International development and the private sector: The ambiguities of “partnership”

Historically, the relationship between the private sector and international development has been ambiguous and ambivalent. For many scholars and practitioners, it is self-evident that a vibrant private sector and competitive markets (both national and international) are the essential prerequisites for successful development, understood first and foremost as rapid rates of aggregate economic growth. Policies and projects that hinder market dynamics are therefore seen as obstacles to successful development. Those taking this view—both economic liberals and some classical Marxists—have seen development as an “immanent” process, unfolding according to the inexorable dynamics of capitalist economic relations with the private sector as the “engine of growth.” Many others have seen development as principally concerned with alleviating the disruption and dislocation associated with capitalist profit seeking, ameliorating its repercussions (if not transcending it altogether) through poverty-reducing and socially empowering interventions. Michael Cowen and Robert Shenton ¹ have characterized this latter approach as “intentional” development. Critical development scholars of various theoretical views (dependency, alternative, or post-development, for example), as well as many civil society practitioners, have taken the latter view. ²

In the last generation, the profound uneasiness, if not outright opposition, toward prioritizing private sectors and deepening markets has given way to a more pragmatic emphasis on the complementarities between markets and development, and the positive role that private sectors can and should play. This trend has reflected, in part, the ascendance of neoliberal theoretical ideas among the world’s most powerful governments (particularly those concentrated in the West) and multilateral development institutions (notably the World Bank and International Monetary Fund (IMF)), emphasizing the unfettered private sector as engine of growth. Increasingly, however, it has also reflected a growing emphasis on the direct (or “intentional”) contributions that private sector actors can make to development objectives, on their own and in collaboration with a wide range of other actors. Even more recently—particularly in the post-2008 financial crisis era—it has been strongly reinforced by a preoccupation with unlocking new sources of development finance, as traditional state-based development funds have become more constrained while demand continues to grow. The presumed complementarities between governmental, non-governmental, and private sector actors in development have been captured under the ubiquitous rubric of “partnership.” ³

Yet skeptics have continued to question this trend, and to critique the particular form of development it has promoted, notably on the grounds of its impacts on social equity and ecological sustainability. In this brief essay, we review the historical conditions under which a pivotal development role for the private sector has become increasingly taken for granted. We then assess some of the debates concerning the role of transnational corporations and foreign direct investment in the development process; the rise of more deliberate norms and practices of corporate social responsibility, partly as a response to these debates; the concomitant rise of a new era of “philanthrocapitalism” and public–private partnerships; and, at the grassroots level, the celebrated yet contested growth of microfinance micro-credit as a market-oriented vehicle for poverty alleviation and empowerment, particularly among poor women. When taken together, it is clear that private sector actors and market-oriented processes have become increasingly ubiquitous and influential in the new landscape of development. Yet there are also signs that the unfettered enthusiasm for private sector processes and partners is giving way to a more measured and skeptical approach, not least among the governments of the developing world.

The first three development decades: The ascendance of intervention

The emergence of formal institutions and explicit policies to promote the development of newly decolonized countries, beginning in the early 1950s, coincided with a relatively interventionist and state-centred phase in economic development policies in both the “industrialized” and post-colonial worlds. Several well-known historical conditions underpinned this orientation. The Great Depression of the 1930s was largely attributed to the disaster-proneness of unfettered markets. The case for counter-cyclical interventionism made by the celebrated economist John Maynard Keynes, among others, gained mainstream acceptance as a result. Wartime planning and production entrenched a statist orientation in the thinking of leading governments worldwide. With these considerations in mind, the central institutions of postwar international economic governance—the Bretton Woods system encompassing the IMF and the World Bank, conceived in 1944—aimed to combine international liberalism in the external domain with substantial interventionism in domestic contexts. Famously dubbed the “compromise of embedded liberalism” by John Ruggie, ⁴ their approach combined (in Eric Helleiner’s words) a market-oriented “multilateral financial order of stable currencies and current account convertibility [with] publicly controlled international financial institutions to offer short-term balance of payments support and long-term investment capital. Their endorsement of capital controls and exchange rate adjustments also provided greater policy autonomy for governments to pursue more interventionist domestic policies.” ⁵

Yet from the perspective of the emerging “Third World,” this compromise took too little account of the urgent challenges faced by “late developers.” Structuralist ideas associated with the Argentinian development economist Raúl Prebisch, among others, posited the persistence of unequal terms of trade between the manufactured goods produced mainly by industrialized countries on the one hand, and the primary commodities on which most developing countries depended on the other—thereby providing a theoretical rationale for interventionist policies aimed at political–economic restructuring and diversification. ⁶ Such policies, it bears noting, had much in common with the late development thought and practice that underpinned industrialization in nineteenth-century America, Germany, Canada, and Australia, among others. ⁷ Prebisch’s structuralist, or core-periphery, thinking set the stage for the more radical analyses of dependency thinkers who, in their most stark manifestations, argued that North–South economic exchange led to the “development of underdevelopment” in post-colonial countries and called for some form of political–economic “de-linking.” ⁸ Finally, the apparent success of communist economic planning, widely credited with engineering the remarkably rapid industrialization of the Soviet Union (albeit at extraordinary human cost) was highly influential among newly independent developing countries.

In these circumstances, state-generated five-year plans for economic development, heavy reliance on state-owned enterprises and commodity marketing boards, and high levels of import substitution industrialization (ISI) became the norm. Even mainstream development prescriptions associated with modernization theory accepted the need for a significant degree of state intervention to secure the conditions for “take-off.” ⁹ It is true that, consistent with the original Bretton Woods compromise, the principal multilateral instrument of trade liberalization, the General Agreement on Tariffs and Trade (GATT), made steady progress in reducing barriers to trade, particularly among industrialized or developed countries, through a series of negotiating rounds in the post-Second World War era. Developing countries were marginal within this process, however, and used the more encompassing venue of the United Nations (UN), where they had greater influence, to advance proposals for a more “managed” approach to global exchange, captured in their advocacy of a New International Economic Order. ¹⁰ This more interventionist orientation remained ascendant up to and including the 1970s.

Yet even in these early development decades, an emphasis on the importance of private sector investors and liberalized markets was evident among “mainstream” development institutions, practitioners, and scholars. For instance, the Pearson Commission of 1969, so named for its chair, the former Canadian prime minister Lester Pearson, and best known for its advocacy of a stable commitment of 0.7 percent of gross domestic product (GDP) to foreign aid by Western donor countries, had as its first two (of ten) recommendations the creation of “a framework for free and equitable international trade” and the promotion of “mutually beneficial flows of foreign private investment.” ¹¹ Similarly, the aforementioned Raúl Prebisch, whose structuralist thinking paved the way for often avowedly socialist dependency approaches, nevertheless favoured a mixed economy with the private sector in the lead. Thus, strong private sectors were seen by many as critical (albeit contested) agents of development even in this early phase.

Neoliberal reaction and structural adjustment

A decisive reaction against interventionism and toward liberalization and marketization began in the 1980s. There were both real world and theoretical influences that drove this sharp neoliberal “counter-revolution.” ¹² Structural changes in the world economy, including the rising importance of finance capital and the ending of the Bretton Woods regime of fixed exchange rates in the early 1970s, ushered in an era of economic “globalization” and of concomitant state retooling in pursuit of enhanced international competitiveness. ¹³ The liberalizing policies that enabled this turn were driven politically by the election of the (confusingly labelled) neoconservative governments of Ronald Reagan in the US, Margaret Thatcher in the United Kingdom, and Helmut Kohl in West Germany, who were inspired theoretically by the monetarist thinking of, among others, the Chicago School anchored by Milton Friedman. ¹⁴ Concomitantly, governments pursuing state-centred development policies in much of the developing world, particularly Latin America but also Africa and South Asia, sank into a deep debt crisis that increasingly discredited statist approaches and compelled them to seek relief. This in turn opened the door to draconian marketizing and privatizing structural adjustment policies (SAPs), imposed by the World Bank and IMF as the quid pro quo for the concessional financing necessary to weather the crisis. Finally, the collapse of the Soviet Union and its East Bloc satellites at the end of the decade thoroughly discredited the state-socialist models they had pursued and ushered in an era of neoliberal triumphalism.

In global development, these policies crystallized as the “Washington Consensus,” so-named because of the tight alignment in thinking and prescriptions among the World Bank and IMF, leading Western governments and policymakers, private sector actors, and neoliberal professional economists centred in but extending well beyond Washington, DC. ¹⁵ The SAPs arising from this thinking reflected a high degree of standardization, applied with great consistency and bloody-mindedness to diverse regimes in both the Third World and the former Soviet bloc. For our purposes, they led to a decisive tilt toward the market and the private sector, with their emphasis on trade liberalization, elimination of barriers to foreign direct investment (FDI), and privatization of state-owned enterprises. The resulting policy shifts were strongly reinforced by the Uruguay Round of the GATT (1987–1994), during which leading developing countries such as Brazil and India decisively turned away from their pursuit of ISI and managed trade to embrace the mantra of liberalization, which was almost completely universalized through the establishment of the World Trade Organization (WTO) in 1995. ¹⁶ The die was cast: private sector actors were henceforth to become central to mainstream development thought and practice.

The role of transnational corporations and foreign direct investment

Perhaps the most important upshot of the neoliberal turn was a historic shift in attitudes toward transnational corporations (TNCs) and FDI. From a neoliberal perspective, policies that aggressively encouraged inward investments by TNCs and other forms of FDI could not but help the development cause by generating increased competitiveness and accelerated growth that would, over time, alleviate aggregate poverty. This conception of private sector led growth and development was firmly in line with immanent or “engine of growth” understandings of its role. To be sure, the anticipated trickle down process would inevitably entail disruption, dislocation, and considerable hardship—captured in Joseph Schumpeter’s famous invocation (albeit with different processes in mind) of “creative destruction.” ¹⁷ But the result, from this perspective, was bound to be historically progressive. Private sector actors were not expected to take on new and/or explicitly developmental roles, but merely to be liberated to engage in the profit-maximizing pursuits that were their raison d’être.

It is worth emphasizing the historical significance of this shift in approach, which continues to elicit unease among many development thinkers and actors. In the first three “development decades,” from the 1950s to the 1970s, the extraordinary size, autonomy, and influence of TNCs were typically viewed with considerable wariness, if not outright antagonism—as reflected in the title of Raymond Vernon’s well-known book, Sovereignty at Bay. ¹⁸ Figures concerning the extraordinary size of TNCs—noting the comparability of the revenue of Chevron with the GDP of Thailand, or of Daimler-Chrysler with Argentina, for example—engendered anxiety regarding the exceptional influence such corporations could bring to bear on their “hosts,” particularly in the developing world. Highly publicized instances of corporate malfeasance—perhaps most famously the Bhopal disaster caused by a major gas leak at a Union Carbide plant in India in 1984—deepened the sense that TNCs and FDI were challenges to be managed, rather than assets to be courted. Of course, the close relationships between corporations and governing regimes richly benefited some, but there was well-earned skepticism among most development scholars and practitioners concerning their implications for the many.

By the 1990s and into the 2000s, the dominant orientation toward TNCs and FDI had essentially reversed. Sumner notes that the received wisdom through this period was that attracting FDI was “good” policy (at least for growth, which was in turn seen as the core ingredient of development). ¹⁹ Most FDI policy changes, he observes, related “not [only] to easing restrictions on entry but to promotion and incentives.” One clear measure of the altered disposition toward FDI was the dramatic proliferation of bilateral investment treaties (BITs), providing transparent, investor friendly rules regarding FDI admission, treatment, expropriation, and the settlement of disputes. Elkins et al. show that, from a moderate pace of signings in the mid-1980s, the number of new treaties exploded through the 1990s to more than a hundred a year throughout the decade. ²⁰ Similarly, the Trade Related Investment Measures Agreement that came into force in 1995 as a result of the Uruguay Round aimed to lock in a more conducive environment for foreign investors by prohibiting restrictive practices such as local content and trade balancing requirements. Of particular note to the Canadian private sector, with its world-class extractive corporations, was the creation of investor friendly mining codes throughout the developing world, featuring very modest royalty and income tax regimes, generous capital and investment allowances, etc. The rapid spread of these codes helped instigate a mining boom in both Latin America and Africa. ²¹

The onset of market liberalization and investor friendly policies unleashed a sustained surge in FDI to the global South, and a growing presence of TNCs (largely from the North, but increasingly from “emerging economies” ²² of the South) in the developing world. Indeed, FDI has for some time dramatically overshadowed official development assistance, or foreign aid, as a net capital inflow to developing countries. ²³ Yet after a quarter century of investor friendly policies and a prolonged commodities boom that has only recently gone largely bust, the evidence for a positive impact on poverty alleviation and sustainable development remains complex and/or elusive. Based on a thorough review of surveys regarding the impact of FDI, Sumner summarized in 2008 that “many of the benefits of FDI are either unclear or determinant on prerequisites such as levels of human capital, levels of per capita income (as a proxy for economic development) or levels of financial development or policy regimes, which may not exist in many countries.” ²⁴ These findings concerning the complex effects of FDI, including their differential impact on larger and more diversified “rising economies” (e.g., India, China, Malaysia, and Mexico) versus smaller, low-income economies (e.g., Ghana, Guyana, Malawi, and Zambia), as well as the importance of politically difficult government policy choices in shaping these effects, have been widely corroborated. ²⁵ Indeed, unfettered FDI without complementary development policy efforts appears to have had a negligible, or in some cases negative, impact where poverty is most pervasive. Moreover, it has been closely correlated with the unprecedented inequalities that have become a major preoccupation of global social movements and elites alike. ²⁶

TNCs, for their part, have continued to be implicated in disturbing manifestations of environmental and/or human insecurity. ²⁷ This has resulted in a growing trend toward more assertive policies from developing countries (a new “resource nationalism”) determined to secure a greater share in the benefits from the activities of foreign investors, and growing social movement pressure for improved corporate behaviour. ²⁸ The upshot has been growing incentives for corporations to become more proactively involved in intentional development efforts or, as Di Bella et al. term them, “private sector engagements for development,” ²⁹ versus the more passive pursuit of growth and profitability as ends in themselves. The remainder of this paper reviews the most prominent of these private sector and market-oriented engagements, beginning with corporate social responsibility.

A growing emphasis on corporate social responsibility

Faced with the negative repercussions of corporate irresponsibility and the importance of maintaining a “social licence to operate,” both corporations and governments (home and host) have placed steadily growing emphasis on corporate social responsibility (CSR). What is CSR, and how has it been viewed by the private sector, governments, and individual stakeholders? What do we know about its implications for development in the global South?

For Werther and Chandler, CSR is discerned from its three constituent words: corporate, social, and responsibility. ³⁰ It covers the relationship between corporations, or other large private sector actors, and the societies with which they interact. It equally emphasizes the responsibilities that each side in these relationships has to others, and to broader social and physical environments. Attempts to define CSR in the past have revealed two of its basic conceptual features: that it is usually manifested in some observable and measurable output; and that social performance as a result of CSR typically exceeds levels set by obligatory regulations and relevant markets. ³¹ All definitions of CSR, Bannerjee argues, involve the voluntary and discretionary efforts of corporations to exceed their legal responsibilities so as to facilitate some sort of societal “good.” ³² Similarly, Werther and Chandler note that CSR involves corporations looking beyond their primary purpose for being—satisfying the economic interests of their shareholders—to the management of the impact of their actions on society, communities, the environment, and the public. In contrast, authors such as Drucker suggest (in line with “engine of growth” arguments) that the first “social responsibility” of business is to make enough profit to secure a healthy financial future, because a decaying business in a decaying economy will not likely find a reason to pursue CSR objectives. ³³ In general, therefore, CSR could be considered both a means and an end, depending on one’s disposition toward the concept itself: the way a firm might go about delivering its products or services (the means), and the manner by which it seeks to maintain an aura of legitimacy around its actions within the larger society by taking account of extended stakeholder concerns (the end). ³⁴

While the origins of modern CSR are long and contested, there is no gainsaying its rapid expansion as both a practice and focus of study over the past six decades, or its even more dramatic growth in the context of (and as a reaction to) the post-1980 neoliberal turn. Yet all this activity has not yielded conceptual clarity. ³⁵ More than 40 definitions, offshoots, and toolsets later, we still lack a generally applicable conception of CSR. Orlitzky et al. argue that the dramatic growth in the use of the term, coupled with related inconsistencies and debates, has hampered progress in understanding CSR-linked activity. ³⁶ As Waddock notes, “parallel and sometimes confusing universes exist” in the study and definition of CSR, thanks in part to scholars approaching the topic from a wide range of disciplinary and theoretical perspectives. Additional fragmentation arises from the various levels of analysis at which it has been studied, with the macro-level typically given priority over the individual. ³⁷ Yet in a literature review of 37 different definitions of CSR, Dahlsrud argues that this definitional ambiguity might not be as dramatic as we might first imagine, since in 97 percent of cases explored, CSR references at least three of five cross-sector “dimensions”: environment, society and its relationship to business, socio-economics, stakeholders and associated groups, and “voluntariness.” ³⁸ While these elements do not provide descriptions of optimal CSR design, or formulas for its achievement, they do suggest consensus around the processes by which it might be established.

More precisely, Ponte et al. provide a useful analytical framework to encapsulate the various forms and levels of CSR activity. They distinguish proximate and engaged initiatives (involving workplace conditions and policies at corporate headquarters or directly owned plants), distant and engaged activities (involving codes of conduct applied to corporate suppliers and supply chains), proximate and disengaged efforts (cause-related marketing in local communities of operation), and finally distant and disengaged CSR (cause-related marketing with distant beneficiaries). ³⁹ Each of these forms will have varying motivations and ramifications for their ostensible beneficiaries, and need to be carefully distinguished and evaluated.

How, then, has CSR been constituted? To be sure, there is a growing emphasis among most old and new development actors on CSR. For the old, it represents both a necessary and measured response to the forcible entrance of new development actors at the negotiation and funding table. Put another way, corporations have invited themselves to the development dinner table, with no plans to leave. The development family already at the table, including representatives of government, international organizations, and the not-for-profit sector, have typically taken one of several responses: working with corporations and private sector actors to foster and promote mutually beneficial CSR codes and guidelines; attempting to impose such guidelines on private sector actors; and, in some cases, closing their eyes and wishing these new actors away. CSR may therefore be seen in part as an awakening to a changing development landscape by a growing portion of the old development family, recognizing that they are no longer alone in this domain of international action.

The question remains, however: does the growth of attention to CSR equate to more socially responsible corporate practices? In some respects, the response to this question is surprisingly positive. Carroll and Shabana suggest that the concept of CSR and associated practices has grown so substantially since the 1940s that one cannot navigate the breadth of media sources without encountering some discussion of the issue, some recent example of innovative practices, or some new conference devoted to it. ⁴⁰ A plethora of journals, magazines, books, dictionaries, encyclopedias, websites, discussion lists, organizations, and blogs has emerged under the rubric of CSR, or broach the topic regularly. In 2010, global accounting giant PriceWaterhouseCoopers (PwC) noted that some 81 percent of all companies now publish CSR information, and 50 percent have a homepage CSR link. European companies have regularly outpaced their North American counterparts in CSR reporting, with 94 percent of the former providing such information but only 50 to 70 percent of the latter. ⁴¹ The Conference Board of Canada’s 2013 “Sustainability Practices” report, covering companies on the Standard & Poors Global 1200 Index, notes that more than 50 percent of those surveyed now have environmental impact reporting practices, and more than 84 percent report on social and ethical practices. According to Forbes, the number of companies issuing sustainability and CSR reports worldwide jumped to 5,500 in 2012, from only 800 in 2002. From an employee perspective, a PwC survey suggested that nearly 88 percent of millennials now select employers based on the latter’s CSR values, and 86 percent agree that they would leave a workplace that does not meet their expectations in this regard. ⁴² While these numbers are difficult to substantiate, other evidence suggests that they might be indicative of a continuing trend in support of CSR among millenials. ⁴³

The growing emphasis on CSR also means that it has become increasingly institutionalized. Bondy et al. suggest that corporate recognition of acts impacting society and the public (for example, the British Petroleum response to its oil spill in the Gulf of Mexico), the development and training of CSR professionals, the codification of CSR in national and international law, changes in public opinion regarding “green” business, and the modification of market tools all point to the concept’s institutionalization. ⁴⁴ In an April 2014 vote, the European Union Parliament made CSR reporting mandatory for any listed company in Europe with over 500 employees—a total of 5,000 to 7,000 companies. ⁴⁵ The UN’s Global Compact, touted by its proponents as the world’s largest corporate citizenship and sustainability initiative with more than 12,000 members from 145 countries, has pioneered a new model of partnership-based development within the UN system involving what John Ruggie has characterized as an innovative global “learning network.” ⁴⁶

These various trends reflect the growth of CSR principles and practices. More companies than ever before are participating in public reporting practices and monitoring programs, stakeholder engagement, and voluntary frameworks. But how has this growth in emphasis and activity translated into practical application—and what sort of development does it contribute to? As we will see in the next section, CSR initiatives and actors have been manifested in a variety of new and interesting ways.

Yet controversy persists concerning the nature and limits of the development vision reinforced through CSR, as well as the reach and impact of CSR activities in the communities they are supposed to be “for,” particularly in the global South. The very diversity of CSR’s conceptualization, the range of codes and principles it has inspired, and the voluntary nature that is one of its hallmarks mean that its systemic impact is difficult to evaluate and enforce. For many critics, such as Soederberg, its positive veneer masks and facilitates the steady intensification of neoliberal market structures, accompanied by widening inequalities and persistent ecological degradation. ⁴⁷ In this sense, it has been portrayed as a vehicle for “greenwashing” or “bluewashing,” depending on which negative repercussions are being masked. ⁴⁸ As discussed in the next section, the spread of public–private partnerships that it encourages—indeed entrenches—can be seen to diffuse the responsibility of publicly accountable institutions for development outcomes, and therefore obfuscate accountability. Finally, as Lund-Thomsen notes, ⁴⁹ CSR remains very largely a preoccupation of corporations, governments, and consumers in the global North, particularly Europe and North America. Its limited popularity and reach beyond these regions, the weakness of legal and regulatory constraints on corporate behaviour in the South, and the unintended negative consequences of externally formulated CSR codes of conduct for many workers and families in the developing world all suggest that its impact may be more ambiguous than is often presumed, while its responsiveness to the real concerns of Southern communities is often limited at best. These critiques underscore the need for more systematic analysis and assessment of the “thousand flowers” of CSR, at both transnational and local levels, and for the consolidation of these initiatives and codes to facilitate effective monitoring and accountability.

The “new” philanthropy and public–private partnerships

Closely related to CSR is the rise of the new “philanthrocapitalists.” ⁵⁰ It is, after all, the philanthropic “arms” of major corporations and their owners that are often primary agents of private sector development interventions, frequently in the form of public–private partnerships (PPPs) with international organizations, state-based donors, and civil-society organizations. Philanthropic and development aid modalities have undergone roughly three stages of overlapping change and evolution in relation to each other. The first stage may be classified as traditional development aid, or the assistance provided by traditional (that is, Western) bilateral and multilateral agencies that are normally members of the Organization for Economic Co-operation and Development’s (OECD’s) Development Assistance Committee (DAC) and operate within DAC rules, regulations, and peer review scrutiny. ⁵¹ Actors within the traditional development assistance paradigm have been government donors supporting fellow governments through direct or bilateral aid, through multilateral organizations like the UN, and through development-focused non-governmental organizations (NGOs). ⁵² Thus, traditional aid frameworks connect three channels. Citizens in rich countries pay taxes to their governments, a small portion of which are allocated to international development assistance. These countries then on-lend or grant these resources to poor or developing states, sometimes via multilateral intermediaries, who in turn implement programs and policies with the stated objective of accelerating development and reducing poverty. ⁵³

Until the 1990s, this system was relatively effective, at least in administrative terms: flexible enough to accommodate many new recipients as they emerged through decolonization, with potential efficiency gains as the numbers of donors and recipients grew. Today, however, the traditional aid system is increasingly under strain. On the supply side, there has been an explosion of bilateral and multilateral agencies, as well as new private donors—the latter often “backfilling” the growing need for development finance as government aid budgets stagnate. On the delivery side, the number of NGOs has become unwieldy, and their associated mandates diverse and complex. Moreover, official aid channels are increasingly being transformed into tools addressing various political, commercial, and security ends, along with traditional development concerns. ⁵⁴ In response to the growing need for new funding sources and the inevitability of private sector participation in development initiatives, there has been a marked rise in the popularity of PPPs and in reliance on corporate donors. ⁵⁵

The emergence of non-traditional development assistance represents a second evolutionary phase in the aid paradigm. Greenhill defines non-traditional development assistance as cross-border sources of finance provided with some public or philanthropic interest or purpose and with some associated level of conditionality, but also with funding or delivery mechanisms that differ from DAC donors. ⁵⁶ This category includes assistance from non-DAC states, philanthropic and institutional giving, social impact investment, ⁵⁷ global vertical funds, ⁵⁸ and climate financing. Beginning with the first actor type, non-DAC funders are normally associated with, though not limited to, the BRICS countries (Brazil, Russia, India, China, and South Africa), offering a political alternative to the development cooperation model preferred by their DAC counterparts. Their mantra is South–South cooperation, which they portray as an equal partnership in contrast to the DAC model of hierarchical “donor-recipient” relations. ⁵⁹ Although South–South cooperation is not new, the proliferation of regional meetings between the BRICS and their developing country counterparts, ⁶⁰ the emergence of a BRICS Development Bank, ⁶¹ and the rise in Southern rhetoric challenging aid conditionality (including structural adjustment) and reaffirming sovereignty all seem to indicate a shift toward a different development paradigm.

But what of “new” philanthropy? We see this emerge within this second evolutionary phase under the rubric of philanthropic and institutional giving. Delvetere and De Bruyn argue that, to date, relatively little is known about the consequences of the philanthropic sector’s rise, since it typically consists of development initiatives instigated not by traditional development aid specialists but instead by private actors, companies, and foundations who have been confronted with certain imperatives in the developing world (concerning health, nutrition, education, etc.) and have wished to take action in their own way. ⁶² Although philanthropy is an ancient idea and practice, they see the core of the new philanthropy as distinct from earlier iterations. First, the new philanthropists did not emerge in the simply stratified context of North–South relations, but reflect a “post-modern story of globalization and international networking” within a more diverse and pluralistic development landscape. ⁶³ Second, there has been a proliferation of new foundations with focused missions to address certain specific problems in developing countries, as well as the reorganization of older private philanthropic organizations for similar ends. ⁶⁴ Indeed, these organizations are instigating larger global alliances that can further mobilize private and public resources to fight major challenges. ⁶⁵ Lastly, new philanthropy is largely heterogeneous, non-domain specific, and fundamentally divorced from the bounded models of traditional development theories, such as modernization, structuralism, or dependency theory, as well as related professional specializations.

In short, “new” philanthropy is made up of private actors, whether foundations, emerging NGOs, citizen networks, or corporations, who, according to Develtere and De Bruyn, are writing their own rule book for development aid, largely bypassing restrictive traditional funding channels (although not public funds) and broaching specific, self-identified challenges. ⁶⁶ In this manner, they have come to play a disproportionately significant political and agenda setting role—as exemplified by the Gates Foundation’s global health role. Moreover, debate continues over whether the motivations behind these actions are benevolent or simply a means of “looking good” and burnishing philanthropic brands. Regardless of motive, however, their impact has been widely felt—particularly through the controversial proliferation of hundreds of transnational PPPs, “in which nonstate actors co-govern along with state actors for the provision of collective goods, and adopt governance functions that have formerly been the sole authority of sovereign nation-states.” ⁶⁷

That said, is the current phase of corporate philanthropy all that “new,” and can it truly be considered the third evolutionary stage of development aid? Klein notes that corporations and their relevant organizational arms have been supporting various worthy causes for roughly a century. ⁶⁸ For him, the third evolutionary stage of development assistance, marked by this “new” philanthropy, is distinguished by the slow decline and eventual end of blind charity by corporations, and a shift toward non-cash giving focused on measurable outcomes. ⁶⁹ Jenkins suggests that new philanthropy is the application of business techniques by an emerging generation of self-made, hands-on donors who engage in strategic grant making paired with an emphasis on performance metrics and aid effectiveness. ⁷⁰ Anheier and Leat argue that for many of this “new” generation, philanthropy is an investment, not charity, with the explicit aim of creating social wealth, often in direct conflict with the realities of not-for-profit organizations. ⁷¹ Therefore, new philanthropy is seen to involve the tapping of core strengths of business (beyond their large resources pools) for use in international development initiatives, accompanied by the view that funding without responsibility and measurable results may no longer be a sustainable model of aid.

However, some commentators have noted that private philanthropists are far less generous or entrepreneurial than stereotypical assumptions about private sector roles suggest. For example, McGoey notes that despite the dramatic growth in the number of new philanthropic foundations, their total spending is still far below that of state-based development agencies. ⁷² What is striking in this context is the degree to which they have leveraged their resources to perform an increasingly pivotal agenda-setting role in particular issue areas. Again, the Gates Foundation’s global health role is a striking example, but by no means unique. Moreover, far from injecting risk-taking flair into the development landscape, McGoey’s analysis shows that in at least some celebrated cases of both corporate and philanthropic development initiatives—for example, the M-Pesa system allowing Kenyan villagers to pay bills through text message on their mobile phones ⁷³ and the advanced market commitment (AMC) enabling the wide distribution of a new pneumococcal vaccine—private initiatives relied on public sector agencies bearing the critical early-stage risks. In this regard, the balance of private versus public risks and benefits in these new “partnerships” calls for careful scrutiny—a point to which we will return.

Microfinance and micro-credit

If transnational corporations, CSR, philanthrocapitalism, and many PPPs typically operate at the rarefied apex of national and international development efforts (think of the World Economic Forum), the private sector turn has also vitally affected grassroots or community development efforts in poor rural communities, particularly through the explosive growth of microfinance and micro-credit. Through these practices, participation in the market and the fostering of private sector entrepreneurship have been touted as progressive forces for alleviating poverty and empowering the most marginalized, notably including women. Thus, the rapid popularization of microfinance and credit illustrates the degree to which the private sector turn in international development has been pervasive in its impact, spanning local to global levels of initiative and analysis.

Microfinance “is the provision of a broad range of financial services to those excluded from the formal financial system.” ⁷⁴ Within this category of services sits micro-credit—the lending of small amounts of money to a client by a particular service provider, such as a bank. The origins of modern microfinance can be traced back to the creation of the Grameen Bank in 1983 by future Nobel Peace Prize laureate Muhammad Yunus. ⁷⁵ Since then, and particularly in the 1990s and 2000s, microfinance and the microfinance institutions (MFIs) that have promoted and delivered it have grown to provide a substantial depth of generalized financial services to poor and relatively marginalized populations. Yet microfinance has been regularly plagued by two interlocking questions: whether these tools have a measurable impact on the social and economic situation of the poor in developing countries; and whether delivery institutions can finance their own operations without compromising their mission to reach these vulnerable populations. ⁷⁶ Indeed, the sustainability of MFI operations has been a sensitive issue, with many forced to raise interest rates to exorbitant levels in order to escape reliance on donor funding. ⁷⁷ Within this structural and operational gap we find new philanthropic and private sector actors taking on increasingly prominent roles in the provision of microfinance, fostering what Aitken terms the growing “financialization of micro-credit.” ⁷⁸

The failure of formal and informal financial sectors to provide affordable and accessible services, particularly credit, to the poor and marginalized is often viewed as one of the principal factors reinforcing the economic, social, and demographic structures that cause poverty. Micro-credit, involving the dispersion of collateral-free loans to groups of jointly liable borrowers in order to foster income generation and poverty reduction through enhanced opportunities for self-employment, has served as a partial response. ⁷⁹ As noted, the Grameen Bank of Bangladesh is a pioneering MFI, with micro-credit as one of several categories of action or service provision. Offered as a means to create self-employment and income-generating activities for the poor, microfinance has been portrayed as a challenge to traditional lenders who often deem the poor “not creditworthy.” MFIs provide banking services for the poor by going directly to these historically marginalized clients and giving a high priority to building social capital. ⁸⁰

Conclusion

The themes and modalities discussed above make clear that the private sector and private sector actors have become integral and expanding elements in international development thinking, strategies, and practices, from poor rural communities to transnational PPPs. As the financing requirements of global development activities grow, notably to support the ambitious agenda set by the post-2015 UN Sustainable Development Goals, and as traditional donor willingness to meet these requirements diminishes, private sector activities and influence seem almost certain to expand further. ⁹⁶

This is a remarkable shift from the wariness that characterized relations between the domains of international development and the private sector during the first three “development decades,” from the 1950s through the 1970s. Yet the expansion of private sector activity and influence has also produced an increasingly robust body of analysis that challenges the more enthusiastic assumptions concerning private sector roles that the neoliberal turn propagated. Today, the costs and risks of private sector modalities and initiatives are better understood, as are the self-interests that underlie their newfound development activism. A more measured appreciation of the potential and limits of private sector roles is emerging, along with a more balanced understanding of the capacities of other development actors.

A particular challenge with this turn toward the private sector is ensuring that it does not further erode the capacity of developing countries, and the communities within them, to set their own development priorities and build the systems and capacities to meet them. Tightly focused PPPs, such as those in the health sector, can achieve significant results in their particular issue areas, yet potentially override and disrupt local decision-making processes and the governance systems required to meet broader health policy objectives. Microfinance initiatives uncoupled from a grounded analysis of the social structures of local communities—with regard to gender, for example—may compound the burdens faced by women within these communities while failing to significantly and sustainably alleviate poverty. In sum, private sector actors and enthusiasts must go beyond ritualistic invocations of the need for local “ownership” in order to ensure heightened responsiveness to the priorities of those people and communities that development efforts are ostensibly for. Only some of these priorities can be met through the “magic of the market.”

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.