Thank you very much. I really appreciate the invitation to be here. I'm thrilled that your committee is holding these hearings and looking into the subject, as you might expect. It's our life blood, so we're thrilled that you're doing this.
By way of background, I should mention that the Center for International Private Enterprise is an affiliate of the United States Chamber of Commerce. As you may know, the U.S. Chamber is one of the largest associations of private sector business. Our centre is funded by the U.S. government principally through the National Endowment for Democracy, which I will return to in a moment.
As we saw recently at the High-Level Forum on Aid Effectiveness in Busan, South Korea, it is becoming generally accepted that the private sector needs to be at the centre of development. It drives economic growth, job creation, innovation, and opportunity. However—and this also came out to some extent at the private sector forum that was held at the Busan meeting—many of the international development initiatives that are going on, including many of the ones of the U.S. government, really focus more on individual entrepreneurs rather than the institutional reforms needed to remove barriers to doing business and create the kind of enabling environment that drives entrepreneurship.
You have already heard from Hernando de Soto. He was here testifying before you. Hernando was our very first project in 1984. We helped him get started, and we continue to work with him. We just finished up a project working with Hernando in the indigenous regions of Peru, but we've also worked with him in Egypt and a number of other places. I wholeheartedly endorse what he's saying, which is very similar to my message.
I'd like to tell you what somebody said who taught both Hernando and me a great deal about this, and that's the Nobel Laureate, Douglass North. Doug has summarized the entire history of economic growth and development in one sentence. Now forgive me; it's a very long sentence. It should be.
Doug said that economic growth is about going from personal exchange, to where you can only do business with people you know, are related to, have some personal tie to, and therefore can trust, to being able to do business with strangers, and to get from here to here you have to put in place a whole set of institutions, and that's the enabling environment: a court system that will enforce contracts; property rights that can be enforced—as Hernando was talking about to a great extent; and bankruptcy.
A whole range of institutions needs to be in place, yet all too often in our development programs we focus more on trying to teach entrepreneurship. That's very important. We do it ourselves in Afghanistan, Peru, and elsewhere. But if you're just teaching entrepreneurship, you're not putting in place the institutions.
What you really need is the kind of institutional environment that Canada, the United States, and much of western Europe have. Yet in much of the developing world, as we see, corruption, red tape, favouritism, the lack of a voice, and the ability to affect policy and decisions really constrain the entrepreneurial sector.
Reducing poverty comes down to the policy reforms that expand access to opportunity and instill confidence in these market institutions. As Doug says, ultimately the rule of law binds a lot of this together in different ways, but for much of the world that has meant fully functioning democratic institutions creating that rule of law.
As I mentioned, we're an affiliate of the U.S. Chamber of Commerce, so you won't be surprised that our method of working is to partner with business associations, think tanks, sometimes with chambers of commerce, and other civil society organizations in the developing countries to build their capacity to affect law and regulation in public policy in areas like anti-corruption, advocacy, the management and strengthening of business associations, and corporate governance, which is incredibly important but, as we found out ourselves the hard way, is missing in so many of the developing countries.
Until the early 2000s, when the coalition that we were part of helped create it, there were no words for corporate governance in the Arabic language. It took two years to get that translated, and now we have an official seal issued by an Islamic institute with a stamp with the translation on it, and the translated words are now being used throughout the Middle East. That's a game changer.
Why do we do this? Well, because we found that these barriers to entrepreneurship are really what is keeping the majority of the population in so many countries trapped in that informal sector that Hernando talked about.
We've also found that top-down reforms tend not to work. We found something we called the reality gap. When fly-in experts come to a country, help create these institutions or write the laws, they then get translated into the local languages and passed by Parliament. They sit there like a hovercraft on water, never really touching it. We've actually measured the reality gap in some countries. It's the gap between what the law says on paper and what the real practices are. Unless you get the local business associations and private sector engaged, you can't see that gap; it just isn't visible to you.
One of the things that came out of the Busan meeting was a recommitment to public-private dialogue. In the joint statement between the public sector and the private sector that was issued during the Busan forum, they committed to five principles, and I'd like to just end by mentioning those: an inclusive dialogue for building a policy environment that is conducive to sustainable development—and by policy dialogue I mean dialogue, a two-way conversation between the public and the private sector; collective action, strengthening the associations and other CSO-NGO operations; sustainability, so that we know these institutions will stay in place; transparency; and finally, accountability for results.
I could give you lots of examples of programs that drive this kind of reform. My personal favourite is something that a coalition of Pakistani groups did, with which we were involved, where we changed the law. It was called the Trade Organizations Ordinance, basically the law on associations. Beginning in 2006, for the first time women can now form and be on the boards of trade associations in Pakistan. They have seven of their own, they're building more, and all of a sudden they have much more of a voice. Without voice, one doesn't get to accountability, one doesn't get these policy reforms, and there is no room for the private sector to move in and participate.
Thank you very much.