From poverty to power - Oxfam-Québec
From poverty to power - Oxfam-Québec From poverty to power - Oxfam-Québec
3 POVERTY AND WEALTH PRIVATE SECTOR, PUBLIC INTERESTIn recent years, harnessing the dynamism of the private sector hastriggered extraordinary development in a number of countries,especially in Asia. However, in the absence of an effective state andactive citizens, especially trade unions, the private sector can alsoexploit workers, undermine democracy, and despoil the environment.SMALL BUSINESSThe power and profile of large transnational corporations (TNCs)leads many NGOs, including Oxfam, to engage them at the internationallevel in an effort to change their policies and practices.Yet onthe ground, the development efforts of governments and NGOs alikemore often focus on small and medium-sized enterprises (SMEs),which are much more present in the lives of poor people. 136SMEs create many more jobs and have more local linkages thanTNCs. They employ poor and marginalised people who might otherwisestruggle to find jobs in large modern companies, and act as a safetynet by soaking up labour in times of crisis. They are incubators ofentrepreneurial skills and social mobility, especially for women enteringbusiness for the first time.However,small businesses are also responsiblefor some of the worst abuse of workers’ rights, including forced andchild labour.As economies grow, small and medium-sized businesses tend tomove out of the informal economy, acquiring legal status, becomingliable for taxes and benefits, and paying wages in a more regular fashion.Not only do they become more formal,they also become more importantto the economy as a whole: formally registered SMEs employing up to250 people account for just 16 per cent of GDP in low-incomecountries, but this rises to 39 per cent in medium-income countriesand 51 per cent in high-income countries. The variation betweencountries is huge: while less than 5.5 per cent of the formal workforceis employed in SMEs in Azerbaijan, Belarus, and Ukraine, the sharerises to more than 80 per cent in Chile, Greece, and Thailand. 137Because SMEs can be either exploitative sweatshops or seedbeds ofinnovation and entrepreneurship, there is little agreement on theircontribution to development. Some see them as a distraction from thegeneral business of promoting the private sector, whether big or small;169
FROM POVERTY TO POWERothers see them as something close to a job-creating, growth-promotingpanacea; still others worry about their frequently harsh employmentpractices and hostility to trade unions.The UN reports that ‘SMEs are marginal in the domestic ecosystem.Many operate outside the formal legal system, contributing to widespreadinformality and low productivity. They lack access to financingand long-term capital, the base that companies are built on.’ 138 Egypt’sMinister of Investment, Mahmoud Mohieldin, observes that SMEsfind it harder to access credit than either large companies (which canborrow from the banks) or individuals, who can turn to a plethora ofmicrofinance providers. 139Yet with appropriate government support, SMEs can drive theeconomy. SMEs played a central role in Taiwan’s spectacular growth,built on exports that rose a hundredfold between 1965 and 1987.When labour costs rose in the 1980s, the government actively pushedSMEs to upgrade into ever higher-technology products such ascomputers, particularly for export. It regulated foreign investment toencourage technology transfer to Taiwanese companies. Over theyears, many SMEs became successful exporters, while their linkages tothe domestic economy spread the benefits internally. Unlike neighbouringChina, SMEs enabled Taiwan to grow rapidly without drivingup inequality. In 2006, almost 98 per cent of its approximately 1.3 millionenterprises were classified as SMEs; they realised 30 per cent of totalsales and employed 77 per cent of the workforce. 140States can create the kind of operating conditions that all businessesneed, whether large or small, for example by ensuring reliable energysupplies and decent transportation and communications systems.They can avoid getting in the way: excessive regulation can be particularlytoxic for SMEs that cannot afford lawyers, and often drivesthem out of the formal economy altogether, depriving the state oftaxes and employees of legal protection. States can also help SMEsdevelop their businesses with training and support where privatesuppliers do not exist, particularly in remote areas. Where SMEs lackfinancial services, governments can act to ensure access to credit.More broadly, governments can foster technological upgrading,local linkages (both to large firms and to other SMEs), and ‘clustering’of SMEs from a particular sector in the same location – such as170
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3 POVERTY AND WEALTH PRIVATE SECTOR, PUBLIC INTERESTIn recent years, harnessing the dynamism of the private sec<strong>to</strong>r hastriggered extraordinary development in a number of countries,especially in Asia. However, in the absence of an effective state andactive citizens, especially trade unions, the private sec<strong>to</strong>r can alsoexploit workers, undermine democracy, and despoil the environment.SMALL BUSINESSThe <strong>power</strong> and profile of large transnational corporations (TNCs)leads many NGOs, including <strong>Oxfam</strong>, <strong>to</strong> engage them at the internationallevel in an effort <strong>to</strong> change their policies and practices.Yet onthe ground, the development efforts of governments and NGOs alikemore often focus on small and medium-sized enterprises (SMEs),which are much more present in the lives of poor people. 136SMEs create many more jobs and have more local linkages thanTNCs. They employ poor and marginalised people who might otherwisestruggle <strong>to</strong> find jobs in large modern companies, and act as a safetynet by soaking up labour in times of crisis. They are incuba<strong>to</strong>rs ofentrepreneurial skills and social mobility, especially for women enteringbusiness for the first time.However,small businesses are also responsiblefor some of the worst abuse of workers’ rights, including forced andchild labour.As economies grow, small and medium-sized businesses tend <strong>to</strong>move out of the informal economy, acquiring legal status, becomingliable for taxes and benefits, and paying wages in a more regular fashion.Not only do they become more formal,they also become more important<strong>to</strong> the economy as a whole: formally registered SMEs employing up <strong>to</strong>250 people account for just 16 per cent of GDP in low-incomecountries, but this rises <strong>to</strong> 39 per cent in medium-income countriesand 51 per cent in high-income countries. The variation betweencountries is huge: while less than 5.5 per cent of the formal workforceis employed in SMEs in Azerbaijan, Belarus, and Ukraine, the sharerises <strong>to</strong> more than 80 per cent in Chile, Greece, and Thailand. 137Because SMEs can be either exploitative sweatshops or seedbeds ofinnovation and entrepreneurship, there is little agreement on theircontribution <strong>to</strong> development. Some see them as a distraction from thegeneral business of promoting the private sec<strong>to</strong>r, whether big or small;169
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