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| Tuesday, 9 March 2004 |
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Prescription for ills of developing countries A study released last week by a United Nations panel has recommended a proven prescription for the ills of developing countries: unleashing the power of local businesses can help alleviate poverty. The report, 'Making Business Work for the Poor', compiled by the UN's Commission on the Private Sector and Development, said Third World nations should focus on developing businesses that create domestic employment and wealth. It says that developing countries should pursue policies that encourage savings, investment and innovation. In other words, the private sector can alleviate poverty by contributing to economic growth, job creation and poor people's incomes. In Sri Lanka and elsewhere, the private sector has been recognised as the engine of growth. The public sector used to be the biggest employer in most developing countries, but this is changing fast as governments downsize their administrative machinery. The private sector has thus emerged as the key player in most economies. It is true that the private sector is profit-driven, but that is no reason to forget its role in the wider society. Recruiting local personnel, especially talented youth and sourcing local raw materials are just two ways in which private sector companies can help their neighbourhood. Such moves help raise the living standards of hundreds of families, whose economic empowerment benefits the whole nation in the long run. However, for all this to happen, the private sector should have a conducive environment to achieve its goals. Most Third World countries have tight bureaucratic controls that discourage private sector entrepreneurs. For example, beginning a business is no easy task in most impoverished countries where red tape reigns. The UN Commission cites an example from Angola, where it takes 146 days and US$ 5,531 (more than eight times the average per capita income) to start a business. On the other hand, it takes just US$ 28 (less than one per cent of the per capita income) to start a business in New Zealand. This glaring discrepancy highlights why most Third World nations languish far behind their developed counterparts. Facilitating the commencement and smooth functioning of enterprises at grassroots level is essential in the drive to banish poverty. Such Small and Medium scale (SMI) enterprises can spur economic growth at village level by providing direct and indirect employment to residents of their respective areas. The UN report points out how governments can actively contribute to making a vigorous private sector, through fair taxation, the elimination of cronyism and financial incentives. High taxes do fill the government coffers, but stifle the unrestrained growth of the private sector. Financial assistance enhances the capacity of the private sector to expand and diversify, boosting the economy further. On a global scale, governments must help the private sector to realise its export and trade potential. This will enable developing countries to rely more on trade, instead of aid, and accelerate economic growth. Of course, there should be a worldwide effort to reform the present trading system which is geared towards fulfilling the needs of developed countries. The Commission has also addressed the role played by multinationals in developing countries. There is a notion that multinationals are a predatory species that always seek to exploit poor countries. This populist portrayal of multinationals simply ignores the fact they employ thousands of locals and make a significant contribution to the economy. As the UN report observes, there should be no conflict between the multinationals and the 'local' private sector as both are pursuing more or less the same objectives. Far from being adversaries, they can help each other. In Sri Lanka, for example, several multinationals sponsor entrepreneurship programs while smaller private sector companies supply raw materials and components to their international counterparts. Again, the local population is ultimately benefited. Government and private sector decision makers in Sri Lanka and other developing countries must read this report and work earnestly to implement its recommendations where possible. Eradicating poverty will remain an unattainable goal if they do not act now. |
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