Teaching Tool

International Journal
2016, Vol. 71(1) 144–166
International ! The Author(s) 2015
Reprints and permissions:
development sagepub.co.uk/journalsPermissions.nav
DOI: 10.1177/0020702015619566

and the private sector: ijx.sagepub.com

The ambiguities
of ‘‘partnership’’
David Black
Department of Political Science, Dalhousie University, Halifax,
Nova Scotia, Canada

Ben O’Bright
Department of Political Science, Dalhousie University, Halifax,
Nova Scotia, Canada

Abstract
Historically, the relationship between the private sector and international development
has been deeply ambivalent. For many, a vibrant private sector and competitive markets
are the essential prerequisites of development. For many others, development is prin-
cipally concerned with ameliorating the dislocation associated with capitalist profit
seeking. In the last generation, this ambivalence has given way to an emphasis on the
complementarities between the private sector and development. Yet skeptics have
continued to criticize the form of development this trend has promoted. We review
the historical conditions behind this trend; the controversies concerning transnational
corporations and foreign direct investment; the rise of corporate social responsibility;
the parallel rise of philanthrocapitalism; and the growth of micro-credit as a market-
oriented vehicle for poverty alleviation and empowerment. When taken together, it is
clear that private sector actors have become increasingly influential in the new land-
scape of development, yet their effects remain ambiguous.

Keywords
International development, private sector, transnational corporations, corporate social
responsibility, new philanthropy, micro-credit, partnership

Corresponding author:
David Black, Political Science, Dalhousie University, Room 301, Henry Hicks Building, 6299 South Street,
PO Box 15000, Halifax, Nova Scotia, B3H 4R2, Canada.
Email: blackd@dal.ca
Black and O’Bright 145

Historically, the relationship between the private sector and international develop-
ment has been ambiguous and ambivalent. For many scholars and practitioners, it
is self-evident that a vibrant private sector and competitive markets (both national
and international) are the essential prerequisites for successful development, under-
stood first and foremost as rapid rates of aggregate economic growth. Policies and
projects that hinder market dynamics are therefore seen as obstacles to successful
development. Those taking this view—both economic liberals and some classical
Marxists—have seen development as an ‘‘immanent’’ process, unfolding according
to the inexorable dynamics of capitalist economic relations with the private sector
as the ‘‘engine of growth.’’ Many others have seen development as principally
concerned with alleviating the disruption and dislocation associated with capitalist
profit seeking, ameliorating its repercussions (if not transcending it altogether)
through poverty-reducing and socially empowering interventions. Michael
Cowen and Robert Shenton1 have characterized this latter approach as ‘‘inten-
tional’’ development. Critical development scholars of various theoretical views
(dependency, alternative, or post-development, for example), as well as many
civil society practitioners, have taken the latter view.2
In the last generation, the profound uneasiness, if not outright opposition,
toward prioritizing private sectors and deepening markets has given way to a
more pragmatic emphasis on the complementarities between markets and develop-
ment, and the positive role that private sectors can and should play. This trend has
reflected, in part, the ascendance of neoliberal theoretical ideas among the world’s
most powerful governments (particularly those concentrated in the West) and
multilateral development institutions (notably the World Bank and International
Monetary Fund (IMF)), emphasizing the unfettered private sector as engine of
growth. Increasingly, however, it has also reflected a growing emphasis on the
direct (or ‘‘intentional’’) contributions that private sector actors can make to devel-
opment objectives, on their own and in collaboration with a wide range of other
actors. Even more recently—particularly in the post-2008 financial crisis era—it
has been strongly reinforced by a preoccupation with unlocking new sources of
development finance, as traditional state-based development funds have become
more constrained while demand continues to grow. The presumed complementa-
rities between governmental, non-governmental, and private sector actors in devel-
opment have been captured under the ubiquitous rubric of ‘‘partnership.’’3
Yet skeptics have continued to question this trend, and to critique the particular
form of development it has promoted, notably on the grounds of its impacts on
social equity and ecological sustainability. In this brief essay, we review the histor-
ical conditions under which a pivotal development role for the private sector has

1. Michael Cowen and Robert W. Shenton, Doctrines of Development (London: Routledge, 1996):
162–164.
2. For an excellent summary of the principal intellectual traditions in development thought, see
Anthony Payne and Nicola Phillips, Development (Cambridge: Polity Press, 2010).
3. Reflected, for example, in the 2011 ‘‘Busan Partnerships for Effective Development Cooperation,’’
http://www.oecd.org/dac/effectiveness/Busan%20partnership.pdf (accessed 6 October 2015).
146 International Journal 71(1)

become increasingly taken for granted. We then assess some of the debates con-
cerning the role of transnational corporations and foreign direct investment in the
development process; the rise of more deliberate norms and practices of corporate
social responsibility, partly as a response to these debates; the concomitant rise of a
new era of ‘‘philanthrocapitalism’’ and public–private partnerships; and, at the
grassroots level, the celebrated yet contested growth of microfinance micro-credit
as a market-oriented vehicle for poverty alleviation and empowerment, particularly
among poor women. When taken together, it is clear that private sector actors and
market-oriented processes have become increasingly ubiquitous and influential in
the new landscape of development. Yet there are also signs that the unfettered
enthusiasm for private sector processes and partners is giving way to a more
measured and skeptical approach, not least among the governments of the devel-
oping world.

The first three development decades: The ascendance

of intervention
The emergence of formal institutions and explicit policies to promote the develop-
ment of newly decolonized countries, beginning in the early 1950s, coincided with a
relatively interventionist and state-centred phase in economic development policies
in both the ‘‘industrialized’’ and post-colonial worlds. Several well-known histor-
ical conditions underpinned this orientation. The Great Depression of the 1930s
was largely attributed to the disaster-proneness of unfettered markets. The case for
counter-cyclical interventionism made by the celebrated economist John Maynard
Keynes, among others, gained mainstream acceptance as a result. Wartime plan-
ning and production entrenched a statist orientation in the thinking of leading
governments worldwide. With these considerations in mind, the central institutions
of postwar international economic governance—the Bretton Woods system encom-
passing the IMF and the World Bank, conceived in 1944—aimed to combine
international liberalism in the external domain with substantial interventionism
in domestic contexts. Famously dubbed the ‘‘compromise of embedded liberalism’’
by John Ruggie,4 their approach combined (in Eric Helleiner’s words) a market-
oriented ‘‘multilateral financial order of stable currencies and current account
convertibility [with] publicly controlled international financial institutions to
offer short-term balance of payments support and long-term investment capital.
Their endorsement of capital controls and exchange rate adjustments also provided
greater policy autonomy for governments to pursue more interventionist domestic
policies.’’5
Yet from the perspective of the emerging ‘‘Third World,’’ this compromise took
too little account of the urgent challenges faced by ‘‘late developers.’’ Structuralist

4. John Ruggie, ‘‘International regimes, transactions and change: Embedded liberalism in the postwar
economic order,’’ International Organization 36, no. 2 (1982): 379–405.
5. Eric Helleiner, ‘‘Reinterpreting Bretton Woods: International development and the neglected ori-
gins of embedded liberalism,’’ Development and Change 37, no. 5 (2006): 944.
Black and O’Bright 147

ideas associated with the Argentinian development economist Raúl Prebisch,

among others, posited the persistence of unequal terms of trade between the man-
ufactured goods produced mainly by industrialized countries on the one hand, and
the primary commodities on which most developing countries depended on the
other—thereby providing a theoretical rationale for interventionist policies aimed
at political–economic restructuring and diversification.6 Such policies, it bears
noting, had much in common with the late development thought and practice
that underpinned industrialization in nineteenth-century America, Germany,
Canada, and Australia, among others.7 Prebisch’s structuralist, or core-periphery,
thinking set the stage for the more radical analyses of dependency thinkers who, in
their most stark manifestations, argued that North–South economic exchange led
to the ‘‘development of underdevelopment’’ in post-colonial countries and called
for some form of political–economic ‘‘de-linking.’’8 Finally, the apparent success of
communist economic planning, widely credited with engineering the remarkably
rapid industrialization of the Soviet Union (albeit at extraordinary human cost)
was highly influential among newly independent developing countries.
In these circumstances, state-generated five-year plans for economic develop-
ment, heavy reliance on state-owned enterprises and commodity marketing boards,
and high levels of import substitution industrialization (ISI) became the norm.
Even mainstream development prescriptions associated with modernization
theory accepted the need for a significant degree of state intervention to secure
the conditions for ‘‘take-off.’’9 It is true that, consistent with the original Bretton
Woods compromise, the principal multilateral instrument of trade liberalization,
the General Agreement on Tariffs and Trade (GATT), made steady progress
in reducing barriers to trade, particularly among industrialized or developed
countries, through a series of negotiating rounds in the post-Second World
War era. Developing countries were marginal within this process, however,
and used the more encompassing venue of the United Nations (UN), where they
had greater influence, to advance proposals for a more ‘‘managed’’ approach
to global exchange, captured in their advocacy of a New International Economic
Order.10 This more interventionist orientation remained ascendant up to and
including the 1970s.
Yet even in these early development decades, an emphasis on the importance of
private sector investors and liberalized markets was evident among ‘‘mainstream’’
development institutions, practitioners, and scholars. For instance, the Pearson

6. See Edgar J. Dosman, The Life and Times of Raúl Prebisch, 1901–1986 (Montreal & Kingston:
McGill-Queen’s University Press, 2008).
7. See Payne and Philips, Development, 33–55.
8. See, for example, Andre Gunder Frank, The Development of Underdevelopment (New York:
Monthly Review Press, 1966).
9. For example, Walter Rostow, The Stages of Economic Growth: A Non-Communist Manifesto
(Cambridge: Cambridge University Press, 1960).
10. See Stephen Krasner, Structural Conflict: The Third World against Global Liberalism (Berkeley:
University of California Press, 1985); and Gavin Fridell, ‘‘Fair trade, free trade and the state,’’
New Political Economy 15, no. 3 (2010): 457–470.
148 International Journal 71(1)

Commission of 1969, so named for its chair, the former Canadian prime minister
Lester Pearson, and best known for its advocacy of a stable commitment of 0.7
percent of gross domestic product (GDP) to foreign aid by Western donor coun-
tries, had as its first two (of ten) recommendations the creation of ‘‘a framework for
free and equitable international trade’’ and the promotion of ‘‘mutually beneficial
flows of foreign private investment.’’11 Similarly, the aforementioned Raúl
Prebisch, whose structuralist thinking paved the way for often avowedly socialist
dependency approaches, nevertheless favoured a mixed economy with the private
sector in the lead. Thus, strong private sectors were seen by many as critical (albeit
contested) agents of development even in this early phase.

Neoliberal reaction and structural adjustment

A decisive reaction against interventionism and toward liberalization and market-
ization began in the 1980s. There were both real world and theoretical influences
that drove this sharp neoliberal ‘‘counter-revolution.’’12 Structural changes in the
world economy, including the rising importance of finance capital and the ending
of the Bretton Woods regime of fixed exchange rates in the early 1970s, ushered in
an era of economic ‘‘globalization’’ and of concomitant state retooling in pursuit of
enhanced international competitiveness.13 The liberalizing policies that enabled this
turn were driven politically by the election of the (confusingly labelled) neoconser-
vative governments of Ronald Reagan in the US, Margaret Thatcher in the United
Kingdom, and Helmut Kohl in West Germany, who were inspired theoretically by
the monetarist thinking of, among others, the Chicago School anchored by Milton
Friedman.14 Concomitantly, governments pursuing state-centred development
policies in much of the developing world, particularly Latin America but also
Africa and South Asia, sank into a deep debt crisis that increasingly discredited
statist approaches and compelled them to seek relief. This in turn opened the door
to draconian marketizing and privatizing structural adjustment policies (SAPs),
imposed by the World Bank and IMF as the quid pro quo for the concessional
financing necessary to weather the crisis. Finally, the collapse of the Soviet Union
and its East Bloc satellites at the end of the decade thoroughly discredited the state-
socialist models they had pursued and ushered in an era of neoliberal triumphalism.
In global development, these policies crystallized as the ‘‘Washington
Consensus,’’ so-named because of the tight alignment in thinking and prescriptions
among the World Bank and IMF, leading Western governments and policymakers,
private sector actors, and neoliberal professional economists centred in but

11. Lester B. Pearson, ed., Partners in Development, Report of the Commission on International
Development, (London: Pall Mall, 1969), 14.
12. Payne and Phillips, Development, 86–98.
13. See Philip Cerny, ‘‘Paradoxes of the competition state: The dynamics of political globalization,’’
Government and Opposition 32, no. 2 (1997): 251–274.
14. In Canada, this political and theoretical trend led to the Mulroney government’s negotiation of the
Canada–US Free Trade Agreement in the mid-1980s.
Black and O’Bright 149

extending well beyond Washington, DC.15 The SAPs arising from this thinking
reflected a high degree of standardization, applied with great consistency and
bloody-mindedness to diverse regimes in both the Third World and the former
Soviet bloc. For our purposes, they led to a decisive tilt toward the market and
the private sector, with their emphasis on trade liberalization, elimination of bar-
riers to foreign direct investment (FDI), and privatization of state-owned enter-
prises. The resulting policy shifts were strongly reinforced by the Uruguay Round
of the GATT (1987–1994), during which leading developing countries such as
Brazil and India decisively turned away from their pursuit of ISI and managed
trade to embrace the mantra of liberalization, which was almost completely uni-
versalized through the establishment of the World Trade Organization (WTO) in
1995.16 The die was cast: private sector actors were henceforth to become central to
mainstream development thought and practice.

The role of transnational corporations and

foreign direct investment
Perhaps the most important upshot of the neoliberal turn was a historic shift in
attitudes toward transnational corporations (TNCs) and FDI. From a neoliberal
perspective, policies that aggressively encouraged inward investments by TNCs and
other forms of FDI could not but help the development cause by generating
increased competitiveness and accelerated growth that would, over time, alleviate
aggregate poverty. This conception of private sector led growth and development
was firmly in line with immanent or ‘‘engine of growth’’ understandings of its role.
To be sure, the anticipated trickle down process would inevitably entail disruption,
dislocation, and considerable hardship—captured in Joseph Schumpeter’s famous
invocation (albeit with different processes in mind) of ‘‘creative destruction.’’17 But
the result, from this perspective, was bound to be historically progressive. Private
sector actors were not expected to take on new and/or explicitly developmental
roles, but merely to be liberated to engage in the profit-maximizing pursuits that
were their raison d’être.
It is worth emphasizing the historical significance of this shift in approach,
which continues to elicit unease among many development thinkers and actors.
In the first three ‘‘development decades,’’ from the 1950s to the 1970s, the extra-
ordinary size, autonomy, and influence of TNCs were typically viewed with
considerable wariness, if not outright antagonism—as reflected in the title of
Raymond Vernon’s well-known book, Sovereignty at Bay.18 Figures concerning

15. John Williamson, ‘‘Democracy and the ‘Washington Consensus,’’’ World Development 21, no. 8
(1993): 1329–1336.
16. Anna Lanoszka, The World Trade Organization: Changing Dynamics in the Global Political
Economy (Boulder: Lynne Rienner, 2009).
17. Joseph Schumpeter, Capitalism, Socialism, and Democracy (London: Routledge, 1942).
18. Raymond Vernon, Sovereignty at Bay: The Multinational Spread of US Enterprises (New York:
Longman, 1971).
150 International Journal 71(1)

the extraordinary size of TNCs—noting the comparability of the revenue of

Chevron with the GDP of Thailand, or of Daimler-Chrysler with Argentina, for
example—engendered anxiety regarding the exceptional influence such corpora-
tions could bring to bear on their ‘‘hosts,’’ particularly in the developing world.
Highly publicized instances of corporate malfeasance—perhaps most famously the
Bhopal disaster caused by a major gas leak at a Union Carbide plant in India in
1984—deepened the sense that TNCs and FDI were challenges to be managed,
rather than assets to be courted. Of course, the close relationships between cor-
porations and governing regimes richly benefited some, but there was well-earned
skepticism among most development scholars and practitioners concerning their
implications for the many.
By the 1990s and into the 2000s, the dominant orientation toward TNCs and
FDI had essentially reversed. Sumner notes that the received wisdom through this
period was that attracting FDI was ‘‘good’’ policy (at least for growth, which was
in turn seen as the core ingredient of development).19 Most FDI policy changes, he
observes, related ‘‘not [only] to easing restrictions on entry but to promotion and
incentives.’’ One clear measure of the altered disposition toward FDI was the
dramatic proliferation of bilateral investment treaties (BITs), providing transpar-
ent, investor friendly rules regarding FDI admission, treatment, expropriation, and
the settlement of disputes. Elkins et al. show that, from a moderate pace of signings
in the mid-1980s, the number of new treaties exploded through the 1990s to
more than a hundred a year throughout the decade.20 Similarly, the Trade
Related Investment Measures Agreement that came into force in 1995 as a result
of the Uruguay Round aimed to lock in a more conducive environment for foreign
investors by prohibiting restrictive practices such as local content and trade
balancing requirements. Of particular note to the Canadian private sector,
with its world-class extractive corporations, was the creation of investor friendly
mining codes throughout the developing world, featuring very modest royalty
and income tax regimes, generous capital and investment allowances, etc.
The rapid spread of these codes helped instigate a mining boom in both Latin
America and Africa.21
The onset of market liberalization and investor friendly policies unleashed a
sustained surge in FDI to the global South, and a growing presence of TNCs
(largely from the North, but increasingly from ‘‘emerging economies’’22 of the
South) in the developing world. Indeed, FDI has for some time dramatically over-
shadowed official development assistance, or foreign aid, as a net capital inflow to

19. Andrew Sumner, ‘‘Foreign direct investment in developing countries: Have we reached a policy
‘tipping point’?’’ Third World Quarterly 29, no. 2 (2008): 242.
20. See Zachary Elkins, Andrew T. Guzman, and Beth A. Simmons, ‘‘Competing for capital: The
diffusion of bilateral investment treaties, 1960–2000,’’ International Organization 60 (2006): 814–
815.
21. For example, Bonnie Campbell, ed., Mining in Africa: Regulation and Development (London: Pluto
Press, 2009).
22. Including the BRICS (Brazil, Russia, India, China, and South Africa), but also other ‘‘rising
states’’ such as South Korea, Turkey, and Malaysia.
Black and O’Bright 151

developing countries.23 Yet after a quarter century of investor friendly policies and a
prolonged commodities boom that has only recently gone largely bust, the evidence
for a positive impact on poverty alleviation and sustainable development remains
complex and/or elusive. Based on a thorough review of surveys regarding the impact
of FDI, Sumner summarized in 2008 that ‘‘many of the benefits of FDI are either
unclear or determinant on prerequisites such as levels of human capital, levels of per
capita income (as a proxy for economic development) or levels of financial develop-
ment or policy regimes, which may not exist in many countries.’’24 These findings
concerning the complex effects of FDI, including their differential impact on larger
and more diversified ‘‘rising economies’’ (e.g., India, China, Malaysia, and Mexico)
versus smaller, low-income economies (e.g., Ghana, Guyana, Malawi, and Zambia),
as well as the importance of politically difficult government policy choices in shaping
these effects, have been widely corroborated.25 Indeed, unfettered FDI without com-
plementary development policy efforts appears to have had a negligible, or in some
cases negative, impact where poverty is most pervasive. Moreover, it has been closely
correlated with the unprecedented inequalities that have become a major preoccupa-
tion of global social movements and elites alike.26
TNCs, for their part, have continued to be implicated in disturbing manifesta-
tions of environmental and/or human insecurity.27 This has resulted in a growing
trend toward more assertive policies from developing countries (a new ‘‘resource
nationalism’’) determined to secure a greater share in the benefits from the activities
of foreign investors, and growing social movement pressure for improved corporate
behaviour.28 The upshot has been growing incentives for corporations to become
more proactively involved in intentional development efforts or, as Di Bella et al.
term them, ‘‘private sector engagements for development,’’29 versus the more

23. For example, Roy Culpeper, ‘‘Private foreign investment: Part of the solution or part of the
problem?’’ in Canadian Development Report 2004: Investing in Poor Countries: Who Benefits?
(Ottawa: North-South Institute, 2004), 1–26; Brett House, ‘‘Development finance: Enter the private
sector,’’ Global Brief (Spring/Summer 2015), https://www.opencanada.org/features/development-
finance-enter-the-private-sector/ (accessed 23 October 2015).
24. Sumner, ‘‘Foreign direct investment,’’ 245. It is important to note that the type of investment
matters a great deal. For example, whether the investment is ‘‘greenfield’’ (new production facil-
ities) or ‘‘brownfield’’ (merger and/or acquisition of existing operations) has important ramifica-
tions for employment, diversification, and strategic direction of an economy. Policy design and
capacity are, in turn, important in efforts to shape desired outcomes.
25. See, for example, Theodore H. Moran, Edward M. Graham, and Magnus Blomstrom, eds., Does
Foreign Direct Investment Promote Development? (Washington: Institute for International
Economics and Center for Global Development, 2005); and Matthew Martin and Cleo Rose-
Innes, ‘‘Private capital flows to low income countries: Perception and reality,’’ in Canadian
Development Report 2004, 27–50.
26. For example, Philip Nel, The Politics of Economic Inequality in Development Countries (New York:
Palgrave Macmillan, 2008); and World Economic Forum, ‘‘Outlook on the Global Agenda 2015,’’
http://reports.weforum.org/outlook-global-agenda-2015/ (accessed 21 April 2015).
27. For example, Campbell, ed., Mining in Africa; and Canadian Journal of Development Studies 30,
no. 1–2 (2010), special double issue, ‘‘Rethinking extractive industry: Regulation, dispossession,
and emerging claims.’’
28. See Sumner, ‘‘Foreign direct investment.’’
29. Jose Di Bella, Alicia Grant, Shannon Kindornay, and Stephanie Tissot, ‘‘Mapping private sector
engagements in development cooperation,’’ North-South Institute, Ottawa, 2013.
152 International Journal 71(1)

passive pursuit of growth and profitability as ends in themselves. The remainder of

this paper reviews the most prominent of these private sector and market-oriented
engagements, beginning with corporate social responsibility.

A growing emphasis on corporate social responsibility

Faced with the negative repercussions of corporate irresponsibility and the impor-
tance of maintaining a ‘‘social licence to operate,’’ both corporations and govern-
ments (home and host) have placed steadily growing emphasis on corporate social
responsibility (CSR). What is CSR, and how has it been viewed by the private
sector, governments, and individual stakeholders? What do we know about its
implications for development in the global South?
For Werther and Chandler, CSR is discerned from its three constituent words:
corporate, social, and responsibility.30 It covers the relationship between corpora-
tions, or other large private sector actors, and the societies with which they interact.
It equally emphasizes the responsibilities that each side in these relationships has to
others, and to broader social and physical environments. Attempts to define CSR
in the past have revealed two of its basic conceptual features: that it is usually
manifested in some observable and measurable output; and that social performance
as a result of CSR typically exceeds levels set by obligatory regulations and relevant
markets.31 All definitions of CSR, Bannerjee argues, involve the voluntary and
discretionary efforts of corporations to exceed their legal responsibilities so as to
facilitate some sort of societal ‘‘good.’’ 32 Similarly, Werther and Chandler note
that CSR involves corporations looking beyond their primary purpose for being—
satisfying the economic interests of their shareholders—to the management of the
impact of their actions on society, communities, the environment, and the public.
In contrast, authors such as Drucker suggest (in line with ‘‘engine of growth’’
arguments) that the first ‘‘social responsibility’’ of business is to make enough
profit to secure a healthy financial future, because a decaying business in a decaying
economy will not likely find a reason to pursue CSR objectives.33 In general, there-
fore, CSR could be considered both a means and an end, depending on one’s
disposition toward the concept itself: the way a firm might go about delivering
its products or services (the means), and the manner by which it seeks to maintain
an aura of legitimacy around its actions within the larger society by taking account
of extended stakeholder concerns (the end).34

30. William B. Werther Jr. and David Chandler, Strategic Corporate Social Responsibility:
Stakeholders in a Global Environment (Thousand Oaks: SAGE Publications Inc., 2011), 5–6.
31. Markus Kitzmueller and Jay Shimshack, ‘‘Economic perspectives on corporate social responsi-
bility,’’ Journal of Economic Literature 50, no. 1 (2012): 53.
32. Subhabrata Bobby Banerjee, ‘‘Corporate social responsibility: The good, the bad and the ugly,’’
Critical Sociology 34, no. 1 (2008): 60.
33. Peter F. Drucker, ‘‘The new meaning of corporate social responsibility,’’ California Management
Review 26, no. 2 (1986): 62; see also Thomas Carson, ‘‘Friedman’s theory of corporate social
responsibility,’’ Business and Professional Ethics Journal 12, no. 1 (1993): 3.
34. Werther and Chandler, Strategic Corporate Social Responsibility, 7.
Black and O’Bright 153

While the origins of modern CSR are long and contested, there is no gainsaying
its rapid expansion as both a practice and focus of study over the past six decades,
or its even more dramatic growth in the context of (and as a reaction to) the post-
1980 neoliberal turn. Yet all this activity has not yielded conceptual clarity.35 More
than 40 definitions, offshoots, and toolsets later, we still lack a generally applicable
conception of CSR. Orlitzky et al. argue that the dramatic growth in the use of the
term, coupled with related inconsistencies and debates, has hampered progress in
understanding CSR-linked activity.36 As Waddock notes, ‘‘parallel and sometimes
confusing universes exist’’ in the study and definition of CSR, thanks in part to
scholars approaching the topic from a wide range of disciplinary and theoretical
perspectives. Additional fragmentation arises from the various levels of analysis at
which it has been studied, with the macro-level typically given priority over the
individual.37 Yet in a literature review of 37 different definitions of CSR, Dahlsrud
argues that this definitional ambiguity might not be as dramatic as we might first
imagine, since in 97 percent of cases explored, CSR references at least three of five
cross-sector ‘‘dimensions’’: environment, society and its relationship to business,
socio-economics, stakeholders and associated groups, and ‘‘voluntariness.’’38
While these elements do not provide descriptions of optimal CSR design, or for-
mulas for its achievement, they do suggest consensus around the processes by
which it might be established.
More precisely, Ponte et al. provide a useful analytical framework to encapsu-
late the various forms and levels of CSR activity. They distinguish proximate
and engaged initiatives (involving workplace conditions and policies at corporate
headquarters or directly owned plants), distant and engaged activities (involving
codes of conduct applied to corporate suppliers and supply chains), proximate
and disengaged efforts (cause-related marketing in local communities of operation),
and finally distant and disengaged CSR (cause-related marketing with distant ben-
eficiaries).39 Each of these forms will have varying motivations and ramifications
for their ostensible beneficiaries, and need to be carefully distinguished and
evaluated.

35. See, for example, Archie B. Carroll, ‘‘A history of corporate social responsibility: Concepts and
practices,’’ in Andrew Crane et al., eds., Oxford Handbook of Corporate Social Responsibility
(Oxford: Oxford University Press, 2008), 24; Bert Spector, ‘‘Business responsibilities in a divided
world: The Cold War roots of the corporate social responsibility movement,’’ Enterprise & Society
9, no. 2 (2008): 331–333; and Rhys Jenkins, ‘‘Globalization, corporate social responsibility, and
poverty,’’ International Affairs 81, no. 3 (2005): 526–528.
36. Marc Orlitzky, Donald S. Siegel, and David A. Waldman, ‘‘Strategic corporate social and envir-
onmental responsibility,’’ Business and Society 50, no. 1 (2011): 8.
37. See Herman Aguinis and Ante Glavas, ‘‘What we know and don’t know about corporate social
responsibility: A review and research agenda,’’ Journal of Management 38, no. 4 (2012): 933.
38. Alexander Dahlsrud, ‘‘How corporate social responsibility is defined: An analysis of 37 defini-
tions,’’ Corporate Social Responsibility and Environmental Management 15 (2008): 5.
39. Stefano Ponte, Lisa Ann Richey, and Mike Babb, ‘‘Bono’s product (RED) initiative: Corporate
social responsibility that solves the problems of ‘distant others,’’’ Third World Quarterly 30, no. 2
(2009): 302–304.
154 International Journal 71(1)

How, then, has CSR been constituted? To be sure, there is a growing emphasis
among most old and new development actors on CSR. For the old, it represents
both a necessary and measured response to the forcible entrance of new develop-
ment actors at the negotiation and funding table. Put another way, corporations
have invited themselves to the development dinner table, with no plans to leave.
The development family already at the table, including representatives of govern-
ment, international organizations, and the not-for-profit sector, have typically
taken one of several responses: working with corporations and private sector
actors to foster and promote mutually beneficial CSR codes and guidelines;
attempting to impose such guidelines on private sector actors; and, in some
cases, closing their eyes and wishing these new actors away. CSR may therefore
be seen in part as an awakening to a changing development landscape by a growing
portion of the old development family, recognizing that they are no longer alone in
this domain of international action.
The question remains, however: does the growth of attention to CSR equate to
more socially responsible corporate practices? In some respects, the response to this
question is surprisingly positive. Carroll and Shabana suggest that the concept of
CSR and associated practices has grown so substantially since the 1940s that one
cannot navigate the breadth of media sources without encountering some discus-
sion of the issue, some recent example of innovative practices, or some new con-
ference devoted to it.40 A plethora of journals, magazines, books, dictionaries,
encyclopedias, websites, discussion lists, organizations, and blogs has emerged
under the rubric of CSR, or broach the topic regularly. In 2010, global accounting
giant PriceWaterhouseCoopers (PwC) noted that some 81 percent of all companies
now publish CSR information, and 50 percent have a homepage CSR link.
European companies have regularly outpaced their North American counterparts
in CSR reporting, with 94 percent of the former providing such information but
only 50 to 70 percent of the latter.41 The Conference Board of Canada’s 2013
‘‘Sustainability Practices’’ report, covering companies on the Standard & Poors
Global 1200 Index, notes that more than 50 percent of those surveyed now have
environmental impact reporting practices, and more than 84 percent report on
social and ethical practices. According to Forbes, the number of companies issuing
sustainability and CSR reports worldwide jumped to 5,500 in 2012, from only 800
in 2002. From an employee perspective, a PwC survey suggested that nearly 88
percent of millennials now select employers based on the latter’s CSR values, and
86 percent agree that they would leave a workplace that does not meet their
expectations in this regard.42 While these numbers are difficult to substantiate,

40. Archie B. Carroll and Kareem M. Shabana, ‘‘The business case for corporate social responsibility:
A review of concepts, research and practice,’’ International Journal of Management Reviews (2010):
85.
41. CSR Trends 3—A Comprehensive Survey of CSR Report Trends, Benchmarks and Best Practices
(Toronto: PriceWaterhouseCoopers LLP, 2010), 1.
42. See Tim Mohin, ‘‘The top 10 trends in CSR for 2012,’’ Forbes.com, 18 January 2012, http://
www.forbes.com/sites/forbesleadershipforum/2012/01/18/the-top-10-trends-in-csr-for-2012/
(accessed 6 July 2014).
Black and O’Bright 155

other evidence suggests that they might be indicative of a continuing trend in

support of CSR among millenials.43
The growing emphasis on CSR also means that it has become increasingly
institutionalized. Bondy et al. suggest that corporate recognition of acts impacting
society and the public (for example, the British Petroleum response to its oil spill in
the Gulf of Mexico), the development and training of CSR professionals, the
codification of CSR in national and international law, changes in public opinion
regarding ‘‘green’’ business, and the modification of market tools all point to the
concept’s institutionalization.44 In an April 2014 vote, the European Union
Parliament made CSR reporting mandatory for any listed company in Europe
with over 500 employees—a total of 5,000 to 7,000 companies.45 The UN’s
Global Compact, touted by its proponents as the world’s largest corporate citizen-
ship and sustainability initiative with more than 12,000 members from 145 coun-
tries, has pioneered a new model of partnership-based development within the UN
system involving what John Ruggie has characterized as an innovative global
‘‘learning network.’’46
These various trends reflect the growth of CSR principles and practices.
More companies than ever before are participating in public reporting practices
and monitoring programs, stakeholder engagement, and voluntary frameworks.
But how has this growth in emphasis and activity translated into practical
application—and what sort of development does it contribute to? As we will see
in the next section, CSR initiatives and actors have been manifested in a variety of
new and interesting ways.
Yet controversy persists concerning the nature and limits of the development
vision reinforced through CSR, as well as the reach and impact of CSR activities in
the communities they are supposed to be ‘‘for,’’ particularly in the global South.
The very diversity of CSR’s conceptualization, the range of codes and principles it
has inspired, and the voluntary nature that is one of its hallmarks mean that its
systemic impact is difficult to evaluate and enforce. For many critics, such as
Soederberg, its positive veneer masks and facilitates the steady intensification of

43. For example, Morley Winograd and Michael Hais, ‘‘How millennials could upend Wall Street and
corporate America,’’ Governance Studies at Brookings (2014): 6–9; Lynne Leveson and Therese A.
Joiner, ‘‘Exploring corporate social responsibility values of millennial job-seeking students,’’
Education + Training 56, no. 1 (2014): 23; Cliff Zukin and Mark Szeltner, Talent Report: What
Workers Want in 2012 (San Francisco: Net Impact, 2012), 10.
44. Krista Bondy, Jeremy Moon, and Dirk Matten, ‘‘An institution of corporate social responsibility
(CSR) in multi-national corporations (MNCs): Forms and implications,’’ Journal of Business
Ethics 111, no. 2 (2012): 282.
45. Jerome Chaplier, ‘‘EU to force large companies to report on environmental and social impacts,’’
The Guardian, 28 February 2014, http://www.theguardian.com/sustainable-business/eu-reform-
listed-companies-report-environmental-social-impact (accessed 12 October 2015).
46. Foundation for the Global Compact, UN Global Compact Participants (New York: United
Nations Global Compact, 2014), http://www.unglobalcompact.org/ParticipantsAndStakeholders
/index.html (accessed 12 October 2015); Jean-Philippe Therien and Vincent Pouliot, ‘‘The Global
Compact: Shifting the politics of international development,’’ Global Governance 12 (2006): 55–75;
and John Ruggie, ‘‘global_governance.net: The Global Compact as learning network,’’ Global
Governance 7 (October–December 2001): 372–374.
156 International Journal 71(1)

neoliberal market structures, accompanied by widening inequalities and persistent

ecological degradation.47 In this sense, it has been portrayed as a vehicle for
‘‘greenwashing’’ or ‘‘bluewashing,’’ depending on which negative repercussions
are being masked.48 As discussed in the next section, the spread of public–private
partnerships that it encourages—indeed entrenches—can be seen to diffuse the
responsibility of publicly accountable institutions for development outcomes, and
therefore obfuscate accountability. Finally, as Lund-Thomsen notes,49 CSR
remains very largely a preoccupation of corporations, governments, and consumers
in the global North, particularly Europe and North America. Its limited popularity
and reach beyond these regions, the weakness of legal and regulatory constraints
on corporate behaviour in the South, and the unintended negative consequences of
externally formulated CSR codes of conduct for many workers and families in the
developing world all suggest that its impact may be more ambiguous than is often
presumed, while its responsiveness to the real concerns of Southern communities is
often limited at best. These critiques underscore the need for more systematic
analysis and assessment of the ‘‘thousand flowers’’ of CSR, at both transnational
and local levels, and for the consolidation of these initiatives and codes to facilitate
effective monitoring and accountability.

The ‘‘new’’ philanthropy and public–private partnerships

Closely related to CSR is the rise of the new ‘‘philanthrocapitalists.’’50 It is, after
all, the philanthropic ‘‘arms’’ of major corporations and their owners that are often
primary agents of private sector development interventions, frequently in the form
of public–private partnerships (PPPs) with international organizations, state-based
donors, and civil-society organizations. Philanthropic and development aid mod-
alities have undergone roughly three stages of overlapping change and evolution in
relation to each other. The first stage may be classified as traditional development
aid, or the assistance provided by traditional (that is, Western) bilateral and multi-
lateral agencies that are normally members of the Organization for Economic Co-
operation and Development’s (OECD’s) Development Assistance Committee
(DAC) and operate within DAC rules, regulations, and peer review scrutiny.51
Actors within the traditional development assistance paradigm have been

47. Suzanne Soederberg, ‘‘Taming corporations or buttressing market-led development? A critical

assessment of the Global Compact,’’ Globalizations 4, no. 4 (2007): 503–504.
48. Environmental- or UN rights-based, respectively.
49. Peter Lund-Thomsen, ‘‘The global sourcing and codes of conduct debate: Five myths and five
recommendations,’’ Development and Change 39, no. 6 (2008): 1005–1018.
50. See Matthew Bishop and Michael Green, Philanthrocapitalism: How the Rich Can Save the World
(London: Bloomsbury Press, 2008); Michael Blowfield and Catherine S. Dolan, ‘‘Business as a
development agent: Evidence of possibility and improbability,’’ Third World Quarterly 35, no. 1
(2014): 22–42; and Lindsay McGoey, ‘‘The philanthropic state: Market-state hybrids in the phi-
lanthrocapitalist turn,’’ Third World Quarterly 35, no. 1 (2014): 109–125.
51. Romilly Greenhill, Annalisa Prizzon, and Andrew Rogerson, The Age of Choice: Developing
Countries in the New Aid Landscape—A Synthesis Report (London: Overseas Development
Institute, 2013), 1.
Black and O’Bright 157

government donors supporting fellow governments through direct or bilateral aid,

through multilateral organizations like the UN, and through development-focused
non-governmental organizations (NGOs).52 Thus, traditional aid frameworks con-
nect three channels. Citizens in rich countries pay taxes to their governments, a
small portion of which are allocated to international development assistance. These
countries then on-lend or grant these resources to poor or developing states, some-
times via multilateral intermediaries, who in turn implement programs and policies
with the stated objective of accelerating development and reducing poverty.53
Until the 1990s, this system was relatively effective, at least in administrative
terms: flexible enough to accommodate many new recipients as they emerged
through decolonization, with potential efficiency gains as the numbers of donors
and recipients grew. Today, however, the traditional aid system is increasingly
under strain. On the supply side, there has been an explosion of bilateral and
multilateral agencies, as well as new private donors—the latter often ‘‘backfilling’’
the growing need for development finance as government aid budgets stagnate. On
the delivery side, the number of NGOs has become unwieldy, and their associated
mandates diverse and complex. Moreover, official aid channels are increasingly
being transformed into tools addressing various political, commercial, and security
ends, along with traditional development concerns.54 In response to the growing
need for new funding sources and the inevitability of private sector participation in
development initiatives, there has been a marked rise in the popularity of PPPs and
in reliance on corporate donors.55
The emergence of non-traditional development assistance represents a second
evolutionary phase in the aid paradigm. Greenhill defines non-traditional develop-
ment assistance as cross-border sources of finance provided with some public or
philanthropic interest or purpose and with some associated level of conditionality,
but also with funding or delivery mechanisms that differ from DAC donors.56 This
category includes assistance from non-DAC states, philanthropic and institutional
giving, social impact investment,57 global vertical funds,58 and climate financing.
Beginning with the first actor type, non-DAC funders are normally associated with,

52. Patrick Develtere and Tom De Bruyn, ‘‘The emergence of a fourth pillar in development aid,’’
Development in Practice 19, no. 7 (2009): 912.
53. Homi Kharas, Trends and Issues in Development Aid (Washington: Wolfensohn Center for
Development—Brookings Institution, 2007), 3.
54. Ibid., 3–4. Of course, the politicization and ‘‘securitization’’ of aid have been features of develop-
ment assistance since its inception.
55. See Di Bella et al., ‘‘Mapping private sector engagements.’’
56. Greenhill et al., The Age of Choice, 1.
57. Defined as ‘‘investments made into companies, organisations, and funds with the intention to
generate measurable social and environmental impact alongside a financial return.’’ See
Maximilian Martin, ‘‘Status of the Social Impact Investing Market: A Primer,’’ UK Cabinet
Office, June 2013, http://apsocialfinance.com/wp-content/uploads/2014/05/Status_of_the_Social_
Impact_Investing_Market_-_A_Primer.pdf (accessed 25 June 2015).
58. Defined as ‘‘multi-stakeholder global programs that provide earmarked funding for specified
purposes.’’ See Keith Bezanson, Paul Isenman, and Alex Shakow, ‘‘Scaling up in agriculture,
rural development and nutrition: Learning from the experience of vertical funds,’’ Policy Brief,
International Food Policy Research Institute 19, no. 18 (2012): 1.
158 International Journal 71(1)

though not limited to, the BRICS countries (Brazil, Russia, India, China, and
South Africa), offering a political alternative to the development cooperation
model preferred by their DAC counterparts. Their mantra is South–South coop-
eration, which they portray as an equal partnership in contrast to the DAC model
of hierarchical ‘‘donor-recipient’’ relations.59 Although South–South cooperation
is not new, the proliferation of regional meetings between the BRICS and their
developing country counterparts,60 the emergence of a BRICS Development
Bank,61 and the rise in Southern rhetoric challenging aid conditionality (including
structural adjustment) and reaffirming sovereignty all seem to indicate a shift
toward a different development paradigm.
But what of ‘‘new’’ philanthropy? We see this emerge within this second evolu-
tionary phase under the rubric of philanthropic and institutional giving. Delvetere
and De Bruyn argue that, to date, relatively little is known about the consequences
of the philanthropic sector’s rise, since it typically consists of development initia-
tives instigated not by traditional development aid specialists but instead by private
actors, companies, and foundations who have been confronted with certain
imperatives in the developing world (concerning health, nutrition, education,
etc.) and have wished to take action in their own way.62 Although philanthropy
is an ancient idea and practice, they see the core of the new philanthropy as distinct
from earlier iterations. First, the new philanthropists did not emerge in the simply
stratified context of North–South relations, but reflect a ‘‘post-modern story of
globalization and international networking’’ within a more diverse and pluralistic
development landscape.63 Second, there has been a proliferation of new founda-
tions with focused missions to address certain specific problems in developing
countries, as well as the reorganization of older private philanthropic organizations
for similar ends.64 Indeed, these organizations are instigating larger global alliances
that can further mobilize private and public resources to fight major challenges.65
Lastly, new philanthropy is largely heterogeneous, non-domain specific, and fun-
damentally divorced from the bounded models of traditional development theories,
such as modernization, structuralism, or dependency theory, as well as related
professional specializations.
In short, ‘‘new’’ philanthropy is made up of private actors, whether foundations,
emerging NGOs, citizen networks, or corporations, who, according to Develtere
and De Bruyn, are writing their own rule book for development aid, largely

59. Yunnan Chen and Emilie Wilson, ‘‘Five fingers or one hand? The BRICS in development coop-
eration,’’ Institute of Development Studies Policy Briefings 69 (2014): 1.
60. Peter Kragelund, The Potential Role of Non-Traditional Donors’ Aid in Africa, Issue Paper 11
(Geneva: The International Centre for Trade and Sustainable Development, 2010), 4.
61. Parag Khanna, ‘‘New BRICS bank a building block of alternative world order,’’ New Perspectives
Quarterly 31, no. 4 (2014): 46.
62. Develtere and De Bruyn, ‘‘The emergence of a fourth pillar,’’ 914–916.
63. Ibid., 914.
64. McGoey, ‘‘The philanthropic state,’’ 2014.
65. For example, the Global Fund to Fight HIV/AIDS, Tuberculosis, and Malaria (GFATM, http://
www.theglobalfund.org/en/) or the Global Public-Private Partnership for Handwashing
(www.globalhandwashing.org).
Black and O’Bright 159

bypassing restrictive traditional funding channels (although not public funds) and
broaching specific, self-identified challenges.66 In this manner, they have come to
play a disproportionately significant political and agenda setting role—as exempli-
fied by the Gates Foundation’s global health role. Moreover, debate continues over
whether the motivations behind these actions are benevolent or simply a means of
‘‘looking good’’ and burnishing philanthropic brands. Regardless of motive, how-
ever, their impact has been widely felt—particularly through the controversial
proliferation of hundreds of transnational PPPs, ‘‘in which nonstate actors co-
govern along with state actors for the provision of collective goods, and adopt
governance functions that have formerly been the sole authority of sovereign
nation-states.’’67
That said, is the current phase of corporate philanthropy all that ‘‘new,’’ and can
it truly be considered the third evolutionary stage of development aid? Klein notes
that corporations and their relevant organizational arms have been supporting
various worthy causes for roughly a century.68 For him, the third evolutionary
stage of development assistance, marked by this ‘‘new’’ philanthropy, is distin-
guished by the slow decline and eventual end of blind charity by corporations,
and a shift toward non-cash giving focused on measurable outcomes.69 Jenkins
suggests that new philanthropy is the application of business techniques by an
emerging generation of self-made, hands-on donors who engage in strategic
grant making paired with an emphasis on performance metrics and aid effective-
ness.70 Anheier and Leat argue that for many of this ‘‘new’’ generation, philan-
thropy is an investment, not charity, with the explicit aim of creating social wealth,
often in direct conflict with the realities of not-for-profit organizations.71
Therefore, new philanthropy is seen to involve the tapping of core strengths of
business (beyond their large resources pools) for use in international development
initiatives, accompanied by the view that funding without responsibility and mea-
surable results may no longer be a sustainable model of aid.
However, some commentators have noted that private philanthropists are far
less generous or entrepreneurial than stereotypical assumptions about private
sector roles suggest. For example, McGoey notes that despite the dramatic
growth in the number of new philanthropic foundations, their total spending is
still far below that of state-based development agencies.72 What is striking in this

66. Develtere and De Bruyn, ‘‘The emergence of a fourth pillar,’’ 914.

67. See Marco Schaperhoff, Sabine Campe, and Christopher Kaan, ‘‘Transnational public-private
partnerships in international relations: Making sense of concepts, research frameworks, and
results,’’ International Studies Review 11 (2009): 451–452.
68. Paul Klein, ‘‘Has traditional philanthropy had its day?’’ The Guardian, 12 June 2013, http://
www.theguardian.com/sustainable-business/traditional-philanthropy-had-its-day (accessed 10
June 2013).
69. Ibid.
70. Garry W. Jenkins, ‘‘Who’s afraid of philanthrocapitalism?’’ Case Western Reserve Law Review 61,
no. 3 (2011): 3–4.
71. Helmut K. Anheier and Diana Leat, Creative Philanthropy: Toward a New Philanthropy for the
Twenty-First Century (New York: Routledge, 2006), 21.
72. McGoey, ‘‘The philanthropic state,’’ 112.
160 International Journal 71(1)

context is the degree to which they have leveraged their resources to perform an
increasingly pivotal agenda-setting role in particular issue areas. Again, the Gates
Foundation’s global health role is a striking example, but by no means unique.
Moreover, far from injecting risk-taking flair into the development landscape,
McGoey’s analysis shows that in at least some celebrated cases of both corporate
and philanthropic development initiatives—for example, the M-Pesa system allow-
ing Kenyan villagers to pay bills through text message on their mobile phones73
and the advanced market commitment (AMC) enabling the wide distribution of a
new pneumococcal vaccine—private initiatives relied on public sector agencies
bearing the critical early-stage risks. In this regard, the balance of private versus
public risks and benefits in these new ‘‘partnerships’’ calls for careful scrutiny—a
point to which we will return.

Microfinance and micro-credit

If transnational corporations, CSR, philanthrocapitalism, and many PPPs typically
operate at the rarefied apex of national and international development efforts
(think of the World Economic Forum), the private sector turn has also vitally
affected grassroots or community development efforts in poor rural communities,
particularly through the explosive growth of microfinance and micro-credit.
Through these practices, participation in the market and the fostering of private
sector entrepreneurship have been touted as progressive forces for alleviating pov-
erty and empowering the most marginalized, notably including women. Thus, the
rapid popularization of microfinance and credit illustrates the degree to which the
private sector turn in international development has been pervasive in its impact,
spanning local to global levels of initiative and analysis.
Microfinance ‘‘is the provision of a broad range of financial services to those
excluded from the formal financial system.’’74 Within this category of services sits
micro-credit—the lending of small amounts of money to a client by a particular
service provider, such as a bank. The origins of modern microfinance can be traced
back to the creation of the Grameen Bank in 1983 by future Nobel Peace Prize
laureate Muhammad Yunus.75 Since then, and particularly in the 1990s and 2000s,
microfinance and the microfinance institutions (MFIs) that have promoted and
delivered it have grown to provide a substantial depth of generalized financial
services to poor and relatively marginalized populations. Yet microfinance has
been regularly plagued by two interlocking questions: whether these tools have a
measurable impact on the social and economic situation of the poor in developing

73. While M-Pesa was not a philanthropic initiative but rather a PPP initially between Vodafone and
the UK’s Department for International Development (DFID), its expansion has been enabled in
part by a contribution from the Gates Foundation. See McGoey, ‘‘The philanthropic state,’’ 113.
74. Didem Gurses, ‘‘Microfinance and poverty reduction in Turkey,’’ Perspectives on Global
Development and Technology 8, no. 1 (2009): 96.
75. Leonardo Becchetti and Fabio Pisani, ‘‘Microfinance, subsidies and local externalities,’’ Small
Business Economics 34, no. 3 (2010): 309; Muhammad Yunus, Banker to the Poor: Micro-lending
and the Battle against World Poverty (New York: Public Affairs, 2003).
Black and O’Bright 161

countries; and whether delivery institutions can finance their own operations without
compromising their mission to reach these vulnerable populations.76 Indeed, the sus-
tainability of MFI operations has been a sensitive issue, with many forced to raise
interest rates to exorbitant levels in order to escape reliance on donor funding.77
Within this structural and operational gap we find new philanthropic and private
sector actors taking on increasingly prominent roles in the provision of microfinance,
fostering what Aitken terms the growing ‘‘financialization of micro-credit.’’78
The failure of formal and informal financial sectors to provide affordable and acces-
sible services, particularly credit, to the poor and marginalized is often viewed as one of
the principal factors reinforcing the economic, social, and demographic structures that
cause poverty. Micro-credit, involving the dispersion of collateral-free loans to groups of
jointly liable borrowers in order to foster income generation and poverty reduction
through enhanced opportunities for self-employment, has served as a partial response.79
As noted, the Grameen Bank of Bangladesh is a pioneering MFI, with micro-credit as
one of several categories of action or service provision. Offered as a means to create self-
employment and income-generating activities for the poor, microfinance has been por-
trayed as a challenge to traditional lenders who often deem the poor ‘‘not creditworthy.’’
MFIs provide banking services for the poor by going directly to these historically
marginalized clients and giving a high priority to building social capital.80

Enter new donors

We can group new donor participation in micro-credit into three categories: first,
the ever-growing global community of MFIs and banks; second, new donors who
financially support MFIs and banks; and third, those new donors who themselves
provide micro-credit services. Beginning with the first, in its most basic form an
MFI is a private sector organization that provides microfinance services, with
structures ranging from small NGOs to large commercial banks. The latest figures
from MixMarket suggest that there are nearly 2,000 registered MFIs and banks
providing microfinance services (with many more informal service providers), regis-
tering over 92 million clients.81 Other research suggests that there could be as many
as 10,000 such institutions.82 At the end of 2009, the Inter-American Development

76. Niels Hermes, Robert Lensink, and Aljar Meesters, ‘‘Outreach and efficiency of microfinance
institutions,’’ World Development 39, no. 6 (2011): 938–948.
77. Gurses, ‘‘Microfinance and poverty reduction,’’ 106.
78. Rob Aitken, ‘‘The financialization of micro-credit,’’ Development and Change 44, no. 3 (2013):
474–475.
79. M. Chowdhury, Jahangir Alam, Dipak Ghosh, and Robert E. Wright, ‘‘The impact of micro-
credit on poverty: Evidence from Bangladesh,’’ Progress in Development Studies 5, no. 4 (2005):
298.
80. Lamia Karim, ‘‘Demystifying micro-credit: The Grameen Bank, NGOs, and neoliberalism in
Bangladesh,’’ Cultural Dynamics 20, no. 1 (2008): 9.
81. ‘‘About Microfinance,’’ MicroRate.com, 2014, http://www.microrate.com/research/about-micro-
finance (accessed 14 September 2014).
82. Christian Ahlin, ‘‘Matching credit: Risk and diversification in Thai microcredit groups,’’ Draft
Paper, London School of Economics and Political Science (2009), 2.
162 International Journal 71(1)

Bank noted that MFIs in Latin America and the Caribbean alone had nearly 10.5
million borrowers, with microfinance available to nearly one in six individuals.83
Recently, however, MFIs have been forced to confront a number of emerging
challenges. First, competition has increased between institutions in developing
countries, with some markets becoming saturated with microfinance opportunities.
Second, non-Western commercial banks have started to become interested in pro-
viding microfinance services, since the field’s forerunners have shown this to be a
profitable and successful business model. Third, and most important to our dis-
cussion, commercial banks and investors from developed countries have sought to
engage with and profit from microfinance and micro-credit through supporting
established MFIs and directly providing services themselves.84
As noted, new donors and private sector corporate actors have entered the field
of microfinance and micro-credit either as direct providers of micro-credit to clients
or as providers of financial support to MFIs so as to ensure their sustainability.
The former are far less prevalent than the latter, which include programming by
Credit Suisse, Deutsche Bank, the MasterCard Foundation, the Bill and Melinda
Gates Foundation, the Michael and Susan Dell Foundation, the Consultative
Group to Assist the Poor, and Citi Foundation, among many others. Generally,
the organizations within this category provide MFIs with loans, investments, and
philanthropic grants, while keeping their activities at arm’s length. Some, such as
Deutsche Bank, explicitly argue that their support of microfinance is not to realize
financial and commercial gain for the bank itself but to facilitate the realization of
responsibility goals as social investors.85

Arguments for and against microfinance/credit

The widespread support for microcredit among many development practitioners
and analysts stems in large part from the perceived failures of traditional develop-
ment aid and state-led development economics more generally—a view that was
powerfully reinforced by the neoliberal turn in development discussed above.
Despite billions of dollars and decades of international aid, this line of argument
runs, much of the world continues to live in extreme poverty, raising important
questions about the efficacy of traditional development assistance in alleviating
absolute poverty.86 In this context, Plan Canada (among others) argues that
micro-credit and microfinance provide six verifiable benefits: poor and

83. ‘‘Microfinance by the Numbers,’’ Inter-American Development Bank, 2009 http://www.iadb.org/

en/topics/microfinance/microfinance-by-the-numbers,2450.html (accessed 14 September 2014).
84. Niels Hermes, Robert Lensink, and Aljar Meesters, ‘‘Outreach and efficiency of microfinance
institutions,’’ World Development 39, no. 6 (2011): 939. See also the remainder of the special
issue on microfinance from which this article is drawn.
85. See ‘‘Microfinance,’’ Deutsche Bank USA, 17 March 2014, https://www.db.com/usa/content/en/
1077.html (accessed 14 September 2014).
86. Measuring extreme poverty is contentious. According to the World Bank, however, 2.2 billion
people lived on less than USD$3.10 per day in 2011—down marginally from 2.59 billion people in
1981. See http://www.worldbank.org/en/topic/poverty/overview (accessed 24 October 2015).
Black and O’Bright 163

disenfranchised populations have improved access to banking services; loan repay-

ment rates are more favourable; families receiving microfinancing are statistically
less likely to pull their children out of school for economic reasons; access to health
care, clean water, and better sanitation services increases; small businesses are more
sustainable; and jobs are created.87
The UN Department of Economic and Social Affairs distinguishes material and
non-material benefits of microfinance and credit. Regarding the former, microfi-
nance and credit initiatives are seen to play an effective role in addressing material
poverty—‘‘the physical deprivation of goods and services, and the income needed
to attain them’’—by helping people become more economically secure. This in turn
is said to have ‘‘a multiplier effect on people’s standard of living, enhancing basic
household welfare such as food security, nutrition, shelter, sanitation, health, and
education services’’. Credit can help individuals start their own businesses, com-
pounding the amount of income generated per family, and thereby lifting those
individuals out of situations of extreme poverty. Credit can also become working
capital so that clients’ efforts become more productive, increasing revenue and
adding to savings that can then be used for other investments and emergencies.88
Concerning non-material poverty, microfinance, it is argued, alleviates the social
and psychological conditions of poverty that prevent individuals from realizing
their potential. These initiatives can empower people individually and collectively,
raising self-esteem and the status of clients when they successfully use and repay
credit. MFIs often use these schemes as an entry point for financial and economic
training, which in turn provides clients with the knowledge to bargain for better
wages and services from external employers.89 Empowerment, particularly of
women, has been a widely cited benefit, with proponents arguing that credit and
other services give women the ‘‘voice’’ they need to take on leadership roles in
economic, political, and social contexts.
On the other hand, Izugbara’s research suggests that while women may gain
access to income through these initiatives, they do not gain the ability to address
the negative and debilitating social constraints that undermine empowerment.90
Therefore, while research appears to confirm the belief that microcredit plays a
role in alleviating poverty, evidence that women in particular are empowered by
these programs remains mixed.91

87. ‘‘Microfinance: A Little Goes a Long Way,’’ Plan Canada 2014, http://plancanada.ca/microfinance-
benefits (accessed 13 September 2014).
88. United Nations Office of the Special Coordinator for Africa and Least Developed Countries (UN-
OSCAL). Microfinance in Africa: Combining the Best Practices of Traditional and Modern
Microfinance Approaches towards Poverty Eradication (2000). Accessed 22 November 2015.
Available at: http://www.un.org/esa/africa/microfinanceinafrica.pdf, 1, 5, 8, 13.
89. Ibid., 13.
90. Francisca Isi Omorodion, ‘‘Women’s experiences of micro-credit schemes in Nigeria: Case study of
Esan women,’’ Journal of Asian and African Studies 42, no. 6 (2007): 479–494.
91. Sujata Balasubramanian, ‘‘Why micro-credit may leave women worse off: Non-cooperative bar-
gaining and the marriage game in South Asia,’’ The Journal of Development Studies 49, no. 5
(2013): 609; and Oksan Bayulgen, ‘‘Muhammad Yunus, Grameen Bank and the Nobel Peace
164 International Journal 71(1)

Adding to the concerns noted above, numerous problems have been identified
with the application of micro-credit as a permanent solution to extreme poverty in
the developing world. Karani suggests that the effectiveness of such progams has
been ‘‘overhyped.’’ He notes that most MFI-supported businesses are focused on
subsistence activities requiring no specialized skills, leading to a highly competitive
economic environment among all other self-employed, entry-level trades. Most
‘‘beneficiaries’’ have no paid staff and thus create few jobs, own few independent
assets, and operate on too small a scale to achieve the significant earnings required
to survive as an enterprise.92 Similarly, Bateman argues that micro-credit is in
essence an ‘‘anti-developmental intervention’’, theoretically supporting the smallest
income-generating activities but in reality serving as an increasingly perilous sup-
port program for consumption spending by a society’s poorest. He suggests that
the very small share of micro-credit that really supports income-generating micro-
enterprises typically underwrites activities that simply do not deliver on the expec-
tation of sustainable poverty reduction and development. Indeed, because few
targeted communities show signs of escaping the grip of poverty, there is no con-
crete evidence that microfinance and micro-credit have worked the way they were
supposed to.93 Instead, microfinance might not only be failing in its goal of sub-
stantively supporting poor local economies and communities, but might in fact be
contributing to their destruction. Bateman cites as evidence the rise of the East
Asian Tiger countries in the 1990s, which followed a model of policy-based lending
structures that prioritized financial support to small and medium business. This is
in contrast to Bangladesh, which was excluded from this rapid economic ascent at
least partially due to its embrace of an alternative model based on microfinance.94
Indeed, he argues that largely due to the neoliberal transformation and expansive
commercialization of the micro-credit/microfinance system, many of the world’s
poor are now caught in a devastating micro-debt trap. Similarly, Aitken argues that
when viewed from the edges of global finance, where micro-credit recipients are
situated, it ‘‘does not appear as an unambiguous ‘solution’ to crippling poverty but
as a source of serious risk of various kinds.’’95
The question, then, is whether micro-credit is, or could be, a ‘‘pro-poor’’ vehicle
for new donors and private sector actors seeking to enhance their impact on social

Prize: How political science can contribute to the wider implications of microcredit,’’ International
Studies Review 10, no. 3 (2008): 538–539.
92. Aneel Karani, ‘‘Microfinance misses its mark,’’ Stanford Social Innovation Review (2007): 31,
http://www.ssireview.org/articles/entry/microfinance_misses_its_mark (accessed 14 September
2014).
93. See Milford Bateman, ‘‘Microcredit has been a disaster for the poorest in South Africa,’’ The
Guardian, 19 November 2013, http://www.theguardian.com/global-development-professionals-
network/2013/nov/19/microcredit-south-africa-loans-disaster (accessed 14 September 2014); and
Milford Bateman, ‘‘Introduction: Looking beyond the hype and entrenched myths,’’ in Milford
Bateman, ed., Confronting Microfinance: Undermining Sustainable Development (Sterling:
Kumarian Press, 2011), 4.
94. Bateman, ‘‘Introduction: Looking beyond the hype,’’ 5.
95. Aitken, ‘‘The financialization of micro-credit,’’ 493; see also Milford Bateman, ‘‘The end of
microfinance?’’ in Bateman, ed., Confronting Microfinance, 232.
Black and O’Bright 165

development. The answer thus far is unclear. Avoiding aggressive repayment terms;
building exit opportunities for clients from the micro-debt trap; providing external
training, education, mentorship, and skills-based support for entrepreneurs as part
of credit agreements; diversifying client skills and products; and supporting the
establishment of cooperative working arrangements among clients to facilitate
growth and expansion are all possible steps. Like many such efforts, however,
micro-credit, and microfinance more generally, is no magic bullet for poverty
alleviation and development. By viewing it as one tool among an interconnected
network, it may be possible to leverage its realistic potential while evading its
obvious pitfalls.

Conclusion
The themes and modalities discussed above make clear that the private sector and
private sector actors have become integral and expanding elements in international
development thinking, strategies, and practices, from poor rural communities to
transnational PPPs. As the financing requirements of global development activities
grow, notably to support the ambitious agenda set by the post-2015 UN
Sustainable Development Goals, and as traditional donor willingness to meet
these requirements diminishes, private sector activities and influence seem almost
certain to expand further.96
This is a remarkable shift from the wariness that characterized relations between
the domains of international development and the private sector during the first
three ‘‘development decades,’’ from the 1950s through the 1970s. Yet the expansion
of private sector activity and influence has also produced an increasingly robust
body of analysis that challenges the more enthusiastic assumptions concerning
private sector roles that the neoliberal turn propagated. Today, the costs and
risks of private sector modalities and initiatives are better understood, as are the
self-interests that underlie their newfound development activism. A more measured
appreciation of the potential and limits of private sector roles is emerging, along
with a more balanced understanding of the capacities of other development actors.
A particular challenge with this turn toward the private sector is ensuring that it
does not further erode the capacity of developing countries, and the communities
within them, to set their own development priorities and build the systems and
capacities to meet them. Tightly focused PPPs, such as those in the health sector,
can achieve significant results in their particular issue areas, yet potentially override
and disrupt local decision-making processes and the governance systems required
to meet broader health policy objectives. Microfinance initiatives uncoupled from a
grounded analysis of the social structures of local communities—with regard to
gender, for example—may compound the burdens faced by women within these

96. On the Sustainable Development Goals, see https://sustainabledevelopment.un.org/topics/sustai-

nabledevelopmentgoals. On the challenges of financing for development, see House,
‘‘Development finance,’’ 2015.
166 International Journal 71(1)

communities while failing to significantly and sustainably alleviate poverty. In sum,

private sector actors and enthusiasts must go beyond ritualistic invocations of the
need for local ‘‘ownership’’ in order to ensure heightened responsiveness to the
priorities of those people and communities that development efforts are ostensibly
for. Only some of these priorities can be met through the ‘‘magic of the market.’’

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research,
authorship, and/or publication of this article.

Funding
The author(s) received no financial support for the research, authorship, and/or
publication of this article.

Author Biographies
David Black is the Lester B. Pearson Professor of International Development
Studies and a professor of political science at Dalhousie University in Halifax,
Canada.

Benjamin O’Bright is a doctoral candidate in political science at Dalhousie

University, Halifax, Canada.