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The Private Sector and Poverty: Harnessing Firepower, Recognizing Limits

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Jobs, innovation, wealth creation: the private sector has great potential to pull people out of poverty. And as developing countries open their doors to greater trade and investment, the reach, influence and impact of private companies grows. It's this power to affect the lives of the poor people -- not always for the better -- that makes it essential Oxfam engages.

We're 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.

Last month Coca-Cola announced "zero tolerance" to 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.

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.

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.

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 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. President Kim says that "To free the world from absolute poverty by 2030, countries must ensure that all of their citizens have access to quality, affordable health services."

We agree. But we urge extreme caution against the trend to scale up private sector provision of healthcare as the way to do that as 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 -- 'the underserved.'

A rising economic tide is not a ship that automatically lifts all boats. Too often, growth is put first and the interests of poor people 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.

* This post was written jointly by Winnie Byanyima and Raymond Offenheiser, President of Oxfam America