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John Kenneth Galbraith, in his work on “The Theory of Social Balance” stated “the line which divides the area of wealth from the area of poverty is roughly that which divides privately produced and marketed goods and services from publicly rendered services.” Although these words were penned 60 years ago, they are still relevant today. The central objective of economic development policy is to lead a process of structural transformation of countries toward diversified production and exports.  This is key to any developing country strategy for sustained economic growth.   To this end, the private sector plays an incredibly important role in investing in countries, while NGOs and others have been instrumental in stimulating economic development at the bottom-of-the pyramid and in addressing issues faced by the missing-middle.  

We’re seeing an increase in private consumption on a myriad of fronts.  Perhaps one of the most obvious in some developing countries is the increase in the number of motor vehicles. This is quickly apparent because there is often not a similar increase in well-paved roads. Especially in developing countries, where much needed private sector investment is happening, unprecedented efforts are being taken to achieve the United Nations Sustainable Development Goals (SDGs).  But in this frenzy of great accomplishments, are we making sure that the public sector has the institutional and budgetary capacity to eventually provide and sustain the required public services?

In the two decades between 1990 and 2010, developing countries were able to cut the poverty rate in half. This was largely due to the economic growth in China. Nevertheless, it demonstrates the impact that a combination of economic development, environmental sustainability and social inclusion can have in addressing poverty.

The United Nations’ (UN) 2017 SDG Report showed significant progress in reducing extreme poverty between 1999 and 2013.  Yet, some 767 million people still live on less than $1.90 per day.  According to UN Secretary-General António Guterres, the development community will need to have a more determined focus and increased investment in certain sectors. Few would disagree that we need to use all of the tools available, from the private sector and others, to achieve the SDG goals.

Much of the discussion today is on foreign direct investment and other forms of private sector investment.  All this is good, but there is less discussion on the public-sector investment required to achieve a social balance.  Fortunately, a growing number of social sector investment tools are being used with varying degrees of success, although they have their limitations.  One of the most significant limitations is often the analytical component that allows for an understanding of tradeoffs and implications of economic and social decisions.  For example, in many countries, the anticipation of increased economic growth means an increased need for a reliable supply of electricity. Technology is creating astonishing innovations that often demonstrate high efficiency, but even with these social sector accomplishments there are still implications for the social balance.   This might mean the need for improved public-sector IT capacity, new health training techniques, along with others that need to be planned and budgeted.

So, where do we begin?  A suggested starting point is to require an independent appraisal of innovative programs. Large amounts of funding are being invested in various programs without fully understanding the true costs or the distribution of benefits.  These investments, if they are evaluated, often use a financial analysis that is completely separate from its economic evaluation.  A more effective approach might be an integrated program analysis that would measure benefits and costs of both the financial and economic impacts, providing policy-makers with a more complete model for decision-making. This more robust analysis would allow policy-makers to identify the impact on stakeholders. This is critical for maintaining a social balance as there should be evidence of not only the costs and benefits, but also of the distribution of benefits among all stakeholders, not just the most obvious.

To make good decisions, there needs to be good data.  The UN fully recognizes the need for data and has been making improvements in recent years, focusing attention on statistical capacity and data literacy for all levels of decision-making.  This is critical and must extend to NGOs, which have an increasingly important role in testing new social development approaches.  For the public sector to benefit, these innovative programs will need to have a strong evidence base that shows whether the intended results are being achieved.  But aren’t NGOs already collecting lots of data?  Maybe so, but are they collecting the right kind of data?

The good news is that better data is being generated and policy-makers are using it for decision-making.  NGOs are now being challenged not only to test innovative programming, but to improve their performance management systems so they can collect data that can be used for scaling proven interventions and ultimately for improving public policy.  Because the cost of collecting and analyzing outcome data is often out of reach for many NGOs, one solution is to outsource program evaluations, entrusting private data to a third party, which can reduce overall costs.

To achieve the SDG goals, we need to continue to work together to find those innovative solutions to make sure we “leave no one behind”.  To do so in a sustainable way will require that public service capacity in developing countries keep up with social innovation and private consumption.  The tendency will always be toward private consumption and this can be very good, as long as there is adequate public service provision, especially for those at the bottom of the pyramid. Otherwise, our hopes of what can come from new productive capacity might unnecessarily leave many people in poverty.

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