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Is this the right moment to reboot the Aid, Trade and Private Sector agenda?

August 12, 2016
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Oxfam’s private sector adviser Erinch Sahan thinks the times are ripe for a paradigm shift Erinch

In a former life (i.e. six years ago), I worked as a development adviser to Australia’s trade negotiators. Back then, we development types were suspicious and hostile – we feared that rich countries would divert aid to pursue a narrow interpretation of their national interests.

Now, from TPP to the UK’s multiple post-Brexit negotiations, trade is back on the agenda – is this a moment to go on the front foot (sorry – Aussies, cricket etc), bringing to the table the more ambitious vision that the development sector has always had? Here’s my pitch.

We all agree, a different kind of firm is needed, is possible, and could flourish

We all know of the growing chorus of voices proclaiming that today’s business structures aren’t leading to the shared prosperity we all want. From the Chairman of Danone to the Chief Economist at the Bank of England to the business think-tank Tomorrow’s Company, thought-leaders are increasingly aware of the need to change the structure of the corporation. This is because today’s mainstream businesses are engineered to channel as much wealth as possible to shareholders and can only ‘do good’ if it happens to involve the highest return on investment. The percentage of aid and trade logosprofits going to shareholders has risen from 10 percent in the 1970s to 70 percent today for UK companies. US companies are on a similar trajectory of increasingly channelling wealth to shareholders (more than half of profits now go to share buy-backs) rather than reinvesting in their operations and people. Meanwhile, as Thomas Piketty and others point out, the share of income going to labour is declining. And as those of us working on agriculture know all too well, the share of value going to farmers is also on the decline.

Companies are structured to always prioritise channelling income to their shareholders. Boards represent shareholder interests, even if they are at liberty to consider other stakeholders. Since the rich own a disproportionate amount of shares, engineering companies to be concerned only with the welfare of their shareholders means engineering our economy to care disproportionately for the rich.

Theresa May is proposing to change this by putting workers on boards and a number of initiatives are looking to reengineer the company so it isn’t just a vehicle to channel wealth to shareholders (Purpose of the Corporation, Blueprint for Better Business,  the Aspen Institute’s Purpose Project to name just a few). Meanwhile, alternative models of business that put purpose before profit are on the rise:  the Benefit Corporation movement is growing, employee-ownership is on the rise, social enterprises are expanding, fair trade businesses remain resilient and cooperatives continue to grow. In fact, the aid world has played a part in the growth of some the best models going around, including KTDA in Kenya. A different form of business is becoming possible just as agreement grows that the status quo needs a shake-up. The aid world should embrace this.

We don’t have to change today’s companies, we can build alternatives

We don’t have to start with today’s big business. The business landscape in 20 years will look very different, and the

Don't waste your time on tomorrow's dinosaurs

Don’t waste your time on tomorrow’s dinosaurs

aid, trade and economic policies of today will determine what those businesses look like. For instance, according to a study of listed US companies, the average company only lives for 15 years. This means shaping those on the rise is more important than reengineering today’s giants. With their main growth surge still ahead of them, developing countries are a great place to create a different kind of business world. That’s where aid and trade come together nicely.

Aid and trade can promote economies dominated by businesses structured to share prosperity

Imagine aid and trade policies singing from the same hymn sheet, with civil society and progressive business voices joining in. What would be a simple vision from say, the UK government, which uses aid and trade levers, alongside domestic economic policies, to promote business structures designed to share prosperity within both the UK economy and its trading partners in the developing world? It could include the following measures to support businesses deliberately structured to share prosperity:

  • Aid programmes providing access to finance (e.g. credit guarantee schemes)
  • Private equity funds (e.g. via CDC) financing conversion to employee-ownership in developing countries
  • Favourable access to the UK market for such business structures
  • Support to special Economic Zones for social enterprises (e.g. see Liberia)
  • Preferential tax treatment within the UK (e.g. see recent tax relief for employee-ownership)
  • Government procurement favouring these structures more strongly
  • Programmes that support UK businesses to source from such business structures
  • Governance programmes that aim to create ecosystems for such business structures
  • SME policies that favour such business structures (existing SME policies can be redirected to favour alternative structures)

How can Aid for Trade contribute to implementing the Sustainable Development GoalsPolicy-makers will doubtless think of better ideas, but the point is that the UK aid and trade agenda could pursue an economic transformation in the UK and abroad that fits the shared prosperity vision that Theresa May is espousing. The key will be to retain, as a central pillar, the structural evolution of the private sector that it entails. And as she reminds us: “It is not anti-business to suggest that big business needs to change“.

And there’s a wider selling point. Post Brexit and mid-Trump, a lot of mainstream commentators are bemoaning the way current business models have fomented alienation and resentment. This reboot could be part of healing those divisions.

12 comments

  1. useful take on the business landscape and what UK can do. Fair trade work is shifting to countries like India .This is where the future is and UK government need to support this.

  2. Very pleased to see big aid agencies finally finding social business as a solution to a range of global problems and inter related crisis. How we engineer our economies to reward and incentivise sustainability and human well being is a critical and urgent challenge, but aid agencies such as Oxfam don’t need to start from zero or pursue this agenda alone. Some organisations have decades of this this kind of thinking and experience at hand. It’s time to join up and take this agenda to the next level.

    1. Absolutely agree Peter, and your organisation (Social Enterprise UK) has a wealth of insights to shape the next generation of companies. Working with other movements, such as employee-ownership, BCorp and cooperative movements, there’s a tangible alternative to the mainstream corporate models forming that we all need to promote in a multitude of spaces. Oxfam can also sprinkle some of its insights from the enterprise development and fair trade work over the decades and across the world. Looking forward to pulling together a joint agenda to help transform the mainstream economy in many places.

  3. I found the fact about the average lifespan of a US stock-listed company especially encouraging. Sometimes I wonder how effective social businesses can really amidst giants like Nestlé, P&G and the likes…

    1. Thanks Marisa. One example that gives me hope is Amul in India, a giant in the food industry, co-owned by >3m farmers, and bigger than Nestle in India on milk-based products. We need more Amuls, as well as John Lewis’ and other models that share wealth and value more broadly. I think it’s possible.

  4. Great article, Erinch, as always a thoughtful and challenging piece.

    You are, of course, quire right that right now represents an historic opportunity for a new way of doing business. A connected and entrepreneurial generation looking for something new and the emergence of new markets geographically and virtually create this opportunity. Your instinct is to look for government to stimulate this which is clearly a part if the picture.

    But we don’t need to completely write off the ‘old’ model which is, and will remain, the dominant feature of most people’s lives. The imperative to change is clear, as you argue so eloquently. Truly sustainable shareholder value will only come from businesses pursuing a more inclusive and purpose-led model. Most CEOs know this. We shouldn’t ignore the human in this too – looking your kids in the eye is a big incentive for CEOs to push back against short-termism.

    What is needed is a cultural conversation that supports courageous Boards to do the right things and to normalise a better way of doing business. This should be led by well-placed business leaders and others including government and charities. The institutional investment community also needs to be far more vocal in supporting a more sustained form of wealth creation which delivers long term reward to shareholders (even at the expense of short term gain) because of, and not despite, the fact that it supports all stakeholders, communities and the environment.

  5. Thanks John, and you’re right, the human dimension is absolutely critical. Many people do listen to their conscience and ‘do good’ even if they aren’t financially incentivised to do so.

    With long-termism, the challenge comes with the inequality lens. I would argue it’s causing havoc globally, including in politics (Trump, Brexit etc) as people feel they miss out on the fruits of the economy. If we are to stop the spiral of inequality, we need to share value and profits differently. If we are maximising shareholder value over the long-term, we’re maximising returns to people who are (on average) disproportionately rich over the long-term. Isn’t long-termism still a recipe for continued growth of inequality?

  6. Erinch – great to read this thoughtful article which powerfully brings the aid and trade debate towards convergence rather than competition with each other. Your bullet point check list is a very helpful call to action around three areas: a) to change the way investors and grant makers use their finance and influence to bring about greater equity through trade b) to make full use of the types of business structures which ensure a better distribution of the proceeds of business and c) to create policies that create a collaborative approach based on a joint vision. These speak exactly to the global B Corp agenda and we’re keen to work with others that are also impatiently seeking to bring this about – including social enterprises, cooperatives, mainstream businesses, policy makers and development agencies. Together, let’s bring on that future now!

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