Abigail Keene-Babcock

Guest Post: Lord Brown and “Making Private Capital Work for the Poor”

China in AfricaGuest blogger Chaz Littlejohn is the Director of Finance for Nourish International UNC Chapter, and is finishing his last semester at the University of North Carolina in the Economics program. At Nourish International, Chaz has applied his economics training to analyzing and improving how Nourish conducts its operations. His particular area of expertise is developing and implementing measurement and analytical tools. His email is chaz.littlejohn@nourishinternational.org.

By Chaz LittlejohnLord Mark Malloch Brown is a towering figure in the development community. As the former Deputy Secretary-General of the United Nations, Lord Brown was one of the chief architects of the Millennium Development Goals, which aim to eradicate extreme hunger and poverty by 2015. His previous posts include work with the World Bank, The Economist, and the UN High Commission for Refugees. In June of 2007, Lord Brown announced that he would join British Prime Minister Gordon Brown’s Cabinet as the Minister of State with responsibility for Africa, Asia and the United Nations.

So when it was announced that Lord Brown would be speaking at UNC-Chapel Hill on October 1st as part of the Frank Porter Graham Lecture series, all of us in UNC-Chapel Hill’s burgeoning international development community were quite excited. As the keynote speaker for the evening series, Lord Brown delivered a lecture on “Making Private Capital Work for the Poor.”

He began by describing what he sees as two versions of American economic history. The first is one of rugged capitalism, unencumbered by the state and built on a sort of Ayn Randian concept of virtuous self interest. The second version is a one of the roots of American capitalist success, growing out of careful planning by early leaders as well as the laws and institutions that were then developed and re-crafted over time. In referencing these two opinions, Lord Brown sought to draw parallels between our understandings of American economic development and the lessons it has for the developing world.

Lord Brown noted that in a lot of ways things have gotten much better. Globalization and smarter governance have led to booms in many countries, and many have achieved or are moving fast towards middle-income status. Since 1990, extreme poverty has been halved, China and India have become hot places for both business and growth, and although Africa has lagged behind, there are a number of trends that seem to point to current progress–such as a doubling of investment in Sub-Saharan Africa over the past five years (primarily from China), a dramatic increase since 1973 in the number of democratically elected governments, and the recent ends of conflicts in Democratic Republic of Congo, Mozambique and Liberia.

For things to really take off however, Lord Brown emphasized that the private sector has to change its perception of Africa and the developing world. Indeed, the profit opportunities are there. The poor continue to pay more for the goods and services that people in the rich world take for granted. Lord Brown referenced the fact that slum dwellers in Mumbai pay 3 times what OECD countries pay for water and 10 times what they pay for medicine. And while cheap credit is opening up to the BOP, there is still a long way to go in order to close the gap between what the rich pay for capital and what the poor pay. To hasten this, Lord Brown made the suggestion that microfinance needs to be taken out of the hands of non-profits and put into the hands of business.

Lord Brown also made the case that internationally imposed liberalization during the 1980s and 1990s destroyed many homegrown industries in Africa. He then suggested that developing countries need to be allowed to foster competitive niches. Left to the free market without a strong government structure, business in Africa will fall prey to both corruption and a corrosive lust for quick profits.

Lord Brown evoked a protectionist sentiment with these remarks. He is right in pointing out the problems of African competitiveness. As far as manufacturing and cheap labor are concerned, China is eating Africa’s lunch (a recent New York Times article surveyed this issue. Much of the new investment and for-profit activities in Africa are focused on extractive industries (oil, mineral, timber, etc.), which can be a development curse if it focuses too much wealth in the hands of a few. Infrastructure is still poor in much of Africa, and as China has begun to make inroads into the region it has brought its own workers and built its own roads.

That being said, Lord Brown’s proposed solution of more government intervention is questionable. Using tariffs and subsidies effectively is incredibly difficult and for it to work at all it requires the deft hand of an experienced government apparatus. Even if used for legitimate infant industries, businesses protected from competition commonly grow fat before they grow competitive. While Lord Brown’s suggestion was not an outright call for trade barriers, it contradicted his generally sensible assessment of the state of development.

Lord Brown is clearly a firm believer in the second version of American economic history: efforts in Africa and the rest of the world should be focused not just on seeking out business opportunities but on improving the governance and quality of African institutions. He takes the generally non-controversial position that Africa needs accountable governments, strong rule of law, open markets and social progressivism in order for it to prosper.

While Lord Brown showed an impressive breadth of understanding of the private market, a tempered assessment of what is needed in the developing world, and a great deal of personal commitment to finding solutions, his lecture lacked a clear picture of just how major goals set by the Millennium Develop Goals for in poverty reduction and human development will be achieved and assessed.

As a general guideline, the MDGs might serve a purpose, but since they aren?t tailored to any country in particular, their practical usefulness is limited. There’s also the question of who the actual agents of these initiatives are. Are we to depend on NGO?s, community based organization, developing world governments or some combination of them all? This begs the question of what role rich world governments, the UN, or the World Bank should play? Before you can start assessing progress you need to know who is going to be responsible for driving change. While I agree with Lord Brown that government is important, I tend to place more faith in the citizen sector and the social entrepreneurs who are trying to solve the tangible problems of the world.