Tuesday, August 29, 2006

Fighting Poverty for Dummies

I’m hoping to do a book in the next two years on the best thinking and best practices for fighting poverty around the world and how Christian folks in particular can get involved.

Wanted to try a six part mini series here in P & P on the same topic, so here goes....

In the first five posts I’ll look in outline at the takes of these Jedi poverty fighters: Hernando de Soto, Muhammad Yunus, Jeff Sachs, John Perkins and Mike Davis. In the last post I’ll look at what Christian types face in thinking about poverty and how everybody can get into the battle.

In spite of all the cynicism making the rounds I can’t think of a more exciting time in the fight against poverty around the world. Better ideas and more people trying ‘em out than ever before.

OK, let’s get with the whirlwind tour....

Hernando de Soto

Who’s Who? Peruvian, neo-liberal (i.e., favors “free market” solutions) economist and director of the Institute for Liberty and Democracy

Must Read: The Other Path and his greatest and most influential work, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else

What’s the Big Idea? He argues that the vast majority of the world’s poor can't formally own the land they live on, the houses they live in or the micro-businesses they run. That's because they live in developing countries with lousy or non-existent formal property systems. In most of the world gaining formal title (ownership)is very tough at best and getting a mortgage is almost unheard of!

Since they can’t gain title or become formal owners they can't use their land, houses or businesses to get loans. Their informal possessions are worth zilch, nada, and the big zero as collateral.

Banks and lenders won't cough up the bucks to folks without collateral, so the poor get screwed when they go hat in hand to the bank for a loan.

To make matters worse, these developing countries don't have enforceable contract laws that will consistently protect the interests of the lender or the borrower. No way the suits are going to lend to poor people under those conditions.

As a result, the poor are trapped in an informal economy and can't borrow monies to improve their lot in life. Life sucks when you can't borrow the bucks to get ahead.

What’s more, the poor are just a nod of a government official or rich guy's head away from losing even what little they do have because their land, houses and businesses can be taken away from them or bulldozed at a moment’s notice. With no formal and enforceable legal protection everything runs at the whim of The Cronyocracy. Life sucks when you're under the big fat thumb and hatin' it.

Bottom line: The poor get the sh_tty end of the economic stick!

Hernando's most excellent solution to all this general crappiness?

Chuck the current irrational legal systems of developing countries by introducing a rational system of property ownership that protects the poor as well as potential lenders. Make the folks in both rags and suits feel secure so they'll take risks like starting a new microbusiness in the slums or lending money to the unwashed.

Create legal and economic systems that can fairly and accurately assess the marketplace value of the poor's possessions.

Invest major resources in giving formal land, house, and business ownership to the poor. That may mean significant land redistibution in some cases. Educate the poor in how a capitalist economy works and how lending, borrowing and investing can grow their own prosperity and that of the whole community and country. Make sure all the poor have the potential building blocks for entrepreneurship.

Encourage institutional lenders to lend money to the poor and create policies that will make it worth their while to do so.

Sell it to The Cronyocracy by telling them they'll only get phatter through the increased economic growth the changes will bring. In a sense, ask them to trade some of their unfettered and capricious control for the rule of law, greater personal wealth, and a happier and more prosperous citizenry. The fat suits and 5 star generalisimos should welcome a happier and better off lumpenmass as a way of avoiding unsightly populist uprisings, nasty terrorist/guerilla insurgencies, and embarrasing violent revolutions. Or at least that's how the theory goes.

Who’s Walkin’ the Talk? The ILD as well as many other non-profits and national governments are pursuing de Soto’s ideas. Peru was the first test case but now similar programs are being tried all over the developing world with some encouraging results. Some here in the US speak of bringing de Soto to the American inner city but I’m not sure what that means exactly since his ideas are really focused on the developing world. I’m looking forward to finding out what these folks are thinking and doing here at home.

My Take: If you look at what land, home, and business ownership and the ability to borrow money against those possessions have done for economic growth in the US and the west, you can see his basic insight is correct. His real brilliance is recognizing—contrary to common thinking—that the poor do indeed have valuable material assets which can be turned into live capital in the right legal and economic environment. Basically, de Soto wants to bring billions of desperately poor people into the formal economy. Though encouraging, results from his approach have been mixed so far because it’s so hard to transform whole legal systems (The Cronyocracy is the Cronyocracy, after all) and because there are other major obstacles to moving folks out of poverty.

But in my mind he’s clearly got a piece of the bigger anti-poverty puzzle well in hand. I think most any non-profit working among the poor in the developing world could make elements of this approach part of their tool kit.

Whew, OK, HdS in a nutshell! :^)

Next time: Muhammad Yunus and the micro-lending revolution.


Anonymous Jon said...

On bringing de Soto's ideas to the US - perhaps his solutions aren't applicable because our legal system seems to be pretty sound in terms of property rights, but perhaps we should still work on helping folks to be owners rather than renters. How could we go about doing that?

3:36 PM  
Blogger 3wishes said...

How? Bill Gates. Thats my answer and Im sticking to it. Someone with enough clout to pull it off. At least he has a foundation that appears to be taking on causes.

4:19 PM  
Anonymous bookworm brown said...


What if radical legal change can only come about through 'democratization', the likes of which Bush, et. al, have up and running?

What makes De Soto neo-liberal and not neo-conservative, as folks like Michael Novak and the Acton Institute argue along the same line?

5:39 PM  
Blogger Wordcat said...

I think some aspects of de Soto's stuff can work here, but he modeled his prescription for the developing world on the US economy so probably not much new under the sun in it for us.

A sign of the weakness of de Soto's take is the ongoing poverty and gross inequality in the US.

I agree that moving people from rentership to ownership is a key, and I think helping poor folks understand how capitalism works is even more important. Economic ignorance is endemic in the inner city and even among otherwise educated folks. I wish economists were better at communicating to real people. I know they're trying but somebody's gotta break through and tell the real story to people in the inner city. Dr. Perkins made his inspiring attempt but one person can't carry the load.

Rudy's trying.

How to get folks from renter status to ownership? Education, education, education on how ownership works and why it's better than paying the man and blowing off the future.

But I don't mean schoolroom stuff. We've gotta find some creative folks who can get through to people. We need some artistic cruise missiles. And then we've gotta stop well meaning Republicans from redirecting monies out of our impressive low income home owner programs into blowing up imaginary threats to our way of life.

Bigger changes beyond those are necessary too, but that's for another post. Figuring out those changes is the creative challenge.

I think Billionaire Bill has an important role too 3. That's coming up.

Yeah, that's the neo-conservative argument Bookworm.

Spare the rod and spoil the child.

Neo-conservatives favor a violent and top down destruction of 'primitive' cultures and economies and a top down reconstruction of those cultures and economies based on a western model. That's what's up in Iraq right now.

Some of us think that's an approach that rarely works. Non-violent and bottom up institution building has a much better track record. It's the All-American story.

Everybody wants to be neo in America.

Economic Neo-Liberals think that individuals should be free to pursue their own economic self-interest without undue and inappropriately powerful obstacles.

American Neo-Liberals typically think of political government as the undue obstacle. They tend to ignore the immense power of corporations and business in their critique. Basically, they think the decisions that consumers make are more authentic than the decisions that voters make and that corporations are a more legitimate form of human community than civil government.

So you can be a Neo-Liberal and reject Neo-Conservatism. Or you can buy both. Or you can reject both.

Make sense?

10:38 PM  
Anonymous Anonymous said...

wow - that was as good as a post. ;)

(p.s. - my word verification for this one is "scacrer". That's the closest I've ever come to having a real word.)

12:03 AM  
Blogger Scott said...

Thanks for this series. I think it would make for a great book. The biography is practical & inspiring, and communicates the model clearly.

Plus, in the blogworld, there is just so much critique w/o solutions (on both sides) that one can handle. it is refreshing to hear about macro & micro level (not just individual heros) solutions that work.

I linked to this from my blog as a must read.

6:30 PM  

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