3 on the 3rd: Free Enterprise and Emerging Markets
BCLC's new executive interview series, 3 on the 3rd, is dedicated to providing deep and valuable business insights delivered in a quick manner. As the column name suggests, interviews are three questions in length and air on the 3rd of the month.
John Sullivan, executive director of the Center for International Private Enterprise (CIPE), launches 3 on the 3rd this month. CIPE is an affiliate of the U.S. Chamber of Commerce and one of the four core institutes of the National Endowment for Democracy. Sullivan will present on the topic of youth underemployment at BCLC's Global Conference, CSR: Business Solutions for Emerging Markets.
1. CIPE exists to strengthen democracy around the globe by advancing the free enterprise system. Could you share two stories from emerging markets that help bring this mission to life? How do you do what you do?
Freedom is indivisible: political and economic institutions are intertwined, comprising the foundation of both the market economy and a democracy that delivers for its citizens.The Center for International Private Enterprise (CIPE) partners with business associations, chambers of commerce, economic think tanks, and other private sector organizations around the world to help build the institutions necessary for thriving entrepreneurial ecosystems. We provide capacity building and technical assistance to our partners so they can bring the private sector’s voice into policy debates and improve business practices in their countries.
In Russia, CIPE has worked with coalitions of regional business associations to strengthen the small and medium-sized enterprise (SME) sector’s engagement in shaping economic policies. Through Regional Business Agendas, modeled after the U.S. Chamber of Commerce’s National Business Agenda process, the coalitions have advanced crucial legal and regulatory reforms in the areas of taxation and anti-corruption. They not only identified barriers that local businesses face but also proposed concrete solutions and successfully advocated for their implementation.
CIPE also worked with the Colombian Confederation of Chambers of Commerce (Confecámaras) to improve corporate governance of Ecopetrol, a state-owned petroleum company. Confecámaras advised Ecopetrol on implementing a corporate governance code and helped educate staff, investors, and the public about the importance of good governance. This in turn supported the government’s decision to privatize as much as 20 percent of the company. Ecopetrol received “AAA” rating for its handling of privatization.
By institutionalizing transparency and accountability, such grassroots-driven efforts not only enhance business environment and conduct but also strengthen democratic governance.
2. Many emerging markets struggle with youth unemployment and underemployment. How prevalent is this trend in CIPE’s experience, and why? What are the economic and social implications for business?
The youth employment crisis is a serious concern globally. It was among the leading causes behind the Arab Spring, epitomized by self-immolation of Mohamed Bouazizi, a young Tunisian street vendor unable to make a living in a repressive environment. Three key factors drive youth unemployment or underemployment: changing demographics that swell the numbers of young job seekers; a bloated public sector incapable of generating more employment; and a lack of economic freedom that constrains the private sector in its ability to create jobs.
Many young people who cannot find work in the formal economy – like Bouazizi – become stuck in the informal sector. They do not enjoy the protection of the legal system, have no access to many sources of financing, cannot effectively enforce contracts, and are left out of global supply chains. Why do they stay informal? The answer is simple: despite the costs of operating informally, the cost of complying with regulations and taxes imposed on businesses is even higher.
The damaging effects of the informal sector’s prevalence in emerging markets go beyond individual stories of economic struggles. Informality makes them easy targets for extortion by officials, fueling the culture of corruption that makes the business environment difficult for companies of all sizes. Finally, the capital trapped in the informal sector could instead contribute to stimulating growth and paying for social services.
CIPE’s work largely focuses on helping local organizations reform laws and regulations that hinder formalization to make operating in the formal economy a viable option for entrepreneurs.
3. How have U.S. multinational companies helped advance CIPE’s mission and programming? Could you give a couple of examples?
Many of CIPE’s current and former board members, who have played a role in strengthening CIPE, represent leading American companies such as Amway, Ernst & Young, Intel, and General Electric. In emerging markets, CIPE works primarily with local business leaders rather than multinational corporations. However, there are obviously opportunities for cooperation as domestic and international companies alike have a vital stake in improving the institutional environment of countries where they operate. Additionally, multinational companies are often focused on anti-corruption efforts. To capitalize on that, CIPE and local partners have worked with American Chambers of Commerce in countries ranging from Lebanon to Mexico on issues such as tax evasion or public procurement transparency.
Much of CIPE’s work also focuses on international best practices that businesses can use to ensure transparent operations abroad. CIPE and the World Bank Institute, for example, worked with private sector stakeholders including Grant Thornton and Siemens on tools for business to be a constructive force in combating corruption. The result was an online resource center, www.fightingcorruption.org, which companies from the United States and beyond can use for collective action against corruption.
Similarly, CIPE and Transparency International cooperated on promoting the Business Principles for Countering Bribery used by leading multinationals to enhance their anti-bribery policies and procedures. They have been accepted as a part of the UN Global Compact’s 10th Principle on Anti-corruption, used by the World Economic Forum’s Partnering Against Corruption Initiative, and referenced by the Dow Jones Sustainability Index and FTSE4Good ethical investment index.