Economic prosperity and the private sector
Article Type: Editorial From: International Journal of Commerce and Management, Volume 21, Issue 1
Writing in the Washington Post, Samuelson (2010) asserted that economic success ultimately depends on private firms. The validity of this proposition has, in general, been demonstrated across history. Countries with vibrant private firms and entrepreneurs have done well economically and have experienced remarkable improvement in their living standards. However, this does not necessarily translate into better quality of life and an absence of fraud or corruption. For this to take place, certain prerequisites must be met adequately. If the existence of prerequisites (e.g. responsible market conduct,organizational goals anchored in societal needs) is either lacking or not at the desired level, neither private firms nor the society function optimally.
This leads to a suggestion that there is a correlation between societal and firms’ interests. Both are characteristically linked to each other and any attempt to value the needs of one over the other creates imbalance and dysfunctionality. The 2008 economic crisis in the USA was primarily the outcome of a philosophy which placed firms’ interests or agendas above that of the society. The practice of that philosophy ultimately resulted in economic and social calamity engulfing untold numbers of families, organizations, and governments across the globe. However, the opposite philosophy, which promotes government as the ultimate economic actor and sole provider of prosperity, fails to produce viable alternatives and often the society ends up with limited individual freedom and substandard quality of life.
The recent World Economic Forum’s (2010) India Summit issued, on November 14, 2010, a statement stating that the private sector must become agents of inclusive growth in the post-crisis world. It called on companies to create business models that generate profit and inclusive economic growth. While this call is not new, its emphasis on inclusive economic growth is a novelty. However, it contains its own constraints which ultimately render it unrealistic. In fact, the wording of the published materials of the Summit is vague,generalized, and lacking the practical steps to realize effective transformation and fruition. Klaus Schwab, the Forum’s Founder and Executive Chairman,argued that there is a need to find ways to expand economic development to the world’s poorest segment of the population which is left out of market capitalism. This segment usually remains unbanked, uninsured, and significantly unreached by conventional capitalism. According to Schwab, this segment “will drive the economy in the future.”
Critics may take issue with the term “inclusive economic growth.”Not only has the term a different meaning to different people, but also some question the possibility of “inclusion” in a capitalist system. Furthermore, the call for “conventional capitalism” to expand its coverage to the “untapped” world’s poorest segment is more likely to be viewed not as “inclusion” but merely as a creative move by capitalists to generate and increase profit. Criticism aside, the call for“inclusive economic growth” is a profound development, and mechanisms must be found to make it a possibility.
Indeed, the private sector is a vital engine for considerable economic growth and development. Energizing it to move toward an “inclusive economic growth” model should top the list of priorities of the cooperative agenda of policy makers, business executives, and leaders of civic organizations,especially international NGOs. These leaders should work closely to devise guidelines that minimize the tendency for corruption, fraud, and greed, and simultaneously remove investment obstacles and bureaucratic procedures. A balance must be found to safeguard societal interests without burdening corporations; making engaging in responsibly driven business programs costly.
Energizing the private sector, however, is not an easy task. For private firms to be functional and responsible, the following conditions must be present:
Vital and vibrant legal institutions to enable private firms to operate effectively while providing deterrents for those firms which might entertain engaging in questionable practices.
Responsible senior executives who view their business interests and that of the society as an integral medium that ultimately serves their personal interests and eases economic growth. In the USA, for example, there are executives with varying priorities. The Wall Street Journal(Lublin, 2010) reported that CEOs of the largest US public companies enjoyed bigger paydays in the latter fiscal year and that revenues for their respective companies have increased substantially. These companies, however, are reluctant to invest and rehire. Other executives, however, do not shy from balancing their interests with those of the society. These executives argue that fiscal responsibility has to begin with those who can best afford it. These executives,too, show commitment to lifting economic growth (Conason, 2010).
Functional government which is able to provide protection for the private sector and its citizens. In countries where governments are either unable to enforce law and order or selectively enforce law, entrepreneurs may not flourish and private firms will not take risks or expand economic activities.
Adequate infrastructure and serious economic reform. These are essential for entrepreneurial development and engagement. The McKinsey Quarterly(Khanna, 2008) reported that in India, where free enterprise exists, there is no vital economic reform, and entrepreneurs in villages have no means of getting their produce to market on time. These entrepreneurs lack the organization and essential support to operate efficiently, as is evident by their supposedly fresh produce lying everywhere, rotting in the sun. In contrast, China, has paved roads and related infrastructure necessary for connecting rural areas to urban centers. Thus, in China, entrepreneurs have thrived and contributed to the overall economic development.
Forward looking venture capitalists and organizations. These are needed to provide capital for innovators and entrepreneurs. More importantly, these organizations offer viable guidance and organizational assistance for entrepreneurs to grow and expand.
Active and engaged supporting institutions like universities and professional institutions (e.g. chambers of commerce, economic clubs, research and data gathering centers, etc.) to reinforce and strengthen economic involvement and professional curiosity.
A national culture that enforces creativity and sanctions moral clarity and responsible involvement. Such a culture underscores individual duties toward self, organization, and society.
While some nations have suitable infrastructure, viable legal and government institutions, and plenty of venture capitalists, many other countries are not that fortunate. This is where the monumental challenge is found. Nevertheless,all countries must face the reality that the private sector is vital for job and wealth creation. Without its vigorous and purposeful involvement, neither sustained economic prosperity nor satisfactory quality of life is possible.
Abbas J. Ali
