Replies to This Discussion

Permalink Reply by Tim Fort on March 30, 2009 at 13:59

Welcome to Theme 2: On the Ground - Current Practices of Involving Business.

Thank you, all, for a great start to our eConference last week. We now number over 600 participants in the conference and last week featured nearly 100 discussion posts. This week, we look at three specific examples of institutions with peace-building projects that link business and peace. The following week, we turn to some thought-leaders who have developed conceptual models for how business can foster peace. After that, we move to the more academic, research part of the eConference with scholars looking at particular issues in depth.

This week's moderator is Michael Strong, who is the co-founder and Chief Visionary of FLOW. As you will see in the resources section, Michael has done terrific work in describing the ways in which economic freedom links to peace. Indeed, he will be one of the featured speakers for next week's theme.

FLOW stands for Freedom Lights Our Way and one of its three major programs is Peace Through Commerce. FLOW played a huge role in the November conference and will play a vital role after this eConference ends. After the conference ends, we will still have this web space and FLOW will become the host of it and in a position to network you to events and ideas that continue to percolate on this issue. I am pleased that Michael will be moderating the session this week.


Tim

Timothy L. Fort, PhD, JD
Exec. Director, Institute for Corporate Responsibility
Lindner-Gambal Professor of Business Ethics
George Washington University School of Business
Professorial Lecturer, George Washington Law School

Permalink Reply by flowidealism on March 30, 2009 at 15:48

Thank you, Tim, for the introduction and for putting together both the wonderful conference last fall and for your role in this eConference.

Often conversations on business and peace, or business and poverty, are focused on multinational corporations. At the other extreme, Muhammad Yunus and Grameen Bank won a Nobel Peace Prize for their leading role in the microfinance movement, which supports micro-entrepreneurship. But in between multinational corporations, on the one hand, and micro-entrepreneurship, on the other, is enterprise creation leading to small and medium sized businesses (SMEs). In nations with adequate economic freedom, these SMEs often generate most new jobs. In addition, of course, typically these entrepreneurs are local and indigenous, as opposed to multinationals, which may be run by outsiders. What can we do to support the role of indigenous entrepreneurship leading to SMEs and large-scale job creation? To what extent do you believe that the activities of such entrepreneurs lead to greater peace?

Permalink Reply by Stephen B. Kaplitt on March 30, 2009 at 16:16

Hello Michael,

Yours is the 64K question. SMEs can be a critical source of job and wealth creation in developing countries, and as many have pointed out, MNCs are great but only a trivial percentage of workers around the world have access to MNC jobs. Vast majority are sole proprietors, which is why Grameen Bank has had such a big impact. Real challenge is how to help these sole proprietors become SMEs, and help SME's move further up the "M" ladder in SME.

As you know, my view is these local entrepreneurs need more free help. There are plenty of organizations and programs to lend money or provide technical assistance. Granted its a drop in the bucket realtive to the need, but there's only so much money to go around. So question is what can we do more of that doesn't require a big new pot of money ? one answer is free labor from US and other MBA students, similar to the effort I started at the State Dept. and something Tim and I discussed just this am.

On the peace question, I'm slightly more of a skeptic. I believe commerce is critical to cementing peace and preventing conflict resurgence, in places like N. Ireland or the Balkans. But commerce and jobs, alone, cannot solve deep-seated political, religious, historical conflicts. See eg Lebanon, West Bank. Not to say efforts shouldnt be made there, only that there are real limitations unless and until there is political resolution.

Permalink Reply by jessica romo on March 30, 2009 at 18:57

I would like to say that all kinds of businesses face the same challanges: how to make the best use of resources and to which extent - sustainability is a key issue here -, how to balance social issues against economic profits and to which extend participate in policy-making.

Multinationals most often can affort to provide benefits for their employees, sometimes these benefits exceed the average. On the countrary, SMEs and other forms of informal businesses tend to have not only less resources but not enough administrative skills to set up the best work environment. In that sense, it would be logical to think that technical assistance and ad-hoc assistance would be extremely beneficial to help businesses improve their practices in the social and environmental fields.

It is no new that the poorer and indigenous tribes might be forced to deploit natural resources to survive. This was pointed out in 1984 when "Our Common future" was publised by the Brutland Commission. It is important as it has been done recently, to focus efforts on the most vulnerable groups to provide them with the knowledge to use in a sustainable manner their resources and skills.

The Department for International Development (DFID) has recognised as the UN, the role of business in development, advocating for Corporate Social Responsibility (CSR) as a mean to persuade companies to behave ethically and responsible with regards to their employees, the communities and the environment. Moreover, the DFID has announced tha the future would be a world in which companies actively participate in decision-making. DFID expects that companies will push governments to develop and implement laws, and standards that will ultimately benefit not only the business but the fight against corruption, poverty, exploitation, safe & healthy, wages and much more, specially in countries where those laws do no exist.

It seems to me however, that even more important is the question of growth. Currently, all companies aim to grow non-stop, otherwise they are considered to get stuck and this is seen as a negative quality but it doesn't make sense. If all companies were to grow indefinitely, there would still be a limit to it once they have reached every person in the world, and then what? It is not rational for companies to think that growth is the goal in itself, companies should set up limits and stablish different goals, including broader issues like poverty or the conservation of the environment as topics that are equally, if not more important than profits.

Let's remember that companies do bring benefits to societies if they are well managed and the distribution is equal but they can also exacerbate power relationships and the degradation of the environment just to name a few. At the end of the day, if share holders are the single most imporant actor for a company, then I find it very hard to believe that a significat, long-term change would come from the private sector that could potentially benefit peace and development as we wish.

Permalink Reply by Lawrence Dadzie on March 30, 2009 at 17:16

Business Ideas that can create sustainable peace

Corporate Social Responsibility (CSR) is an idea that caught up with businesses some few years ago. Businesses have realised the need to give back to the community in which they operate. In Ghana, some companies notable Standard Chartered Bank (SCB), Cadbury Ghana Limited, etc have consistently given back part of their profit to the communities. SCB for example, has provided boreholes to the people of Northern Ghana. Cadbury Ghana Limited has also initiated strategic CSR Plan by way of giving back of part of their profit to the cocoa growing communities in the Western Region of Ghana - Equiping the communities with the necessary skills for income generating activities so that they can have alternative livelihood for improved standard of living.

What this means is that as people become confortable with their living standards, they have very little time to think about ploting ideas that will bring chaos and anarchy. In fact, they will not dare to think about destroying a system where their needs are gradually being met.

Examples of Entrepreneurial Opportunities that have potential to reduce conflict

A Lighting Manufacturing Company has identified lighting as a challenge to most African countries. In Northern Ghana, this company has partnered an NGO to provide the poor and deprived communities without lights with Solar Re-chargeable Lamps at affordable prices. The company with the NGO selected people from these targetted communities and trained them in the repairs and maintenance - this is a job for the people. They also selected distributors from the communities for these lamps - Job for the people.

Gradually, this entrepreneurial opportunities are picking up and eventually help to reduce conflicts in these areas. The targated areas are conflict areas.

Obstacles to the creation of new entrepreneurial projects

a. High levels of illiteracy
b. Inabililty of the companies to maintain neutrality in the selection of communities for the projects
c. Government legislations
d. Lack of strategic partner.

Permalink Reply by Steven Aveni on April 3, 2009 at 22:29

I agree that is vital that the government is on board with the growth of their country into global markets, which goes along with your obstacles to create entrepreneurial projects. A lot of these obstacles relate to the fourth one that can come from the nonexistence of another country or business that is looking to become an invested organization. But something that comes with being an entrepreneur is the risk. Without risk in the world then nothing would be worth as much because anyone could reap the benefits of it.

Most of these risks actually will come from the home government, because they will be investing into an unfamiliar situation. There is a lot of risk for the expanding country, but they most likely already have experience with handling this risk and the possible obstacles. But without the help of the local government, the outside country can do nothing. For example, countries like China and Japan used to be closed off to the open market, but once they realized the opportunities by mixing in some outside culture they were able to become world business leaders. I just hope Middle Eastern countries will soon be able to realize the actual power they are losing because of their stance and viewpoint in the modern world.

Permalink Reply by Jessica Reouveni on March 30, 2009 at 19:02

One of the videos posted is about Johnson Masango, a student and entrepreneur in South Africa. With the help of his university he started a networking solutions company, and opened the first internet cafe in his area. There are a few reasons why I think this is an amazing example of how small, entrepreneurial activities can create profound change in places where illiteracy and violence is incredibly high and government support is questionable.
One of the biggest problems SA faces is illiteracy, and the fact that for many citizens there is limited access to education and knowledge. Masango's new business not only makes life better for himself by providing him with a more stable income, but it opens the door for others in his community to do the same, or in his words, to make things work for themselves.
Many South Africans turn to violence because they have no way of getting an education, support, or legitimate work. This cannot change until the country goes back to the basics of educating its citizens and giving them the opportunity to make something of themselves. Entrepreneurial activities like Massango's put power back in the hands of the individual to pursue an education for themselves. Rather than waste resources forcing education on those who have no desire to be educated, I think more change will come from granting those who are passionate about learning the opportunity to do so.
As a South African, understanding the immense challenges that exist there, I think that supporting people like Massango and helping to provide them with resources for similar businesses is the first step in creating peace in South Africa!

Permalink Reply by flowidealism on March 30, 2009 at 19:26

Thanks to all of you for a rich and stimulating discussion. I'd like to follow up with a few points:

1. First, Steve, I'd agree that commerce alone is not the solution, especially in a situation that is as difficult as is the Middle East. That said, for many decades N. Ireland was regarded as primarily a religious conflict, and yet as you know I think there is powerful evidence that economic growth and job creation was a major factor in reducing the conflict. In that light, it is significant to realize that there are enormous legal obstacles to business creation in the West Bank and Gaza: According to the World Bank Doing Busines project, in the West Bank and Gaza, starting a business requires 11 procedures that take 49 days costing 69% of Gross National Income (GNI). By contrast, in Denmark, starting a business requires 4 procedures taking 6 days costing 0% of GNI. Would Palestine be instantly peaceful if it had a booming economy? No, not instantly. But would pressures be reduced if it had a booming economy? Probably.

2. With respect to your comment, Jessica Romo, I am emphatically interested in reducing the obstacles to legal business creation so that SMEs are NOT in the informal sector, but rather in the formal sector. This is why it is important to reduce the obstacles to legal business creation around the world. To take yet another example, The Democratic Republic of Congo, home to the most fatal war since WW II, also happens to be last ranked on the Doing Business Index; In order to start a legal business there it takes 13 procedures that typically take 155 days costing 435% of Gross National Income per Capita (GNI). Again, while making it as easy to start a legal business in the Congo as in Denmark would by no means instantly halt the conflict there, until and unless a country has a stable economy with plenty of jobs and middle class business owners with some power, wealth, and influence combined with an obvious interest in peace, it will be more difficult to create peaceful societies.

I would also disagree with you regarding growth; economic growth is the only way to bring a nation out of poverty, and economic growth only takes place when one has thousands of businesses growing. I don't understand how one could envision an end to poverty or an end to war without a growth dynamic in businesses. Have I misunderstood you somehow?

3. And finally, Jessica Reouveni, while traditionally well-intentioned people have believed that education could contribute to development, Bill Easterly has a fascinating article in which he points out that significantly increased education levels have not correlated with development at all,

http://www.hoover.org/publications/ednext/3365036.html

Based on Easterly's evidence, is it possible that entrepreneurship without increasing education is more likely to lead to peace and prosperity than is increased education without increased entrepreneurship (due to legal or other obstacles to entreprenership)?

Permalink Reply by jessica romo on March 30, 2009 at 22:46

Michel,

I believe I might have not explained clearly. I see things differently since I study international development as part of my masters program. If you consult the book called “International Development, Issues and Challenges” by Damien Kingsbry, John McKay, Janet Junt, Mark McGillivray and Matthew Clarke (2oo8); you will find that the authors’ critique is the ironic reality that growth has made possible. They talk about the poor becoming relatively poorer over the time, about populations within developing or developed countries that benefit little, if at all from growth. They point out that even some groups were worst off “not in terms of the incomes they earned but in terms of social upheaval and dislocation, a loss of identity and cultural dislocation...In short, if there was any trickle-down it was clearly insufficient in its extent” (p.28). In fact, whilst they agree that growth could conduct to an increase in confidence and self-respect, serious challenges would have to be addressed first if the ultimate goal – Human development – was to be achieved. The most important remark international organisations are trying to transmit to companies and governments is that economic growth in itself it is not the solution, in fact it’s just a mean to achieve human development.

The United Nations and its Human Development Index is a remarkable example of how social and humane areas are to be the central point when planning for the future. Access to resources, knowledge and skills, participation in decision-making and freedom are considered to be more important than economic development in itself. I come from Mexico and I can tell you that after decades of intense trade and economic development, most of the population still remain poor and in some cases below the poverty line. Deep inequalities exist across all levels of society and we have separatist problems as well, how can economic growth in itself be the solution?

To summarize: whilst I believe that economic development plays a key role in achieving other goals; I strongly disagree with the idea that growth creates this perfect trickle-down effect, that regulates itself through the wisdom of “the market” and that all types of businesses bring improvement for all. There are great examples of growth that has been channelled and appropriately managed by companies, NGOs, the government, local communities and other international organisations. However, there are plenty of private sector projects that have not been successful at all: the Amazon deforestation, Nigeria and the petroleum industry and many more investments across Africa that have increased inequality, armed conflict and more corruption.

Let’s recognise the private sector’s limitations and acknowledge that plenty of other things should accompany growth, such as the rule of law, a fair distribution system, a sense of community, local participation in decision-making and exploitation of resources, freedom and others.

Permalink Reply by flowidealism on March 31, 2009 at 0:21

Hi Jessica,

Thank you for focusing an important and interesting area. It is my sense that we must make a very careful analytical distinction here between:

1. Does economic growth reduce poverty?

2. Is economic growth the only goal?

I emphatically agree that economic growth is not the only solution; Rule of law is critical, Conscious Capitalism is critical, entrepreneurial training and development for diverse indigenous peoples is critical (Steve Kaplitt made some excellent suggestions here), protection for the environment is critical, and more.

At the same time:

1. No country has ever created a mass middle class without sustained economic growth.

2. Every nation that has experienced sustained economic growth has seen dramatic improvements in its Human Development Index.

Thus while one can, and should, advocate for many improvements beyond economic growth, for any nation with a GDP below $14,000 or so, it is difficult to make a case that anyone who cares about either poverty or peace should be against economic growth. Adam Przeworski has made a very robust case that the stability of democracies is tightly correlated with GDP per capita; see

http://www.amazon.com/Democracy-Development-Political-Institutions-...

and also:

http://ejt.sagepub.com/cgi/content/abstract/9/2/277

In essence, poor nations are far more likely to experience violent coups and civil wars than are wealthier nations. This is a very robust result.

With respect to the Human Development Index (HDI) itself, the economist Miles Cahill has shown that GDP per capita and HDI are so closely correlated that they are statistically indistinguishable,

Miles Cahill, “Is the Human Development Index Redundant?,” Eastern Economic Journal, Vol. 31, No. 1, Winter 2005
http://econpapers.repec.org/article/eejeeconj/v_3A31_3Ay_3A2005_3Ai...

This is not inconsistent with the fact that countless individuals remain poor and/or experience a worsening of their condition in nations that are growing economically. In a world of six, going on seven, billion human beings, even as tens or hundreds of millions of people are being lifted out of poverty through economic growth, there may still be tens of millions whose lives may be made worse off, at least temporarily. Thus one will always be able to identify any number of people whose lives are not made better through economic growth, and we should work to minimize that number.

But the fact that some are not made better by economic growth, and that some may be made worse off when a country grows, is very, very different from the claim that economic growth does not alleviate poverty or reduce conflict.

I would go so far as to claim that sustained economic growth in the developing world is the sine qua non for the reduction of global poverty AND the creation of stable, democratic societies that do not collapse into civil wars. One can always say "Yes, AND we also need rule of law, etc." Of course you are right that other elements are necessary.

But I don't know of any evidence that indicates that large populations can become middle class without economic growth, nor of any evidence that indicates that democracies are stable in very poor nations.

So while I absolutely support and encourage all forms of Conscious Capitalism and various other forms of doing good, it is difficult to see how we can create a better world for the world's poor, or reduce violent conflict, without economic growth.

Although there are exceptions, entrepreneurs create value by transforming the way that people go about their daily activities, from a pattern of activity that creates less value, to a pattern of activity that creates more value. As people's daily activities create more value than they did before, most of the time they are happier than when they were unemployed or underemployed and they earn more money and experience a higher standard of living than they did before. The process through which this pattern of changing the daily activities of millions, or billions, of human beings from less valued activity to more valued activity, results in economic growth. We can work to manage this process to minimize the creative destruction that results, but without a continuation of some form of this process, we will never eliminate poverty and war.

Do any of you see a realistic alternative to some form of this process (however tamed and civilized) of massive poverty alleviation through entrepreneurship and economic growth?

And what are the key elements of taming the process of entrepreneurially-led creative destruction, to minimize the extent to which the process itself may ignite conflicts even as it is moving towards a long-term net benefit?

Permalink Reply by Stephen B. Kaplitt on March 31, 2009 at 1:20

A few reactions to the above:

1) Michael, not to belabor the point, but on N. Ireland I believe there are indications this was, all along, an economic conflict masquerading as a religious one. Not that Catholics and Protestants in Ireland don't share some profound grievances and animosities. It just seems now (and hopefully this will last), that negotiated agreements to share economic power were key to ending the conflict. West Bank/Gaza is fundamentally different, that remains (in my view) a largely existential conflict in which economics is more a casualty than a cause. In N Ireland neither side ever said the other one had no historical right to live there at all.

In West Bank, while economics will be needed to cement the cure, it is not the cure itself. The Palestinians are already deriding Netanyahu's rhetoric about improving Palestinian economics rather than creating a Palestinian state. They do want their own state, and they don't want money as a substitute. Remember, until the wave of suicide bombings in the 90s caused a massive increase in Israeli countermeasures, Palestinians were enjoying economic growth and even prosperity. But they want their own state and some don't accept Israel at all. Aspirations for independence, dignity, honor are key motivators amongst Palestinians, So economics is the inevitable casualty.

BTW, I think if you ask any Palestinian, they will tell you the biggest obstacle to commerce isn't days to start a business but checkpoints and closures. Easy enough to say Israel should remove them, but that cuts to the heart of Israel's security needs, which is a function of the political environment. My whole point is that West Bank is a conflict where economics is an ongoing casualty, but improving economics can only follow political resolution (or at least political progress). I may be mistaken, but I think in N Ireland improving economics in many ways drove political resolution. Strongly doubt you could ever see that in the West Bank.

2) Important to remember that we have little evidence to suggest there are certain critical ingredients for development. Education, democracy, rule of law, etc. all have high correlations with economic growth, but very unclear what the causal relationship is. And the exceptions are now legion. China shows you can have spectacular growth without democracy or the rule of law. Easterly showed education is not critical. My own view, from years ago, is that the only real single requirement for economic growth is host country political will. China is the best example. When it becomes a national priority, it happens. Otherwise, all the aid money and great ideas won't do much.

3) On whether growth benefits the poor, we all agree growth should be equitable and widely shared. But redistribution under any guise has consequences, even in the current climate. Challenge is how to engineer growth in ways that create ongoing incentives for risk-tasking, but also produce enough widely shared benefits that those policies enjoy broad support. China seems to have done that quite well given the downsides of their model.

4) I don't have any magic answer on this, but I've often wondered about chickens and eggs here. The whole development community is focused on economic and social growth, and how to promote it, but its often the kind of thing that can only be explained after the fact. I kep coming back to China because no one can seriously argue that their growth pattern resulted from anything as much as a command decision at the highest levels to pursue growth.

Permalink Reply by flowidealism on March 31, 2009 at 2:51

Thank you Steve.

I certainly agree that Israel/Palestine has enormous issues that go far beyond economic growth and prosperity, though I also think no one really knows how things would look there if the entire region became as wealthy as Europe and as economically integrated as Europe. You are absolutely correct that at present it is understood deeply, deeply as an existential issue, which you articulate well, but we simply don't know how different things might be with GDP per capitas above $30 or $40K throughout the entire Arab and Muslim worlds and abundant opportunities for the future. Perhaps even then the violence would persist, but I don't think so.

Although you are correct that there is much that we don't know about causation and economic development, we do know that:

1. There are no poor nations with high levels of economic freedom.
2. There are no rich nations with low levels of economic freedom.

(See Easterly,

http://www.freetheworld.com/2006/2EFW2006ch2.pdf

for graphic evidence of this fact).

You are right to focus on China as a potential exception, except for the fact that:

1. China did increase the economic freedom of rural peoples dramatically in the late 1970s, and by many accounts this led to the first phase of economic growth.

2. Manufacturing-led economic growth is largely based in the Special Economic Zones (SEZs) which are islands of Hong Kong-style economic freedom within the otherwise largely closed economy of "communist" China.

Indeed, the authors of the Fraser Index acknowledged that their methodology, which looks at nation-state policy, does not take into account SEZs or free zones, and that they are playing an increasingly large role around the world.

Thus I would suggest that although development policy is endlessly complex, the fact that all wealthy nations are economically free, that no poor nations are economically free, and that increasing economic freedom (whether at the nation-state level or in SEZs/free zones) results in increased economic growth (after a lag) are robust enough findings that they should not be ignored. The Fraser metric for economic freedom is not perfect, but it is a reasonable rough and ready tool for measuring economic freedom.

The Fraser authors (Gwartney and Lawson) are interested in creating a metric that measures the economic freedom of SEZs and free zones, which vary around the world, and that incorporate the differential economic freedoms of SEZs and free zones into their nation-state measurements. There is every reason to expect, in no small part based on the evidence of China, that as this is done the evidence that increasing economic freedom leads to increased to higher rates of economic growth will become much stronger rather than weaker.

I tend to think that a disadvantage of academic debate is that because of an endless focus on the trees, the forest becomes invisible. Although academics will debate for ever which of the trees is most important, at this point the fact that all rich nations are economically free and no poor countries are economically free might lead a naive observer to believe that there is a causal relationship. If so, in theory the relationship could well be that prosperity causes economic freedom, although then we would wonder what underlying factor causes the increased prosperity. In addition, however, if there are substantial legal obstacles to entrepreneurship, and if we believe that entrepreneurs play some role in creating wealth, then a simpler hypothesis is that increased economic freedom allows entrepreneurs to create wealth which results in increased GDP.

By the way, of the five elements of the Fraser economic freedom index, their "Property rights and rule of law" metric seems to play a disproportionately important role, but even this is not necessarily broad-based rule of law, but simply contract resolution. In China, William Overholt suggests that especially in the early days of Chinese SEZs, Hong Kong business men who did most of the investing that led to the explosive growth relied on Hong Kong law. In essence, Shenzhen and other SEZs bootstrapped a functional commercial legal system by means of personal relationships among Hong Kong investors (AKA a functional system of commercial "rule of law"), combined with the support of local SEZ administrators (who doubtless became very rich through their cooperation).

In terms of the complexity of causal analysis regarding economic freedom and economic growth (i.e. the "chickens and eggs") it is also worth simply looking at Shenzhen before and after the creation of an SEZ there as well as Dubai before and after the creation of free zones there; see attached photos to see if they help to resolve the "chickens and eggs" problem.

Attachments:

• Shenzhen.jpg, 531 KB
• Dubai_Before_And_After.jpg, 36 KB

• ‹ Previous
• 1
• 2
• 3
• …
• 5
• Next ›
• Page