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Editorial
05/2005 |
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Private business and the state
Last year, the World Bank published its World Development Report 2005: A Better Investment Climate for Everyone. In a draft review, a number of civil society organisations in Germany suggested that the report was a document promoting business, rather than a development document. The authors did remove this sentence from the final version of their review, but the notion remained that support of private enterprise and a credible fight against poverty cannot co-exist. At the end of the day, one will always win out over the other.
This viewpoint is based on the assumption that development is above all a governmental task. This assumption is quite common as becomes evident, for example, in most poverty reduction strategy papers (PRSPs) currently available. Most of them only superficially deal with the question how to support private corporations, create employment and accelerate economic growth. Jeffrey Sachs’ report on the Millennium Goals similarly only pays brief attention to private enterprise. Sachs primarily advocates more development aid. In short, poverty reduction concepts today are often limited to providing public services.
This is odd. There is no example of a government-driven national economy which successfully eradicated poverty over the long-term. The prosperity of the old industrial nations in Europe and North America and their followers in East Asia is based on entrepreneurial initiative and private investments – not on official aid. This does not mean that the state does not play an important economic role. It does. Most countries that managed to catch up with other wealthy nations were led by strong governments, which supported their country’s corporations and protected them from the outside world – at least until they were strong enough to compete internationally. This is an approach, poor countries should learn from (Reinold E. Thiel, p. 188).
Put another way: just as there are few examples of successful state-run economies, there are few examples of countries becoming strong by economic laissez-faire and opening markets. The formula of economic liberalism may be suitable for increasing wealth. However, it is no good for escaping poverty. The United Nations Conference on Trade and Development (UNCTAD), which is familiar with the problems of developing countries, has therefore been stressing for some time that poor countries need the option of drafting regulative economics policy.
For example, governments must be allowed to adjust investments by foreign corporations, so as to promote linkages with local businesses (Taffere Tesfachew, Karl P. Sauvant, p. 198; Interview with Alois Kühn, KWS Saat AG, p. 196). Poor countries should not be deprived of the political leeway which helped Europe and East Asia to prosper. Incentives and requirements set by governments define the framework within which enterprises can make profits. Politics can thus even promote the willingness of entrepreneurs not only to care for their business, but also for social concerns like education and health (Jochen Weikert, p. 212).
For a long time, the most important multilateral development organisation, the World Bank, supported a strategy which focused only on market forces and did not leave any room for political action. This has changed under the outgoing President, James Wolfensohn. One proof is provided by the World Development Report mentioned above. It spells out that private enterprise is at the centre of economic development. Nevertheless, it assigns to the government the task of prudently guiding the economy in such a way that its potential for poverty reduction can develop.
Just how difficult this is can be seen in Ghana, for example. International donors commend President Kufuor’s government, but local businessmen complain that official policy does little to help them (p. 192). This is so partly due to the fact that the government is not even aware of many of the businesses’ troubles. It is becoming clear in Ghana that private sector support cannot work if there is no regular interchange between policymakers and the business sector. The example of Ghana also shows, however, that businesses often suffer from problems of their own making, such as sloppy management or poor marketing, which prevent them from becoming successful. If an international purchaser cannot trust a potential supplier to maintain quality standards and to deliver in time, he will not start any cooperation (Rainer Engels, p. 201).
Poor countries need well designed concepts for the role the private sector should play in the development process. Rich countries should support them by making such concepts a reality. Both the ideology which states that politics should keep out of the economy, and the belief that support of private enterprise has nothing to do with development, lead to dead ends.
As stated on this page last month, we are in the process of updating our list of subscribers. For that purpose, all registred readers of D+C will be sent a letter. Whoever does not respond to this letter will risk being dropped from the list. You are free to answer electronically at http://www.d-and-c.info. Please stay in touch.
Tillmann Elliesen
Managing editor ofD+C Development and Cooperation/E+Z
Entwicklung und Zusammenarbeit
euz.editor@fsd.de
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