I have several problems and proposed solutions
Poor farmers in the third world: Cut agricultural subsidies. There's no reason for a General mills to receive price supports, or tax breaks, which undercut the prices of a farmer in Africa.
Few third world businesses: Unilaterally drop tariffs, if not with everyone, at least with third world countries. This lessens the cost of going global with your supply chain. So even if new businesses aren't created in those countries, multi-nationals can move in and offer new jobs.
No capital: Micro-credit has been discussed endlessly, I'll just note that Muhammed Yunus was a worthy recipient of the Peace prize.
Capital Flight (endemic corruption and lawlessness causes people to take their money overseas where it won't be robbed): I don't know how to solve this one, people have been working on this problem since the colonial powers gave up their empires.
This article
offers a different take on the problem of capital. (
The above comes from TechCentral Station, which is where libertarians go when we're not re-reading Atlas Shrugged (18 times so far). So it shouldn't surprise anyone that the above proposes a market based solution, and the problem arises from government interference in the market. The above illustrates why micro-credit is so vital, many of the assets available to the impoverished are "illiquid". Bankers therefore treat such people as "unbankable" (from Wiki on micro-credit).Exactly a century ago, Cemex became the first Mexican cement producer. In 2000, Cemex became the largest cement producer in the world beating out France's Lafarge and Switzerland's Holcim. Although the Cemex market profile has changed over the last hundred years, its early success came from their ability to serve micro-markets -- selling a bag at a time to poor folks.
In a micro-market like this, a homeowner who lacks a title to his house and property (an "informal" homeowner) but has a bit of extra cash, might buy a single bag of cement and a dozen cement blocks and use it to add a few square feet to a house wall. Finishing the house often takes years, but in the end he has a real house. And like 55% of all American wealth, this is where he saves -- he lives in his savings "account."
Cemex mastered this part of the market and has prospered. But poor homeowners throughout the developing world remain poor because their savings account is frozen and so they can't leverage their property. Unlike Americans, these informals have no diversity in their savings. Informal shelter, and the cottage industries they often house, are nearly always their total savings. And also unlike Americans, their savings - their capital - can't be used to back up a credit card or get a home improvement loan. An informal homeowner can't even make a contract with a utility company to deliver electricity or water since the utilities have no way to know who owns the house so have no certainty of being paid.
As a result of this capital being "dead" -- that is, their savings are illiquid -- the potential market it represents is rarely considered by multinational businesses. And when they do think about it, they usually conclude that there isn't a viable strategy to open it widely to their products.
But this market could be enormous. It wasn't long after the collapse of the tech stocks that a new conversation started in the business community; "What," they asked, "is the next big thing?" Well today, these informals hold one of the largest discrete pools of capital ever accumulated. But it is not on anyone's radar screen since these frozen savings are held by the world's poor and so they are relegated to the margins of this conversation despite its enormous size.
Nevertheless, this capital is there and eager to enter the global marketplace if only it can be unlocked. So let me propose a "key" for opening the market and then suggest ways for businesses to help facilitate it.
Unlocking Frozen Capital
Several years ago, the World Bank acknowledged that there was a large "informal" (extralegal) business sector in all developing countries. It was not made informal by tax avoidance but by bureaucracy avoidance (see Doing Business 2004). Ongoing research into the structure of these informal economies reveals the legal, regulatory and bureaucratic barriers for small businessmen and homeowners which block their entry into the formal economy. In fact, these barriers impede modernization for the entire society and render futile the various efforts of aid organizations to significantly reduce poverty. This failure compels poor countries to become dependent on outside sources of capital (commercial loans, government debt and foreign aid).
The article also notes that
A billion or so poor families and hundreds of millions of informal businesses yield trillions in this "dead capital" (Adam Smith's term). Six years ago, one well-respected researcher published an estimate that this dead capital was worth nearly ten trillion dollars globally. By comparison, the total loss of market capitalization in the 2001 "tech bubble" crash was just over four trillion dollars.
Brief summary then, there are vast untapped pools of capital in the third world. If someone could un-freeze them then it could allow poorer countries to industrialize and solve their own problems.
So those are some of the more dramatic problems, and potential solutions I see in third world poverty. What are your thoughts, what other problems are there, will my solutions work, what are some other solutions?
