The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

The private sector and poverty: Harnessing firepower, recognizing limits

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It’s the power to affect the lives of the poor people—not always for the better—that makes it essential for Oxfam to engage with the private sector.

By Winnie Byanyima, Executive Director of Oxfam International, and Raymond Offenheiser, President of Oxfam America

Winnie Byanyima is Executive Director of Oxfam International.
Winnie Byanyima is Executive Director of Oxfam International.

Jobs, innovation, wealth creation. The private sector has great potential to pull people out of poverty. The reach, influence and impact of private companies grows as developing countries open their doors to greater trade and investment. 

That is why at Oxfam we are increasingly taking on hard-hitting campaigns to get companies to take responsibility for the impacts of their operations. We’re also working to establish transformative partnerships with private sector leaders.

As development professionals, our experience at the intersection of business and poverty has brought us to an acute awareness that the positives of private sector engagement cannot be a trade-off for harms caused. So for example, creating 2,000 jobs cannot justify displacing 20,000 people from their land and livelihoods.

Coca-Cola listened to you!

Last month Coca-Cola announced “zero tolerance” of land grabs after more than 225,000 people signed petitions and took action as part of Oxfam’s land rights campaign. The company also said it will allow independent social, environmental and human rights assessments across its supply chains. As the largest purchaser of sugar in the world, Coca-Cola has immense power to influence its suppliers and the industry. A “do no harm” principle must be central to all core business practices; Coca-Cola’s unprecedented step will resonate throughout the industry.

The role of the private sector in development

World Bank President Jim Yong Kim recently wrote a guest Oxfam blog describing the private sector as a central pillar in the Bank’s new strategy to end extreme poverty. That the World Bank is carefully deliberating on the role of the private sector in development and its limits is encouraging.

Social and environmental performance standards are the requirement of the Bank’s collaboration, President Kim said, if companies want to tap into the institution’s technical expertise, relationships, investment dollars, and risk insurance. And indeed in its dealings with the private sector, the onus is on the Bank to ensure costs are not off-loaded onto the poorest and most vulnerable people.

Is the World Bank “learning from failure”?

To do this, the Bank must ensure it has robust accountability mechanisms in place – because after all, standards only work if they are applied. Equally important is President Kim’s assurance, “We are learning from failure.” Recent audits of IFC and World Bank investments reveal fault lines in the Bank’s ability to ensure no harm to affected communities, particularly when lending through intermediaries including banks and private equity funds.

Garment workers ride home after a day's work in a factory in Cambodia. Photo: Chhor Sokunthea / World Bank
Garment workers ride home after a day’s work in a factory in Cambodia. Photo: Chhor Sokunthea / World Bank

But in at least two recent cases, the World Bank Group management refuted, denied or failed to act on findings from its accountability mechanisms. This is why we have recently, with our allies, written to President Kim to ask him to take such findings seriously, ensure the World Bank Group takes remedial action, and make sure that accountability mechanisms findings are not ignored in the future.

The limitations of the private sector must not be underplayed. Ultimately, governments must safeguard strong and effective regulatory environments. And it is governments that must step in to provide essential public services. No low- or middle-income country has achieved universal or near universal healthcare and education without relying predominantly on public financing and public delivery of services.

“To free the world from absolute poverty by 2030, countries must ensure that all of their citizens have access to quality, affordable health services.” ~World Bank President Jim Yong Kim

We agree. But we urge extreme caution against the trend to scale up private sector provision of healthcare as the way to do that. Evidence shows it does not deliver results for the poorest. A mid-term evaluation of the International Finance Corporation’s ‘Health in Africa’ initiative, for example, identified a systematic failure of the initiative to focus on its targeted beneficiaries, i.e. ‘the underserved’.

Equality and accountability

A rising economic tide does not automatically lift all boats. Too often, growth is put first and the interests of poor people are second, leaving them to bear the costs of growth–environmental degradation, inequality, corruption and marginalization. To channel resources and economic growth to pro-poor ends, the realities of power and marginalization must be acknowledged and tackled, and the Bank’s interventions should not entrench power balances already in favor of the influential.

This will require a strong focus on transparency, accountability, and participation. The Bank’s role in leveraging investment flows into developing counties is crucial. Even more important is getting those resources to empower farmers, workers, and communities.

Together, we must make sure that private sector firepower is harnessed to address global poverty. Beating poverty depends on it.

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  1.  avatarPeter Chowla

    Thank you Winnie for the thoughtful and extensive intervention. We have been working with Oxfam staff on this issue for many years, challenging the World Bank to up its game if it wants to do more private sector work. With the Bank’s most recent annual report showing 42% of annual commitments through the IFC (the Bank’s private sector arm) and more than half of that through financial intermediaries – we have potentially billions worth of investments without sufficiently robust oversight, application of safeguards, or accountability for when things go wrong.

    But I also think the IFC needs to pay attention to the rationale for its investments in the first place. Some IFC investments, as you highlight in the health sector, may actually make things worse for communities and the poor. And then there are some for which I just can not fathom that they are a legitimate use of development finance resources. We’ve written up a few them – but that the IFC is funding pre-packaged creme-filled croissants, or online shopping sites in Russia, when there are so many absolutely poor people without decent jobs, should be raising more eyebrows than it is.

    Reply

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