, moral framework

Primary human need met:Social, emotional, relational,

spiritualIncluding:Love, mutual support,

encouragement, acceptanceRelationshipsVoice for justiceVolunteeringService provisionSource of meaning,

purpose, hopeEthical, moral framework

Rethinking accountability in a complex system

Situation The ‘beneficiary’ (not the donor)

is the customer – their voice, needs, perspectives must take priority

The development ‘system’ is highly complex and dynamic with many different actors – donors cannot dictate that their input will result in a specified outcome

The institutional use of ‘log-frames’ conflicts with community empowerment approaches

Implications Beneficiary accountability (vs.

donor accountability) inverts approaches to accountability

Revisiting use of ‘log-frames’, with moves to ‘outcomes mapping’ (focus on change behaviours, relationships, actions of those programme works directly with)

Increasing focus on outcomes (vs. inputs and outputs) without attributing success to ourselves as funding agency or donor

Move away from controlling hierarchical approaches to greater organisational risk taking, agility and learning

Issues for those seeking to harness economic enterprise to alleviate poverty Social venture capital holds out great promise. Yet the volume of such capital remains small. What

would it take to attract capital and find SME investment opportunities for $billions as opposed to $millions? What are the blockades?

Is it realistic to invest in sub-Saharan Africa at this stage (vs. Asia), given so many of the pre-conditions for effective economic enterprise are arguably not in place?

What more can be done by protagonists of economic enterprise to reduce the country risk of investing in many sub-Saharan countries?

Given the critical need for efforts across all three sectors to work in partnership, what more can protagonists of economic enterprise do to build the capacity of the enabling state, and leverage the potential of empowered civil society?

In what way is an economic enterprise truly transformational? As opposed to delivering a narrow economic return? And as distinct from a well run business? Is this measurable? Or is it about maintaining defined environmental and social standards? Does simply offering employment constitute an adequate social return?

In order to pursue a true triple bottom line (which most likely involves accepting a lower financial return) is it a necessary condition the the provider of capital maintains a close relationship with the enterprise as opposed to a transactional relationship (as in a stock market). Will this always restrict the available capital for transformational business?

What more should big business be doing to go beyond a narrow PR driven CSR agenda, and corporate philanthropy, to enable transformation wherever its supply chain touches the lives of people in poverty?

What does green economic growth look like in the majority world? What role does faith play in transformational business?