During a recent interview with Foreign Affairs, World Bank president Jim Yong Kim was asked about the challenges to economic development and what the institution is doing about it. He responded by naming two goals: ending extreme poverty by 2030 and boosting shared prosperity. These are rather ambitious goals but if achieved would represent a significant and positive development in addressing income inequality. However, there is a more interesting point that comes up during the interview. Mr. Kim points out that twenty-five years ago Asia, East Asia, and Africa all had the same percentage of their populations living in extreme poverty. The former two have made reductions in such populations but Africa has not. How is it that a continent that receives billions of dollars in aid and investment every year, and has been for decades, is still lagging behind?
Well there are numerous reasons and collectively they add up to an argument that each region is different and the solutions we use to solve global problems truly need to vary based on those differences. Recognition of this argument leads to the growing trend of giving the power of change to those most capable of it which means tailoring solutions to populations and their environment. The shift from an aid mentality to an investment mentality is one example. Over the years, it has become plain that a Marshall Plan approach to Africa is not as effective as we would have hoped. Many African countries lack vital infrastructure and competent governance. For example, the leader of Swaziland, King Mswati III, recently announced that part of money donated for HIV/AIDS prevention will go towards what is essentially a monthly bribe of $18 to teenage girls for keeping their virginity. Clearly, not all leaders are capable of distributing aid money effectively on policies or programs supported by relevant evidence.
In addition to a lack of effective government or leader, many African populations also do not have effective political outlets to promote or demand the changes that could improve inequality. Perhaps it is time to put money in the hands of the people who need it rather than funneling it through ineffective institutions and incapable leaders. Although it is troubling that such conditions exist, they present an opportunity for individuals to take control of their lives and feel empowered to make changes. This does not mean that international institutions or donors abandon them to their own devices but rather they contribute in a more productive manner. One suggestion is to give people the tools they need to do things themselves. Another suggestion is to invest in or promote what works specifically for Africans living in poverty.
In regards to the first suggestion, microfinance is a popular notion. An American charity called GiveDirectly (givedirectly.org) provides unconditional cash transfers to people living in poverty. They can do whatever they would like with the money whether it is buying supplies for a store they own, paying for a child’s education, or paying medical expenses. This “bottom up” approach relies on the premise that just because someone lives in poverty, does not mean that this person is incapable of making smart financial decisions. Additionally, individuals know exactly what they need to pay for and what they are lacking to improve the quality of their lives whether that means growing their business or providing stability for their families. Similar examples include crowdfunding programs such as Kiva (kiva.org) that solicit small amounts of money from multiple contributors to create a collaborative personal loan. Cash transfers and microfinance are also suitable ways to improve income equality because they are easier to facilitate than fiscal or monetary policies implemented by a government. Even if the government is relatively stable with a sensible leader such policies are still time consuming, often require approval from legislative bodies, and sometimes end up only being beneficial for one subset of the population which doesn’t necessarily curb income inequality.
The other suggestion mentioned is to do what works for Africa. Let us assume that someone has a steady job, has started their own business, received a cash transfer or loan, or all of the above. There is a factor unique to poor populations that represents another obstacle to income equality and that is poor financial infrastructure. In the United States, I have access to credit, insurance, and a variety of institutions that can provide them. Not only that, but like many other Americans I constantly receive credit card offers in the mail and see advertisements for banks and financial services. Poor populations do not always have these resources at their disposal or if they do, they are not fully aware of it because the resources are not advertised to those living in poverty. Microfinance is an option but if someone living in poverty begins to make money, that person should have the opportunity to save or invest that income.
How do we make this possible? Of course, financial reforms, improving banking systems, and building infrastructure can do this but those are difficult and time consuming solutions. In the meantime, technology offers innovative options such as mobile finance. M-Pesa is a mobile-money popular in Kenya and Tanzania that that facilitates cash transfers over expanding personal networks as well as remittances, an important contribution to many impoverished people’s incomes. Such programs also help individuals make payments and even sends texts to remind people to save. In regions where families live in different areas and travel is difficult or time consuming, digital banking provides people with options to lend to each other in times of need, make payments for their business, or keep track of their savings. Even if the country itself lacks solutions, it does not mean there are none. Investing in options like mobile finance is an effective way for local or foreign donors to effectively assist disadvantaged groups.
In response to a question about inequality, Mr. Kim says, “The world has changed. Even very poor people are more empowered and demanding more. This is happening everywhere.” He is right. More and more people are not only recognizing that they are poorer than others, but that they have the power to make significant changes to their situation. Furthermore, income inequality affects both developed and developing nations but the measures taken to improve the same predicament should be different for different regions. By acknowledging this, those focused on the global problem and those afflicted can improve it. Just as important, those who influence the economy and thus the country demand the attention of decision makers. They can use this attention to campaign for improvements in other types of inequality as well.
By Megan Foster
Photo Source: http://theconversation.com/south-africa-will-remain-a-hugely-unequal-society-for-a-long-time-25949
