While the previous section outlined the quantitative reasoning behind the recognition that the private sector is a major force in development, this section adds the qualitative argument.

As noted previously, the international community came together in 2000 to forge a common blueprint for global development, the eight Millennium Development Goals (MDGs). At the highest level, they measure progress with respect to poverty and nutrition, universal education, gender equality, child health, maternal health, HIV/AIDS, environmental sustainability, and global partnership. The goals remain the most important source of international consensus on the overarching objective of development efforts: poverty reduction and improved quality of living. Each goal contains targets and indicators for monitoring progress until the intended realization date of 2015. So, for example, Goal 1 aims to eradicate extreme poverty and hunger. It contains several targets, one of which (Target 1.A) is to halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day. One indicator then, for example, measures the proportion of a country's population living on less than a dollar per day.[41]

The essential question is, therefore, how to achieve these goals and meet these targets. There is now a broad consensus that long-term development — and thus, poverty reduction — cannot progress without economic growth. To put it another way, economic growth is essential to development. While the latter may seem a simple statement on its surface, such a foundational thesis is essential to determining the details — programs, priorities and partners — of a country's policy approach to international development. As Carlo Dade argued in his testimony: "The simple fact of the matter... is that no country has ever aided its way out of underdevelopment, but countries have grown their way out of underdevelopment."[42] Key evidence that is often cited in support of this argument is the fact that hundreds of millions of people were lifted out of poverty in countries like China, India, and South Korea in recent decades, not as the result of international aid programs, but as a result of large-scale and multi-year economic growth.

While economic growth is essential to poverty reduction, such growth itself flows predominantly from private sector investment and the job and business creation that follow. In a 2011 speech, the Administrator of the UN Development Programme (UNDP), Helen Clark, underscored this point by declaring that "development is everybody's business." Arguing that governments should pursue broad partnerships to achieve development results, she stated that, "Economic growth, which is essential for development, is driven largely by the private sector. In many ways, businesses — from multinational corporations to micro, small, and medium sized enterprises generate the growth which can support MDG achievement."[43]

As Wendy Hannam, an Executive Vice-President in International Banking at Scotiabank, told the Committee: "There's a growing consensus that growth, poverty reduction, and improving people's lives require a vibrant private sector and active partnership in economic development." Ms. Hannam pointed out that an estimated 90% of the jobs in developing countries are in the private sector.[44] In his testimony, Carlo Dade also underscored the primacy of the private sector's role in spurring economic growth:

...in terms of sustainably moving people out of poverty, giving people the power to make their own decisions and the resources to actually effect their own decisions, their own choices about health care, schooling, nutrition, and housing — that comes from the private sector. Governments are essential in this process to making sure growth in an equitable and proper enabling environment is there, but without the private sector creating wealth, the government would have nothing with which to work.[45]

David Tennant, who runs an agricultural program in South Sudan driven by volunteers from Canada, told the Committee:

The simple answer to the question of private sector involvement is that it is imperative. We should assist countries such as the Republic of South Sudan to build their nation and strive for economic independence, while avoiding the well-intentioned mistakes of the past whereby many developing nations have become dependent on international aid.[46]

Mr. Tennant also acknowledged, however, that "Although the answer appears simple, the application is not."[47]

Indeed, other witnesses argued that while economic growth is essential to development, growth on its own is not enough to ensure poverty reduction and improved living standards. As Khalil Shariff, Chief Executive Officer of the Aga Khan Foundation Canada, explained to the Committee,

...there is now a very strong consensus around the pivotal role that economic growth plays in reducing poverty, and of course a central role that a robust private sector plays in underwriting economic growth. But you have also heard — and I think correctly — that not all economic growth is the same and it does not always translate into poverty reduction.[48]

Indeed, the Foundation’s written submission to the Committee pointed out that “Growth is occurring in many countries but it is often divorced from marginalized communities.” The submission went on to state, therefore, that “The private sector has a critical role to play in both linking the poor to growth and accessing basic services,”[49] both of which are key elements of development.

Thus, there has been growing consensus internationally that reducing global poverty depends on the facilitation of economic growth that includes the poor. One important aspect of this, as witnesses like Wendy Hannam from Scotiabank emphasized, is the need to ensure that poor people are being involved in formal markets, a concept known as "pro-poor growth."[50] Similarly, Khalil Shariff argued that for the private sector to contribute to poverty reduction, actors within the private sector must "maximize the multiplier effects of their investments" (e.g. an infrastructure investment that can catalyze other business development), they must pursue inclusive business models that "combine sustainable commercial and development objectives," and they must "look for ways to target marginalized segments of the population in order to amplify development impact."[51]

Throughout the Committee's hearings, witnesses also emphasized the importance of effective governance, arguing that without strong public institutions, economic growth will either be inhibited and/or proceed in a way that does not benefit most members of a society. For example, Bonnie Campbell, a professor in the faculty of political science and law at the Université du Québec à Montréal, told the Committee:

Investment in the private sector of itself does not translate into sustainable economic and social development. There is in fact no historical example anywhere on earth where sustainable growth, social and economic development, and poverty reduction took place through private investment in the absence of appropriate public policies and state interventions needed in order to plan, to regulate, and to monitor investment so that the presence of private investment would be harnessed to meet development objectives determined by the countries themselves.[52]

Many witnesses emphasized that effective public institutions are necessary to ensure a sound enabling environment for private sector investment, and to manage the relationship between private sector activity and broader societal interests. For example, Fraser Reilly-King, a policy analyst with the Canadian Council for International Co-operation, argued that, "truly sustainable development" requires layers of "country-specific checks and balances."[53]

It is precisely for these reasons that the Committee believes that both the private sector and the public sector are critical to implementing the vision of long-term poverty reduction through inclusive economic growth driven by private sector activity. In working to realize this vision, the respective roles that private and public actors should assume in order to maximize the efficiency, effectiveness and impact of development efforts will be outlined in the sections that follow.

As a final point, it is also important to note that the reality of global poverty has also been shifting. For one thing, it is estimated that over two-thirds of the world's poor people currently live in middle income countries,[54] defined by the World Bank as countries where annual per capita gross domestic product (GDP) is above $1,000. As two development scholars, Andy Sumner and Ravi Kanbur, have pointed out, "This is a dramatic change from just two decades ago when 93% of poor people lived in low-income countries."[55]

The United Nations has also reported that MDG 1 on poverty reduction has been achieved ahead of schedule. There are now an estimated 24% of people in the world living on less than $1.25 per day, compared to 47% in 1990.[56] Nevertheless, despite aggregate indicators of progress, substantial disparities in living standards remain within and among countries. Therefore, in addition to lifting people out of abject poverty, a major challenge going forward is determining how to provide opportunities for a better life — social and economic mobility — to a large number of people who may no longer be living in abject poverty, but are struggling to get by on very limited incomes and working to increase them. The changing landscape of global poverty also reinforces the need for a focus on small and medium-sized enterprise development and institutional capacity-building in developing countries, many of which may be emerging from official low-income status but are continuing to struggle with weak governance, large informal economies, and unequal opportunities.

Another aspect of global poverty is urbanization, which is accelerating.[57] In many developing countries, a significant proportion of that urban population is young, often under the age of 25 years. As Canada's then-Minister of International Cooperation, Bev Oda, told the Committee, ensuring employment and other opportunities for these young people, who will comprise “over 52% of the population in [developing] countries,” is a critical development challenge.[58] On the other hand, a large youth population can also be seen as a source of potential. In highlighting the high economic growth rates registered by several countries in Sub-Saharan Africa in the last decade, The Economist noted that the demographic bulge comprising the people who will soon be entering their most productive years in Africa, an essential element of the economic success story in East Asia in the 20th century, "offers a huge opportunity to Africa today."[59] However, as the Minister suggested to the Committee, whether this demographic bulge will be a source of prosperity or instability hinges on the existence of opportunities for young people to build a better life.[60]