AFRICAN ASSOCIATION FOR PUBLIC
ADMINISTRATION AND MANAGEMENT
26TH AAPAM ANNUAL ROUNDTABLE CONFERENCE,
WHITESANDS HOTEL, MOMBASA, KENYA 7TH – 11TH
MARCH, 2005
THEME: THE ENABLING STATE AND THE ROLE OF
THE PUBLIC SERVICE IN WEALTH CREATION: PROBLEMS
AND STRATEGIES FOR DEVELOPMENT IN AFRICA
TOPIC:
POVERTY
REDUCTION
THROUGH
WEALTH
CREATION: A BUSINESS ETHICS APPROACH
KHALI VICTOR MOFUOA
DEPARTMENT OF POLITICAL AND ADMINISTRATIVE
STUDIES
NATIONAL UNIVERSITY LESOTHO P. O. ROMA
180 LESOTHO
ABSTRACT
Two key questions lie at the heart of on-going debate about poverty
reduction through wealth creation. Can wealth creation reduce poverty?
And if so, how? These questions are not unexpected if the fight against
poverty must be won. Poverty remains an adversary that no society can
afford to ignore or underrate. Thus even if poverty is viewed simply as
an issue of material wealth, it will be naïve to think that wealth’s
contribution to reducing poverty is restricted to creating more of it.
Obviously, it is imperative to create more wealth and fast, because
wealth production in most African countries grows at the lower rate than
their populations. But it is not the question of just what is done, but how
it is done, and under what conditions. This paper adopts a business
ethics approach in exploring the broad topic above. It attempts to argue
that he creation of sustainable wealth cannot be achieved without paying
serious attention to the design of acceptable policies that redistribute
wealth cannot be achieved without paying serious attention to the design
of acceptable policies that redistribute existing assets and create new
ones.
It further argues that successful poverty reduction requires
sustained wealth creation with a mix of motivations that are self-and
other-regarding.
2
INTRODUCTION
Poverty has become an issue difficult to ignore in Africa today. In fact,
to eliminate poverty and achieve a moderately well off living standard for
its people is a generations – old dream of the African nations. That said,
however, despite various global and continental diagnostic arid
prescriptive initiatives of addressing development focussed on poverty
reduction, there is insignificant achievement. Poverty still remains one
of the greatest challenges facing the world today, in particular Africa. It
remains an adversary that no one could afford to ignore or underrate
(Balogun, 2004:3).
It is imperative for Africa to tackle poverty
eradication more proactively and innovate in the medium and long-term.
As argued in this paper, victory in this arduous struggle hinges on taking
a business approach to poverty reduction through wealth creation.
The paper begins by explaining the problem of poverty in Africa. It then
proceeds in the second section to trace the directions African
governments have taken in an attempt to create wealth from the postindependence to the present period.
In the third section the paper
provides the definitions and meaning of wealth creation. In the fourth
section, the paper demonstrates the relevance of business ethics for
poverty reduction through wealth creation strategies. The fifth section of
the paper outlines how ethical economies can be encouraged to reduce
poverty through wealth creation strategy. In the sixth section the paper
concludes the discussion on poverty reduction through wealth creation.
3
Explaining the problem of poverty
Poverty is undoubtedly the most formidable opponent with which African
countries had to wrestle since the dawn of independence (Balogun,
2004:4). In fact, Africa is dubbed to be the only continent in which the
number of poor people is growing (UN, 2000).
Of the 49 least
developed countries, in the world, 33 are in Africa where people living in
Africa south of the Sahara are almost as poor today as they were 20
years ago. According to a UN report prepared for the June 2000 World
summit for Social Development session, growth rates of most African
countries have continued to drop despite increasing foreign investment.
The report attributes recent Low African growth to factors including
dropping commodity prices, weather, armed conflict, the HIV/AIDS
pandemic, and fallout from the Asian financial crisis.
That said however, some commentators’ feel that the West world has its
share of blame for poverty condition in Africa. “There may be wars,
farmers and natural disasters but it is precisely this attitude that inhibits
the kind of progress we desire (in Africa)”, wrote a reader from Lagos,
Nigeria in a letter to the Economist, May 2000. “The West keeps trying
to prescribe western one-size-fits-all solutions because Africa is
regarded as one big country. This stereotype has attested far too long
and is ridiculous. We in Africa want modernization but not necessarily
westernisation. In Africa, success means making the best of what (we)
have and not necessarily having the best material things in the world.
How else is that we in Africa are much happier and more satisfied than
those in so-called advanced world? Africa has many problems and they
may be self-inflicted, but the gun which you showed on your cover is not
made in Africa” (reference to the Economist, issue of May 13, 2000).
That noted, however, I think the time has come where shifting of blames
4
should end. What seems to be compelling is for all Africans to be asking
themselves: Why are so many people poor in a world that’s richer than
ever before?
Something must be wrong with conventional thinking
about wealth and poverty, particularly the ethics of it. I back to differ with
the thesis that Africa’s poverty is a poverty of the wealth – creation
intellect i.e. a deficit of growth – generating instincts: Knowledge and
skills (Economist 17-23 January, 2004: 4 – 8). To be fair Africa has a
wealth of knowledge and skills to tackle poverty. What is required,
perhaps, is the change of mindset: replace the poverty – preoccupation
with the wealth – creation psyche and imbue the poor with the sense of
purpose as well as the confidence needed to create wealth and banish
poverty (Balogun, 2004: 24).
What seems obvious to me is that there are two key questions that lie at
the heart of on-going debate about poverty reduction through wealth
creation: can wealth creation reduce poverty? And if so, how? These
questions are not unexpected if the fight against poverty is viewed
simply as an issue of material wealth.
It will be naïve to think that
wealth’s contribution to reducing poverty is restricted to creating more of
it. Obviously, it is imperative to create more wealth fast, because wealth
production in most African countries grows at the lower rate than their
populations. But it is not the question of just what is done, but how it is
done, and under what conditions.
Government attempts for Creating Wealth: Some Experimentation
Many African countries experienced economic recovery in the 1990’s
(World Bank, 2004: 95) To be sure these recoveries have not meant an
end to poverty for all. Some would argue that the recovery has been
accompanied by greater income inequality, so the poor remain
5
numerous and increasingly alienated from society.
Yet an objective
evaluation of the evidence suggests that attempts to eradicate poverty
by the governments did one way or another contributed to the economic
recovery of Africa in the 1990’s. As a result, the role played by African
governments in the attack of poverty cannot be underrated. In the first
instance the attention of central planning agencies with a focus on
helping the poor to alleviate their condition cannot be down played. The
development initiatives spear headed by government agencies between
1960’s and the 1990’s were in part wealth creation strategies directed
towards poverty reduction. As Balogun (2004:11) argues that the fiveyear development plans implemented in the 1960’s up to the 1980’s
were meant to stimulate economic growth and by so doing banish
poverty and improve overall living standards.
Such development plans included
• Rapid industrialization and infrastructure development in the
1960s.
• The improvement of access to wealth, education and other “basic
needs” in the 1970s and part of 1980s.
• The implementation of structural adjustment programmes from the
mid – 1980s and part of 1990s.
• The implementation of comprehensive Development Framework
and of subsequent PRSPs.
• The
reform
of
fiscal
and
macro-economic
management
mechanisms and
• Institutional and governance reforms.
Nevertheless, it is a common knowledge that despite such development
plans Africa has continued to experience poverty. In fact, poverty has
6
not only continued but has deepened overtime in the post-independence
period. The main reasons for the persistent and deepening poverty in
Africa can be classified into four major groups, namely, historical,
cultural, international and policy-related.
First, cultural rigidities have had negative effects on poverty alleviation.
The rigidities are manifested in defiance to change in consumption
patterns and unequal distribution of wealth.
For instance, the
government can provide free education or health service but the people
around cannot utilize these, basically on account of cultural beliefs.
Lack of awareness to accumulate is also anchored on cultural rigidities,
as households attach more importance to generosity and festivities than
saving. A working culture is also deficient.
Second, historical factors have negatively influenced the development
process and anti-poverty evolution. Besides plundering the resources of
Africa, colonialists infused wrong magic through elite rulers of Africa in
the post-independence period.
Third, the international trading and power relations are unequal, greatly
disfavouring African countries in particular, through the terms of trade.
The North mostly dictates the prices of their exports commodities. Over
the years, these prices have been fluctuating, often falling likewise. The
international community has not adequately and genuinely supported the
development endeavours of African countries (manifested by debt
overhang and declining ODA flows).
Fourth, in the post independence period, Africa has experienced the
design and implementation of faulty political and development policies
and strategies. It has not persistently owned its development agenda
7
and priorities. Consequently there is a pronounced persistent lack of
pro-poor facilities (Roads, Education, health), unchanged production
structure, lack of technological change, brain drain and persistent
internal conflicts, (which divide expenditure from development activities
to military operations), (Mwakapui, 2002: 36-38).
In addition, the persistence and deepening of poverty is attributed to the
existing poverty alleviation mindset, which is externally sponsored. As
Balogun (2002:233-556) notes poverty would neither be eradicated nor
alleviated so long as responsibility for responding to this momentous
challenge lay elsewhere rather than with the African governments and
peoples. The way forward in this regard, Balogun (2004:24) contends
that it is for African governments to provide unequivocal leadership in
replacing the poverty-preoccupation with the wealth-creation psyche in
Africa. In the same length, governments should imbue the poor with the
sense of purpose as well as the confidence needed to create wealth and
banish poverty (Balogun, 2004:24). The elements of this wealth creation
strategy includes:
• National leadership in wealth creation
• Entrenchment of good governance values and practices
• Providing legal and institutional safeguard against predatory
tendencies
• Energizing and fully engage the productive forces
• Repositioning and Reorienting the civil service Bureaucracy
• Creating and strengthening the supporting institutions (Balogun,
2004:27-33).
8
Yes indeed, government can help both the creation of wealth and the
eradication of poverty. It can provide basic infrastructure required for
poverty reduction through wealth creation. Government can thus be a
positive force in economic development and poverty eradication. Having
said that, however, there is strong evidence that much of government
public policy to enhance wealth and eradicate poverty has been selfdefending.
Wealth Creation: Meaning, Trends and Tendencies
What is the creation of wealth? Wealth can be defined in several
ways. But for the purpose of this paper we may define the wealth of a
nation as the total amount of economically relevant private and public
asserts including physical, financial, human, and “social” capital.
Consequently, the creation of wealth includes the production of public as
well as private asserts. Wealth is primarily a stock and flows of asserts.
Thus the “wealth of a nation” encompasses both private and public
goods or asserts, that is endowments that can be attributed to and
controlled by individual actors, be they persons, groups or organizations,
and endowments from which no actor-inside the nation-can be excluded.
In technical economic terms, “public goods” are defined by the
characteristics of non-rivalry and non-exclusive consumption (Enderle,
2000). That said however, historical experience is that public goods
have severe limitations in doing what many consider its first duty,
eliminating poverty. The sharp rise in poverty despite the wealth that the
world boosts make people to ask whether can wealth creation reduce
poverty? If so, how?
9
What do we mean by the “creation of wealth? Properly speaking, the
“acquisitive spirit”, the “accumulation of capital” and the “acquisition of
companies” do not necessarily entail the creation of wealth.
creation is more than possessing wealth.
Wealth
It has a lot to do with
technological innovation but is more than that as well.
Aiming at
material improvement for the benefit of human lives, wealth creation
includes both a material and a spiritual side, and goes beyond the mere
acquisition of wealth. It is a qualitative transformation of wealth.
Thus creating wealth is a national objective that mobilizes great many
forces for a new and better future. Without doubt, the material side of
wealth creation endeavours is essential, but the spiritual (or ideological)
side is indispensable as well.
It is obvious therefore that both the
material and spiritual commitment are necessary ingredients for public
wealth creation in any given situations.
That said, however, further
exploration of the notion of wealth raises questions about its purpose
and use both in economic terms and non-economic terms as well. Thus,
wealth creation can have both intrinsic value and instrumental value as
well. As a result, the road to poverty reduction through wealth creation
must entail the constitutionality and instrumentality of wealth. This will
go a long way to including the concept of sustainability in our notion of
wealth. Wealth creation must be “sustainable” that means to fulfil the
demand “to meet the needs of the present generation without
compromising the ability of future generations to meet their own needs
(WECD, 1987).
In addition, wealth creation involves both productive and distributive
dimensions. In fact, the productive and the distributive dimension of
wealth creation are intrinsically interrelated. It is therefore imperative
that poverty reduction through wealth creation should take cognisance of
10
this aspect. Thus, despite varying motivations of the concept of wealth
creation, it becomes clear that wealth creation is a noble activity. It
includes both material and spiritual aspects, driven by a mix of
motivations that are self- and-other regarding.
For example, the
entrepreneurial spirit must be accompanied by the service to others. It is
through the above, that wealth creation can no longer be ignored,
disregarded or even be treated with contempt. But it will be seen as
good and necessary making up an essential prerequisite for thriving
poverty reduction through wealth creation strategy.
How does public policy impact on wealth creation?
Since from
economic theory, we know that property functioning market and state fail
in creating wealth, it is imperative to have public policy that can affect
wealth through monitory policy and its impact on prices. Other things
equal, we would expect a rise in governmental expenditures relative to
national output to lead to the decline in wealth. If government spending
is growing relative to income or output, the burden of government on
private sector grows, lowering the private rate of return from property.
To claim more resources, government crowds out private sector
activities, including wealth creation in the form of investment. Moreover,
the market of existing assets should decline as the remuneration to
those assets falls because of increased taxes. In this way the wealth of
individuals is lowered when the rate of inflation rises. An alternative way
of stating it is that wealth is enhanced keeping government limited and
prices stable.
11
Relevance of Business Ethics for Poverty Reduction
through Wealth Creation
Authentic human development can never be achieved when the ultimate
is the amassing of wealth and material goods, creating an unquenchable
thirst for more power, profits and possessions. The crucial challenge is
to understand wealth creation and development primarily as economic
growth.
Wealth for whom?
At what price?
Thus ethicists, rejects
models of financing for development that supply, increase monetary
wealth without eradicating poverty, and have not regard for how that
wealth is generated or distributed.
Without adequate ethical
underpinning, creating more wealth can entail the destruction of much
wealth as recent debacles of Enron and the like have demonstrated
(Tonge et al. 2003:5). Evidence is also moderately strong that both the
modern interventionist welfare state and private market economy are
powerful instruments to create private wealth, but they fail in creating
public wealth.
This involves far-reaching implications for business
ethics. Business ethics should provide confidence to poverty reduction
through wealth creation. It is in this context that the creation of wealth
and the distribution can be treated in a proper and comprehensive
manner.
Encouraging Poverty Reduction through Wealth Creation: How can
Ethical Economies be prepared for the Task?
How can ethical economies be encouraged to reduce poverty?
The
success of the poverty reduction through wealth creation strategy
depends on both market and government “morality”. It is only in this
context that poverty reduction through wealth creation can be managed
in a proper and comprehensive manner.
The context will provide a
design of acceptable policies that redistribute existing wealth and create
12
new ones. It will further provide for sustained wealth creation with a mix
of motivations that are self-and-other-regarding. In addition, it will create
a new approach on how to reduce poverty through wealth. This new
view of evolution will include new definitions of wealth: increase local
participation in development decisions and give more attention to solving
problems locally, with local strategies, tactics, and resources, rather than
just seeing international actions as the solution to problems. Thus the
focus of development strategy should be reducing debt and promoting
trade.
Below are the actions that have been suggested to address
ethical reduction of poverty through wealth creation:
• NGO’s with support from government should expand micro credit
mechanisms with banks, other NGO’s, and international financial
institutions to accelerate development of small-scale businesses
and their access to land, technology, and training with special
attention to women.
• Replace welfare attitude with entrepreneurial spirit.
• Governments and international organizations should create and
implement a “Global Partnership for Development”, as a new kind
of global “Marshall plan” with collaboration between high-income
countries and those with less industrial and entrepreneurial
cultures.
• Scrutinize and encourage improvement of ethical standards in
business by facilitating global dialogues, creating incentives for
private sector investment into the common good (environmental
projection, education, etc) and conducting studies on ethics
including the ethical implications of unbridled capitalism.
• Governments
of
lower
income
countries
should
include
entrepreneurial skills and business math in their public education
13
curricula,
with
assistance
from
NGO’s
and
international
organizations.
• Governments, UN organizations, NGO’s and telecommunications
corporations’ technologies to poorer countries.
• Encourage employee ownership, e.g. Employee Stock Ownership
Plan (ESOP) that makes corporate shares available to employees.
• Governments and development organizations should create tollfree numbers and computer networks for people from low-income
countries who now live in high-income countries to volunteer some
time to participate in the development of their original country via
telecommunications.
• Allow employee access their own company’s Intranet to see
elements of the planning system, work flow, production indicators,
etc. so that they can more intelligently participate in the business.
• Governments with assistance form UN organizations should
encourage third world countries to establish policies that limit their
“brain drain”.
• Governments, with advice from international organizations should
permit the IMF to issue new Special Drawing Rights (SDRs) to
reduce developing countries debt.
• International organizations and governments should establish
means by which deeply indebted countries could declare
bankruptcy or debt cancellation.
• Governments,
with
some
leadership
from
international
organizations should increase efforts to promote free trade among
developed and developing countries.
• International organization and governments should create a
“Global Securities and Exchange Commission” to help tame
currency markets.
14
• Increase research into alternative progress indicators that reflect
qualitative factors such as social and environmental issues.
• Expand international programs of retraining to help avoid
technological and managerial obsolescence.
• Observe standard central bank rules on the issuance of currency
to avoid inflation.
• To reduce the technological gap, developing countries should be
open to trade and to foreign direct investment.
• Richer countries should reduce their trade barriers to poor
countries. (www.acumi.org.)
Even the special needs of Africa, these ethical poverty reduction
strategies through wealth creation can be extended nationally to
ensure the successful fight against poverty in Africa.
CONCLUDING REMARKS
The central proposition of this paper is that the overarching strategy for
poverty reduction is wealth creation. In this context it acknowledges the
direct link between poverty reduction and wealth creation. It also notes
that keeping government limited and prices stable enhances poverty
reduction through wealth creation. This strategy will, however, succeed
only with a thorough understanding that poverty reduction through
wealth creation is a “noble” activity, driven by a mix of motivations that
are self- and other-regarding. This understanding enables us to bring to
bear the power of business ethics where it matters most.
After all,
business is about producing wealth and ethics has to make sure that this
is done properly.
Without adequate ethical underpinning, poverty
reduction through wealth creation can entail the destruction of much of
15
the wealth as recent debacles of Enron and the like have demonstrated.
A robust ethical wealth creation perspective can force the economic
actor to work beyond the short term and definitely adapt a long-term
perspective as well, in which “sustainability” is the key.
Ethical wealth creation is extremely important even from a perspective of
selfishness of the rich. This is so because the creation of sustainable
wealth for reducing poverty cannot be obtained without paying serious
attention to the design of acceptable policies that redistribute existing
wealth and create new ones. Thus, passing an “ethics screen” should
be a yardstick for participation in the business of poverty reduction
through wealth creation by all wealth creating agents.
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16
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♦ www.acunu.org
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