UK is not thinking smart about growth in developing countries

Private sector-led growth might help. DFID - UK Department for International Development

Justine Greening, the international development secretary, recently made a speech on how business can contribute to development. Three quarters of it was about the importance of economic growth in developing countries. “Growth” was mentioned 18 times in the speech, and “economic development” 16 times, and this is to be welcomed.

After all, the big achievements in poverty reduction in the past 20 years have come from accelerating economic growth in many developing countries.

But the big question for Greening to address concerns exactly how the private sector can contribute to this growth. The majority of her references to this focused on removing barriers to business development such as bureaucracy or poor infrastructure, increasing financial flows and market reforms. There was a mention of the benefits for British firms of growth and market development in poor countries.

But this doesn’t go far enough. The government is lagging behind cutting-edge thinking on how businesses can promote development.

This isn’t an academic point: industry leaders themselves are now focusing on the quality of economic growth as well as the quantity. Take the global businesses who have contributed to the UN’s post-2015 development agenda. They are increasingly considering natural resource constraints, environmental degradation and sustainable economic growth.

One such example is Unilever, whose Sustainable Living Plan links the long-term sustainability of its business to broad social and development issues such as responding to climate change, water shortages, food prices and obesity. The Sustainable Living plan also recognises that many of these challenges are outside of the capacity of individual companies to address, which leads to an emphasis on engaging with governments on the big global issues of deforestation, water scarcity and under-nutrition.

In other words, when it comes to the type of economic development that will improve the livelihoods of the poor, these businesses appear to have a broader understanding than our own development secretary.

Justine Greening’s speech made just one reference to sustainability, referring to the role of aid in driving “the kind of sustainable, inclusive growth that creates more and better jobs and raises incomes.” But how is such sustainable and inclusive growth to be achieved?

Many businesses are saying they need to change the way they operate in order to ensure their own long-term viability and to contribute more effectively to economic development. One major report published last year, jointly authored by a group of business leaders and the UN’s sustainable business initiative, sets out a clear argument about the conditions under which the private sector is likely to support sustainable development.

The report’s view on why businesses will support sustainable development can be boiled down to two factors. First, that businesses are increasingly taking a long-term approach defining their interests, and this includes the sustainability of their activities. Second, businesses are, or should be, driven by moral values as well. As the report states, “business has a moral imperative not only to ‘do no harm’ but to act in the enlightened interest of future generations and for the good of society”.

While both sustainability and morality are important factors behind some actions, it is clear that many businesses are not driven by such concerns. The very fact that leading firms devote time to developing checks on their own behaviour and promoting industry-wide standards indicates as much. Codes of conduct or industry standards to address issues such as deforestation wouldn’t be necessary if business motivations were so good.

Of course, some business behaviour is good, some is bad. For firms to most effectively assist in achieving our development goals means maximising the good and minimising the bad.

How could the government help with this? It must be more specific about how businesses can contribute to sustainable and inclusive growth. It must thoroughly investigate which companies are likely to promote development through growth, and why. Vague statements about jobs and growth are not enough.

The irony is that many of our CEOs seem to be more willing to think through this point than the international development secretary.