What Finance & Law Have to Say About Economic Development

I just finished reading two books which are very helpful about thinking about the "development problem" in a new light: The Mystery of Capital, by Peruvian economist Hernando DeSoto (http://ild.org.pe/), and Dead Aid by Zambian economist Damibas Moyo (http://www.dambisamoyo.com/). More important than the fact that these books are written by someone other than your stock western development economist (no ad hominen argument commited here), these thinkers write from novel perspectives (financing and law) which give us refreshing, market-oriented approaches to economic development.

Ultimately the problem with economic development is not its goals or activities, but the way its financed. Aid money-- particularly government-to-government transactions-- isn't just ineffective to achieve development goals, but is positively harmful, says Moyo. Aid encourages corruption, hampers good citizenry and government accountability, and can be economically harmful to an economy (as it tends to reduce savings and investment, encourages inflation, and chokes off the export sector, among other things).

Moyo proposes a "menu" of financing options to replace aid and enable states raise their own funds for development. The participation in international bond markets and the development of local ones. More Foreign Direct Investment (FDI) in infrastructure and institutions from companies and governments (like China) who see opportunities in Africa. More trade, which brings a country foreign earnings, and makes an economy more productive. Better banking services for the poor should expand micro-financing opportunities, lower the costs of remitances and other money transfer services, and enable the poor to more easily turn their assets into usable savings.

DeSoto's book--again, written from the same market-driven development perspective--is all about this last point: turning the poor's assets into capital. While Moyo writes from a broad finance perspective (among other things she spent 8 years as a strategist with Goldman Sachs), DeSoto focuses on the legal reform that is necessary to enable the poor to begin leveraging their savings and fund their own development.

The problem is that many developing countries have property legal systems that do not reflect the informal or extralegal sector, which often is the world in which most of the population lives and works. The consequence is not only that these extralegal property owners can't physically secure their assets, but that they also can't leverage these assets as capital to improve and develop their livelihoods. Consider, for example, how important mortgages are as a loan source for many Americans, or the important role that a residential address plays in allowing someone to access credit or making them "accountable" enought to enact a business transaction.

The solution, says DeSoto, is hidden in the histories of many western nations, all of which at some point in had to begin recognizing and absorbing the extralegal sector into their formal legal system. This happens by reform, which requires the vision and initiation of political leaders.

Recently Read: Pathways to Power, by Paul Farmer

 

Rats and roaches live by competition under the law of supply and demand; it is the privilege of human beings to live under the laws of justice and mercy." – Wendell Berry

 

I recently read Pathways to Power by Paul Farmer. It qualifies for the well-populated category of "development/poverty/human rights book," but stands out in a couple ways.

 

Paul Farmer, a doctor who's been practicing for over 20 years in Haiti, writes about poverty and human rights, but does so non-abstractly (bringing lots of personal experience into his thesis); with the insight of being both a "practitioner" (doctor) and academic (anthropologist); and with the objective passion of a social prophet of sorts (it quickly becomes clear in his book that Farmer has a high and studied regard for Liberation Theology, its followers, its social grievances, and its methods)  

 

Farmer's main thrust is that the conception of human rights needs to be expanded beyond mere political and legal terms, and expanded to include and address injustices caused by "structural violence." These are more difficult and costly to address because they are social, cultural and economic in character, and naturally run counter to market-driven capitalist ideology and systems that runs the world today.

 

For example, you have a Haitian girl dying most immediately from AIDS. While the standard legal-political categories of human rights has no classification for such an abuse, a deeper analysis made according to Farmer's proffered stipulation of human rights would identify the many facets of structural violence that led to this girl's death—i.e. the material poverty and social casting that led to her contraction of HIV; her lack of economic resources that mitigated her ability to fight AIDS (with drugs and overall health). Because the girl's contraction of HIV involves Haiti's history of violence, national poverty, general prevalence/vulnerability to disease, a deeper analysis would also include Haitian history, U.S. policy towards the same, problems with the way that international Aid operates today.

--
Ryan Vroegindewey

PCV Benin 2007-2009

http://vroeginbenin.blogspot.com/

Expat Survival Gear

What does one take to Africa for survival, entertainment, comfort? A daunting question, but which must be answered, and soon. Here are some of the more important items constituting my 80-pounds of rations thus far:

• Italian Espresso Maker and French Press. Relaxants and relationship-builders.
• Cumin and Cilantro (Lots - I plan to be the first to pioneer Tex-Mex in West Africa...if things work out the way I plan, I may be doing some Chipotle small business development in the distant future).
• Top Gun Soundtrack. "Danger Zone" will be the anthem of choice when its time to put on the aviators and ride back-seat on a moped taxi down the main strip of Porto Novo.
• Big Bass Pro Shop mesh hat. For protection from the Equatorial sun but mostly in honor of the South and Andy Clark.
• Books. Walking With the Poor by Bryant Myers. Mythology by Edith Hamilton - not so much for becoming better-versed in mythology as much as for recalling the joy that these stories bring to Cassel. Brothers Karamazov by Dostoevsky - I MUST finish this book. Puritan Prayers for finding words more beautiful than my own. Some C.S. Lewis.
• Scrabble, Travel Edition. So that I don't forget how to speak English.
• Radio Shack Dynamo hand crank short wave radio. For catching the BBC World Service and other voices from the West. And so I don't forget how to speak English.

I'm open to further suggestions...