- Knowledge base
- Question of the week
One of the major outcomes of both the global development effectiveness discourse and the discussions on finance for development has been that private actors should be actively involved in achieving the Sustainable Development Goals. These are to be a mixture of economic and social goals for the greater good, inclusive and sustainable. But how do economic and social development relate to each other? And what does that mean for maximum synergy between public and private sources of finance for development?
The role of governments in developing countries should be to enable non-public actors (citizens, communities, civil society, faith based organizations and for-profit companies) to optimize their contributions to their own wellbeing and that of society. Donor governments should put their money there as well: maximizing the enabling environment for people and organizations to contribute to society. The question I’d like to pose in this short blog is how donor governments can best target their investments in sustainable economic development.
Most agree that economic growth is not enough for development, and that growth can even harm society – for example by increasing socio-economic inequality or destroying natural resources. The OECD guidelines and other frameworks on corporate social responsibility are useful basic standards for doing business in developing countries. The World Bank and many others also state that donor investments in economic development should be coupled with investments in complementary policy actions, to make sure that unwanted effects are minimized and society as a whole benefits. Investments in human capital (education, early childhood development), safety nets to assist the poor and vulnerable, and interventions for environmental sustainability.
I agree that all businesses must stick to CSR standards and that any donor spending money on programs involving the corporate sector must strictly enforce these as well. I also believe investments in human capital, safety nets and environmental protection are useful to curb some of the side effects of economic growth. One crucial element in the inclusiveness discussion, however, is overlooked. In my opinion, the limited funding that governments have to stimulate the economies in developing countries should above all be used to make markets flourish in socially productive sectors. This can be a wide range of products and services, from healthcare to drinking water or agriculture, but it still means a more focused approach than one that centers around creating decent jobs regardless of the sector they’re created in. Investments in food production or providers of clean drinking water; Investments in health related markets that function well for society, especially for the poor and those in the informal sector; Investments in businesses producing quality educational materials; Yes, also investments in privately run schools and clinics. We should not forget that in many developing countries, the reality for many of the poor and informally employed is that they are not served by public providers and in fact rely on private (including for-profit) service providers: small clinics or local schools that happen to be run by NGOs, churches or local SME entrepreneurs.
Donors wanting to stimulate sustainable and inclusive economic growth should focus their investments on socially productive sectors, including investments in healthy business and investment climates and the institutions that help these and other markets flourish – like land registry agencies, trade unions, quality standards, or essential (digital) infrastructure. This way, stimulating economic growth not only creates decent jobs, it also produces essential goods and services that directly benefit society at large.
 Please see the blog I wrote on this topic: (Inclusive Development and the Role of Donor Funding)
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