7.5: Alternative Economic Development Policies for the Poor

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Many international top-down programs are not effective. One example of what not to do: In 2007, the U.S. Agency for International Development admitted to Congress that 95% of its budget to fight malaria had gone for consultants and overhead.

Many government programs are wasteful and corrupt, but some are effective. In Malawi, the government disregarded Washington Consensus policies against subsidies and gave one bag each of free fertilizer to small farmers, increasing agricultural production. In Brazil, the Bolsa Familia (family allowance) plan gives cash to poor families if their children attend school and get vaccinations and regular health checkups. Based on the earlier Mexican Oportunidades program, it has successfully cut poverty, improved the education levels of the country and been copied in many other countries. Meanwhile, in India the Aadhar program of biometric identification and ID cards has simplified giving help to the poor and cut out corrupt middlemen.

Other programs defy the conventional wisdom of using large-scale top-down foreign aid dispensed through governments. One bottom-up is a program of micro-loans to the poor, most notably by the Grameen Bank in Bangla Desh. The idea is to lend small sums, typically less than $100, to individuals to start small businesses. Most of the loans go to women, who will spend the money to grow the business in order to send their children to school, rather than men, who may buy new motorcycles or drinks for their friends. The borrowers must develop business plans and are organized into groups of five for mutual support and repayment of the loans. Micro-loans have been successful, with high repayment rates and many women starting with small food stalls or single sewing machines and developing them into successful businesses. Micro-loan programs have now spread to dozens of countries. There is a lot of potential entrepreneurship out there. For instance, in villages without electricity some women sell minutes on cell phones charged with car batteries, which they recharge during weekly trips to bigger towns.

Another type of program exemplified by the NGO Oxfam works with villagers to provide more clean-burning and efficient stoves and cheap leg-powered irrigation pumps, drip irrigation and other equipment for farmers. These alternative technology and grass roots development programs are effective because they circumvent the usual corruption, high expenses and high overheads of government agencies, international organizations and large corporations.