Working on economic justice issues here at CAFOD one of my main areas of work is on small businesses: the role that these play in economies and to the lives of the poorest women and men and the support that they need (you can see some of our other small business blogs here). So what’s the connection…? Do small businesses have a role to play in inclusive growth? (more…)
Archive for the ‘Rethinking Markets’ Category
Franklin Roosevelt once said “We are trying to construct a more inclusive society…. We are going to make a country in which no one is left out”.
Fast-forward to 2014 and it would seem that an ‘inclusive society’ is harder to achieve than hoped with US inequality levels soaring.
So back to the question – What’s so inclusive about growth?
Historically? Well as the case of the US shows(along with many other experiences from around the world) nothing really. As the OECD highlights, there are three problems that even the record levels of growth of the 1990s and decade of 2000s failed to tackle: poverty, unemployment and inequality. (more…)
The importance of small businesses has been getting more profile at the World Bank (and beyond), if this week in Washington is a good indicator.
CAFOD is pleased to see that this realisation seems to be catching on. At a meeting of a right-wing think tank on the World Bank’s controversial Doing Business project, former World Bank President, Paul Wolfowitz suggested that the project’s flagship report should be renamed “The Small Business Report”.
At a meeting with civil society, Russia’s G20 Sherpa said that she “could not agree more” with CAFOD that small businesses should be central to the efforts of the Development Working Group’s future work plan.
But it is too soon for the Economic Justice team at CAFOD to relax and take a break – even if we think we’ve earned one! We still have our work cut out to turn this emerging consensus into a real benefits for poor entrepreneurs in developing countries.
Take, for example, the Doing Business project. The four top priorities that we often hear from small businesses are: access to credit, corruption, property rights and the need for better education and health services (most poor businesses rely on labour of one or two individuals – so their health and skill set are important to success). Examining how Doing Business rates in helping them to overcome these constraints indicates some important directions for reforms.
Starting with corruption – Doing Business does not tackle the issue, despite its importance to the ability to operate and the success of poor entrepreneurs. The Doing Business team have started to pay attention to the results of enterprise surveys to more closely align their topics with the priorities of firms – but clearly more needs to be done.
Credit, on the other hand, is tackled by Doing Business, but highlights another short-coming of the project. Zambia ranks very highly on the indicator, yet over 90% of firms still cite access to credit as a main barrier to success. This suggests that Doing Business does not, by itself, do a good job of guiding government reforms. The Zambian government, guided solely by Doing Business might think it has done a great job. However, a discussion with local businesses would soon put them straight. This is why we are recommending Doing Business should only be used in combination with such dialogues and other more specific and detailed diagnostic tools and we must be sure to use Doing Business cautiously and appropriately in the policy reform process.
Doing Business also falls down with respect to property rights. This time the failing is that Doing Business is biased towards one-size-fits-all and is not well-designed to support context-specific solutions. For example, Doing Business promotes one kind of property rights and does not recognise the importance of community, collective rights or rights of use and access on which many poor people’s livelihoods depend.
Finally, it is right that Doing Business does not directly address health and education issues in its indicators – it is a specific, limited tool, not a panacea to all problems. There are some things better left to other tools However, Doing Business does promote low overall rates of corporate taxation, which undermines the ability of governments to provide this broader support to their working populations. Examining the impact of specific indicators and revising them according to their impact on poor enterpreneurs also needs to be on the to-do list of the World Bank review process currently underway.
The World Bank needs to take these next steps to support small business if it is to achieve the vision of new World Bank President, Jim Yong Kim, presented at these Spring meetings. This vision, to underpin a new strategy to guide the Bank’s work, has at its core goals to achieve shared prosperity and poverty eradication and recognition of the importance of the private sector in achieving these ambitions. Although it does not explicitly mention small businesses, they will be central to this endeavour.
Only time for a very quick blog on this, but the British Academy released a report today looking at legitimacy and trust in Britain’s business culture entitled ‘Schumpeter’s Nightmare’ by Professor Michael Moran. Link here: https://www.britac.ac.uk/policy/Business_Legitimacy.cfm.
Whilst not an in-depth research piece the report raises some fascinating questions about public trust in business and the business response as well as the advocacy carried out by NGOs like CAFOD. For those who would like to know more detailed and accurate information about CAFOD’s views on these issues, take a look at these links: http://www.cafod.org.uk/content/download/584/5694/file/Policy_Private-sector_Everyones-business-discussion-paper.pdf
Social protection has risen rapidly up the policy agenda and rightly so, the benefits of “just giving money to the poor” are important.
For example, it helps to mitigate risks which prevent poor people making the most out of their livelihoods and it helps to overcome shocks with otherwise cause them to suffer long-term impacts from short term shocks. Small business owners that CAFOD interviewed to inform its “Think Small” report informed us that they undertook several different kinds of activities because the market was not always good for any one of them (undermining their efficiency and profitability). We know from economic crises that short term shocks can cause losses in health or education that affect economic prospects long-term (as well as human ones). Having something to fall back on can stop these barriers to successful livelihoods for the poorest.
A lack of demand – simply having no one to sell to – was also a barrier to small business owners who didn’t have the skills, connections or capital to sell except locally. Injecting cash into the local economy through social protection helps here too.
Boosting inclusive growth is cited as a key objective in the renewed interest in social protection by policy makers – so why are the needs of small businesses run by poor men and women so little evident in new proposed strategies of the World Bank or G20 discussions?
Most social protection schemes do not help these poor entrepreneurs – because they are in the informal sector which is poorly served by government safety nets and schemes. This despite the fact that these enterprises make up the majority of employment opportunities for poor men and women, as well as provide a de facto safety net for the majority who are not reached by government schemes.
This should be a critical area of review for the World Bank, G20 and other donors as well as national governments.
However, it is also important that the renewed interest in social protection as a means to boost inclusive growth, does not detract from social assistance programmes, such as pensions or benefits to other vulnerable groups. These can help small businesses if they are spent locally, especially if payments are systematic, sufficient and over the longer term.
Analysing the impacts of social protection on local markets and poor people’s livelihoods is important and under-researched. There is too little monitoring of who money goes to or how, let alone how it is affecting the local economy. As well as direclty helping poor entrepreneurs to have the confidence to invest and manage risk directly, we also need to better understand how who we give money to and what instruments are used affect their economic prospects and design interventions bearing this in mind.
At the London launch of the World Bank’s latest report on gender today, one of its contributors praised the report as being a departure from previous “just add women and stir” approaches to gender in development policy and practice.
There is much to be welcomed in the new report, in particular recognising the importance of the economic empowerment of women and tackling the barriers in formal, informal, economic and social institutions that can prevent it.
But the report is short on action – a challenge that needs to be picked up by Bank staff, member countries and civil society to make sure that the good analysis gets put into practice.
As the title of this blog suggests, this doesn’t mean just doing a few extra things to help women, but instead truly shifting thinking, policy, practice and the incentives, measurements and targets that guide policies and reforms.
A good example of a case for reform are the Doing Business rankings of the World Bank. Back in 2008, these were criticized as being gender-blind. A lack of data and methodological limitations of constructing the rankings have meant that three years on, they remain that way – although we now have a side report on business women and the law. It doesn’t receive a fraction of the marketing support, media attention or policy influence that the main rankings do. Despite making up a significant majority of small-scale entrepreneurs in poor countries, women remain a bit on the side.
Does it matter if we are doing both sets of things – the ones for women and the ones for the “mainstream” business community? The answer lies in opportunity costs, an issue raised by one of the commentators at today’s launch.
This year’s gender report lays out a raft of things that should be done to help women become more successful in their economic life – they are only marginally touched upon by the Doing Business rankings. If the profile of these essential reforms is sidelined by gender-blind, conventional economic policy tools like the doing business rankings, governments simply cannot do their best – either for women or the economy at large – with the limited financial and human resources at their disposal.
Rather heartening at the end of a day when the G20 felt more like a blow-by-blow account of the troubled career of Greek Prime Minister Papandreou than a conference on fixing the global economy, President Sarkozy chose to talk a lot about the poorest countries in his final press conference.
Understandably, there is still a lot of attention on the threat to the Eurozone, but it was encouraging to have headlines about innovative financing, and particularly the Financial Transaction Tax which he described as feasible, financially necessary and morally unavoidable (my rough translation).
This is largely because of the high profile report by Bill Gates to the G20 on financing development, which among other things calls for an FTT, legally binding transparency requirements for extractive companies so that developing countries can better tax their activities, and taxes on transport industries.
Of course, we always look for more and better – CAFOD, for example, is seeking country by country reporting by all multinationals to be enshrined in international accounting standards – but that global leaders are talking about new sources of finance and targetting them at eradicating global poverty and adapting and mitigating the impacts of climate change is a welcome development.
Perhaps these announcements would not stand out so much if we had had the G20 we hoped for when President Sarkozy set out his amibitious agenda last year. Development issues and key issues of global financial regulation remain largely unaddressed or have unambitious, watered down proposals.
But the G20 is an unlikely forum to deliver such things. It has proven to be too responsive to the financial sector, in particular, and too exclusive – with nominal input from civil society and indeed from those poorest countries that President Sarkozy was so concerned about.
Poor old Greece has unfairly become the whipping boy of the G20. But you can’t help feeling that if the likes of Greece and the Greek people – whose desire to have a say in how their economy gets out of the hole that it’s in has caused all the kerfuffle – had more of a say, the G20 might do a better job.
The G20 thinking on the Greek debt problem goes something like this: Greece has gotten into a mess because of the irresponsible behaviour of the financial sector, the Greek government (and people) need to pay the price to get out of this mess in order to keep the financial sector onside.
The G20 slavish obsession with reactions of “the market” in the absence of real efforts to manage the market better is bewildering.
CAFOD agrees with the recent Vatican statement (perhaps unsurprisingly) that there must be a better way for governments to manage global markets, rather than be managed by them.
One aspect of this would be an independent and predictable framework for arbitrating on sovereign debt claims alongside standards for responsible lending and borrowing.
The lack of such a system has left developing countries, and more recently Eurozone ones, forced to negotiate from a position of weakness “austerity measures” (that’s cuts to us) and held the G20 summit hostage to negotiations and brinkmanship – rather than finding the fixes for what got us into this mess in the first place.
If you asked the people in developing countries and in Greece, if they wanted a more sensible way out of debt problems than watching nervously for market reactions (in the name of stability and growth), forcing cuts to keep them happy and jeopardizing stability and growth as a result, the G20 priorities might look somewhat different.
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Last week, DFID published its private sector strategy. Like us, DFID recognised that small businesses are a vital source of jobs in poor countries.
It’s not a difficult or technical economic issue – small businesses provide jobs, income and self-respect for millions of poor men, and especially women. It’s even simpler, if someone can make a cartoon of it: