The Private Sector: A Problem or A Solution?

In times of crisis everyone is quick to place blame on someone else. Maybe, when you can say that its somebody else’s problem, it just makes us feel better about ourselves. Maybe, it relieves you of the duty to fix the problem – “I didn’t break it, so why should I fix it?”

The blame game is becoming quite popular, as many leaders are pointing fingers at someone else for their own economic problems. Of course, we’ve seen Lula blame casino capitalism for his country’s troubles and Chavez blame everyone and everything for the economic downturn the world is facing, instead declaring socialism is proving to be the working model of development.  The Russian government has been quite vocal in stressing the implications of the international crisis and its impact on the country’s development path. 

The blame game is also evident within countries, where governments place blame on the private sector, companies blame governments, and citizens are frustrated with both.  In private conversations, I often hear about the private sector’s fault behind today’s economic downturn and, occasionally, about the destined collapse of capitalism.  But is the private sector really the culprit here? Is market economy? What does the blame game accomplish?

We often deal with misconceptions about the private sector in our work around the world.  Just start talking about corruption in any developing country and you will often hear that ”its the private sector’s fault.”  The point worth mentioning when such opinions surface is that the private sector – or the business community for that matter – is not a monolith.  There are many different types of firms – from large national enterprises, businesses run by government cronies, and state-owned behemoths to small and medium-sized companies and informal sector entrepreneurs.  They all have different interests, influence positions, relations with the government, etc.

One could argue that most squeezed today are small businesses, which suffer greatly from the economic downturn yet often lack the leverage and visibility of large firms to get enough help from governments.  The conditions for informal sector entrepreneurs, who often provide as much as 50% of GDP but don’t register in many of the official statistics, are probably worse.

Same argument applies to governments – there are many different agencies, individuals, ministries, etc. in any governments, all run by people with different interests, ambitions and priorities.  With this in mind, it would be quite difficult to place blame on the economic crisis on the private sector, the government, or a market economy system as a whole.  While some companies are certainly part of the problem in many countries around the world, many others are part of the solutions.      

Here in the US, for instance, the private sector is taking the lead in figuring out how to restore global confidence in capital markets.  In this call for modernization of financial services regulations, companies, led by the U.S. Chamber of Commerce, lay out an advocacy agenda for reform going forward.  To deal with another misconception (that markets need no regulation) - this effort builds around the idea that capital markets must be built on the better, smarter, more efficient regulatory and professional structure.

And while conditions for small companies around the world may seem hopeless at times, they too can take a leading role in putting in place solutions to the crisis, even in places where you may think they are not likely to do so.  For instance, just this past week in Russia, the Novorossiysk Chamber of Commerce and Industry, developed a plan of anti-crisis measures to support the SMEs in the Novorossiysk City. These measures are aimed at preventing unemployment, eliminating excessive state regulation of business activity, and providing access to financial (crediting) resources. The City Administration approved of the anti-crisis plan of the Chamber and issued an official Decree aimed at its implementation. 

In other words, business can be part of the solution to today’s economic downturn.  And, with a little persistence, it is possible for business to push governments to act.

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