Theme 4: New Research on the Relationships of Economic Development, Freedom and Peace

[Peace Through Commerce]

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A discussion moderated by Kim Bettcher, Knowledge Management Officer, Center for International Private Enterprise Visit Biographies for more about presenters

What does the latest research on development, freedom and peace tell us about the potential for peace through commerce?
At the heart of the peace through commerce literature is the emphasis on the importance of economic freedom. That freedom provides the opportunity for the poor to enter the market and it is often thwarted by a variety of institutional, cultural, and political factors. This session focuses on new research in this area.

Presentations:
New Academic Research on the Relationships of Economic Development, Freedom and Peace
Watch the four videos and join the discussion with presenters below.

	Raymond Gilpin, U.S. Institute of Peace "Economic Development and Alleviation of Poverty"(4:40)			Elena Panaritis, Director, Panel Group "Peace through Basic Security of Property Rights"(4:55)

	Borany Penh, Senior Political Economist, Office of Poverty Reduction, United States Agency for International Development (USAID) "Economic Incentives for Peace: Contributions of Micro-finance and Livelihoods Support"(4:56)			Pete Tashman, George Washington University, Department of Strategic Management and Public Policy "Dynamic Capabilities and Pro-Poor Business Strategies"(2:45)

Resources

• New Convergences in Poverty Reduction, Conflict-Mitigation and Peace-building Borany Penh, United States Agency for International Development
• Dynamic Capabilities and Pro-Poor Business Strategies, Pete Tashman, George Washington University, Department of Strategic Management and Public Policy
• Prosperity Unbound: Building Property Markets with Trust (book and blog), Elena Panaritis, Director, Panel Group
• Is Informality Enigma? Informal Urban Property in Peru, Elena Panaritis, Director, Panel Group. Working Paper for Euro-Asia Centre Research Series on the case study of informality on property rights in Peru and how transactions costs and bureaucracy withhold the tradability of property and further yet the wealth creation for the common people (and the middle class most importantly).
• First 100 days: A fix for the housing crisis, Elena Panaritis, Director, Panel Group. Article for Reuters on how to resolve the illiquid property market valuation problem using the appropriate methodology presented at Prosperity Unbound.
• The property rights problem, Elena Panaritis, Director, Panel Group. Article for the Guardian on the current housing crisis related to property rights.
  

Discussion: What does the latest research on development, freedom and peace tell us about the potential for peace through commerce?
Discussion Questions
1. What reforms are needed to allow the poor and others outside the formal economy to gain access to economic opportunities? What are the roles of the private sector (local or international), NGOs, and the public sector in advancing these reforms?
2. What are the social and institutional prerequisites for economic development that can sustain peace?
3. How does economic freedom contribute to political freedom and peace?

[Tim Fort]

Greetings everyone. We have now passed having over 700 members for our discussion and over 200 posts. I am pleasantly surprised and encouraged about what this means for this topic.

This week our eConference heads further into scholarly research on specific topics. Most of the papers presented over the next six weeks will end up as a special issue of The Journal of Business Ethics. What you will largely see are working papers from authors. So they are still in the process of development and your comments will help to make these papers richer.

Our moderator this week is Kim Bettcher, who is the Chief Knowledge Officer of the Center for International Private Enterprise. Affiliated with the Chamber of Commcerce, CIPE has deep experience in fostering business development in developing regions. Its leader, John Sullivan, was one of the participants in the first week of our eConference. I welcome Kim's and CIPE's leadership of this week's discussion.

Tim

Theme 4: New Research on the Relationships of Economic Development, Freedom and Peace

Timothy L. Fort, PhD, JD
Exec. Director, Institute for Corporate Responsibility
Lindner-Gambal Professor of Business Ethics
George Washington University School of Business
Professorial Lecturer, George Washington Law School

[Kim Bettcher]

Welcome!

The relationship between economic development, freedom, and peace is a classic topic that has occupied scholars for a long time. This week we have an opportunity to bring fresh insights to this fundamental question. I believe we can move the debate forward by bringing a nuanced understanding to the individual pieces of this equation. When we speak of development, are we referring to economic growth, individual well-being, access to opportunity, or sustainability? The answers we get depend largely on how we understand our independent variable.

Also, I invite you to consider an intervening variable that has strong implications for the results we get, and that is the quality of governance. We can discuss governance in many contexts, but I have in mind the quality of institutions—that is, the rules of the game—that foster healthy commerce, expand opportunities, and prevent corruption. Examples of economic institutions include property rights, contracts, and the various factors that make it easier to do business, while political examples include the policy making process, channels for public-private dialogue, and freedom of information.

These are some things to think about—I welcome other perspectives from our guests and presenters. Whether you’re a scholar, student, or practitioner, I look forward to your contribution.

Kim

Kim Bettcher, Knowledge Management Officer, Center for International Private Enterprise

[SungAe Lee]

The recent increased level of research on development, freedom and peace signifies a strong potential for peace to be achieved through commerce. In order to effectively promote peace through commerce in underdeveloped nations it is essential to understand the core cause of poverty which is highly influenced by violent conflict. Businesses tend to be reluctant in expanding their operations in underdeveloped markets due to various risks and uncertainties but they must realize the potential gain in entering a new market. I agree with Pete Tashman, that businesses could view social issues in underdeveloped markets as an unmet market demand which could be satisfied by properly addressing those concerns in a strategic way, thus making a profit out of it. The role of businesses is crucial in order to enable those excluded from the formal economy to gain access to diverse economic opportunities. Business organizations could aid the process of creating long term peace through economic developments which will eventually mitigate and hopefully eliminate the sources of poverty. I also agree with Pete Tashman that businesses could promote peace through their existing Corporate Social Responsibility programs by discovering ways to form institutionalized government mechanism in a volatile market.
The role of national government is also significant in advancing these economic developments since lack of political governance negatively impacts the meaningful operations of businesses. As Raymond Gilpin stated, a more proactive role in strategic planning is required by the national government to successfully bring peace through commerce. I also agree with Elena Panaritis that economic development could be enhanced by transferring illiquid assets into liquid property market. This process will enable population from underdeveloped nation to enhance their socioeconomic status while making the presence of middle class stronger. A high level of research should be conducted on the market that an institution wishes to enter as a prerequisite to facilitate economic development. The institutions entering the market must not only know but understand its current economic, political, legal and social condition in order to perform an effective reform. I believe that economic freedom is highly correlated to political freedom and peace since well structured political governance enables various organizations to enjoy lucrative economic opportunities while it leads to a world without violence, thus a peaceful one.

[Mahmood Tufail]

This is great topic.
I wish to learn a lot out of it.
Mahmood Tufail-Pakistan

[Elena Panaritis]

Mahmood hi
If you care to learn on this there is a long literature in institutional and behavioral economics. Only the challenge is to find information that can marry theory and practice in a way that can be useful in policy reform to sustainably combat poverty and secure the wealth of those perceived poor.
Depending on what topic you like to focus I could make some suggetions.

Best of luck
Elena
www.prosperityunbound.com/blog

[Vito Lupo]

I agree that businesses can utilize their already in place Corporate Social Responsibility programs to create peace and to access an untapped market that may prove to be profitable; but I think they would have to do so in a market in which they already conduct business. Often times for a company to invest in an area with an unstable political economic and social condition would be altogether too risky for a company to invest in; unless they have a single philanthropic goal of attaining peace. It seems to me that often times the risks are too great for a company to invest in because the expected returns over the goodwill that the company may receive for social responsibility is not enough to prompt a company to invest. One way around this, as I believe SungAe was touching upon is to have a government system setup that may help reduce these risks of investment to companies, in the form of tax breaks or even partially guaranteeing the investment.
I also agree with Mr. Gilpin in that tourism is a means that can be utilized to bring wealth directly to those who need it; through the bottom up. I would also like to say that I believe that there should be a focus on a positive type of tourism; that is tourism that is based on the preservation and enhancement of a culture. While stamping prints on T-shirts and pushing them to tourists may bring in short term improvements, it may be detrimental in the long run. Also, as Mr. Gilpin touched upon, one of the main keys to tourism is stability. Wealth cannot increase through tourism if no one is willing to go to an area and spend money because of volatility in a country. It is then also the governments job to do their part to increase peace and decrease potential risk factors to outsiders.

[Pete Tashman]

I think that Vito is correct to suggest that the risks for businesses in impoverished markets, or perhaps more aptly, communities are a signficant deterrent for them to make meaningful investments. And, while market incentives from governments in the form of tax breaks or investment guarantees could be good policy prescriptions (although I think of all the developing country governments that cannot repay loans from multilateral institutions and wonder if this type of policy is feasible on a large international scale), I believe Kim introduces the key to inducing businesses to invest in the poor, which is better governance. Governance and investor confidence are directly related in a generalizable way.

But there are also some real examples of businesses investing in entirely new markets and implementing very successful win-win business models. I think of Nestle and their Milk District program, in which they have developed now dozens of dairy industries in developing countries, greatly expanding both producer and consumer markets while substantially improving livelihoods. They did this by partnering with preexisting industries that had their potential suppressed by conditions of poverty. In the process, they also created numerous "governance" institutions that taught people how to conduct honest business, cocreate value with one another (that is they set the conditions of trust through which meaningful collective actions could occur), and sustain this type of business behavior over time. A great case that I think holds many clues as to how win-win strategies can be done correctly, as well as what institutional conditions are necessary, and which need to be developed to ensure that such business ventures succeed in the long run. Cheers

[Raymond Gilpin]

Thanks for highlighting the risk element Vito. Governments must do a better job of providing both security and necessary services/infrastructure. This is where effective sensitization comes in. Hopefully, the more they recognize the economy-wide benefits that are likely to accrue (e.g. employment, income generation, increased government revenue), the more amenable they would become to prioritizing commerce as a peace-promotion tool.

[Elena Panaritis]

Hello all

The issue of risk, so well presented and discussed by Vito, Pete, and Ray is the constant challenge of any country that is facing a rather precarious economic foundation and becomes even more of a problem when it also faces political instabilities.
A usual way to tackle these issues is when government suggests enabling environment reforms and policies - including those of applying security of contracts, tenure, enforcement etc and / or suggest models of Public Private Partnerships.

In my experience little of the above attempts succeed unless all stakeholding parties are seriously involved. These parties are 1. the citizens, 2. the public sector, 3 and the private investors. It is this triangular relationship that will need to be created first - well established - that will built the needed trust necessary for mitigating risks in private or even public investments. (chapter 5 of Prosperity Unbound)

Elena

[Efe Sevin]

I used to be skeptical about the effects of tourism but throughout this conference, my ideas started to change. I will disagree to an extend with Vito on one point: the short term improvements of tourism. Vito is definitely correct when he argues for preservation and enhancement of the culture. However, we shouldn't be overlooking at the positive aspects of the - let me say - tourism with more commercial aims. Firstly, especially in less developed regions, the short term income might be used to accumulate capital. Mr. Gilpin was also discussing the capital intensive nature of tourism, thus, this income might be used. Secondly, tourism is a great opportunity for societies to get to know each other. Tourism provides an opportunity to get first-hand experience about other countries. Shortly, even though I support Vita's point about tourism that is based on preservation of culture, I argue that we should also pay attention to the social and financial outcomes of "tourism with more commercial aims"

[Jackie Friedberger]

I agree with the points that you have made. Tourism is definitely important in developing countries, this helps them develop and implement more infrastructure, as we know many countries rely heavily on their tourism. Also, the point that was made that tourism is based on preservation of a culture is a point that I had never really thought about until it was brought to my attention. From this, it brings a country's culture more relevant in everyday activities.

[Eric Levy]

I agree that governments definitely need to find ways in which to help entice business to invest in their countries, especially if their is a high risk of investment due to current or recent turmoil or unsatisfactory economic conditions. While tax breaks and other economic incentives are crucial to the success of foreign investment, governments must also look to establish a business and government environment that is sound, corruption free, and appealing to foreign investment. In many instances businesses see a large amount of potential in a country due to resources or an increasing desire by a country's population for a particular good or service, however are pushed out of the country by economic constraints influenced and/or established by the leaders in high ranking positions.

Moreover I agree that tourism is a great way to boost the social and economic power of a country while increasing the quality of life and GDP/capita of a country. However, it is quite important at the same time to ensure that the local culture is not changed and whenever possible engrain the local culture in the tourism that is being marketed to foreigners (i.e. ecotourism, cultural learning, etc.).