Even when the economy-wide story is disappointing growth, some individuals buck the trend. A forty-year-old woman named Ayorkor in Teshie, a town near Accra, Ghana, tells her story:
I managed to save a little and feed my children at the same time. When I managed to save enough, I started selling cooked yam, and here I made more money and managed to save. I was lucky to meet a friend who gave me secondhand clothes on credit to sell. This I did very well and started building my capital. Now I am trading with my own money. My first two children are in the secondary school and my last child, who is eighteen months old, is in a crêche [day-care center]. I managed to get out of poverty because I was not ready to give up, and so I fought hard, and with the help of a friend I succeeded.
A seventy-six-year-old man named Udo from Ikot-Idem, Nigeria—a man with two wives and thirteen children—tells a similar story of climbing out of poverty:
When I grew up to fend for myself, I decided to trade soap. My initial capital came from picking and selling palm fruits, and saving the proceeds. My initial capital of two manilla [traditional currency] was wisely invested and yielded good dividends. When I had saved twenty manilla, I bought an initial stock of hens for three manilla. After toiling for many years, I was able to marry. Following marriage, I became poor again. But I continued harvesting palm fruits and tapping palm wine until I saved enough money to stand financially. When I saved fifteen shillings, I bought some kernel, which I carried on my head to sell in Azumini. By so doing we successfully combined soap trade with a palm kernel business. I saved up to twenty pounds to buy a new bicycle, which enabled me to ply my trade on a larger scale. My wife and I became adequately clothed. We bought additional farmland and intensified food production. Having acquired enough land, I proceeded to plant palms, which I obtained from the government. These plants I nursed, and with the subsidy received from the government for fertilizer and farm implements, I established my plantation. The palm estate has enabled me to build a house for myself and to feed my family.
These examples of dynamism at the bottom have not yet propelled the societies as a whole into sustained growth, for all the reasons given in this chapter and the next. Individuals are dynamic, yet the complex interactions of individuals in society can cause stagnant economies. Still, the dynamism of the poor at the bottom can sometimes lead to emergence out of stagnation of the wider society.
Miracle in Xiaogang
In the tiny village of Xiaogang, Anhui province—the heart of China’s rice-growing region—twenty families held a secret meeting in 1978. The villagers were desperate because they were starving. As Stanford economist John McMillan tells the story, the commune system that the Communists had in place all over China was leading to a breakdown in food production. Under this system, everybody was collectively responsible for tilling the land, and everybody had a share in the land’s output. You got your rice share whether you worked hard or not, and as a result people hardly worked. The villagers of Xiaogang reached an agreement: they would divide up the land and farm it individually, with each person keeping the output of his own land. They kept their agreement a secret out of fear of the Communist authorities. Rice production in Xiaogang shot up. The results were too spectacular to stay secret for long. Neighboring villages wanted to know how Xiaogang had increased its rice production so much. Other villages also put into place individual farming.
Before long, the Communist authorities got wind of the spontaneous outbreak of property rights in the countryside. The news arrived at a propitious moment, when reformers in the party were seeking to get rid of the doctrinaire Maoists. Confronted with the evidence that food production increased dramatically with individual farming, the provincial Communist Party officials gave their blessing and reported the developments to authorities in Beijing. By 1982, a Communist Party conference ratified what had already happened in the countryside, approving individual farming. By 1984, there were no communes left.56 This was just one pebble that started the landslide of the Chinese economic miracle. Gradualist, homegrown reform in China did much better than did outsiders’ fantasies of shock therapy in Russia.
Piecemeal reformers, foreign and domestic, can try to move toward better systems that are sensitive to local conditions and that unshackle the dynamism of individuals everywhere. The dynamism of the poor at the bottom has much more potential than plans at the top.
SNAPSHOT: THE SHELL FOUNDATION’S BUSINESSLIKE APPROACH TO POVERTY
ONE OF THE LEAST known problems of poverty is indoor smoke from cooking. During a recent trip to Africa, I saw a young girl cooking in an unventilated hut all day long, in smoke so thick I could not stand to stay in the hut for more than a few seconds. This scene is common in homes throughout Africa, multiplying many times children’s chances of dying from respiratory infections. The World Health Organization estimates that indoor air pollution in a smoky hut exceeds by a factor of sixty the European Union’s standard maximum for outdoor air pollution.57
The sufferings from acute respiratory infections are hard to convey to people in rich societies, who no longer experience them. The lungs fill with pus, some of which the patient coughs out. The infection causes chills, fever, shaking, sharp pains in the chest, nausea, and vomiting. Death follows when the infection goes untreated. This is how indoor smoke kills. The death toll is around 1.8 million a year worldwide.
The Shell Group is one of those large multinational corporations that are so feared by globalization protesters. Many of these corporations are responding to this social pressure by setting up charitable foundations. They bring to the table their own unique business skills, which makes them think more like Searchers than like Planners. The Shell Group’s charitable wing, the Shell Foundation, explains its philanthropic approach:
Our partners need to be adept at applying business thinking and business principles to how they operate and to the interventions they propose…. [ We stimulate ] the deployment by our partners of the same set of skills and entrepreneurial instincts…that business people everywhere use to identify and assess business opportunities and then overcome the problems that must be solved en route to setting up and operating an enterprise. These include understanding the market and knowing who your customer is, what they want and will pay for…Our partners usually…will be particularly enterprising as they search for solutions.
For example, the Shell Foundation is tackling the problem of indoor smoke. Traditional aid approaches have not made much headway on this problem. Official donor agencies tried to force technical fixes—such as stoves designed to reduce smoke—on the poor without consulting them on what kind of stoves they wanted and would use. The utilization rate of these new stoves turned out to be a big disappointment. The aid Planners were not thinking like businessmen—that is, giving the customers what they wanted at a reasonable cost. The Shell Foundation is experimenting with a market-based approach, in which dozens or even hundreds of microenterprises produce and distribute stoves, adapting them to local consumer wants. The approach is pragmatic: a combination of cash sales to consumers, sales to NGOs and to public institutions that use their own social distribution networks, experimentation with microcredit to finance stove purchases, and accepting payments in goods rather than cash.
Corporate charity cannot replace official foreign aid, but its marketlike approach is a good model of what it’s like to be a Searcher.
SNAPSHOT: IMPROVEMENTS TO DOING BUSINESS
NOT ALL PIECEMEAL IMPROVEMENTS are tangible projects. Simeon Djankov at the World Bank, with many collaborators, has started a promising initiative to reduce obstacles to doing business in poor countries. He has found in his research that countries that require more red tape to start a new business have higher corruption and large informal sectors operating outside the law. Business is also shackled in poor countries by cumbersome procedures to collect debts, enforce contracts, register property, and collect from bankrupt business partner.58: “It takes 153 days to start a business in Maputo, but 2 days in Toro
nto. It costs $2,042 or 126% of the debt value to enforce a contract in Jakarta, but $1,300 or 5.4% of the debt value to do so in Seoul. It takes 21 procedures to register commercial property in Abuja, but 3 procedures in Helsinki. If a debtor becomes insolvent and enters bankruptcy, creditors would get 13 cents on the dollar in Mumbai, but more than 90 cents in Tokyo.59
Djankov and his collaborators have shined a bright light on this issue by compiling indicators of costs of doing business for as many countries around the world as possible. Every year, they issue a report highlighting the countries that have improved the most and those that failed to improve. This honest reporting affects a country’s ability to attract capital and so creates incentives for piecemeal changes to cumbersome regulations.
CHAPTER FOUR
PLANNERS AND GANGSTERS
No one’s life, liberty, or property is safe
While the legislature is in session.
COROLLARY OF MURPHY’S LAW
UPON LEAVING FOR EXILE in 1828, after ruling for three years, Antonio José de Sucre Alcalá, the first president of independent Bolivia, summed up his country’s situation. Sucre said, “The solution was impossible.1 One hundred and ninety-five presidents later, Bolivian president Carlos Mesa maybe had similar thoughts when he resigned under pressure in June 2005.
In the sixteenth century, Bolivia (then known as Upper Peru) was among the richest provinces in the Spanish American empire. Today it is among the poorest countries in Spanish-speaking America.
What makes Bolivia so poor and ungovernable? Maybe 450 years of a white elite ruling a majority Indian nation has something to do with it. As late as 1997, representatives of indigenous parties made up less than 1 percent of Congress. The Bolivian government was ranked with the worst quarter of governments rated on corruption.
In 1545, Spaniards discovered the Americas’ richest vein of silver at Potosí.2 From then until the 1650s, Potosí was the largest silver mine in the world, generating Bolivia’s first economic boom. Potosí was the largest city in the Western Hemisphere at that point.3 The European mineowners reinstated a forced labor system that had existed under the Inca empire, called the mita, drafting indigenous people to do the unpleasant work in the mines.
The boom spilled over into profits for European farmers growing maize, wheat, and coca leaf for mine workers. Under the encomienda system, well-connected conquistadores got large grants of land with rights to the labor and produce of the Indians who lived on them.
Indian mortality from European diseases broke up traditional communities and freed up land, which the wealthiest Europeans absorbed into the former encomiendas, now known as haciendas. Hacendados used Indian labor from those stranded by the decline of traditional communities.4 The rest of the Indians lived in their own communities, subject to a tribute tax for the crown.
Bolivia was the last Spanish colony in America to become independent, in 1825. The independent state was not so different from the colony. Haciendas only grew in importance. In 1846, about 5,135 hacendados managed a labor force of 400,000 Indian peasants. Six hundred twenty thousand Indians lived in autonomous communities. Another 200,000 were smalltime landowners or rented land from haciendas or free communities.5 The 1880–1930 tin boom created even more rapacious demands by landowners. The government broke up free Indian communities by introducing individual titles to lands. The haciendas acquired land through small purchases in each community to break the community’s cohesion, then used fraud and force as well as straight purchase to acquire Indian lands. Free communities saw their share of land fall from half in 1880 to less than a third by 1930. This third was the most unarable land.6
Not that the Indians could do much to protest. The elite showed little interest in the education of the majority. In the middle of the nineteenth century, only about 20 percent of the population could speak Spanish.7 Only 10 percent of school-age children were in school.8 Literacy requirements then restricted voting to the white population. The electorate was only about thirty to forty thousand in 1900.9 In the 1900 census, 13 percent of Bolivians were white. Indians worked on haciendas in return for use of usufruct land. They performed the hated pongo service for landowners, attending to the personal needs of the hacendado family. The Indians had to do pongo service even if the landowner lived in a faraway city, with the Indian bearing the transport costs.
The 1952 revolution failed to help poor Bolivians get out of poverty. Instead, the revolution took a conservative turn, in which the white elite soon regained ascendancy. After unstable civilian governments, unstable military governments took over. The military ruled from 1964 until 1982. There were eight coups from 1964 to 1981. Bolivia returned to democracy in 1982, but the transition was not smooth. Under the first democratic government, financial mismanagement caused hyperinflation to peak at 25,000 percent in 1985.10
After 1985, the donors got heavily involved. The government brought inflation down and pursued free-market reforms at the behest of the IMF and the World Bank, but economic growth did not revive.
After all the to-and-fro of Bolivian history, the Indians are still on the margins of the national society. Representation of indigenous parties in Congress was still only around 1 to 2 percent in the new democratic period of 1982–1997. The incidence of extreme poverty among the indigenous was 52 percent against 27 percent for non-indigenous in 2002.
Institutions remain enfeebled after Bolivia’s chaotic history of European minority rule. There were sixteen massive purges of the judicial system between 1931 and 1982, making courts subservient to political interests.11 A survey rated Bolivia’s Customs Agency and its Internal Revenue Agency as the most politicized and corrupt government agencies. Enterprise surveys cite Bolivia as near the top in the world in the percentage of firms who cite corruption and the dishonesty of courts and police as obstacles to doing business there.12
Increased demands for representation by indigenous groups provoked the current political crisis. The American-imposed war against cocaine trafficking alienated coca leaf growers (also mainly indigenous). IMF structural adjustment conditions were unpopular. After seeing little benefit from previous silver and tin booms, indigenous groups are suspicious about an incipient natural gas boom driven by foreign companies. Violent uprisings occurred in April 2000, September/October 2000, January 2002, and February 2003, before an October 2003 uprising forced out President Gonzalo Sánchez de Lozada.13 His successor, Carlos Mesa, similarly resigned in June 2005. Mesa was unable to deal with another uprising of indigenous protesters, who blockaded roads to La Paz, demanding nationalization of the gas industry.14
Planners and Politics
One gut instinct that many people have about the poverty of nations is probably close to the target: it’s all politics. As if the problems with markets were not enough, poor countries have bad governments. A good government might resolve some of the problems with markets discussed earlier.
Planners opt for one of two camps about bad government. One camp (associated with the U.S. government, the World Bank, and the IMF) says that poor-country governments are awful and the West should get tough with the bad governments—force them to change in return for aid. The other camp (associated with the United Nations and Jeffrey Sachs) says that poor-country governments are not so bad and that countries should be free to determine their own development strategies. However, this artificially restricts the debate. It may be true that poor-country governments are bad, and it may be just as true that Western attempts to change them have been fruitless. Continuing my subliminal quest for the most politically unappealing truths, this chapter considers what to do if both statements are true.
I feel awfully undiplomatic pointing out bad government in other countries. In the spirit of the rest of this book, outsiders like me need a lot of humility when they pass judgment on another society’s government. Certainly my own government is no paragon when it goes around invading other countries for unconvincing reasons, violating human rights of prisoners in the war on terror,
and financing political campaigns with corporate payola. I will not advocate some banana-republic stereotype of bad government everywhere in developing countries. There is a lot of variation both across developing countries and within governments as to quality of government officials. There is a layer of capable, honest, well-meaning technocrats in almost every government, who themselves are a promising group of Searchers looking for a way to increase opportunities for poor people. Over a couple of decades working on developing countries, I have met outstanding government officials from every continent, whom I admire greatly. These officials complain more knowledgeably about bad politics and corruption in their own countries than outsiders can.
We must face reality—decades of research by social scientists, not to mention everyday observation, show just how dysfunctional government can get in many countries of the Rest. We don’t do the poor any favors by tenderly respecting the sensitivities of bad rulers who oppress their own people.
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