Draft:Constructive Capital

• Comment: Heavy reliance on primary sources, draft is overall not in an encyclopedic tone that readers would expect. Toadette ^{(Merry Christmas, and a happy new year)} 15:36, 24 December 2023 (UTC)

---

"The difference between Constructive and Corrosive capital is morality"

Constructive Capital - well-governed investment flows that serve transparent, market-oriented and accountable purposes at both funding sources and destinations.

The concept of Constructive Capital was developed by the Center for International Private Enterprise (CIPE); as a counterpart to the Corrosive Capital, which is the opposite concept.

Corrosive Capital - financing, whether state or private, that lacks transparency, accountability, and market orientation.

The basis of the Constructive Capital concept was elaborated in the A Framework for Constructive Capital, 2022.

Definition

Increasing the share of Constructive Capital promotes the development of markets and the rule of law, enhances transparency and improves governance by holding governments accountable for ensuring a level playing field for the private sector. Such benefits are often positive externalities of purely market-based investments that target enterprises and local markets. This supports sustainable and equitable economic growth. Together, they can increase profits and expand business opportunities in the future.

A key driver of efforts to support Constructive Capital is the need to deter Corrosive Capital. The pervasive effects of Corrosive Capital can lead to further deterioration of the conditions that support Constructive Capital. Current crises, such as COVID-19 and the russian invasion of Ukraine, have the potential to exacerbate such integrity and anti-corruption issues.

Cornerstones of Constructive Capital

The following 5 main principles have been identified by CIPE to define capital as constructive.

Positive peace

The title of this cornerstone is related to the study of the Institute for Economics and Peace, namely the Positive Peace Report 2022.. Eight pillars of positive peace that can serve to strengthen the conditions for Constructive Capital:

• well-functioning government;
• sound business environment;
• acceptance of the rights of others;
• good relations with neighbours;
• free flow of information;
• high levels of human capital;
• low levels of corruption;
• equitable distribution of resources.

Positive peace represents stability and prosperity, and also helps to reach a favorable business climate and to take reasonable investment decisions.

Rule of law

There are several linkages to the rule of law:

• Investment Flows: integrity, stability, and transparency in foreign direct investment (FDI) decision-making and risk analysis;
• Corporate Responsibility: support of voluntary codes, multilateral guidelines, and collective industry initiatives; an example of such initiatives is the UN Framework for Business and the Rule of Law
• Economic Inclusion and Access to Justice: extension to the wider population, it facilitates the legal empowerment of women and of marginalized communities and so on;
• Sustainable Development: sustained and inclusive economic growth.

Accountable Institutions

Integrity, including transparency in decision-making, is one of the primary features of accountable institutions. They also promote inclusiveness, ensuring that people have equal access to economic opportunities and public services. The OECD emphasises that trust is "a basic element for the well-functioning of institutions, including governments, markets, businesses, and for society more broadly". The enhancement of social trust is not just a matter of utility or instrumental value – it is of fundamental importance for sustaining society.

Political and economic freedom

The concept of freedom based on inherent dignity is thoroughly substantiated in the Universal Declaration of Human Rights, adopted by the United Nations General Assembly in 1948. The most important points are: the will of the people as the basis for the authority of government, the right to own property, etc.

Human rights guiding principles can transform the responsibilities of businesses. The principle of political and economic freedom supports freedom and democracy, obliges the private sector in certain ways and improves the conditions for the development of Constructive Capital.

Social and economic inclusion

Social and economic inclusion encourages the involvement of government, business and society. Diversity, equity and inclusion (DEI) initiatives that transform leadership, workplaces and cultures across sectors are essential.

Value-driven private sector

The private sector has a critical role in shaping common values and creation of progressive and accountable business cultures. It considers the huge scope of values, role of leadership and governance (culture as a "corporate asset"), stakeholder engagement ("shared values" as a long-standing feature of responsible business conduct), long-term perspective, entrepreneurial community ("Over time, the strengthening of governance and markets can foster a supportive ecosystem of laws, regulations, culture, and institutions that foster innovative enterprises and create wealth for a broader section of society"), and trust.

Constructive Capital in Ukraine

The Centre for Economic Strategy was the first in Ukraine to develop the concept of Ukrainian Constructive Capital with the CIPE support.

Types of Capital in the Ukrainian Economy

The CES study identifies the following types of capital in Ukraine:

• Foreign Capital (constructive and corrosive);
• Public Domestic Capital (government and municipal);
• Oligarch Capital;
• Other Corrosive Capital;
• Private Constructive Capital.

For a number of companies, the type of capital remains to be determined.

The study shows that the share of Private Constructive Capital in Ukraine is at least 15%, but considering the probable share of other companies, the type of capital of which needs to be further investigated, the total share of Constructive capital in the Ukrainian economy could be 20-25%.

Currently in Ukraine, Corrosive Capital prevails over Constructive Capital, constituting about 46% of the total volume. Corrosive Capital in Ukraine is dominated by Oligarchic Capital, which accounts for 21%; Foreign Corrosive Capital - 5% and Other Corrosive Capital - 20%.

Other studies

In Ukraine, the Centre for Economic Strategy has developed the following analytical papers - Oligarchic Ukrainian Capital, Russian Economic Footprint in Ukraine and Chinese Economic Footprint in Ukraine. These studies focused on specific types of Corrosive Capital in Ukraine (oligarchic and foreign), but since the beginning of Russia's full-scale invasion of Ukraine, the share of these capitals has decreased significantly.

Other studies of Constructive and Corrosive Capital: Chinese Corrosive Capital in Croatia, Chinese Corrosive Capital in Slovakia and the Czech Republic, Corrosive Capital in the Western Balkans, Russian Corrosive Capital in Latvia, etc.