Businesses for the Business Environment: Harnessing Private Sector Incentives for Economic Transformation

Those of us interested in private sector development as a way of achieving sustainable growth and shared prosperity are often confronted with two harsh truths: public sector partners are constrained by limited resources and capacity, corruption and rent-seeking; and private sector partners are ultimately driven by profit maximization. Squaring that circle is of particular importance in developing economies, where successfully leveraging private sector incentives in support of public interest can have outsized impact.

Within a certain set of circumstances and with a careful watch for competition-stifling behavior, multinational companies can, at times, address local market failures and protect public interests more effectively than governments working on their own. For example, Gap’s reputation management improves access to supplier information; Uber’s new technologies remove barriers to entry and improve consumer safety; and Unilever’s efforts to build a stable supply chain support the growth of small firms.
 
We cannot and should not expect private interests to act as saints absent of a watchful eye. But there are examples in which Private sector-led reforms can be a powerful development tool, especially in the absence of quick fixes in low-capacity markets. They can also be an opportunity for collaboration between the public and private sector to achieve development goals. While focusing on ensuring public goods are protected, governments can leverage these practices that contribute to de-risking investment, easing compliance, and promoting better distribution of market information.

Multinational companies, while acting in their own interest, can also improve the business environment at large. Can large multi-national companies engage in rising tide behavior that lifts all boats? In what ways do the otherwise self-interested actions of companies also benefit the broader business environment? And to what extent can such behavior be harnessed to serve global development goals?

There are many companies whose core activities create positive externalities without government involvement. An upcoming blog series, “Businesses for the Business Environment” (B4BE) will highlight several such companies and explore how this behavior can be harnessed to serve global development goals.

By sharing these stories the B4BE blog series aims to help governments better understand how to harness the power of markets for development, how to embrace the potential benefits of such business activities while applying command and control only where necessary.

Case Studies:
Data on firms by firms: how companies like Gap could remove investment barriers

Catch up with the blog series:

• Part 2
• Part 3