Building better business policy

Structured public-private dialogues can be an effective way to bring business and governments together

Eiliyah Zahra Deewan

Economics and finance, Trade and industry | Australia, Asia, The Pacific, The World

23 September 2015

Public-private dialogues can get greater private sector involvement in policy. More and more countries can use it to help their reform processes, writes Eiliyah Zahra Deewan.

Governments make policies but it is business that invests and trades. No matter how much we want to label the private sector as profit-seeking and selfish, they still remain an important contributor to economic growth and job creation. Governments cannot exclude them during policy-making and ad-hoc consultations are not enough. One solution could be a more formal mechanism for dialogue, including public-private dialogue (PPD).

The private sector is increasingly seen as an important partner in development, contributing to economic growth and job creation, especially in developing countries that depend on small and medium enterprises for employment, and to generate significant domestic and export earnings. It is not easy for the private sector though; they are affected by policy, legislative, regulatory and governance conditions of a country. The regulatory framework influences investment attraction, business start-up and expansion, activities that transform into economic growth. The 2005 World Development Report points out that a good investment climate provides opportunities for firms to invest productively, create jobs, and expand, and can play a central role in growth and poverty reduction.

Can governments make policies in isolation? Clearly the answer is no, since policy-making and implementation are complex processes that involve multi-level stakeholders. And why? Because, policies that have little endorsement from the private sector make it difficult to implement them in most democratic countries. In addition, private sector priorities and government plans end up in mismatch, resulting in policies that hinder instead of easing doing business. There is evidence of over-regulation negatively affecting businesses all over the world including in the United States, and in small firms.

We need private participation to solve a number of policy and governance challenges, such as inclusive growth, poverty reduction, government accountability, business integrity, and innovation. Gone are the days when the public and private sector were distinct entities with no shared objectives. In the era of sustainable development, new strategies for private sector development are required. Although there is a general mistrust between the sectors, governments that listen to the private sector are more likely to design credible reforms and win support for their policies. Therefore, it is vital that both the public and private sectors work together for an enabling business environment.

While governments around the world usually carry out some form of dialogue and consultation, this is not always enough. These consultations tend to be ad-hoc, too small, operating at a local/community level, or too large, operating at a regional/international level. Or, they may lack proper research or be dominated by large corporations that already have the power and resources to influence policies through lobbying. As such, significant players in the industry, especially small and medium enterprises in diverse sectors, are excluded and are in no position to bargain for policies that affect them most.

Given the complexity of the policy cycle, there is a need for a well-designed and systematic national model for public and private sector consultation. Even The Fourth High Level Forum on Aid Effectiveness in Busan, Korea, recommended “inclusive dialogue for building a policy environment conducive to sustainable development.” One approach that can play a significant role in policy-making is public-private dialogue (PPD). The Global Partnership for Effective Development Co-operation has also proposed public-private dialogue as a lead indicator of private sector contributions to development.

Public-private dialogue is a structured and inclusive approach to policy-making. If structured properly, PPDs can offer many benefits. They can help build trust and awareness between the public and private sector, and achieve greater buy-in and easier implementation of policies. They can also help identify critical issues during policy formulation, and unearth policy bottlenecks that need reform.

The International Finance Corporation conducted an evaluation in 2009 which revealed that more than 400 reforms had taken place in over 50 areas, resulting in about US$400 million in private sector savings. PPD projects are supported by governments, the private sector and donors globally on three different levels: economy-wide for building a sustainable platform for dialogue, sector-specific aimed at particular sector reform and growth, and short-term “light” PPDs where PPD processes are used to support other projects.

Examples include Business Initiative leading Development (BUILD) in Bangladesh and the National Economic Development and Labour Council (South Africa).

While PPDs can be a useful tool to bring the government and private sector together, establishing successful PPDs is a lengthy and difficult process. Just the process of setting up PPDs is challenging since government and the private sector must be convinced that such a process is necessary. Government officials may be quick to point out that policy-making is their expertise, and some of the consultation sessions they carry out have enough inputs from the private sector. On the other hand, the private sector may be self-sufficient through their associations. That is why PPDs must be carefully designed, implemented and monitored to ensure that the process is not captured by interest groups. Apart from regulatory capture, political capture of reforms is also deadly, and primarily serves the interest of the party in power. PPDs must eventually improve the broader investment climate.

So what sets PPDs apart? They are a systematic, transparent and sustainable approach for dialogue, with constant monitoring and evaluation of policy reform or implementation. Endorsed by the government and, in many countries, led by relevant government agency heads, this ensures it is a continuous process. Private sector concerns are indeed taken into account and implementation is more effective. However, PPDs alone are not the panacea for an investment-friendly business environment; they require commitment from both sides, and supporting institutions that will enable PPDs to work efficiently and effectively. Still an evolving mechanism, structured PPDs are an innovative method and can be customised according to the country’s needs for greater private sector development. More and more countries can use it to help their reform processes.

Detailed information on PPDs, guidelines and case studies can be found at publicprivatedialogue.org.

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