Yesterday I vented my frustration at the state of the aid business. It is easy for me to point fingers and note that many of the places in Africa that have been receiving aid dollars have been doing so for over 40 years; with little to nothing to show for it in the form of positive change. Western nations (and now Eastern, China is quite active in the undeveloped and developing worlds) have their own agenda’s to support…and who can blame them…democratic governments stay in power by keeping their voting citizens rich and happy.
So how do we fix the problem? There are a few ways that I really believe a person can make a difference from far away.
The most obvious, with Haiti in the nightly news is disaster assistance. When things go terribly wrong it IS important to offer aid, with an end in sight, so as to help a country or a people through a tough time. I don’t know what the situation is like in Haiti but the fact is that it is far more helpful to Haiti to have Haitians do the helping, where and when they can, than to have the US Army doing it all. This is one realm that the US will not be accused of lacking an ‘exit strategy.’
The second is education. Many of these poor countries suffer from a combination of poor education systems and brain drain, where those who are smart and well off enough to get an education leave the country for better jobs abroad. Supporting ‘in-country’ education is the only way to stop these problems and help a people grow internally, with their own鈥攏ative鈥攍awyers and lawmakers to lead the country to prosperity, making things right for business instead of right for corruption. This can only come from education and if the first teachers are Western, this should only be temporary until local teachers can take up the charge.
The third is business. If you have $100 you want to throw at Africa to help, do it as a business rather than a donor. People don’t work for donations but they do work for $$ and we’ve seen the pride people have when they work for themselves to lift themselves up and out of poverty…nothing beats it. Tourism is great, I’m clearly biased naturally, but it pumps money directly into a community and allows people to work for that income. The man with whom we booked our Tanzanian safari, Peter, started as a porter on Mt. Kilimanjaro, working his way up through cooking and assisting to eventually guiding and running his own business. He was proud, he was working hard, and it was a pleasure to do business with him. His is the kind of story that changes these poor countries for the better, not the presence of UNICEF camps and USAID food.
So if you don’t have your own business to run, we have a solution for you….help a local get themselves started in business. We’ve recently set up the ISHOULDLOGOFF.com group on Kiva.org. If you don’t know what Kiva is, you’re welcome to read up on it but it basically connects people in the West with a few dollars to spare with people in the undeveloped world who need those dollars, and you make a loan directly to them…. Yes, I said a loan. This is called micro-finance and, in my opinion will do more to help the undeveloped world than any amount of hunger porn on CNN will ever do…..
Tomek says
I totally agree, investing seems to be far more reasonable than donating. Thanks for the KIVA link, just tried it out and hope that my first loan will help to establish a successful business 馃檪
Danny says
@Tomek – Glad you liked the Kiva link. It is only one way to help people abroad but I think its far better than just sending money…it’s a start anyhow.
Becka says
Bravo Danny! You have learned in a bit over a year what I spent the last 6 years and more money than I have made in my lifetime (aka…my tuition fees) to learn. Business development for the masses not just the wealthy connected folks, is where real development happens. Its through empowering people to help oneself.
You should note though that micro-finance leaves much to be desired, the key in my opinion is really matching funding (MF or even more traditional forms) with training and education opportunities. You have to empower people with all the tools they need to grow a business not just capital. I could probably talk my way into receiving a business loan, but it is unlikely that with my current skill level I could really walk the walk. So am I helping my community just by starting/continuing a business? Just something to ponder as you continue the journey.
Enjoy the bumpy roads of development…o wait you have 馃檪
Danny says
@ Becka –
Shall we compare overpriced educations and whose cost more? 馃檪
Although I agree with you completely, my biggest issue with Micro-finance is actually more along the lines of the opposite of what you just said. There are plenty of people out there who are struggling to start a business but with micro-finance these people need both access to the internet and a decent bit of internet savvy. Then again I can think of one internet cafe in Kenya where the woman on the other side of Jillian was, how best to say this, quite ‘tribal’. The internet is growing though and this is a good start I think.
Better still though, is to travel to these areas and spend money locally. I am obviously a bit biased though 馃槈
Daniel Malfar says
Hey Danny,
Thanks for the on the ground information on conditions in some of these countries and the affect different forms of aid have. With Lee in Haiti, and that country in deep dudu even before the earthquake, It makes me wonder about the self empowerment factor. In all too many instances issue strikes a cord with me. You and Jilly take care.
The Other Dan 馃檪
Mark Kennet says
I not only agree with you, but I would go one step further. The NGOs in many countries not only don’t help with development, they hinder it. If they are not actively pursuing a donor-based agenda, then they are pursuing some political agenda like Maoism that may or may not lead to improvement or some religious agenda that may win new converts but is unlikely to feed much more than people’s souls over the long haul. So IMHO, people with truly good intentions should immediately stop donating to any of these organizations, and should lobby their governments to sharply curtail the activities of UNDP and the World Bank.
A partial answer is provided by people like Hernando de Soto in The Mystery of Capital, in which he argues that much more effort should be made in guaranteeing the poor around the world a real property title to the land they work. Efforts along these lines have made a real difference in Peru, where there are even positive unanticipated consequences. One such has been documented in the academic literature: Land titles in poor districts has led to increased female labor force participation rates, suggesting that with titles secured, more women are willing to venture out and earn what to them is real money rather than trying to eke out the very poor return associated with a home-based retail operation.
I hope that operations like Kiva do function. I am not quite ready to endorse them as yet, because I don’t feel fully informed. One worry I would have is this. A standard economic argument about using outside funding is, if this project is so good, why won’t the local banks fund it? A legitimate answer MIGHT be, the transactions costs of lending at a small scale do not leave enough return to make it profitable, so there is a hole in the capital market. This seems plausible, and yet my faith in markets makes me wonder if it is so, why some alternative mechanism has not appeared. If there is a profit opportunity, why hasn’t someone local appeared to grab it?
It could indeed be that it is just a question of education, and if so, then fine, Kiva et al. are filling a need and let’s get on with supporting them. Or it might be that there are stifling regulations on the ground and the banks just cannot function properly, and again Kiva might be the answer. But one thing I worry about is what economists like to call the principal-agent problem. In this case, the principals might be benefitting personally by acting as agents, and truly helpful projects might be getting ignored in favor of the lower-hanging fruits offered by those connected with local Kiva brokers. That may or may not be a real problem, but I would at least like to understand how the projects get chosen and approved a lot more than I currently do.
Danny says
I was hoping to hear your input on this one.
I have one question to what you said and that is your reference to the World Bank. My understanding of WB transactions was that it functioned as a bank in that it issues loans to governments (with heavy restrictions, no doubt) in order to employ local labor in the improvement of local infrastructure. I’m obviously oversimplifying but am I missing a key ingredient or is your point that the restrictions are generally more political than economic?
Mark Kennet says
I am actually not all that familiar with the deeper workings of the World Bank programs in general. The ones that I have seen probably do indeed conform to what you are talking about, but in at least one case I have to question what the underlying objective was. What I saw was a proposal to build new telephone networks in a previously unserved region using Bank monies, and what I heard from Bank officials was that the developing nation involved should indebt its children to accomplish this because the private sector would never find the investment profitable.
In my opinion at the time (which the passing of years has vindicated), the project would have been a foolish use of scarce resources for the country involved. Bank technocrats could not present a coherent case explaining why the private sector was failing in the project, and the government quite rightly rejected the program. Sure enough, in the intervening period, telecoms infrastructure has arrived without government subsidy in the region in question, perhaps a bit more slowly than it would have otherwise but without another load of debt hanging over the country’s children.
Observing the above, and not believing that I possessed any special prescience, I started to wonder what drove the Bank’s project marketing efforts (all, of course, assuming that you think economic development and infrastructure creation are good things, which I know many people do not). The only answer I could come up with that really fit with the facts as I knew them was that the Bank’s incentives are driven by the interests of donor nations. These rich countries are where high technology infrastructure devices are created, and Bank recipient countries represent a possible source of demand for this market. So the process that resulted was effectively that the firms manufacturing telecoms devices lobbied their governments to provide funds – and preferably general Bank funds, not just funds donated by that government – to promote projects that would ultimately buy the firm’s products, whether or not the projects were really beneficial to the recipient country. Win-win, except that the recipient country’s kids end up paying.
How bad is this really? Hard to say. On the one hand, countries do end up with better infrastructure, and I am one of those who think that this is probably a good thing on balance if it can be put to use. On the other, if a country is so mismanaged that its private sector cannot be relied upon to produce the necessary infrastructure, it is unclear to me that using outside financing will end up really helping over the long haul, and the debt level implied by World Bank and similar programs may actually end up raising the local cost of capital beyond a competitive level even if the government does get its act together. I also wonder whether the benefits today of such infrastructure investments outweigh the future costs of the debt incurred; I really do not know the answers. But I would be a lot more comfortable with programs that actually functioned from the bottom up, with local investors seeking to generate the infrastructure based on a locally sound business plan that met local needs; rather than programs that seem more oriented toward providing donor countries either with more markets for technology products or more sources of primary resources. This clearly makes ethical sense, and I think it makes economic sense as well. Thus, I am in synch with the Kiva objectives, but I remain concerned about implementation since I am not sure whose interests are being pushed in Kiva-approved loans.
Danny says
That is rather interesting logic regarding the political aspect of the World Bank. It is funny because I am quite quick to point that exact same process out when it comes to standard government aid but it never crossed my mind to expect the World Bank to function in a similar fashion. Makes perfect sense though. On balance, I think you’re right, infrastructure improvements are good things for a growing economy and it is very hard to understand how large the negative impact of the political lobby might be. Hopefully it is minimal…..
Truthfully though, I think with a kiva-like project it is even harder to make that kind of answer but still, I think it is probably quite minimal. The nice thing is that with kiva I can choose where I want to loan my money but this is still through a list of pre-approved kiva projects.