The case for business in developing economies

Ann Bernstein

Executive Director of the Centre for Development and Enterprise, South Africa

The global conversation about business and the public good is influenced predominantly by people who live in rich countries, who do not grasp the realities of poverty and the hard choices of development outside the rich industrialised world. The discussion is generally driven by people who live in formal, well-constructed houses, with clean, running water and office jobs, rather than desperately poor, newly urbanising people in Africa, Asia and Latin America, whose very best option is to secure work in low-skilled factory jobs. For these people – disproportionately women – a factory job represents the best opportunity they’ve ever had, far superior to back-breaking agricultural work often under the yoke of their father, husband or son. As a result the debate about business, ‘responsibility’ and corporate involvement in development is distorted with few voices from developing countries being heard. It’s time to reshape the conversation about business and society.

Companies are continually pressured to ‘do more’, to demonstrate what benefits they provide society in addition to ‘just making money’. It’s as though profit-making has to be redeemed through good works; and companies must pay reparations for their existence. The current conversation about business is fundamentally flawed. The debate about ‘responsible’ corporations takes for granted the everyday activities of companies and their contribution to society. This makes it possible to focus so much attention on what else a company must do to contribute to the social good.

Business leaders and their companies have mostly responded to the attacks on enterprise as a respectable contribution to society by ‘intellectual collapse’. In almost all cases they have given in and accepted the general charge that companies need to ‘do more’ than ‘just’ business in order to contribute to society. Instead of boldly and persuasively making the case for business, we have seen a process of appeasement.

Yet companies have direct and positive impacts through what they do in the developing world. Unilever has operations in about 100 countries and sells in 50 more. As its former CEO, Niall FitzGerald, has put it, ‘The very business of doing business has a huge impact on society. Three quarters of our sales revenue goes straight out again to pay for goods and services for suppliers. And of the wealth we create each year by adding value to those goods and services, around 70 per cent of it is channelled back into society through employee wages, shareholder dividends, government taxes and community investment’. Oxfam conducted interviews in a number of communities living within one kilometre of Unilever Indonesia’s facilities. Of those interviewed, half claimed to have benefited directly from Unilever’s presence. These benefits included direct employment; increased sales in local shops; larger numbers of passengers for motorbike taxis; and opportunities to maintain or repair the bicycles or motorbikes of Unilever employees.

“Business is good for society and essential for sustained development. It should stop apologising for its very existence and stand up for what it does every day. The facts are on its side”

Possibly the most dramatic example of a large multinational transforming the economic fortunes of a country is that of the South African diamond mining conglomerate De Beers in Botswana. Diamonds account for 76 per cent of Botswana’s export revenue, 45 per cent of government revenue and 33 per cent of gross domestic product. In 1966, when diamonds were first discovered in the country, there were only three secondary schools in the entire country. 40 years later, thanks to revenues from diamonds, there were 300 schools, every child up to the age of 13 receiving free schooling. When indirect effects are taken into account, the diamond industry generates a quarter of Botswana’s jobs. Without diamond mining, its national economy would be at a completely different stage of development.

Across the border, SABMiller, the global brewing company, employs around 8,000 workers in South Africa. On the basis of multiplier effects, in 2005 the company’s activities in the country created 362,000 full-time jobs, equating to some 3 per cent of the country’s total employment. The taxes that SAB paid constituted five per cent of total government tax revenue in 2005. In 2007, the company spent R1.96 billion on commercial equity for more than 4,000 black-owned suppliers. More than 85 per cent of the businesses started since 2003 are still in business and some are now multi-million-rand enterprises.

Companies are uniquely effective in making human effort productive. Specialised resources in the form of labour, raw and finished materials, capital and knowledge come together in a remarkable process that transforms these components into goods and services of greater value. In so doing, business also makes a revolutionary contribution to the world in which we all live. When dynamic enterprises are al- lowed to flourish, they tap into people’s initiative, ingenuity, and self-reliance. When people participate in an economy by creating or joining an enterprise, they gain voice. Those who make development policy would best serve the interests of the poor by recognising the power of private enterprise to promote economic growth and reduce poverty, and doing everything possible to help them attain these goals.

Modern businesses also have indirect impacts, predominantly positive, on the societies in which they operate. This ‘invisible corporate citizenship’ is not discussed in company boardrooms because it’s not what they intend to do. But if you look at the inadvertent impact of enterprise and corporate activity, you can discern a number of profoundly important phenomena. Walmart’s everyday low prices bring down inflation; Toyota’s ‘just-in-time’ methodology changed the Western world’s production curve; Infosys became a global competitor out of Bangalore and redefined what is possible for India. The establishment of low-skilled factories offering employment in Asia empower women and change their lives and those of their children.

Through the unintended consequences of its everyday activities, business can transform the future of national economies. Business can deepen and strengthen civil society, expand human rights and unleash pressures (albeit with no guarantees) for democratisation. Apartheid South Africa saw companies recognise black trade unions and start to operate on a more equal basis in the workplace before democratisation.

There’s a lot of pressure on companies to get involved in doing something about global poverty. But companies should work out what their agenda is with respect to development and promote that. If you were to ask any multinational corporation wanting to work or invest in Africa ‘what are the top three issues you think should be dealt with to make you more likely to risk investing money in that continent?’ They would talk to you about infrastructure for growth and how to improve the environment for business.

These are different priorities from the Millennium Development Goals, which hardly mention the role of markets. Entrepreneurs and companies simply do not focus on national competitiveness as the best means of lifting people out of poverty. Companies, businesses leaders, and their organisations need to play a more thoughtful, strategic role in the societies in which they operate. The past 40 years have seen smart states opening their societies to more enterprise and more competition from local and foreign firms, with phenomenal results: more people have moved out of poverty than ever before and more quickly then we have ever seen.

Capitalism undersells itself! Companies – which market goods and products all the time and with great skill – are often very bad at communicating the good that they do.

Businesses leaders should recognise the importance of this ideological battle. Business is good for society and essential for sustained development. The question is how companies can become more effective at making this case. It should stop apologising for their very existence and stand up for what they do every day. The facts are on their side.