If we only count direct jobs, we get totally the wrong policy conclusion
Why and how to focus on measuring 'jobs' was one of the most interesting themes for me at last week's Business Fights Poverty event on Linking Socio-economic Impact and Business Strategy.
Roland Mishelitsch from IFC, now in charge of their Let's Work Partnership, made a strong case for focusing on jobs as the key metric of development success. He talked of the 600 mn youth needing jobs by 2030, and what the Arab Spring has shown if jobs are not created. Hard to argue with. But the devil is in the detail. It was Roland who said: if we only count direct jobs, we get totally the wrong policy conclusion. If you compare a retail investment and an energy investment, it is the retail option that provides the highest number of direct jobs - shop workers exceed plant engineers. But look at the indirect jobs too, and the pattern reverses. Jobs created by an energy investment go up 40-fold and the case for energy, which unblocks enterprise growth and thus job creation, is made.
I see two problems with this compelling case. It is clearly logical to count the indirect or downstream jobs not just the direct jobs created. And it's feasible for a World Bank or IFC economist. But I imagine inconstancy or mayhem if others less methodologically-endowed are all doing it their own way. And methodological mayhem provides no evidence base for policy. IFC recognises this and are working with other DFIs.
Secondly, essential as jobs are, doesn't this miss a big chunk of what can be achieved through investments in business? What about low-income families that can get access to a light bulb from off-grid energy investment? That doesn't count in the jobs metric, so this kind of energy 'won't count'. And what about millions of low-income consumers who benefit from investment in business that generates low-cost healthcare, access to sanitation, water, education..... It can be argued that people need jobs to pay for these as BoP consumers, but that's not quite the point. The point is there is vast untapped potential for business models to reach these consumers and make a difference to their livelihoods. If potential exists, invest in it.
In the nineties and noughties, there seemed to be two rather separate streams: local economic linkages work, such as the great work of IFC to multiply local supply chains around investments and multiply jobs; and the new thinking on the fortune at the Bottom of the Pyramid, which focused more on the poor as consumers. The recent years of inclusive business and social enterprise have seen these two streams come together. Which is great. In the BFP meeting, I wondered if they would stray apart again.
Despite my reservations at the technical and narrative level, I highly recommend the IFC jobs study as a thorough up-to-date analysis of the job creation agenda. Chapter 3 on Estimating Economy-Wide Job Creation is useful for all those involved in methods.
There was another key point I took from the meeting, which challenges so much of what I do and no doubt others in this network. We spend so much of our time measuring the static affects of investment, business, social enterprise, donor programmes. Who is directly affected and how. But a number of the speakers highlighted that it is the dynamic affects that really count, particularly diversification. Standard Chartered have launched a new report exploring the impact of their banking in Africa. The scale and reach of their clients is great (a hefty percentage of GDP is calculated), but of course the most important thing is the growth that happens and is enabled by their operations.
Similarly if investment in energy, skills, SMEs leads to economic diversification, that is the biggest gain. I remember exactly this argument from tourism: I spent so long mapping static impacts on poor people, but in-depth World Bank regression showed how useful it was for helping fledgeling economies to diversify. As one speaker said 'economic complexity is a good thing - we need spaghetti to get diversification.' So it's a bit like the new data from the International Comparison Project (more another time) - great news for development, but even more headaches for those trying to track results.