Development and the private sector

At a recent meeting of IKM Emergent, we discussed what we mean when we’re talking about the private sector. The reason for this is that there is a general expectation that the private sector should be at the table when there are multi-stake holder processes related to development. But there seems to be a great vagueness about who and what the private sector is…

For IKM this is an important issue because organisational knowledge, the knowledge of organisations including companies and businesses, is one form of the multiple knowledges which need to be taken into account when resolving complex development problems.

In any event, it’s not small companies or consultancies that are meant under  private sector. Instead, it seems to me that it usually referring to the corporate sector or big business, and more specifically to multinational companies. But, if that is the case, why call it the private sector? Let’s just call it multinational companies.

If you do a google search for private sector involvement in development, there are a whole host of development organisation from the World Bank to CIDA emphasising the importance of the private sector for development, covering a broad range of roles.

But a couple of years ago at a KM4dev 2009 in Brussels, Kemly Camacho noted that it was important to remember that the relationship between multinational companies and development is not without its problems, particularly in the way big corporations often ride roughshod over local communities in areas such as their rights to local plants. Other colleagues mentioned the role of Monsanto, the multinational company with seed distribution practices which have been widely criticised, particularly with regard to seed distribution in Haiti, India and Indonesia as you can read in the Monsanto entry in Wikipedia. Now, I have to admit that this is not really my area of expertise but the evidence does look pretty overwhelming, don’t you think?

But another area where multinational companies have also been criticised is in the arena of academic publishing which has big implications for development because important development knowledge is published in these journals. Development journals are published by commercial publishers, such as Elsevier Science, who are also publishing many other academic journals. The economics of these journals is, well, curious because it includes a strange mixture of commercial profit and free-riding on the public sector. On the one hand, academic journals have had some of the highest profit levels encountered in the publishing industry over the past 30 years (Guédon 2003, p. 167). On the other hand, authors receive no financial return from the journal for their contribution, and members of Editorial Boards receive little more than a stipend for their work. Instead, they receive salaries from their academic employers. The journals are also generally publishing work financed from public funds. Subscriptions to journals are mainly bought by libraries, often of the same institutions where the authors are located. These subscription rates are high. For example, the journal World Development has an institutional print price of €2668 per annum in 2012. In his 2003 paper Locating the Information Society within civil society: the case of scientific and scholarly publications, Jean-Claude Guédon argued that since 1970s, the system of academic publishing has become increasingly elitist. It has:

…turned into a form of growing elitism that has replaced the earlier competitive quest for excellence, as this elitism is now kept in place and even intensified by financial means.

I realise that the case of Monsanto and academic publishing are very different but they do illustrate the fact that multinational companies’ manner of doing business can be harmful to local people, as in the case of Monsanto, or that they can be involved in an economic system which is not in the broader interests of development knowledge as a global public good, as is the case of the academic publishing industry.

Further examples of the multinational companies’ involvement in development are outlined in the 2009 article Ethical concerns at the bottom of the pyramid: where CSR meets BOP by Kirk Davidson, an American academic based at the Mount St. Mary’s University.

Davidson describes the growing interest in C.K. Prahalad’s concept of attacking world poverty by encouraging multinational companies to do business with the bottom of the pyramid (BoP) namely the billions of people globally who live on $2 a day or less. He enumerates the ethical problems involved and reviews two classic case studies of multinational companies marketing their products to the global poor: Nestle’s infant milk formula from the 1970s and Reynolds’s sales of the Uptown cigarette in Philadelphia, USA, in 1989. The conclusions from these cases are still applicable to multinational companies today and are important to bear in mind when considering the role of multinational companies in development:

• When doing business in developing countries, and especially when targeting the poor, multinational firms
  have an obligation to use marketing tactics appropriate to those countries and those markets.
• Marketers must please more than just their customers. There are other stakeholders who can have an effect on the
  company’s operations and who must be considered. Even though both buyer and seller may be satisfied
  with the results of a transaction – whether it be the purchase of Uptown cigarettes in Philadelphia or the
  purchase of Fair and Lovely skin-whitening cream in Mumbai – elements of the encompassing civil
  society such as the media and various advocacy groups may raise the charge of unethical behavior.
• Emotion may trump reason. The rational argument defending free choice in the marketplace gets nowhere against the picture of a major corporation targeting a vulnerable segment of the market with harmful products, such as cigarettes or infant formula.
• It is the perception of justice and fairness that is all important, the situation as understood by the surrounding society. When multinational firms target the bottom of the pyramid as a profit-making strategy, it may be perceived as exploitation by some NGOs or even by the host government.

Davidson concludes that ethical challenges are an integral part of every business endeavour, because at the core of all business activity there is the fundamental and natural tension between buyer and seller:

Regardless of country, culture, income level, market served, product or service category, high-tech or low-tech: this tension is there, raising ethical questions which must be addressed.

He argues that engaging in business with the world’s poorest consumers toward the goal of eradicating global poverty creates its own unique set of ethical problems. Especially for large, multinational firms there is always the threat that such engagement – not as charity but as a profit-making enterprise – will be perceived as exploitation and manipulation of unsophisticated, poorly educated consumers. Avoiding this requires an understanding of the role of the firm, not simply as a profit-generating organization, but as an essential part of larger society. It requires that the company be a good global citizen, fulfilling its economic, ethical and social responsibilities. In short, he argues that companies must integrate all the principles of corporate social responsibility (CSR) into their business planning for the BOP.