Lauren Rawlings is an “international development” professional writing in her personal capacity. This article does not represent the views of her employer, colleagues, or clients.
Call to Action to the International Development Community: Make Economic Justice the Objective of Market Development and Private Sector Engagement
Economic growth is not enough. Eliminating poverty requires a focus on economic justice. And for that workers, consumers, and communities need power, resources, and structures to advance their interests on equal footing with private companies and investors.
Achieving USAID’s stated mission of reducing poverty (not to mention attaining SDG 1: eliminating poverty) will require development policymakers and practitioners shift their focus from economic growth to economic justice. Chasing growth without intentionally pursuing economic justice[1] risks exacerbating inequality and further embedding poverty in societies around the world. (There is significant evidence that economic growth can contribute to poverty reduction if inequality does not increase.[2]) To build just and sustainable societies, it is especially important that market development and private sector engagement intentionally reduce disparities in wealth and power between company owners and employees, between companies and consumers, and between companies and communities. [3]
Three practices — employee ownership, consumer protection, and B Corporation certification — provide workers, consumers, and communities the power, resources, and structures to advance their interests on more equal footing with company owners, managers, and investors. Progressive changemakers in the US are increasingly embracing these practices. USAID and other donors, philanthropic agencies, development finance institutions (DFIs), and impact investors should join them.
1. Employee Ownership
Employee ownership should be broadly inclusive, providing employee owners access to information, participation in decision-making, and a share of economic returns.
Holding an ownership stake in the companies they work for can engage, empower, and enrich workers. Robust employee ownership secures for all employees key ownership rights: access to information, participation in decision-making, and a share of economic returns. Of the different employee ownership models in use around the world, many provide employees with financial returns, without guaranteeing or enabling exercise of the other two rights. This is the key distinction of robust employee ownership: all three ownership rights are guaranteed for all employees, not just a small number of executives. This type of employee ownership converts employees from stakeholders into shareholders; from a constituency company leaders can choose how and whether to consider into a group empowered to advance its own interests.
In the US, Fifty by Fifty (follow Fifty by Fifty: Employee Ownership News) aims to increase the number of people working for employee owned firms to 50 million by 2050. The initiative uses a combination of agenda setting, research, and knowledge and skills building to catalyze a movement for employee ownership. Project Equity provides consulting and hands on support for employee ownership transitions and ongoing management. Evergreen Cooperatives has catalyzed the development of employee owned businesses as part of its approach to supporting grassroots community development in Cleveland, Ohio. Based on the success of the employee-owned firms it has incubated, Evergreen started the Fund for Employee Ownership which acquires local small and medium-sized businesses and converts them to employee ownership.
USAID, DFC, and their counterparts and partners could promote employee ownership by incorporating all three of the approaches above into their blended finance programs. There are already concerns about the subsidies catalytic capital provides for private actors.[4] Funding employee ownership can address issues of undue benefits to investors and founders by sharing the benefits of catalytic capital more widely. When participating in blended transactions, USAID and other donors could convert their catalytic capital into employee shareholdings and fund technical assistance and training to support development of the capabilities required for successful employee ownership. Donors can also fund local research and information dissemination to increase public awareness and understanding of employee ownership. DFC, other DFIs, and impact investors could incorporate employee ownership in their strategies for responsible exit. Management buyouts are already somewhat mainstream; but broad-based employee buyouts are all too rare. Fair wages and pay equity, worker safety, ethical labor practices, and employee wealth-building are difficult if not impossible to monitor post-exit; robust employee ownership enables enduring impact. Empowered employee owners ensure long-term accountability for good jobs and reduce power and wealth disparities within firms.
2. Consumer Protection
Robust consumer protection provides information, advocacy, and enforcement.
Economic justice also requires reduced asymmetries in information and power between consumers and the companies from which they buy products and services. Strong consumer protection can also benefit companies and industries by giving consumers the confidence they need to make larger purchases, buy from newly established firms, and try innovative products. Good consumer protection requires information, advocacy, and enforcement. Consumers need reliable information about products and businesses. Independent reviews and ratings of products and companies are effective as confidence-building and accountability measures. Consumers need effective advocates to communicate their preferences to companies and to promote their interests in legislative and regulatory processes.
Donors can provide capacity building and funding for both independent and government agencies to develop the skills, resources, and regulatory frameworks required to hold private companies accountable for product safety, fair and transparent pricing, dispute resolution, privacy, and other ethical business practices. In the US Consumer Reports provides unbiased professional product reviews and the Better Business Bureau collects, aggregates, and disseminates reports of fraud and unfair business practices. The latter collaborates with Fair Trade Commission on policy and enforcement. The Consumer Financial Protection Bureau has an industry-specific focus for its policy, research, and when required enforcement. USAID could work with local advocates to develop and strengthen domestic analogs for these organizations as well the numerous industry-specific ratings and reviews platforms. Mobile technology and social media have made it possible for some consumers in USAID focus countries to exchange market information, but there is an opportunity to support more formal and robust information collection and sharing. The Consultative Group to Assist the Poor (CGAP), which focuses on financial services for poor people, recently published a report on financial consumer protection in which they outline a customer-outcomes approach that is relevant for other industries. Donors can help industry regulators develop locally relevant customer outcomes focused regulatory frameworks and customer-centric enforcement.
3. B Corporation Certification
B Corp Certification provides standards, third-party verification, and public transparency for positive impact on workers, customers, communities, business partners, and the environment.
Finally, economic justice requires that communities have the information and power to hold companies accountable for measurable positive impact. Companies can commit to independent verification and public reporting of positive impact by becoming certified B Corporations. In addition to independent verification, B Corp certification requires integration of stakeholder benefits into governance documents and structures. B Corp certification embeds into the organization accountability for positive impact on workers, customers, communities, business partners, and the environment with specific standards for each.[5] There are more than 3500 certified B Corps in 74 countries from Australia to Zambia and Myanmar to Mexico. Because certified B Corp status requires not only independent verification, but public transparency (impact reports must be posted publicly) it enables company insiders as well as community members to help companies shape their impact strategies and ensure accountability for business practices that don’t align to B Corp principles. Accountability and independent verification distinguish B Corp certification from public statements to embrace “stakeholder capitalism” which have not been found to result in sustained changes in company behavior.[6]
USAID and other donors can fund certification of individual companies; fund and promote development of national legislation for benefit corporations[7]; and fund expansion of the network of global organizations that implement B Corp verification and certification. DFIs and impact investors can support portfolio companies to embed their commitment to impact into company structures by working toward certified B Corp status. This will have the added benefit of streamlining investment impact monitoring efforts by leveraging B Corp independent verification. Pledges of corporate intent and self-assessments in annual reports have been insufficient to drive economic justice; B Corp certification makes companies answerable to communities (as well as consumers, employees, and business partners) for impact in line with their stated values.
All three practices — employee ownership, consumer protection, and B Corp certification — establish lasting structures that give employees, consumers, and communities power to negotiate for their interests, re-balancing the scales toward sustained economic justice.
Recently, Ford Foundation’s Darren Walker, Omidyar Network (Omidyar Network), William and Flora Hewlett Foundation, and other progressive US changemakers have offered sharp critiques of shareholder primacy and called for a re-imagining of capitalism in the US. Employee ownership and B Corps are elements of their approaches to addressing the inequality that has been exacerbated in part by shareholder capitalism. All three practices described above are gaining momentum in westernized democracies that have for too long pursued economic growth at the expense of economic justice.
Much of US foreign assistance still centers economic growth. Corporate partnerships and innovative finance are increasingly relied-upon approaches for pursuing this goal. These approaches must be complemented by efforts to expand the power and resources of workers, consumers, and communities to ensure growth benefits everyone. Re-defining the development objective from economic growth to economic justice will ensure means (growth) and ends (justice) are not confused. Employee ownership, consumer protection, and B Corp certification are relatively straightforward approaches to moving toward this objective by bolstering the ability of workers, consumers, and communities to transact as equals with private companies and investors.
As US domestic policymakers begin to acknowledge and address the causes and impacts of inequality at home, our international development policy should be subject to similar re-examination. Advancing equality and justice at home while (even inadvertently) allowing the encroachment of “trickle down” approaches abroad is counterproductive and out of line with our stated values.
Notes
[1] Economic justice ensures people have the material foundations on which to build productive, dignified, and creative lives.
[2] GSDRC’s Topic Guide on Inclusive Growth summarizes findings from Deininger and Squire; Dollar and Kraay; Ravallion; Bourguignon; and Balakrishnan, Steinberg, and Syed on the links between growth, poverty, and inequality.
[3] Economic justice also requires changes to fiscal policies (including tax rates, tax enforcement and collection practices) and social spending, which are explored by other authors. The focus of this article is on practices to be integrated in private sector development initiatives.
[4] NB In the linked article (It’s Not About Subsidies –And Five Other Myths About Blended Finance), Struewer argues there are many situations in which subsidies are appropriate and that instead of avoiding the term, donors should make a positive case for appropriate subsidies. I would add that they are even more justified and potentially more politically viable when the benefits are more widely shared.
[5] Please visit the B Corp website, for more information about certified B Corps. Or follow them at B The Change.
[6] This Ford Foundation funded study, A Test of Corporate Purpose, found that companies that signed on to the Business Roundtable guidelines did not perform better than S&P 500 peers in employee safety, labor practices, job security or any of nearly ten other categories.
[7] Benefit corporations and certified B corps have some related and mutually reinforcing features, but they are not the same thing. In the US, 30 states have provisions for benefit corporations that are legally empowered to pursue positive stakeholder impact alongside profit (in these jurisdictions a benefit corporation is an option for legal structure like an LLC or corporation). In addition, Italy has passed benefit corporation legislation. Benefit corporation legislation is pending in Australia, Canada, and a few South American countries.
