Implications for Business and the Industry in Government’s Efforts to Meet the MDGs?

Implications for Business and the Industry in Government’s Efforts to Meet the MDGs?

By Collins Magalasi[1]

Introduction

Responding to the world’s main development challenges and to the calls of civil society, 147 Heads of State and Governments and 189 nations, including Malawi, signed onto the Millennium Declaration at the Millennium Summit in New York in September 2000. The Declaration is a synchronisation of a set of time-bound, inter-related and mutually reinforcing goals and targets into a global agenda of fighting poverty, hunger, disease, illiteracy, environmental degradation and discrimination against women. These are called Millennium Development Goals (MDGs) and are as follows:

• MDG 1: Reduce Extreme Poverty And Hunger
• MDG 2: Achieve Universal Primary Education
• MDG 3: Promote Gender Equality and Empowerment of Women
• MDG 4: Minimise Child Mortality
• MDG 5: Improve Maternal Health
• MDG 6: Combat HIV/AIDS, Malaria and Other Diseases
• MDG 7: Ensure Environmental sustainability
• MDG 8: Organise a Global Partnership for Development

Set for the year 2015, the Eight Goals can only be achieved if all actors work together and do their part correctly. Governments of poor countries pledged to govern better, and invest in their people, while rich countries pledged to support them, through aid, debt relief, and fair trade. Silent was the direct role of the private sector, which was assumed perhaps to be within the responsibility of the governments.

“The Millennium Development Goals have galvanised unprecedented efforts to meet the needs of the world’s poorest, becoming globally accepted benchmarks of broader progress embraced by donors, developing countries, civil society and major development institutions alike.” Kofi Annan, former UN Secretary General.

There has been talk of polarity between governments and private businesses in delivering services to the poor. The later is often listed as anti-poor. But is this correct? How can the corporate sector play a more effective part in tackling poverty? Can we assume that encouraging the corporate sector to invest in poor regions results in greater access to employment for the poor and greater tax revenues directed towards social programmes? Is it practicable to position the corporate sector as an agent in the delivery of the international Millennium Development Goals and the poverty reduction strategies of national governments? Conversely, are we right to believe that progress towards poverty reduction reinforces economic and political stability, helps markets to grow, and provides a platform for private sector development? What implications do government policies and actions on delivering on MDGs commitments have on businesses?

Businesses and Poverty Reduction

The positive contribution that private enterprises can make to development and poverty reduction is likely to be obvious to most people. They would agree that, in the long term, economic development cannot occur without dynamic private companies. They would also agree that good government and efficient public administration are equally necessary.

The growing debate over implications of government’s delivery of social services on businesses presents a paradox. It is an opportunity to make business’ business, but it can also lead to stifling of businesses. The seemingly lack of fulfilment of expectations of business have also contributed to the sceptism that ‘non-business’ actors have generally on role of businesses in poverty reduction.

The growing debate over the impacts of business on poverty reduction presents yet another paradox. Big businesses have demonstrated their ability to create wealth around the world, but the benefits of the capabilities of these firms and of the global market system do not yet reach most of the 12 billion people (who include the 6.5 million from Malawi) that live in poverty. It seems clear that the world’s prosperity and security, and perhaps even the growth and legitimacy of global corporations, are linked to our ability to remedy this disconnect.

In the quest for sustainable development, eliminating poverty is the key challenge facing not only governments and civil society, but also business. Traditionally, business has played a crucial role in providing routes from poverty to prosperity of shareholders, pursuing profit and in the process generating wealth, products and services, innovation and technical advances, jobs and tax revenues. Businesses of all sizes relate to the poor as consumers, staff, suppliers and distributors, and in some cases as neighbours.

However, such a business-as-usual approach is clearly not lifting the majority of the people out of poverty: nearly 6.5 million people survive on less than US$1 per day in Malawi. The formal sector barely serves the poorest of these people, who must rely on the informal sector and their own production as their main sources for products, services and income. Furthermore, many of the poor are suffering from the negative impacts of business activities, from environmental pollution to human rights abuses. While the primary role of business is to provide the “engine of growth”, recognition is growing that the private sector can and should do more to combat poverty, and that this unrealised potential offers both a commercial and a social opportunity.

Measuring Business Contribution

There has been a lot of conference talk and coverage of business and the MDGs in recent years. Yet it has been hard to move beyond anecdotes to analytical data on private sector impacts on poverty reduction

Should your business make you feel guilty? We are not talking of what is does to consumers, but its poverty impact. The Dutch Sustainability Research (DSR) developed an MDG Scan (see annex 1 for details), that advises institutional clients on socially responsible investments. It split the eight MDGs, which originally apply to governments, into 77 measurable and comparable indicators relevant to multinational companies with significant activity in middle or low income countries.

The score for the first MDG on halving the number of people living in extreme poverty by 2015, depends on stimulating community development by measures such as promoting local entrepreneurship and providing essential products and services, provision of employment and salaries, stimulating local agricultural production, and fighting malnutrition.

The second MDG on universal primary education depends on company guidelines and programmes, its efforts to combat child labour, and promoting private education.

The scores for each indicator are weighted and aggregated to a score between 0 and 100 for each MDG. At this stage, the scan does not add up the scores for each of the eight MDGs to a final score on all MDGs. Why is this so? Ronald Lubberts, Director of DSR says "It is questionable if high performance on one of the MDGs should compensate for a relatively low performance on another.” Moreover, each industry can contribute to the MDGs in a different way. "A pharmaceutical company can diminish child mortality, stimulate maternal health and can halt the spread of HIV and AIDS solely by the nature of its products and services," Lubberts said. "A mining company cannot, but it can contribute to local community development in remote areas by improving local medical care and education opportunities."

Heineken is one of the first firms to go though the new MDG Scan.

The new scan is another step forward, although only six firms - mostly Dutch - have so far undergone the scan and it tends to emphasize the positive. The challenge is to make sure it covers the range of operational impacts given that it is time and cost intensive to measure business impacts effectively.

Getting back home, there is nothing like this. Much as there are a few businesses involved in Corporate Social Responsibility (CSR), it has been said too generally that this will bring about poverty reduction. It is a fallacy, for, some CSRs are for public relations purposes of the company that have no additional value to the day to day lives of the poor.

Why must Businesses support and align their activities to MDGs

Businesses engage in poverty elimination for a multitude of reasons; as a result, talking about a single business case is difficult. Nevertheless, we can usefully look at the justification for business action on three levels, as shown below.








Innovation can unlock commercial opportunities while meeting the needs of the poor
Ensuring good governance, a strong economy and a competent workforce can help companies and the poor to prosper.
Action on poverty can contribute to profitability for individual companies
Market Development
Bottom-Line benefits
Secure Business Environment

At the base of the business case is the recognition that poverty attacks the foundations for healthy business. Tackling poverty can help businesses to build the local spending power, skilled workforce and stable environment necessary for business development. However, the benefits are spread across the local economy and no individual company can capture all of them. Therefore, the second level of the business case looks at the balance of costs and benefits of business action on poverty for an individual enterprise.

Within the second level, a growing body of evidence shows that companies that take account of the interests of their stakeholders, that respect human rights and environmental standards, and that give back to the community in the form of social investment are able to improve their financial performance. While poverty is not the only issue of concern, many of the areas increasingly considered as part of the wider responsibility of business – such as child labour, involvement in human rights abuse and environmental destruction – cannot be addressed without understanding their links with poverty.

The top level of the business case represents an opportunity for those businesses smart enough, fast enough and innovative enough to develop business models that engage with the poor as consumers, workers and entrepreneurs. Such businesses find ways to profitably address the poor’s unmet needs for basic products and services, jobs and market access, as well as enabling services such as education, credit and ICTs (information communication technologies). This is what the MDGs are there for. To achieve this companies will need to move beyond incremental change and accepted business models to fundamentally alter the way they produce and deliver value.

So what should government – business interventions be in delivering MDGs?

A comprehensive approach to poverty elimination is needed, one in which public, private and civil sectors attack the multiple dimensions and causes of poverty. Government needs to support business interventions that would bring the following outcomes:
Increased equity, with wider distribution of productive assets and increasing returns on these assets
Enhanced opportunity to access jobs, credit, roads, electricity, markets, schools, water, sanitation and health services
Participation in the processes that control access to market opportunities and public sector services, regardless of gender, ethnicity and social status
Peace and security, and reduced vulnerability to economic, political and environmental crisis, which will enable people to invest in higher-risk, higher-return activities
A sustainable future in which people conserve natural capital and use finite resources more sustainably, from the local to the global level.
Businesses also contribute to development in other ways that are crucial to economic development and poverty reduction:
They generate a large portion of government tax revenues, without which there would be no sustainable base for funding public health care, education, social safety nets, agricultural research, and other critical expenditures.
In countries with competitive economies, leading private firms will constantly seek out information that has practical local uses; to remain competitive, other firms will emulate their behavior. In the process, executives and employees upgrade their human capital, productivity, and incomes, contributing to the diffusion of useful knowledge and techniques.
Over time, competitive firms improve the quality of products and make them more affordable, thereby boosting the purchasing power of consumers, including poor consumers. Indeed, in countries such as India and Brazil, some private companies have begun to focus on the poorer segments of the population as promising new markets.
Not all private enterprises in all environments generate jobs, investment, and human capital, however. Monopolies and oligopolies, high protection against competing imports, and government subsidies all undermine the ability of private firms to reduce poverty. Government measures that encourage competition are the best way to attack the concentration of power, oligarchy, monopoly, corruption, and other distortions that make efforts to help poor people ineffective. Government’s establishment of the Competition and Fair Trading Commission (CFTC) must be commended and we must all support the Commission.
The weakening of favoritism, the elimination of excessive red tape, the regulation of natural monopolies, and the encouragement of liberalization all work to defeat the entrenched forces of privilege that perpetuate poverty. Widening markets through regional trade and currency arrangements, and increasing internationalization and the attendant liberalization underline inviting arrangements.
So what should government do inorder to have the private sector contribute to the attainment of MDGs? - Business environment
What can governments do to support the creation and expansion of companies that are financially, economically, socially, and environmentally supporting MDGs? Besides improving health care, education, and macroeconomic conditions, and encouraging competition, governments can undertake institutional reforms that, over time, lower the costs of doing business and thus create a more favorable business environment. Such reforms encourage activities not only by foreign investors but also—and more important—by the thousands of local entrepreneurs who want to start or expand small businesses in agriculture, services, and manufacturing.
A number of enterprise surveys and other analytical work linking institutional factors and economic performance have been carried out in recent years. These analyses pinpoint areas in which reform is urgently needed in this country. Among the findings are the following:
A strong relationship exists between the quality of the business environment and long-term national economic performance, including the pace of poverty reduction.
Enforcement of the rule of law—in particular, the extent to which government enforces contracts between private parties (and between private parties and the state)—is crucial to long-term development and, as already noted, affects the poor as well as affluent members of society.
Respect for property rights (especially those of the poor) is highly correlated with long-term economic and social progress.
The efficiency of government in delivering services is also associated with economic progress.
In particular, a worldwide survey of 10,000 enterprises carried out during 1999 and 2000 under the leadership of the World Bank Group points to the leading obstacles to doing business identified by business managers and owners in developing countries. Constraints were ranked in order of perceived seriousness on a scale of 1 ("no obstacle") to 4 ("major obstacle"). The average score for perceived obstacles is, unsurprisingly, higher in developing countries (2.6) than in industrial countries (1.95). The developing country list of obstacles is topped by four items scoring an average of 2.9: taxes and regulations, financing difficulties, inflation, and political instability or uncertainty. The next most serious perceived obstacles—corruption, exchange rate problems, and "street crime, disorder, and theft"—score an average of 2.6.

Analysis of these survey data for all countries suggests that investment and economic growth are related to certain key indicators of the quality of the investment climate. For example, foreign direct investment flows are positively associated with economic predictability and predictability of changes in law and legislation, and negatively associated with constraints imposed by taxes and regulations and exchange rate instability. Likewise, GDP growth within each of the regional groupings of countries is negatively associated with the severity of constraints imposed by taxes and regulations in general and, specifically, high tax rates, tax administration, and business-registration procedures.

Conclusion: Government, Businesses and Poverty Eradication

Describing the ‘proper role of government,’ the Honorable Ezra Taft Benson, Former US Secretary of Agriculture [The Eisenhower Administration - ed.] wrote in 1968 that it is generally agreed that the most important single function of government is to “secure the rights and freedoms of individual citizens.” But, what are those rights? And what is their source? He asked. Until year 2000, these questions were not answered in universally agreed language and targets. As such the answering of these questions through the MDGs raised the likelihood that we can correctly determine how government can best secure them, in partnership with private businesses and citizenry.
Indeed, as Thomas Paine, back in the days of the American Revolution, explained that:
"Rights are not gifts from one man to another, nor from one class of men to another... It is impossible to discover any origin of rights otherwise than in the origin of man; it consequently follows that rights appertain to man in right of his existence, and must therefore be equal to every man." (P.P.N.S., p. 134)

Government should therefore never abrogate its responsibility on MDGs to any person, whether human or corporate.
The great Thomas Jefferson asked: "Can the liberties of a nation be thought secure when we have removed their only firm basis, a conviction in the minds of the people that these liberties are of the gift of God? That they are not to be violated but with his wrath?" (Works 8:404; P.P.N.S., p.141)
The Alabama State (USA) Constitution provides an interesting basis for government investment in eradication of poverty. It provides in Art1.sec 35
"That the sole object and only legitimate end of government is to protect the citizen in the enjoyment of life, liberty, and property, and when the government assumes other functions it is usurpation and oppression."

Therefore, government needs to facilitate environment where businesses will further the citizens’ “enjoyment of life, liberty, and property.” Anything less that the purpose mention here-before, must never be supported. In the delivery of the MDG commitments, businesses find opportunity to provide goods and services. Businesses must therefore encourage government to stick to the MDG agenda. As it has been stated earlier on, we must recognise that poverty attacks the foundations for healthy business. Implementing the MDGs commitments will help businesses to build the local spending power, skilled workforce and stable environment necessary for business development. Together we stand, divided we fall.
Ends
Annex 1: the MDG Scan

In September 2000, the United Nations member countries made a commitment to reaching eight MDGs by 2015, such as halving the proportion of people suffering extreme poverty and hunger, achieving universal primary education, and promoting gender equality and the empowerment of women.
The Dutch Commission on Sustainable Research (NCDO) has now financed the MDG Scan as a tool to raise awareness of the MDGs in the private sector. The scan allows for detailed comparisons between companies within the same sector and evaluation of the progress of a company over time. It split the eight MDGs, which originally apply to governments, into 77 measurable and comparable indicators relevant to multinational companies with significant activity in middle or low income countries. The score for the first MDG on halving the number of people living in extreme poverty by 2015, depends on stimulating community development by measures such as promoting local entrepreneurship and providing essential products and services, provision of employment and salaries, stimulating local agricultural production, and fighting malnutrition. The second MDG on universal primary education depends on company guidelines and programmes, its efforts to combat child labour, and promoting private education. "The quantitative approach will make the discussion on private sector contribution to the MDGs less speculative and anecdotal," the NCDO states. It wants to benchmark sufficient companies to be able to launch an index and a 'Millennium Development Fund' with stocks of companies with the best MDG performance. The scores for each indicator are weighted and aggregated to a score between 0 and 100 for each MDG. At this stage, the scan does not add up the scores for each of the eight MDGs to a final score on all MDGs. "It is questionable if high performance on one of the MDGs should compensate for a relatively low performance on another," says DSR director Ronald Lubberts. Moreover, each industry can contribute to the MDGs in a different way. "A pharmaceutical company can diminish child mortality, stimulate maternal health and can halt the spread of HIV and AIDS solely by the nature of its products and services," Lubberts said. "A mining company cannot, but it can contribute to local community development in remote areas by improving local medical care and education opportunities." Six multinational companies have so far passed the MDG Scan: ABN Amro (banking), Heineken (beer brewer), Philips (electronics), Akzo Nobel (chemicals), BHP Billiton (mining) and TNT (logistics). The results indicate that all six companies contribute positively to each one of the eight Millennium goals. The MDG scan takes into account positive as well as negative contributions to the MDGs. But judged by the number of indicators, the MDG Scan currently stresses indicators that measure positive contributions. Generally speaking, companies get more chances to win than to lose points. However, the indicators that measure negative contributions are weighted substantially in order to outweigh positive indicators. Companies receive scores for negative contributions if evidence is found that the company is involved in a controversy related to the MDGs. BHP Billiton for instance had points deducted because of its involvement in controversies related to its impact on the environment. "The negative indicator in this model has been kept simple," Lubberts told IPS. "This version is meant to gain experience and needs some fine-tuning." Lubberts says more companies need to be assessed with the MDG Scan before the results of a benchmark can be properly interpreted. Only when several beer brewers have gone through the evaluation process, will it become clear if Heineken's score of 44 on MDG3 (gender) should be qualified as "average" or "good". First and foremost, MDGs are structural and long-term goals for governments, who need to levy taxes to finance these efforts. Companies are constantly looking for ways to pay as little tax as possible. Sometimes they optimise profits by shifting them from a local branch to the seat of the mother company. In this way, locally produced extra value gets lost. The United Nations Development and the Global Compact, the UN's voluntary corporate responsibility initiative, have already shown interest in the MDG Scan. The MDG Scan will be made available online later this year as a self-assessment tool in a slightly modified version. "Companies and stakeholders have asked us to attribute more weight to performance indicators that measure real impact results," Lubberts said. "That is important to them from a communications perspective".

(Mattias Creffier /2007)
[1] Collins Magalasi is Ag. Country Director for ActionAid International South Africa, Lesotho and Swaziland and is based in Johannesburg. He can be contacted on email collins.magalasi@actionaid.org.