Friday, July 29, 2005

Where do we live?

We live in a shanty town of a city in the global south. That is if by 'we' you understand 'humanity' and you are talking in terms of the median person.

  • How do we transform this situation? How do we change stagnant poverty into thriving empowerment?

Education is certainly a key factor, however I think the ideas of Hernando de Soto (interviewed on Zakaria's show) are incredibly important. Let me try to encapulate the central issues:

Almost by definition ending poverty requires improvements to the vitality of the impoverished areas. In order to create a thriving market you need a degree of stability i.e. some rules that are consistently followed (typically laws) so that people are confident that if they take risks by investing, then they will be able to reap those rewards and won't have them stolen or otherwise undermined. However even once there is enough stability that people can profit by investing you still need access to capital in order to invest. Personally I can easily raise capital through education loans which I can use to further my education - investing in my future; but most of the worlds poor don't have that luxury. Even if they have an idea - like building a new chicken coop to increase egg production - that would enable them to lift themselves out of poverty (and possibly also provide a new service to their community) most people simply wouldn't have the capital to invest to make the idea a reality.

There are successful cases where poor people are given access to capital such as the gramin bank in India where micro credit is issued on the collateral of social incentives, i.e. people make sure to pay back their loans because they don't want to be shamed by their community. However this model doesn't (and hasn't) worked everywhere, especially where communities are more transitory and social incentives aren't as strong. What might work better? Issuing property rights. Most people in slums by defacto own their land though they have no legal right to it and thus cannot morgage it to gain access to capital. De Soto suggests that institutionalizing the property rights of urban poor would dramatically increase poor people's access to capital and do much to end poverty. Of course such an approach is problematic.

  • Will it encourage more land invasions?
  • Will people break their mortgages since they know their land won't likely be taken away?
  • Would it work without an effective rule of law?
  • How much is a little plot of land worth anyway?

Despite these questions the point that I am trying to make is that as people ponder the question of how to solve global poverty along with:

  • Increased education
  • More food/medical emergency assistance
  • Decreased trade barriers
  • Debt reduction
  • Increased aid
  • Fighting corruption and
  • Improving markets

they also remember that important parts of the equation are:

  • Property rights
  • The rule of law and
  • Access to capital.

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