I have been focused more on fundraising this year. I found the results of the Journal of Financial Economics outlines how Amazon Web Services has made it easier to launch startups. I completely agree. But with everything, there are unintended consequences which includes higher failure rates as ‘B’ round funding has not increased similarly. This post on Cloud Commerce Consulting’s website offers more details.
kid adult entering college next year and two others not far behind I worry about the opportunities they have. So when the US is ranked 32nd globally in employment opportunities for the young it raises a question. Do I suggest my kids start their career in the United States or look globally for the best place to make a life? The Commonwealth Secretariat published a report that analyzes a number of economic, political, health and welfare factors into a Youth Development Index. Whatever you think of the US’ 23rd overall ranking it is worth looking at the 32 place ranking we got in Employment & Opportunity.
Last Year’s documentary, “Poverty, Inc.” asks if the global approach to addressing severe poverty has unintended consequences and asserts we could be inadvertently damaging the ability of people in those countries to better themselves through internal economic development.
The framework for addressing human suffering from disasters (natural like earthquakes and unnatural like wars and many famines) has been the same my whole life. Driven by heart wrenching media reports and championed by celebrities and public figures from all walks, well intentioned people give money through tax receipts, charitable donations, and feet on the ground to addressing suffering and to longer term developmental programs. We do this through transfers to governments and NGOs who are supported by armies of consultants and volunteers of all stripes. More conservative elements argue with the adage “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime”. But there are critics to both mindsets, arguing that giveaways and the ‘teach them to fish” approach are not the best mindsets for supporting developing countries becoming developed countries.
We want to believe this is helping, and of course it does, but it comes with a not-so hidden cost that perhaps substitutes treatment for cure. This is the focus of “Poverty, Inc.” the most thought-provoking documentary I have seen all year. Please consider watching it. You can stream it on Netflix or rent it from YouTube, Amazon. It argues that everyone from celebrities and our governments to NGOs and charities to the peoples of both the developing and developed worlds have bought into a system that only now we are realizing does massive, sustained harm even as it does good.
The 2010 Haitian Earthquake Case Study
On January 12th 2010 a 7.0 magnitude quake hit just outside Port-au-Prince affecting 3 million people and destroying or severely damaging almost the entirety of Haitian infrastructure including emergency and medical services, air sea and land transportation, communications and supply chains. Corpses rotted in the rubble and the government resorted to mass graves. Over the next few years there was a massive Cholera epidemic affecting 6% of all Hattians. Although the numbers are highly contested, between 100,000 and 160,000 probably died.
The global community reacted almost in unison and at massive scale to the devastation, sparking talk about a new, global approach to disaster recovery. Money, donated goods and people flooded into Haiti Clearly a lot of good was done and Haiti has a lot of ongoing needs. The government estimates 10,000 NGOs are operating in Haiti, many continuing programs started as earthquake responses. Temporarily supplementing private enterprises that have been devastated is one thing but consider how long that goes on before you are denying these local businesses the markets they need to prosper, grow, provide jobs and so forth. Subsidies are designed to create market distortions. But distortions of giving on a large, sustained scale have consequences. When humanitarian aid becomes a way of life with programs and giveaways sustained over years it displaces or even prevents the internal development of the country.
Case in point is rice. For decades, the US government has subsidized American rice farming. During Bill Clinton’s presidency the US began a new, sustained hunger program of delivering highly subsidized American rice. US farmers have received $ 13B in rice subsidies and very low import tariffs when selling to Haiti. Haitian farmers have received no subsidies. This was intended to address hunger and also designed to supplant inefficient and environmentally damaging local agriculture techniques. Plus, it promoted US agriculture and the President, Congress and many others celebrated a great program. What has happened is that the Hattian consumer now consumes rice offer at 3 meals a day, destroying domestic rice production and the businesses and jobs that supported them. The documentary shares a clip of Bill Clinton himself explaining how he and others was wrong about this program and he sees now the damage it did. American rice growers have benefited from the expensive taxpayer subsidies but this sort of sustained corporate welfare causes its own distortions in the resources and techniques applied to food production as also demonstrated by corn subsidies from Ethanol fuels.
Even well intentioned social programs. At least 80% of Haitian orphans have at least one living parent. Most are arguably ‘poverty orphans’ whose parents gave them up thinking that the institutions would raise them better. Doing so costs them their parental rights and effectively dismantles any hope of the child being raised or reunited with its parents. Well intentioned, prospective adoptive parents often don’t know they are adopting a child who has a parent who actually wishes they were raising them. In essence, the program actually CREATES some orphans.
After the Rwandan genocide a church in Atlanta organized an effort to deliver free eggs to suffering villagers. They flooded the market with free eggs. This drove local egg producers out of business. They shared the story of a chicken farmer who was focused on egg sales. Since nobody would buy his eggs the farmer sold his hens only to then see the church stop the program and move on to new causes. Now the community has to import eggs
One argument for programs like these is that if you free up local economies from subsistence farming they can focus development on higher value-added industries and develop their economies faster. Herman Chinery-Hesse is a software entrepreneur called “the Bill Gates of Ghana.” He tells of a time that he and other local techies bid on a government software contract. They bid against a European country. The home government for that European country gave Ghana a loan for the project and their software company won, telling Herman that nothing beats free money. The Ghana firm ended up subcontracting to the European firm doing as he says “the hardest and least profitable parts.”
Even respected and cool social entrepreneurs like Tom’s Shoes gets some treatment in the documentary. It raises the issues of what happens when free shoes (for example) enter a market on a large scale but often unpredictable schedule.
The documentary references a George Ayittey TED Talk on Africa’s Cheetah and Hippo generations whose criticism of “Swiss Bank Socialism” by their society’s slow moving, ‘hippos’ in the government and entrenched business interests at the expense of their at the younger, more entrepreneurial generation of ‘cheetahs’ I recommend watching this. Ayittey is unflinching in his criticism of African governments and leaders and argues that aid subsidizes these rulers and disincentives them from creating an environment that promotes local economic growth.
If you have ever traveled to a developing country with extreme poverty one thing you notice is that they are not universally poor. Some development exists in all places at varying levels and with varying support. All people have the ability and right to improve their lot and the question is what role can the international community and the people and institutions of the wealthiest countries play in supporting and encouraging that.
“Poverty Inc.” effectively argues that there are unintended consequences from the aid-centric approach to global poverty and argues that these have developed into a “Social Fact” that reinforces continuing with a given approach.
Instead it argues we should shift to promoting development of the local economies by pressuring governments where needed and supporting efforts to improve rule of law, land property rights, right to start a business, links to exchange ideas and trade which are lacking in many places.
The best outcome for is for local countries to create the circumstances for a sustained ‘economic miracle’, the rapid economic growth in an area. After World War II much or Europe including and especially Germany along with Japan, aided by the Marshal plan began long, transformative processes that took them from shattered, starving states to economic powerhouses. In many different forms this later occurred in Taiwan, Hong Kong, Singapore, South Korea, China Brazil, India and many others. All of these examples include aid and plenty of examples of richer countries “teaching them to fish” (perhaps best illustrated by W. Edwards Deming’s efforts in japan). But the critical ingredient that may separate these from Haiti and the poorest states in of Asia, Africa or the Americas is that the conditions for growth were developed. Step one may be repositioning recipient nations not as ‘victims’ of disasters, natural and unnatural, but as partners who have the right and ability to create their own miracles.
Pictures of Michael Zammuto media appearances for Brand.com
The most comprehensive listing of Brand.com news is available on the Brand.com newssection. I have several more I will try to add in the coming months.