How Uncle Sam could become a world champion

In 1970, 70 per cent of resource-flows from the United States to developing countries originated from the US government in the form of Official Development Assistance (ODA). Today, the United States Agency for International Development (USAID) estimates that private capital from American citizens, residents and companies accounts for 85 per cent of these resource-flows.

This private capital is being channelled to developing countries through a combination of foreign direct and portfolio investment, commercial bank loans, remittances, non-governmental organisations, religious groups, universities, foundations and corporate philanthropy. Together with new approaches to ODA it is changing the face of America’s engagement in international development.

The US business community, ranging from multinational corporations and corporate foundations to trade and industry associations, has played an increasingly important role in this transformation, engaging in both the public policy debate on foreign assistance and mobilising commercial and philanthropic resources to developing countries.

This emerging private sector role has been driven by a combination of factors. These factors include direct business interests as US companies expand and compete in the global economy, changing public expectations of business and increased activism both at home and abroad.

Also contributing to the new role of the private sector is the growing recognition within the development community of the importance of private sector development and entrepreneurship as engines of growth in developing countries and as crucial to achieving the Millennium Development Goals (MDGs), and also a variety of incentives, directives and partnerships led by the US government.

All of these factors will continue to be important in ensuring continued US business engagement in development, especially in the face of growing economic uncertainty globally and increasing protectionist pressures domestically.

Over the past decade, the following types of activity have been particularly important in engaging the US business community in international development initiatives, and are likely to be of ongoing relevance in the future:

Voluntary business-led coalitions;

Government agencies focused on private sector development;

Government-led corporate accountability mechanisms;

Public-Private Partnerships and Funds.

Voluntary business-led coalitions have served to catalyse hundreds of major corporations to support development goals. The US Chamber of Commerce, for example, has established a Business Civic Leadership Center, which has an active programme focused on researching and promoting the role of business in emerging economies and in disaster response and rebuilding, drawing on and learning from American Chambers around the world.

The Initiative for Global Development was launched in Seattle in 2003 and engages business and civic leaders around the United States to support advocacy and public policy dialogue aimed at achieving more effective international development policies. The Business Council for Global Development, which is supported by leading multinational companies, also focuses on public policy dialogue in Washington DC and on building capacity for corporate social responsibility and trade negotiation skills in developing countries.

Business for Social Responsibility has evolved from a US corporate responsibility coalition to a global network, with an office in China focused on promoting responsible business practices and labour standards. Trade associations in industries such as the pharmaceutical, chemical, energy and financial sectors have also established dedicated programmes to promote and broker new market-led approaches to international development.

The Committee Encouraging Corporate Philanthropy is another relatively new CEO-led coalition that provides tools and research to increase the quantity, quality and strategic impact of corporate giving, both financial and product donations as well as employee volunteering, with a programme on international giving.

The Brookings Institution has launched an Initiative on International Volunteering and Service, with over 150 participating groups, including corporations, all working to encourage more global volunteering by Americans, including the implementation of new public policies and programmes to facilitate this.

And the Clinton Global Initiative offers a final private-led example which in less than five years has helped to catalyse an estimated US$10 billion, mainly for international development projects, through over 500 commitments from corporations, foundations, development NGOs and individual philanthropists.

The US government has also played a role in promoting the global corporate social responsibility (CSR) of American companies, especially in developing countries. There is currently no broad federal mandate for CSR, but a 2005 study by the US Government Accountability Office (GAO) identified 12 US agencies and over 50 federal programmes, policies and activities focused on mandating, facilitating, partnering and endorsing responsible business practices abroad.

Of particular note in terms of their scale and impact are government-led initiatives to increase private sector investment and entrepreneurship in developing countries, to improve corporate accountability and transparency in sensitive industry sectors, and to jointly mobilise public and private funds for key development objectives such as global health and education.

The Overseas Private Investment Corporation (OPIC), for example, has adopted an increasingly strategic approach to working with US companies to fulfil its mandate to support market-led solutions to economic and social development in developing and transition economies.

Among other initiatives, it has launched an Enterprise Development Network in partnership with the private sector that is dedicated to financing and insuring the expansion of micro-sized, small and medium-sized enterprises.

Both OPIC and the Export-Import Bank of the United States also now require the companies they work with to meet certain social, environmental and transparency standards.

Likewise, the Millennium Challenge Corporation, which has developed a rigorous process for encouraging good governance and mutual accountability compacts with the governments that it funds, is working more actively with the private sector to ensure development outcomes that are not only more accountable, but also pro-growth and pro-poor. The government-funded African Development Foundation and Inter-American Development Foundation are both doing likewise.

The US government has also spearheaded several international corporate accountability initiatives such as the Voluntary Principles on Human Rights and Security in the extractive sector, in co-operation with the UK government, and a coalition with the textile sector that has now evolved into the independent Fair Labor Association.

Finally, the US government has launched several public-private resource mobilisation initiatives. Examples include the President’s Emergency Plan for AIDS Relief (PEPFAR), which has leveraged millions of dollars and other resources in a public-private partnership effort aimed at bringing HIV/AIDS interventions to scale. Another notable initiative has been USAID’s Global Development Alliance (GDA).

Established in 2001, GDA aims to significantly expand and deepen the impact of US development assistance by leveraging government funds with the resources, skills and innovation of private sector partners. Since 2001, it has worked with a wide variety of corporations, corporate foundations and business networks as well as NGOs and private foundations to form more than 680 alliances and mobilise more than US$9bn in combined public and private resources. Projects have ranged from efforts to strengthen agribusiness value chains to education and health to harnessing remittances and Diaspora funding.

The above examples illustrate some of the initiatives underway in the United States led by both government and the private sector itself to engage US business in international development. In many cases these initiatives have been spurred and/or encouraged by civil society engagement and activism.

While there has been progress, much more could be achieved. In particular, there is a need for the US government to markedly improve the co-ordination, integration, efficiency and effectiveness of its official aid and trade assistance programmes and to more strategically engage the business sector as well as other non-governmental actors ranging from development NGOs, foundations and universities to individual philanthropists and volunteers.

In December 2007, the bipartisan, public-private HELP Commission released its report on US Foreign Assistance Reform. Entitled Beyond Assistance and based on nearly 22 months of extensive consultations and research, the report stated, ‘Our foreign assistance system is broken. We ignore this reality at our peril.’

Among its seven recommendations were calls to, ‘do more to help developing countries build vibrant private sectors’, and to ‘create a new business model and engage non-governmental partners.’

The commission stated, ‘We must actively engage new non-governmental actors and leverage the resources from the explosion of growth in philanthropy and private investment. We believe that new initiatives, increased funding, and most importantly, lasting results will occur if we more proactively collaborate with non-governmental actors.’

Regardless of the results of the US presidential election, such an imperative must be met if the United States is to fulfil it immense potential to be a champion of international development and the MDGs.

Jane Nelson is a senior fellow and director of the Corporate Responsibility Initiative at Harvard’s Kennedy School, a non-resident senior fellow at the Brookings Institution, and a director at the International Business Leaders Forum.