economics – Rockstanding

dambisamoyo Dambisa Moyo, who was born and raised in Zambia, holds degrees in economics from Oxford and Harvard. She has worked in the financial world for years and has written an important book called “Dead Aid: Why Aid Is Not Working And How There Is A Better Way For Africa.” Moyo argues in her book that decades of government aid to Africa — more than $1 trillion — has not improved the lives of Africans but in fact made their lives worse.

For sure, there is not a consensus on whether the view she is advocating is the right one. Kevin Williamson, writing in NRO, says “Moyo deserves listening to; for the sake of a more sensible development policy.” On the other hand, Bono’s ONE Web site calls her views wrong and irresponsible.

It is important to note that Moyo is not calling for a cut in humanitarian aid, the kind that works to fight AIDS and HIV. But she says, however, that “the state of postwar development policy in Africa today and unflinchingly confronts one of the greatest myths of our time: that billions of dollars in aid sent from wealthy countries to developing African nations has helped to reduce poverty and increase growth.”

For those really interested in helping and not just through charity, one way is through organizations like Kiva. Kiva is a microfinance organization that lends to entrepeneurs in developing countries. What is microfinancing? From the Consultative Group to Assist the Poor:

Microfinance offers poor people access to basic financial services such as loans, savings, money transfer services and microinsurance. People living in poverty, like everyone else, need a diverse range of financial services to run their businesses, build assets, smooth consumption, and manage risks.

Poor people usually address their need for financial services through a variety of financial relationships, mostly informal. Credit is available from informal moneylenders, but usually at a very high cost to borrowers. Savings services are available through a variety of informal relationships like savings clubs, rotating savings and credit associations, and other mutual savings societies. But these tend to be erratic and somewhat insecure. Traditionally, banks have not considered poor people to be a viable market.

Different types of financial services providers for poor people have emerged – non-government organizations (NGOs); cooperatives; community-based development institutions like self-help groups and credit unions; commercial and state banks; insurance and credit card companies; telecommunications and wire services; post offices; and other points of sale – offering new possibilities.

These providers have increased their product offerings and improved their methodologies and services over time, as poor people proved their ability to repay loans, and their desire to save. In many institutions, there are multiple loan products providing working capital for small businesses, larger loans for durable goods, loans for children’s education and to cover emergencies. Safe, secure deposit services have been particularly well received by poor clients, but in some countries NGO microfinance institutions are not permitted to collect deposits.

Remittances and money transfers are used by many poor people as a safe way to send money home. Banking through mobile phones (mobile banking) makes financial services even more convenient, and safer, and enables greater outreach to more people living in isolated areas.
Financial services for poor people have proven to be a powerful instrument for reducing poverty, enabling them to build assets, increase incomes, and reduce their vulnerability to economic stress.

This same approach is being used in Iraq to help rebuild that country and, in fact, worldwide. Below is an interview with Moyo as she explains her thinking that went into the book.

http://www.youtube.com/watch?v=UtpiuQ0uR7s

Pat Lenconi, writing at The Simple Wisdom Project, answers the question “What’s so bad about socialism?” especially in light of the fact that the Bible points to ideals like caring for one another , sharing with those in need and avoiding materialism. I think his answer is helpful:

I must admit that, as a youngster, I often wondered why people were so down on socialism, and its cousin, communism. In fact, I thought those sounded like the best ways to run a society because sharing and caring and compassion are the right ways to live.

As I became a young adult, I began to understand how the reality of socialism radically differs from the theory, and that even the theory itself has fatal flaws. When it comes right down to it, I think there are two big reasons why socialism is a really, really bad idea.

First, it just doesn’t work. At least not for very long. That’s because people are flawed and, outside of a family, a religious order, or a small group of friends, they will not continually work hard for the ‘greater good’ if they do not receive the fruits of that work themselves. As an economics major in college, I learned that this theory had a name: ‘the free-loader effect’. It is the natural tendency of people to do less and less work when they realize that they won’t see a proportionate decrease in what they can get for it.

Over time—and this is an inevitable consequence of the free-loader effect—socialist societies experience decreasing productivity, risk-taking, and innovation, along with increasing tax rates, promises of government programs, and expectations from citizens about what they can get from those programs. When the economy inevitably falters under its own weight, those expectations cannot be met.

Unfortunately, by the time enough citizens realize this is happening it is often too late for them to go back and try a different approach because there are more people in society who expect benefits from the government than there are people who pay for them. And thus begins the long, gradual descent to economic and motivational malaise. Ironically, the class of people who socialism is supposed to help—the poor—only grows because they are joined by more and more people who drop out of the shrinking middle class.

Go here to read the rest of his article.

HT: Matt Perman