Understanding and Enhancing the Role of Business in International Development: A Conceptual Framework and Agenda for Research

Abstract

SummaryIt is now commonplace for development policy makers to refer to the contributions of businesses to the achievement of development goals and the importance of collaborations between businesses and development agencies. Many businesses give greater attention to the development impacts of their activities. There has been relatively little systematic and critical thinking about where and how businesses can contribute most effectively to the achievement of development objectives and, accordingly, how development agents should prioritise and focus their collaborations with businesses. This paper initiates such a systematic and critical approach, starting from the question 'How can development policy work with and on businesses and the business environment so that the private goals of businesses contribute to most effectively to public development objectives?' It identifies three basic categories of business and development initiatives: increasing the overall level of business activity, addressing sustainability challenges and promoting business activities that are particular benefit to the poor. The paper considers three major challenges for maximising the contributions businesses to the achievement of development goals. The first is increasing the alignments between business and objectives and development objectives, and the paper considers both the different ways this can be achieved and when such alignments are overly difficult to achieve. The second is to prioritise interventions. When resources are scarce, it is essential to pursue interventions that have the biggest development impact. This implies choosing interventions with goals and approaches that are most likely to be successful; in so doing, examining issues of feasibility, effectiveness and efficiency. So that scarce resources are focused on the areas of greatest benefit. The third is to achieve scaling up and systemic change. There are many examples of business activities that have positive development impacts but which are being pursued at small-scale and/or in quite specific geographical or sectoral contexts. How can such initiatives be up-scaled, translated and/or replicated in order to enhance impacts on the poor in ways that endure beyond the specific interventions applied?Keywords: Business and development; markets; inclusiveness; binding constraints; alignments of interest. 4John Humphrey is a Research Fellow at IDS In the Globalisation Team. He has a Ph.D. in sociology from the University of Sussex. His has researched and published extensively on global value chains, authoring and co-authoring key texts on global value chain theory, the organisation of international trade in fresh fruit and vegetables, and the implications of private standards for value chain management. His recent research includes work on food-based solutions for the challenge of micronutrient malnutrition in sub Saharan Africa and South Asia and the opportunities for and limits to private sector production and marketing of nutrient-rich foods.

Introduction: Changing Perspectives in Business and Development

“…The premise being that, at least in mainstream economics, markets are inherently efficient, but 'market failures' (for example transaction costs, coordination failures, imperfect competition, imperfect information) undermine this efficiency (Mazzucato andPenna 2014, drawing on Fama 1970). The role of the state is to correct market failures, in order to make it easier for entrepreneurs to invest, create growth, employ people and produce needed goods and services.…”

“…Conflicts between business interests and individual or public welfare are increasingly recognised in, for example, the food and beverage (Brownell and Horgen 2004) and pharmaceutical industries (Brezis 2008). Powerful businesses are also seen to distort markets, with the returns to monopolistic or oligopolistic firms inflated, while the welfare of other businesses, labour and/or consumers is reduced (Humphrey et al 2014). The increased understanding and focus on rising levels of inequality in countries around the globe has also highlighted the problem of wealth concentration (Piketty 2014), leading to further questions as to whether 'more business' is the solution.…”

“…This shifts the role of the state from one of 'market fixing' to that of 'market shaping' (Mazzucato and Penna 2014). Mazzucato (2013) argues that even in the USA, the supposed paragon of 'free markets', the state has taken an active role in 'shaping' and even 'creating' markets. She demonstrates that key innovations in information technology (IT), biotechnology and nanotechnology resulted from active state risk-taking that the private sector would be unwilling or incapable of undertaking.…”

Is Systemic Change Part of Pro-poor Business Approaches?

“…'Pro-poor business', which aims to redesign business models and processes to improve the lives of the poor as producers linked to value chains, as consumers of essential goods and services, or as employees, is one such approach. Often led by companies, sometimes in partnership with development agents including non-governmental organisations (NGOs) and donors, pro-poor business initiatives are gaining in popularity (Humphrey et al 2014). Donors, for example, have provided 'challenge' grants to lead firms as one-off investments, facilitated business linkages and invested in direct value chain development (Miehlbradt and McVay 2006).…”

“…Donors, for example, have provided 'challenge' grants to lead firms as one-off investments, facilitated business linkages and invested in direct value chain development (Miehlbradt and McVay 2006). For the International Finance Corporation (IFC), such business models have accounted for over US$7bn in commitments, working with more than 300 clients in over 80 countries in recent years (Ishikawa and Ribeiro 2012).…”