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Archive for June, 2009

Check out this article in the New York Times today. It offers an interesting perspective, seeing as one of the major challenges to microfinance is investing in businesses and entrepreneurs that are likely to succeed.

See the article here: Lending Talent and Money on a Micro Scale

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A comment made by Mark Frazier, Co-founder President of Openworld Inc., has had me thinking. Frazier commented that top-down approaches to aid generally fail. For example, mosquito nets might be used to make dresses, and malaria may continue to spread. Often, the failure of the top-down approach is a failure of distribution of transfers in kind (corruption, misinformation, lack of knowledge and short-sighted preferences). The problem might be fixed by greater oversight but such oversight might be seen as paternalistic, or might simply be underfunded and inadequate. Such arguments against the top-down type approaches to international aid raise questions that challenge big-push theories. From a paper critiquing Jeffrey Sachs’ “The End of Poverty: Economic Possibilities for Our Times:”

Poverty traps occurs when agents fail to coordinate their actions to achieve the optimal allocation of resources. It is argued that this phenomenon makes economic convergence impossible and keeps agents in a poverty trap from which they cannot escape unless a massive and coordinated industrial policy is implemented. This analysis shows that the literature on coordination failures has overemphasized the significance of market failure. It argues that coordination is possible and profitable in a free market system. State intervention is responsible for the systematic misallocation of resources (discoordination), in general, and for poverty traps in particular (Coordination Failures, Poverty Traps, “Big Push” Policy and Entrepreneurship: A Critical View, Bogdan, 2007)

Of course, what this says is that not only is economic growth from top-down aid largely unsuccessful, it is often the inadequacy of the government of the people in question that keeps the people trapped in their current economic situations.

For an example of how some top-down approaches fail see this article:

MOZAMBIQUE: 1,001 things you can do with condoms

Honestly, the immature side of me wants to laugh; the youthful side of me is happy the kids are getting soccer balls, and humanitarian in me realizes that good intentions are failing to be enough. Just because condoms are being made available doesn’t mean they are being fully adapted into the local community. If we call the slight decrease in the rates of AIDS cases each year in this community a success, then we risk seeing what more we can do to a) decrease the presence of HIV/AIDS, and b) decrease the number of unwanted pregnancies per year. The fact is, while condoms are a nice touch in this battle, the community in question is clearly lacking the necessary infrastructure to battle the very things that are keeping it trapped in poverty. Throwing condoms in the mix is literally like throwing a glass of water onto a burning house–it will wet but not douse the conflagration.

This is the part where I would usually make a comment like, “Here, microfinance can help,” but I’ll refrain from the usual, and instead state the obvious: top-down approaches mitigate, but do not solve, the most pressing problems facing LDCs around the world. In the current recession, fewer are looking to give money to any cause and more are looking to save. The microfinance industry is still relatively strong but can only do so much. It’s times like these that we should explore other means–transcending the actual giving or investing of money and reexamine just how that money is distributed. Furthermore, we should look into shaping the way decisions are made by individuals, incentivizing good decision making that will help individuals in their given societies live better with the means and resources they CURRENTLY have (while foreign investment slowly and quietly injects more money into increasingly successful systems). This is the work of behavioral economics, as far as shaping decision making processes goes, but also the work of anthropologists to understand culture-based incentives and mechanisms, and sociologists to project how change will occur and restructure the society as a whole.

It seems that in the current state of the global economy no “Big Push” or heavy handed top-down approach will occur, most people with any means are looking out for themselves. This is the time we need to learn how to do more with less. Then, when there is more, we can accomplish more.

Just a thought.

A


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