Development Channel

As protestors from Kiev to Khartoum to Caracas take to the streets against autocracy, a new book from economist William Easterly reminds us that Western aid is too often on the wrong side of the battle for freedom and democracy.  In The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor, Easterly slams the development community for supporting autocrats, not democrats, in the name of helping the world’s poorest. Ignoring human rights abuses and giving aid to oppressive regimes, he maintains, harms those in need and in many ways “un-develops” countries. The Tyranny of Experts takes on the notion that autocracies deliver stronger economic growth than freer societies.  Easterly argues that when economic growth occurs under autocratic regimes, it is more often achieved at the local level in spite of the regime’s efforts.  In some instances, growth under autocracies can be attributed to relative increases in freedoms.  He points to China as an example of this, attributing the country’s phenomenal growth to its adoption of greater personal and economic freedoms, especially compared to the crippling Maoist policies of the past. Easterly also rejects the myth that dictators are dependable and that a certain level of oppression should be overlooked for the sake of economic growth and overall prosperity. Most recently, the violence and chaos following the 2011 Arab uprisings has made some nostalgic for the stable, if undemocratic, governments that kept civil unrest in check, allowing for a measure of economic development to take hold. Easterly stresses that instability and tumult in the wake of ousting a dictator is not the fault of an emerging democracy, but instead an understandable result of years of autocratic rule. The answer is not to continue to support autocrats in the name of stability, but rather to start the inevitably messy process of democratization sooner. Easterly is of course not the first to call attention to the importance of prioritizing rights and freedoms in the development agenda. Scholars from Amartya Sen to more recently, Thomas Carothers and Diane de Gramont, have also advocated for a rights-based approach to development. In Pathways to Freedom: Political and Economic Lessons From Democratic Transitions, my coauthors and I similarly found that economic growth and political freedom go hand-in-hand. Still, the hard questions remain: how to help those without economic and political freedoms?  And when should donors walk away from desperately poor people because their government is undemocratic? Easterly argues that the donor community should draw the line with far more scrutiny than it does today – not just at the obvious cases, such as North Korea, but with other undemocratic countries, such as Ethiopia, where human rights abuses are rampant. He debunks the notion that aid can be “apolitical,” arguing that it is inherently political: giving resources to a government allows it to control and allocate (or withhold) resources as it sees fit. The aid community should focus on ways to help oppressed populations without helping their oppressors. For example, scholarship programs, trade, and other people-to-people exchanges can give opportunities to people in need. At the very least, Easterly argues, development actors should not praise oppressive regimes or congratulate them on economic growth they did not create. Rather than being seduced by “benevolent dictators,” Easterly urges donors to focus their energy on “freedom loving” governments that need help. The Millennium Challenge Corporation is a step in the right direction but, as Easterly pointed out during the CFR meeting, MCC’s approach is undermined by other U.S. aid agencies, such as USAID, that continue to assist countries even when they don’t meet certain good governance and human rights standards. Easterly also emphasizes the need for aid organizations to be more transparent about where their money is going. Robert Zoellick made strides in this direction during his tenure as World Bank president. But more recent developments suggest that the Bank still has a way to go in becoming more open and accountable.  (Easterly noted that an initial invitation to speak about The Tyranny of Experts at the World Bank was later rescinded for “scheduling reasons.”)

Last week, the world celebrated the 106thInternational Women’s Day. This year’s theme, "Equality for Women is Progress for All," called attention to the strides that women have made toward gender equality. Yet despite important gains, women remain less likely than men to be educated, have access to healthcare, or hold political office. No country in the world has achieved gender equality in economic terms, with women lagging behind men in income, access to resources and credit, and employment opportunities. Studies show that even without taking gender into account, access to credit is the greatest obstacle that small and medium sized enterprises (SMEs) face in growing. For women, viewed by banks and investors as “riskier” clients, the struggle for credit, capital, and financial services is even more difficult. Although SME financing exists in a number of developing economies, women--who run more than a third of formal SMEs globally—still struggle to reach capital, capacity-building, and other services their businesses need to thrive. The International Finance Corporation estimates that there is a $285 billion financing gap for women-owned SMEs functioning in the formal sector of developing economies. In an effort to help address this problem, Goldman Sachs and the World Bank recently launched the world’s first-ever global financing fund focused on providing women-owned SMEs with access to capital. The fund, known as the Women Entrepreneurs Opportunity Facility, aims to raise $600 million to provide 100,000 women entrepreneurs with access to the financial resources and education they need. Goldman Sachs is one in a growing group of firms that recognizes the economic gains of bringing women into the formal financial sector.  At present, many women-owned businesses exist in informal economic sector where enterprises are less productive, difficult to expand, and vulnerable to natural and man-made disasters.  Additionally, employees of informal businesses have little social protection or safeguards against corruption. As a recent report by Goldman Sachs’ public policy research arm, Global Markets Institute, shows, economic equality for women represents a path to economic progress for all. The report suggests that narrowing the credit gap for female business owners in BRIC (Brazil, Russia, India, and China) and the “Next 11” countries, including Bangladesh, Egypt, Indonesia, Nigeria, and Turkey, could raise incomes per capita by 12 percent or more. Some countries, such as Vietnam, could see gains above 25 percent. The public and private sectors both stand to benefit when women are able to fully participate in their economies and contribute to their communities. Providing financing for women-owned SMEs, offering platforms that encourage female entrepreneurship, and bringing women into the formal financial sector will not only spur growth but transform societies.  And as the World Bank’s recent Gender at Work report notes, this is good for everyone who cares about creating a more stable and prosperous future.

Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is from Benjamin D. Stone, director of strategy and general counsel at MicroCredit Enterprises and vice chairman of Indego Africa. Here he discusses Indego Africa’s experiences grappling with the tension between a social enterprise’s social mission and commercial goals.  Social enterprises enable people in the developing world to chart their own courses out of poverty by combining effective aspects of public and private sector ventures and harnessing market-driven forces. Yet, as I have learned through my work at the nonprofit social enterprise Indego Africa (IA), appropriately balancing a social enterprise’s social mission and commercial aspirations is immensely challenging. Based on my experience, when these prerogatives conflict, a social enterprise must ground decisions in a consistent long-term vision. Launched in 2007, IA partners with over 500 female entrepreneurs who operate within small for-profit businesses in Rwanda called cooperatives. IA connects these women with global markets by selling their jewelry, accessories, and home décor on IA’s online store, to boutiques and stores worldwide, and to major brands in the United States. The revenue covers IA’s operational costs, including raw materials, shipping, fair-trade wages for the artisans, and employee salaries. The remaining money is pooled with donations and grants to fund training programs for the artisans in business, literacy, and technology. IA has helped artisan partners put more of their kids in school, increase the number of meals their families eat per day, access running water, and more. But its mission goes beyond achieving temporary impact: IA aims to equip female artisans with the skills and confidence they need to compete in the global markets long term, without assistance. To achieve this ambitious goal, and balance commercial and social objectives, IA started out with two rules for choosing artisan partnerships. First, IA only partnered with women who were already members of a registered cooperative, so that these women would view IA as a business partner rather than co-founder. Second, IA only partnered with women who already knew basic artisan skills to ensure that, with minimal training, they would be capable of producing complex orders on tight timetables. These rules remained sacrosanct until 2010 when two NGOs, Survivor’s Fund and Foundation Rwanda, asked IA to help twenty-five remarkable women from the Kayonza district of Rwanda start an artisan cooperative. The women were all mothers of children conceived by rape that occurred during the 1994 Rwandan Genocide. Most were poor, illiterate, HIV positive, and did not know how to sew or weave. Even in the face of such difficult circumstances, these women were determined to give themselves and their children a better life. Despite its two rules, IA agreed to take on the challenge. IA helped the women build a cooperative, named Abasangiye, and conducted business and literacy training. IA also went beyond normal practice by subsidizing the cost of Abasangiye’s rent and transportation, and hiring women from another cooperative partner to teach Abasangiye artisans how to sew. The extra investment paid off: the women completed a stream of profitable orders for several major brands, including Nicole Miller, J.Crew, DANNIJO, and Anthropologie. Many started to learn English. Two of Abasangiye’s members were selected to attend the Goldman Sachs 10,000 Women program at Rwanda’s School of Finance and Banking and later joined seventeen other IA artisan partners as graduates of the school’s expedited MBA program. Out of the twelve cooperatives IA works with, Abasangiye remains the only one formed by IA because the financial cost and time required to launch it are too high to replicate. But making this exception to IA’s partnership rules reinforced the organization’s long-term vision. Although the women of Abasangiye still have many challenges ahead, they are increasingly engaging the global markets on their own terms as confident, empowered businesswomen. In other instances, IA has found it more sensible to uphold its self-imposed rules. In 2011, a prominent international retailer offered to make a large order that would have required IA to take a significant financial loss, but that would have allowed one cooperative partner to earn more money in one month then they might normally make in six. It was an enticing offer: great income for the artisans and terrific brand exposure for IA. Accepting the offer, however, would have damaged IA’s balance sheet and undermined its core vision by settling for a one-time profit for the women instead of taking a sustainable business approach to empowering entrepreneurs. IA declined the order, and its savvy artisan partners supported the choice. And the decision paid off. IA is now a renowned lifestyle brand facilitating profitable and consistent orders that give artisans the revenue and experience to achieve long-term success. Tension between a social enterprise’s social mission and commercial goals is a healthy byproduct of the public-private hybrid approach. During these times of ambiguity, social enterprises must rely on a consistent long-term vision for guidance. It is this approach that I hope will allow IA to have lasting impact that endures for generations.