Private Investment, Public Good: Secretary Clinton Champions "Global Impact Economy"

"This is a great moment to look at where we stand in the world in the pursuit of economic growth and prosperity that is broadly inclusive and sustainable." -- U.S. Secretary of State Hillary Clinton

On April 26, U.S. Secretary of State Hillary Clinton convened some 250 investors, entrepreneurs, philanthropists, academics, business executives and policymakers in Washington, DC, for the first-ever Global Impact Economy Forum. The main topic on the agenda was how private investments can help solve social and environmental problems and advance the public good. Specifically, the forum sought to address how the government can leverage public resources to support private sector efforts to create "market-driven solutions to the world's most pressing challenges."

In her remarks, Clinton made the case for synergistic, cross-sector collaboration, saying that the "government, the private sector, civil society...can be so much more effective working together than working at cross-purposes."

CALLING ALL ASSET CLASSES: THE EMERGING "IMPACT ECONOMY"

The State Department describes the diverse emerging class of investors of the so-called "Impact Economy" as including "pension and sovereign wealth funds, corporations, foundations, banks, international financial institutions, and retail investors cut across asset classes to include cash deposits to fixed income, public equity, private equity, real assets, and alternatives." The department notes total investment estimates in this area between $500 billion and several trillion dollars over the next ten years.

Though they are only estimates, such jaw-dropping sums have not only whetted appetites across the international investment and development sectors, but engendered a renewed focus on the potential of sustainable development through public-private partnerships (PPPs) and helped to trigger a significant policy shift in American aid and diplomacy.

OPEN FOR BUSINESS: TWENTY-FIRST CENTURY STATECRAFT

Clinton announced that shift at the Fourth High-Level Forum on Aid Effectiveness, held in Busan, South Korea, on November 30 of last year. The secretary said that U.S. development assistance would be moving away from donor-driven aid and towards catalytic investment.

"Official development assistance from governments and multilateral organizations is no longer the primary driver of economic growth," she said in her keynote address. "In the 1960s, such assistance represented 70 percent of the capital flows going into developing countries. But today, because of private sector growth and increased trade, domestic resources, remittances, and capital flows, it is just 13—even as development budgets have continued to increase."

The message from Washington was clear: Diplomacy in the 21st century would extend beyond traditional interactions between governments to access the power of business.

GOODBYE AID, HELLO INVESTMENT: DUMPING THE "DONOR/RECIPIENT" DICHOTOMY

Clinton identified a shift in "our approach and our thinking from aid to investment, investments targeted to produce tangible returns," adding that "old distinctions—like 'donor' and 'recipient'—are less relevant, since many emerging economies are both donors and recipients."

Perhaps she also recognizes the ten signs that the U.S. is becoming a Third World country. With China holding most of America's debt—and owning more than $1 trillion in U.S. treasuries—it's no surprise that Washington is seeking sustainable finance solutions from the world of private enterprise.

TRANSNATIONAL PROGRESSIVISM: SENSING THE LIMITS OF THE POLITICAL MAP

"Wise investors choose their investments carefully," Clinton told the Busan attendees. "They manage for risks; they amplify their impact by trying to draw even more participants to the table. But when a particular investment is not producing the projected returns, there have to be tough decisions made about whether to modify or eliminate it."

With governmental aid flows decreasing and sustainable investments increasing (last year, the Wall Street Journal estimated about $100 billion invested in socially responsible investing), breaking down the silos between sectors to foster PPPs and cross-sector collaboration is a welcome move as the global "impact economy" emerges.

But boundaries are being crossed whether we like it or not. Perhaps there's a bit of transnational progressivism at work here. After all, such intractable issues as energy security, food and water security, biodiversity conservation and climate change don't fall neatly within the borders drawn on a political map.

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NOTES

Clinton, Hillary. Remarks at the Global Impact Economy Forum. April 26, 2012. Accessed April 28, 2012.
United States Department of State. Global Impact Economy Forum. April 26, 2012. Accessed April 28, 2012.
Ibid., 1.
Ibid., 2.
Clinton, Hillary. Keynote at the Opening Session of the Fourth High-Level Forum on Aid Effectiveness. November 30, 2011. Accessed April 28, 2012.
Ibid.
United States Treasury. Major Foreign Holders of Treasury Securities. April 16, 2012. Accessed April 28, 2012.
Ibid., 5.
Burton, Jonathan. Investing with Principles. Wall Street Journal. April 3, 2011. Accessed April 28, 2012.

image: Secretary Clinton speaks on the opening day of the first-ever Global Impact Economy Forum in the Loy Henderson at the State Department (credit: Michael Gross, U.S. State Department)