New aid agency report challenges prevailing economic orthodoxies

By staff writers
September 29, 2009

A new report from the UK-based international development agency, Christian Aid, argues that policy makers must address the de-regulation, liberalisation and privatisation that poor countries have had to endure for the last few decades.

'Getting Back on the Rails: The Private Sector and Development' comes in the wake of the G20 finance ministers meeting in London, which observers say has failed to address some of the key systemic issues behind the global economic crisis - and in particular its impact on the world's poor.

The summit did make one significant inroad, demanding tougher regulation of the banking industry in recognition of the key role that the lack of oversight in that sector played in the worldwide financial meltdown.

But although UK Prime Minister Gordon Brown and US President Barack Obama announced earlier in 2009 that the economic orthodoxy known as 'the Washington Consensus' was dead, in practice, few steps have been taken to abandon the policies which are its mainstays.

Under the Consensus, deregulation, liberalisation and privatisation were foisted on poor countries by donor governments, the World Bank and the International Monetary Fund with scant regard for the social consequences.

The prevailing mantra was that the markets alone could deliver progress and social benefits.

It was not a view shared by farmers and manufacturers in poor countries who found themselves competing with subsidised produce and cheaper products from richer nations, while faced with the sudden removal of state assistance.

Christian Aid's new report has pitched itself into the epicentre of the crisis and the need for a radically new policy response.

"Washington Consensus policies have severely restricted the ability of governments to make the right policies, introduce the right regulations and build the right institutions for their economic prosperity and social progress." says report author Matthew Coghlan.

"For too long now, the underlying assumption has been that regulation is an obstacle to investment, trade and economic growth. But, while the explosion of private sector activity that the Consensus unleashed created enormous wealth, it frequently made poverty worse too," he adds.

One potential benefit of the current financial crisis, Coghlan says, is that new ways of thinking about the global economic system must now be explored. New policies, regulations and institutions are needed to ensure that markets – to which the poor must have access - function fairly.

If it is properly but pragmatically regulated, the reports suggests, the private sector could be transformed into an engine for eradicating poverty and helping poor countries to develop in a sustainable way.

"The private sector has in many cases, but not all, been a force for good," says Coghlan "It has created jobs for the poor and paid their wages, and it has expanded markets and opportunities for small businesses. But there is a great deal more that it could do, if strengthened and guided, to help tackle poverty."

While multinational companies (MNCs) are often praised for their capacity to diversify economies and increase productivity, they account for only a small proportion of total employment in the world.

"They must use their enormous resources to do more, most obviously by creating new jobs for poor people and providing them with better wages and conditions," says Coghlan.

He goes on: "They must also show leadership in advocating the right policies, regulations and institutions to strengthen the link between business activity and poverty eradication."

Other measures that the private sector, including small – and medium– sized enterprises (SMEs) as well as MNCs, should take, he says, include:

* Sharing skills and technology with the poor so that they can upgrade their employment and enterprises.
* Offering finance to the poor to enable them to establish businesses so they can afford health care and education.
* Better managing of the assets, such as land and forests, which they share with poor communities, who are more dependent on them.
* Producing essential goods for and providing necessary services to poor people at affordable prices.

At the same time, the report adds, the poor need protection from the pursuit of profit. Businesses must be prevented from adversely impacting on poor communities and they must be held accountable for any harm that they cause.

And developing country governments and civil society organisations must ensure that the poor, while having access to markets, are safeguarded by appropriate policies, regulations and institutions from the private sector.

"As long as private sector development strategies do not align profit-making more closely with welfare improvements, no solution to poverty will be found," warns Coghlan.

'Getting Back on the Rails: The Private Sector and Development' can be read in full here (Adobe Acrobat *.PDF format):

You can also buy Christian Aid gifts and support present aid online.

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