Despite growing recognition of the importance of the private sector in driving economic growth and supporting the achievement of the Millennium Development Goals, most countries still lack a suitable enabling environment for effective private sector development.
Carl Schramm, President and CEO of the Ewing Marion Kauffman Foundation, argues that support for entrepreneurship and start-up firms is especially lacking, “The Washington Consensus focuses on macroeconomic issues such as finance and trade, along with general institution building. Nations are urged to create good banking systems, reasonable interest and exchange rates, and stable tax structures. They are expected to privatise, deregulate, and invest in infrastructure and basic education. Entrepreneurship, meanwhile, is considered only as an afterthought and in piecemeal fashion.”60He argues that even in developed economies, “The system
that generates and supports entrepreneurship in the United States is surprisingly unappreciated.”61 Yet, he and others believe that with the right development
policies it is a system that could be cultivated in other countries.
The lack of a more dedicated and systematic focus on private sector development in many developing countries is due to a variety of reasons. Not least a legacy of public ownership and mistrust or mutual ignorance between public sector officials and development practitioners on the one hand and business leaders and entrepreneurs on the other. In a number of developing countries there is no longstanding tradition of private sector development, especially beyond the informal, subsistence economy at one end of the spectrum and large state-owned enterprises at the other end. There is also limited experience in building the necessary financial institutions, business support systems and research organisations that are essential for nurturing what Schramm describes as, “high- impact firms – the kind that create value and stimulate growth by bringing new ideas to market, be they new technologies, new business methods, or simply new and better ways of performing routine tasks.”62
There is much work to be done by public policymakers, donors and business leaders to address this shortfall and to work together to create the appropriate enabling environment not only for improved access by entrepreneurs to essential resources such as capital, technology, and skills, but also to increase the linkages between large and small companies, urban and rural economies, formal and informal sectors, foreign and domestic markets, and developed and developing countries. As explored in more detail in Section III, building such linkages is an essential component of ensuring more productive, profitable, sustained and equitable patterns of economic growth.
The differences in motivation, orientation, impact and need between micro, small, medium, and large enterprises, and within each of these categories, have important implications for the type of public policy interventions, market mechanisms and
intermediaries or partnership models that are required to support private sector development and the implementation of competitive and responsible business practices.
Systemic and integrated approaches are essential, even if the focus will vary for different stages and types of private sector development. As explored in more detail in Part III of this report, key areas of intervention to support small enterprise development include the following:
• Improving access to finance, business services and legal rights • Upgrading and integrating small enterprises into value chains • Implementing responsible business practices in small enterprises
A critical leadership challenge in each of the above areas is ensuring the most appropriate and effective combination of market-driven approaches and public sector, NGO and donor support. On the one hand, there is the need to minimise public interventions where they are likely to create unhelpful market distortions and subsidies. On the other, there is the need to recognise that under current circumstances and constraints in many developing countries – ranging from market failures to governance gaps and lack of institutional capacity – approaches that are purely market-driven may create undesirable externalities and may exclude not only vulnerable groups from income-generating opportunities, but also high-potential ‘opportunity entrepreneurs’. In many cases new types of ‘hybrid’ approaches, combining both market-driven and public sector elements, and public-private or private-NGO alliances are going to be essential.
SUMMARY OF PART I:
TOWARDS A GROWING CONSENSUS ON DEVELOPMENT AND POVERTY REDUCTION
The following five components of development thinking and practice are serving to reframe approaches to international development:
1. The centrality of economic growth
There is growing recognition that economic growth, which ensures participation of the poor and
takes measures to protect environmental sustainability, is an essential and powerful force in the
fight against global poverty – both in terms of its potential to generate direct improvements in standards of living and to support broader social progress.
2. The foundation of good governance
There is appreciation that good governance, supported by effective institutions forms another fundamental pillar for sustained development and poverty reduction.
3. The shared responsibility of governments as development partners
There is greater acceptance that both developing country governments and donor governments
must share responsibility and take mutual leadership for creating the necessary enabling
environment – at both national and global levels – for achieving development goals.
4. The active participation of the poor
There is increased understanding of the need and the great potential to harness the assets,
capabilities and voices of the poor themselves in creating effective approaches to poverty
reduction, with civil society organisations often playing a key role as interlocutors and advocates.
5. The importance of private sector development
There is a strong emerging evidence of the crucial importance of a diversified, productive,
profitable and responsible private sector – ranging from large multinationals and domestic
corporations, to small, medium and micro-enterprises in both rural and urban communities. The vital role of small enterprises as key producers, employers, distributors, innovators and wealth creators is increasingly recognised.