Dwindling resources and rising inequality demand a more involved role on part of the private sector in eradicating poverty.
We live in a time where approximately 896 million people live on less than $1.90 a day. A time, when even though the world produces sufficient food to provide 2700 k/cal to every person every day, a vast section of humanity is unable to afford it due to the paucity of funds. We live in hostile times, with countries like Libya and Somalia having 90% of their populations affected by conflict.
As our world rushes forth into the 21st century, progressing rapidly in terms of commerce and global interconnections, yet struggling painfully with hunger and inequality it is perhaps time to modify some perceptions and forge new partnerships. In the global battle against poverty, it is imperative for the private sector to play a larger than a nominal role, along with governments and multi-lateral development banks, moving beyond the limitations of its profit-maximizing motive.
Traditionally, the private sector has always been associated with the relentless drive to maximize profits, often at the cost of rising inequality, while the public sector is shown to pay greater heed to the distributive aspect of economic benefits. The private-public difference rests on the relative weights attached to efficiency and equity; while the private sector is shown to be only concerned about the bottom line-the subtraction of costs from revenues, the overarching role of the public sector is linked to enhancing the welfare and promoting equity.
However, the pressing needs of our times need a rethinking of these distinct roles, a blurring of the lines that separate these two spheres. Can the private sector end poverty? This is a question of both ability and moral correctness. The answer is a yes – though subject to conducive circumstances, governmental aid and supporting institutions.
The next three questions that automatically spring up relate to why the private sector can end poverty, why it is in its interests to do so and how it can accomplish this.
With increasing globalization and market linkages, privatization of public sector enterprises and resources is the norm. An extreme example of this is the privatization of water supply in Bolivia in the early 2000s, in an attempt to retain state loans. Large-scale corporations are the new stakeholders of global governance, providing 9 out of 10 jobs in developing countries. Given it’s immense and all-pervading influence, it is not wrong to surmise that the private sector has the ability to channelize its resources towards the broader objective of ‘inclusive development’. Against a background of rising populations and dwindling resources, it is not wrong to assume that promoting sustainable growth is not simply a public sector requirement. By partnering with business for development, governments are able to harness the managerial skills and innovation that the private sector brings to its other projects and investments.
Further, poverty eradication has its own benefits for the private sector too. Bottom of the Pyramid investment by MNCs such as those pursued by Danone in India and Unilever in Africa helps to lift billions out of poverty and allows deprived communities to access products and services that have been appropriately priced for them. Whatever the private sector loses in terms of margins, it gains in terms of volumes. In this way, the private sector is also able to tap into new markets and geographies. Further, participating in the development process allows the private sector to gain in terms of risk mitigation and greater value creation, in addition to positive social positioning.
Currently, the path traversed by many private sector enterprises in terms of fulfilling their corporate social responsibilities shows promising results. Whether it is the Tata Foundation supporting weavers in Varanasi or the Bill and Melinda Gates Foundation providing grants to fight Ebola in West Africa, the private sector is increasingly becoming part of a shared agenda to end global poverty. Private-public partnerships can also play a crucial role in elevating livelihoods. Recently, an IFAD-supported project in Rwanda forged a partnership between tea cooperatives and private investors- ensuring 30-40% equity shares for the cooperatives.
Further, private sector jobs are more diversified and generate higher wages. If higher incomes and job security is a marker of poverty alleviation, then the private sector is steadily contributing to reducing inequalities by generating employment and making livelihoods more lucrative.
In addition, there is immense potential for commercial credit to benefit the lives of the rural poor. While complete credit penetration into the rural hinterland and urban slums are yet to be seen in many countries, the availability of commercial credit will no doubt protect the poor against exorbitant interest rates and debt traps.
In sum, the private sector can end poverty. It can do so because of the new ideas it can bring to the table- innovation, strategy and skills. It can do so because of the immense resources it currently wields, and the immense influence that comes with it. It can do so because it is in its own interests to do so- in terms of opening up new markets and tapping new possibilities. It can do so through a reworking of the concept of ‘profit’, from being a commercial end goal accruing to shareholders, to a social product to be distributed among all stakeholders.