Inequality

Emerging Voices highlights new research, thinking, and approaches to development challenges from contributing scholars and practitioners. This post is from Dr. D. Michael Shafer, president and founder of Warm Heart Worldwide and professor emeritus of political science at Rutgers University. Warm Heart is a community-based development organization dedicated to building socially- and economically-sustainable communities in rural areas of northern Thailand. Though a monumental step forward on climate change, the Paris Agreement fails to recognize one of the biggest climate change issues for developing countries: agriculture. Poor farmers’ dependence on unsustainable planting, cultivating, and harvesting techniques make them unwitting contributors to global warming by emitting black carbon and greenhouse gases (GHGs). This problem extends beyond China and India (the Paris deal’s focus) to places as diverse as Indonesia, Cameroon, and Iran. By burning field wastes, poor farmers release up to twenty-five percent of the world’s total of “black carbon”—clouds of smoke that count as the second-largest warming source after CO2—emitting 330,000 metric tons every year. And rice growers in impoverished and densely-populated areas produce high levels of methane, a hydrocarbon gas twenty-five times as warming as CO2. Traditional flooded paddy techniques account for up to fifteen percent of total GHG emissions from agriculture. These agricultural practices are bad for the environment; they are also bad for people. Degraded soil yields barely enough to feed a family. To double the global food supply by 2050—necessary to avoid shortages and malnourishment, especially in developing countries—traditional farmers will need to improve land use and water management, and adopt new seed, harvesting, and storage technologies. The good news is that solutions to reduce poor farmers’ global warming footprint and improve productivity already exist. First, they can learn to convert their agricultural waste into biochar and then into biochar fertilizer. Agricultural biochar is a “super charcoal” made by pyrolyzing (charring) rice straw, corn cobs, or maize stalks at high heat without any oxygen, a clean process that is also carbon negative—meaning it removes CO2 from the atmosphere and cools the earth instead of warms it. Making biochar is low-cost and low-tech, and its positive effects go beyond climate change mitigation to food security and health more generally. Poor farmers can use biochar as an additive to improve soil’s water penetration and retention—essential as drought conditions spread—to reduce acid levels, and to boost soil fertility. Biochar also aids in decontaminating soil near landfills, toxic waste dumps, and mines—areas where poor farmers are often relegated. For families lacking clean water access, biochar works as a natural water filter. Second, rice growers can switch from standard flooded paddy techniques to a method known as “system for rice intensification,” or SRI. Rather than flooding the paddy for an entire growing season, SRI involves regularly draining and drying out the paddy, refilling it only when the rice begins to wilt. And instead of transplanting seed bundles from the nursery to flooded paddy mud, rice growers plant individual seedlings in orderly rows. Though SRI requires more labor than traditional rice cultivation, it pays more dividends. Because SRI paddies are mostly dry, they reduce the methane released into the environment. SRI can also increase a farmer’s yields by as much as fifty percent, and reduce water needs by forty percent. Yet many poor, rural farmers are not aware that these solutions exist, for several reasons. They may be skipped over by development programs that test innovative projects in select locations—often those most likely to yield results. Others are distrustful of “development” advice from outsiders, so that even when biochar or SRI programs make it to their villages, they fail to take off. So what can work? Agricultural development in poor, rural farming communities that is spread by example. Farmers are more likely to try something when they see another’s success. Grassroots programs such as Digital Green do this by producing short, instructional videos that film poor farmers using simple, easily-replicated, and low-cost techniques. With little more than a tiny, battery-powered projector, Digital Green then shares the videos with women’s co-ops and other community members—ninety percent of whom adopt the innovation, compared to a ten percent adoption rate for expert-led trainings. From a climate change perspective, the benefits of cleaner, more productive, and more sustainable agriculture in poor, rural areas will be striking and immediate. Switching from burning field waste to making biochar would significantly reduce the amount of black carbon and CO2 equivalent released into the atmosphere each year, as well as their warming effects. And switching from flooded paddy to SRI could cut total methane emissions from rice production by between twenty-two and sixty-two percent. Converting just a quarter of Asian rice growers, who produce roughly ninety percent of the world’s rice, could reduce GHG emissions by 3.8 percent annually—nearly Japan’s annual contribution to global GHG emissions. From a human development perspective, the changes will also be immense, helping to feed the estimated 2.5 to 3 billion people the world will add by 2050. Most importantly, limiting poor farmers’ global warming contribution and improving the health and wellbeing of millions will not require expensive overheads, long-term aid interventions, or complicated, high-tech innovations. But it will require considering agriculture as vital to any climate change solution.    

Central America’s Anticorruption Support The presidents of El Salvador, Guatemala, and Honduras were in Washington to discuss plans for the $750 million that Congress authorized to help their nations take on violence and boost economic development. The outlay comes in the wake of a record uptick in Central American migration to the United States. Nearly 3 million people have fled their homes and neighborhoods, including 100,000 unaccompanied minors who arrived at the southern border between October 2013 and July 2015. The U.S. funding requires Northern Triangle governments to address myriad domestic problems, including strengthening legal systems, protecting human rights, and rooting out corruption. U.S. anticorruption efforts will be met with broad civil society and multilateral support, dovetailing with grassroots campaigns against graft and high-level impunity in Honduras and Guatemala, and furthering the resolve of multilateral-backed bodies such as Honduras’s new Mission Against Corruption and Impunity (MACCIH). The UNDP at Fifty The United Nations Development Programme (UNDP), the multilateral’s agency dedicated to reducing poverty and inequality, turned fifty on Wednesday. Since its founding, the number of poor dropped from one in three to one in eight people globally. UNDP helped spur these positive changes through its work in 170 countries and by rallying members to make ambitious commitments through the Millennium Development Goals (MDGs) and new Sustainable Development Goals (SDGs). But development aid is changing. Though worldwide government spending reached a $134.7 billion peak in 2013, it is far short of the UN’s 0.7 percent of gross national income (GNI) target, with a rich-country average closer to 0.39 percent. And Western governments are increasingly turning their attention and dollars to security assistance. The OECD recently widened the definition of aid to include military spending in fragile countries, and the United States is allocating more foreign assistance to programs such as Countering Violent Extremism (CVE). UNDP and other believers in traditional economic and social development worry this shift will not only slow, but undermine decades of gains. Foreign Bribery Actions Up Though only settling two Foreign Corrupt Practices Act (FCPA) cases last year, the U.S. Department of Justice (DOJ) is ramping up foreign corruption prosecutions. Dedicated staff will rise by 50 percent from nineteen to twenty-nine prosecutors this year, and an assistant attorney general recently announced many pending cases. Meanwhile, foreign authorities are also upping their actions. The UK just convicted its first corporation under the five-year old Bribery Act, finding Sweett Group guilty of paying bribes to secure construction contracts in the UAE. The $3.3 million fine follows a $25.2 million settlement with the British outpost of South Africa’s Standard Bank last December for illegal payments in a Tanzanian infrastructure project. The UK law goes even further than the FCPA in scope, holding companies accountable not just for giving or taking bribes, but also for failing to prevent bribes, as Sweett Group discovered.  

This post features a conversation with Dean Karlan, professor of economics at Yale University, president and founder of Innovations for Poverty Action, and founder of ImpactMatters, a newly-launched organization that assesses how well nonprofits use and produce evidence of impact. 1) How have development economics and the study of poverty evolved in recent years? Until about fifteen years ago, there were two different strands of development work, both with limitations. The first asked a big, monolithic policy question—“does aid work?—and compared how aid affected development outcomes across countries. But the cross-country research lacked the necessary data and an understanding of critical micro-level mechanisms, or the obvious first step of why some countries get more aid than others. It led to big debates, but failed to determine causality. The other strand in academia focused on understanding markets and decision-making at the individual and household-level, an approach that was valuable for understanding the world, but was often fairly removed from policy implications. Then, we saw major shifts with the availability of cheaper and better data, and intensified pressure on development economists to deliver policy prescriptions. These shifts allowed us to rigorously evaluate specific projects to find out what was working, what was not, and what to do about it. Perhaps as a byproduct of the cross-country data debate, development economists started focusing on asking when aid works, not whether aid works. The point being: there is no simple answer. This led to a blossoming of work using randomized control trials (RCTs) to test specific policies on the ground with NGOs, the private sector, and governments. We also began to see academic analysis that was more prescriptive than descriptive, and could help to guide policy.   2) In your randomized control trials (RCTs), what were some surprising findings about what’s working and what’s not? Several hot development debates have led to surprises. But, of course, since these were “hot debates,” some were surprised while others were not. Microcredit is a perfect example. Some oversold microcredit as the tool to fight poverty and to increase income for the world’s poorest, benefiting low-income households, which would ultimately lead to better healthcare and education. On the other side, critics claimed that it led to negative outcomes, such as suicides among poor farmers who could not repay loans. Despite anecdotal evidence, there was equally bad analysis on both sides and neither could establish causality, or prove what would have happened if people had not received the loans. There was no counterfactual, as economists call it. Wading into the debate using evidence, we saw strikingly similar results from seven RCTs across seven countries, several of them conducted by researchers with Innovations for Poverty Action. The punchline: microcredit loans were not typically reaching world’s poorest, and they were not increasing income on average. So, they were not meeting their main goal (though they were not causing much harm either). Once we saw the evidence, we said: “we’re a fan of microcredit, but as it’s currently done, it’s best for private investors, not for donors.” Donors should either look elsewhere or use their charitable dollars to push for more innovation, to figure out how to improve the microcredit model.   3) So what is an effective investment for donors? After we found that microcredit is not reaching the world’s poorest, donors asked us: what might? Through RCTs we found one approach that works quite well to move people out of poverty: a graduation program. At its core is the transfer of a “productive asset”—a way to make a living that has a positive impact on household consumption, savings, income, food security, and other life outcomes even years after the initial asset transfer. We have completed six RCTs on graduation programs in six countries (Ethiopia, Ghana, Honduras, India, Pakistan, and Peru). Other researchers completed a seventh in Bangladesh, and there are several similar studies from Uganda. The program first gave the asset, along with training on how to use it. We also set up a savings account, provided healthcare access, offered life coaching, and supplied food for up to six months (so recipients wouldn’t be forced to kill and eat livestock right away). Because graduation programs are expensive, at around $1,000 per person, our research focused on cost effectiveness. We had no doubt the program would create a bump in income, but would it last? In six of the seven RCTs we found strikingly similar results proving both cost effectiveness and a sustained impact—up to three years after assets were transferred in all of our RCT sites. In one of the sites, India, where we now have seven years of results, the effects are getting bigger over time rather than dissipating. This trend suggests that those in the graduation program were previously stuck in a poverty trap, and that a holistic and integrated approach combining income with social and economic support helped to get them out of it.   4) What have you found on cash transfers, another area of growing interest and investment? The most prominent study Innovations for Poverty Action did on unconditional cash transfers (UCTs) was with GiveDirectly, a nonprofit that does exactly what it says. They donate 91 cents of every dollar to poor households using mobile money for the transfers, which makes for a low-cost, lean operation. People critical of this approach at first were concerned that money would be used for alcohol and tobacco, rather than for food and other necessities. We said, “let’s go get the facts,” and set up a carefully-designed study. Our randomized evaluation found that households receiving cash transfers spent them on food, education, and medical expenses, as well as on family obligations, resulting in higher assets and better psychological well-being. There was no increase on alcohol and tobacco spending. Yet even with evidence of positive outcomes, we are seeing that cash transfers work best for short-run problems—catastrophes or conflicts where the challenge is not long-term development. They work best for helping people in a moment of need.   5) What do you say to RCT critics who argue they are too expensive, or take too long? First, it is critical to note that randomization is not the reason RCTs can be expensive (and I’ll explain why they are not always). Costs are driven by tracking and surveying people over time to see if the program affected lives, which is necessary even for non-randomized studies. While RCTs are more expensive than simple studies that ask beneficiaries—“were you happy with the program?”—I would argue that overall they are far cheaper than non-RCT evaluations, because they allow us to zoom in on what is working and what is not much faster and more accurately, ultimately saving money on bad measurement and ineffective programs. RCTs allow the testing of multiple versions of a program at once, too. For example, in Uganda we tested four variations of a classroom savings program, and found that three that did not work, but one did. The variations shed insight into why the program was working. Regarding timing, it is also critical to point out that an RCT need not be a long-term study, nor does it need to be expensive. We have done cheap, rapid-fire tests on getting people to save more by sending text messages reminding them to save, and a few months later, comparing savings rates for those that received the messages versus those that did not. Many operational questions, such as how to enroll people in a program, can and should be rapid-fire studies to give immediate feedback that improves operations. For example, MIT’s Abdul Latif Jameel Poverty Action Lab just released a toolkit that helps organizations run RCTs through data they may already be collecting. Full, long-term RCTs aren’t always appropriate. But when they are, getting good data that both establishes causality and illuminates why something works can put programs on the right track to maximize impact, and save money in the long run.

Modi’s Reforms at Odds A senior official in Indian Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) is pushing a corruption probe that threatens to derail his own party’s Goods and Services Tax (GST). A linchpin of Modi’s economic platform, the reform would replace numerous local and state taxes with a single nation-wide tax. The government expects GST to boost government revenue, attract foreign investment, and add up to two percent to GDP. With the corruption case’s targets—opposition Congress Party leaders Sonia and Rahul Gandhi—denouncing the investigation as politically motivated, the fallout will likely halt Modi’s tax reform in India’s opposition-led upper house. As the Gandhi case advances, the GST may not, putting Modi’s ambitious pro-business and anticorruption agendas at odds. Does the WTO Still Matter? This week’s failure to advance the Doha Round of trade talks further diminishes the World Trade Organization’s (WTO) clout in setting global trading rules. Stuck for over a decade on issues of market access for poor countries and sharing globalization’s gains more equally, the United States and others have already refocused their energies on bilateral and regional trade agreements (RTAs)—completing nearly two hundred such deals during fourteen years of Doha negotiations, most recently the Trans-Pacific Partnership (TPP). U.S. Trade Representative (USTR) Michael Froman made the shift official this week, publicly calling for WTO members to move beyond Doha. Where the WTO’s strength remains is in trade dispute resolution as businesses and nations still turn to it for arbitration. Last week alone, the WTO ruled in favor of Canada and Mexico against U.S. meat labeling with up to $1 billion in damages, and the United States lodged a formal complaint against China for discriminatory aircraft pricing—reflecting the WTO’s evolution from setting the rules to enforcing them. New United Nations Development Report The 2015 Human Development Index (HDI) released this week reflects on the report’s twenty-five year history, with the United Nations Development Program (UNDP) finding that living standards improved for two billion people as dozens of countries climbed the development ladder. Measuring income, life expectancy, and education across 188 countries, Norway leads and Niger lags in the HDI, while Rwanda and China are most improved overall since 1990. Focused on “work for human development,” this year’s report argues for employment’s broader value, offering not only economic but development gains. It also illuminates the still major challenges—the 21 million people in forced labor, 74 million unemployed youth, and the threat to whole categories of workers from technological change.

CFR’s Civil Society, Markets, and Democracy (CSMD) Program highlights noteworthy events and articles each Friday in "This Week in Markets and Democracy.” Africa’s Governance and Economic Struggles New IMF data and the 2015 Ibrahim Index of African Governance (IIAG), both released this week, show stalling or declining economic growth and governance progress across the continent. Despite better health, education, and human development statistics, IIAG found backsliding in accountability and rights, with thirty-one out of fifty-four countries deteriorating. Africa’s business environment—measured as competitiveness, bureaucracy and red tape, and investment climate—scored the lowest and fell the most of any category since 2011. The IMF echoed these gloomy metrics, projecting sub-Saharan growth to slow to 3.8 percent in 2015, hit by an overreliance on commodities. Both sets of data make clear the interdependence of governance and economic growth. The lowest-scoring countries on IIAG’s business indicators—including Eritrea, Somalia, South Sudan, Sudan, and Equatorial Guinea—also ranked among the worst on rights and participation. And Côte d’Ivoire, ranked as IIAG’s “most improved” based on its aggregate governance score is among the few sub-Saharan countries expected to post high growth through 2017. Post-Disaster Aid: When it Works, When it Doesn’t Nearing the six-month anniversary of Nepal’s devastating earthquake that killed more than 8,500 people, comparisons to other natural disaster relief efforts highlight the potential pitfalls of aid delivered in a governance vacuum. Thailand’s post-tsunami recovery fared well relative to others—the country’s centralized (albeit authoritarian-leaning) leadership owned the response, mostly relying on technical rather than financial assistance. In contrast, Haiti remains a cautionary tale—despite some $9 billion in relief aid 150,000 Haitians still live in “temporary” camps and the government remains fragile, as witnessed in the recent chaotic and violent parliamentary contest. Nepal appears to be heading on a similar route with the government yet to draw up a plan for spending $4.1 billion in international donations, even as three million survivors lack shelter, food, and basic medical care in one of the world’s poorest countries. With the new constitution in dispute, a political crisis brewing with India, and a worsening fuel shortage all costing the economy an estimated $1 billion, reconstruction will likely be delayed further. What We’re Reading on the TPP Agreement… This week twelve countries, representing 40 percent of the world’s GDP, signed onto the Trans-Pacific Partnership (TPP). Now experts are chiming in on the many potential effects for participants: Kimberly Ann Elliott from the Center for Global Development summarizes the TPP’s impact for developing countries: cutting agricultural subsidies and expanding access to capital controls may help poorer members, but concerns over rules of origin and intellectual property rights linger. Siddhartha Mahanta finds the changes to the heavily-criticized investor-state dispute settlement process important, saying they may “strike a blow to corporate impunity”—especially cases brought by tobacco companies against smoking bans. As the TPP deal closed, the World Bank announced that extreme poverty will drop below ten percent globally in 2015. John Cassidy argues that trade helped lift 1.3 billion people out of poverty, even as it increased inequality within countries. Fellow CFR expert Ted Alden says that a TPP deal reasserts U.S. leadership in global trade negotiations and strengthens its influence over future rules.    

The biggest achievement of the past week’s United Nations General Assembly (UNGA) in New York was the adoption of a new fifteen-year plan for global development. Replacing the soon-to-expire Millennium Development Goals, seventeen new Sustainable Development Goals (SDGs) will guide UN and domestic development policies through 2030 with an ambitious, and some say overly idealistic agenda. Based on UN member and civil society input over a three-year process, the final set of SDGs aims to eliminate hunger, reduce inequality, promote shared economic growth, and “end poverty in all its forms everywhere.” President Obama, UN Secretary General Ban Ki-moon, and Pope Francis all endorsed the new “global goals” during the three-day UN Sustainable Development Summit held in the run-up to UNGA. Here are two major takeaways from the summit: The Global Goal of Good Governance One of the more controversial global goals is SDG 16, which promotes inclusive, accountable institutions and includes twelve specific targets on anti-corruption, representative decision-making, access to information, and the rule of law. With a UN-led global survey of over eight million people ranking governance as a top priority (the second most popular answer in low-income countries), leaders incorporated it into the SDGs despite “adamant resistance.” While many, including U.S. policymakers, support the citizen-led goal, others point to the ambiguity over what “good governance” means, owing to differing perceptions between developed countries and poorer ones. Further, defining and measuring corruption remains difficult, with no standardized cross-country metrics. While polling data propelled governance onto the SDG agenda, citizen participation may also determine whether goal 16’s accountability objectives are achieved. Financing the Global Goals The SDGs now set, the development community must find ways to pay for them as costs are estimated to run $3 trillion a year or more. With private capital as a growing funding source—foreign direct investment (FDI) outpaced government-led assistance by about five times last year—the UN and domestic donor agencies embraced multinationals during the summit. A “UN Private Sector Forum” convened business leaders including Unilever’s Paul Polman, Facebook’s Mark Zuckerberg, and MasterCard’s Tim Murphy with German Chancellor Angela Merkel and Oxfam International’s Winne Byanyima to discuss SDG priorities. Many pitched a win-win “business for good” model that stimulates domestic economic growth and cuts poverty while expanding the customer base. Yet others highlighted the limits of private investment—UNGA President Mogens Lykketoft pointed to the failure of big corporations and wealthy individuals to pay taxes. Next week rich countries may advance this conversation with new international rules to govern multinationals.

This Week in Markets and Democracy will return on August 28. Until then, here is what CSMD is reading this week. The World Economic Forum identifies ten trends that will shape the future role of civil society—new technology and a focus on inequality topped the list. Economist Dani Rodrik argues that emerging markets are facing a slowdown because they did not follow the fundamental rules of growth, and failed to undertake the necessary political and structural reforms. In light of China’s recent devaluation, Shawn Donnan of the Financial Times looks at currency’s changing role in trade. As economies become more integrated into global supply chains, fluctuations matter less. In a new report, Transparency International concludes that half of the forty-one parties to the Organisation for Economic Cooperation and Development (OECD) Convention on Combating Foreign Bribery have not prosecuted any foreign bribery cases since signing the agreement.

This is a post in a new series on the Development Channel,“This Week in Markets and Democracy.” Each week, CFR’s Civil Society, Markets, and Democracy Program will highlight noteworthy events and articles. Calais Crisis: Europe’s Migration Woes The escalating Calais crisis underscores Europe’s serious migration challenges. Thousands of African and Middle Eastern migrants are camping in makeshift shelters on the French side of the Channel Tunnel and risking their lives in desperate attempts to cross into Britain. In response to Calais and similar scenes playing out across Europe, growing anti-immigration rhetoric blames migrants for taking native-born citizens’ jobs and draining government funds. Yet a study by Oxford’s Migration Observatory finds migrants may actually raise average wages for the UK’s medium and high-paid workers. (Those most adversely affected by UK immigration are likely migrants themselves, who tend to be low-wage workers facing increased labor supply). And as the EU ages and birth rates decline, migration will be vital to maintaining GDP growth and standards of living. Europe is expected to lose nine million workers by 2060. In Germany, the IMF warns that starting in 2020, growth will take a hit due to an aging population. From Calais to the Greek islands, governments are struggling to deal with short-term migration costs without losing sight of longer-term economic needs–the balance will require more cohesive EU migration policies. Time for TPP Deal Running Out Domestic interests prevented the twelve Trans-Pacific Partnership (TPP) members from reaching a final deal last week in Maui, and upcoming elections in two TPP countries threaten further derailment. Who’s to blame? Australia’s farmers want more access to the heavily-subsidized U.S. sugar industry. Mexico, a major auto exporter, made new demands on rules-of-origin for car parts. And the United States is fighting for long-term pharmaceutical patents opposed by all other members, especially developing countries. While U.S. Trade Representative Michael Froman is “more confident than ever that the TPP is within reach,” Canada’s eleventh-hour holdout on dairy concessions, coming as the nation heads toward October elections, undermines that bravado. With other TPP members seeing the dairy issue as non-negotiable, Canada could potentially opt-out or be kept out of the agreement. And even if Canada comes around, TPP pessimists–who note that the stalled Doha Round of trade talks broke down over similar agriculture and intellectual property disagreements–worry that looming U.S. elections will push a deal beyond 2016. Post-2015 Agenda – Moving from Rhetoric to Reality One hundred and ninety-three countries reached final agreement on the Sustainable Development Goals (SDGs) this week, sealing the post-2015 development agenda the UN will adopt in September. Many civil society organizations and governments praised UN member states for reaching consensus on seventeen goals that aim to eradicate poverty “in all forms everywhere,” among other ambitious targets. Advocacy groups celebrated the addition of next generation development issues with increasing global relevance, from ending modern slavery and human trafficking to acknowledging the significance of global migration. Still other rights groups are concerned that the SDGs’ monitoring and review process is vague and insufficient, and lacks a meaningful role for civil society. Getting from rhetoric to reality involves both financing and governance challenges. Only together can the private sector, aid donors and domestic governments raise the estimated $3.3-$4.5 trillion a year needed to fund the post-2015 agenda and guide projects necessary to meet SDG goals–these untested arrangements are already showing cracks.  

This is a post in a new series on the Development Channel,“This Week in Markets and Democracy.” Each week, CFR’s Civil Society, Markets, and Democracy Program will highlight noteworthy events and articles. Takeaways from Third Financing for Development Conference World economic leaders and civil society groups were in Addis Ababa this week for the Third Financing for Development Conference, discussing how to fund global development for the next 15 years. Most debated was international tax reform. Developing countries advocated two changes: replacing the existing OECD tax-regulating body with a UN agency (to give them more of a say), and cracking down on corporate tax evasion. Unsurprisingly, rich countries blocked the UN proposal. One issue that participants were able to agree on–the need for more accurate, real-time development data. As a first step, the U.S., U.K. and the Hewlett Foundation jointly pledged $5 million to the Global Partnership for Sustainable Development Data, launched in Addis on Wednesday. Pope Francis Takes on Capitalism, Corruption in Latin America Pope Francis sealed his status as champion of the marginalized during an eight-day tour through Bolivia, Ecuador and Paraguay. In public speeches and meetings with civil society, he decried the “globalization of exploitation and indifference,” and the ills of free market capitalism–poverty, injustice and environmental degradation. The Pope openly criticized political leaders for their role in deepening inequality, even as many tried to use his visit to boost their credibility. In Ecuador, the Pope urged President Rafael Correa to forego the short-term economic benefits of resource exploitation, responding to indigenous groups’ concerns over expanded oil exploration. In Paraguay, he called on government officials to banish corruption, the “gangrene of the people,” and to improve rule of law with “rapid, clear trials,” a nod to the country’s flawed judicial system. Though the Pope’s message was well-received in a region facing severe poverty and graft, some question bringing this anti-capitalist rhetoric to U.S. Congress and UN General Assembly speeches this fall. Egypt and China Justify Recent Arrests In the name of countering Islamic State terrorism, Egyptian President Abdel Fattah al-Sisi’s government is systematically silencing dissent. Last week’s arrests of four journalists add to the eighteen already imprisoned for allegedly “sympathizing” with the banned Muslim Brotherhood. And a new counterterrorism law that would impose draconian jail sentences on journalists who contradict government information was only amended after significant domestic and international pushback. Egypt’s “anti-terror” crackdowns echo China, where this week security services detained more than 50 human rights lawyers and activists, accused of creating “social chaos” as part of a criminal syndicate.  

Governments, civil society groups, and business leaders are gathered this week in Addis Ababa, Ethiopia for the UN’s Third Financing for Development Conference (FFD3). Up for debate is how to fund the Sustainable Development Goals, or SDGs, a new set of global development indicators that the UN will adopt in September. The Addis agenda reflects two major changes since the First Financing for Development conference held in Monterrey, Mexico in 2002. First, the good news–there has been a dramatic reduction in global poverty. Between 2002 and 2015, 28 low-income countries–as classified by the World Bank–made the jump to middle-income status. The second, less-encouraging trend is that foreign aid commitments from developed countries have faltered. Aid spending is far from the UN target of 0.7 percent of gross national product (GNP) established in Monterrey. Instead, the OECD average is closer to 0.39 percent as of 2014, ranging from 1.1 percent in Sweden to 0.08 percent in Poland and the Slovak Republic. In the wake of these trends, the Addis talks will focus on two alternative approaches—private sector investment and domestic reforms. Foreign direct investment (FDI) in developing countries already far outstrips aid flows, totaling $480 billion in 2012, compared to $90 billion in aid spending. While investment stimulates growth and creates jobs, conference participants want to ensure that FDI contributes to inclusive growth that reaches the poorest populations. One proposal at Addis seeks to end tax evasion by multinational corporations, estimated to siphon $100 billion away from developing economies each year—money that might otherwise be used for health and education, and to modernize agriculture and infrastructure. Another avenue for post-2015 development financing is mobilizing domestic resources. Developing countries can raise revenue through higher taxes–now only 13 percent of their GDPs–and improve collection through automation. Equally important is combating corruption and illicit financial flows, which deprive developing economies of an estimated $1 trillion annually. The policy recommendations adopted at FFD3 will be non-binding. But, they could help set the tone for September, when governments and the development community commit to an ambitious post-2015 agenda that aims to eradicate poverty, end hunger, and ensure water and sanitation for all. Whether the 17 proposed SDGs will be achieved largely depends on financing.            

This is a post in a new series on the Development Channel,“This Week in Markets and Democracy.” Each week, CFR’s Civil Society, Markets, and Democracy Program will highlight noteworthy events and articles. Development Community Debates MDG Report The UN released its final Millennium Development Goals (MDGs) report, hailing the effort as “the most successful anti-poverty movement in history.” Since the MDG’s introduction fifteen years ago, the number of people living in extreme poverty and the global child mortality rate have halved. Yet the development community is split over how much the MDGs mattered for this progress. The Center for Global Development warns that emphasizing goal-setting distracts from policy discussions. On the other side, proponents contend that setting data-based yardsticks and reducing the global agenda to eight priorities helped channel focus and funding. As attention shifts to post-2015 development goals, the UN report recognizes uneven gains–growth in China and India has pulled millions out of poverty while the poor in other countries have been left behind. Modi’s Heavy-Handed Efforts to Control the Indian Narrative The Indian government has delayed release of a UNICEF child welfare survey for months, some believe to avoid political embarrassment for Prime Minister Narendra Modi after his home state of Gujarat–where he served as chief minister until 2014–showed dismal results. These revelations coincide with the public ouster of Nobel Prize-winning economist Amartya Sen from Nalanda University. In a televised interview this week, Sen warned of unprecedented government interference in academia under Modi. Modi’s carefully-crafted narrative extends to social media, where his government rolled out a Narendra Modi mobile app. The app awards points for approving government policies through “likes” and sharing flattering articles about Modi–there is no option to disapprove. Reigning in Civil Society in China and Cambodia The Chinese and Cambodian governments are moving forward with proposed laws that threaten civil society autonomy. China’s NGO bill would require both foreign and domestic groups to undergo vetting by state security forces. While framed as part of a broader rule-of-law campaign, NGOs contend that it would allow the government to shut them down. In Cambodia, the draft Law on Associations and Non-Governmental Organizations (LANGO) gives the government broad powers to dissolve any organization deemed a danger to national security or to the “culture, traditions and customs of Cambodian national society.” Cambodian legislators say the bill enables needed regulation of some 5,000 civil society groups. Human rights advocates disagree–32 domestic and international groups demanded the law’s withdrawal, and protestors rallied at Cambodia’s National Assembly to block its passage.        

Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is from Gary Ford, chief executive officer of MCE Social Capital, and Benjamin D. Stone, director of strategy and general counsel of MCE Social Capital and a CFR term member. Here they discuss how loan guarantees can help unlock economic opportunities for people in the developing world. According to the World Bank’s 2015 Global Financial Inclusion Database, more than 2 billion people lack access to formal financial services, including savings accounts, insurance, and loans. Over the last two decades, microfinance has helped fill this gap by delivering credit and other financial services to low-income people, particularly entrepreneurs, around the world. As studies show, microfinance helps people build assets, manage risks and unpredictable income, and gain the freedom to decide how to make money. International NGOs, large financial institutions, government agencies, and individuals have all supported microfinance institutions with millions of dollars in grants, equity, and technical assistance. Notable in this context is the use of loan guarantees. Loan guarantees—where a third-party pledges to assume the debt obligation of a borrower—have helped people access otherwise unobtainable capital since at least early roman times. Today, many organizations like Accion International, Grameen Foundation, Shared Interest, and the United States Agency for International Development (USAID) similarly use loan guarantees to help microfinance institutions (MFIs) secure capital and prove their creditworthiness. Here is how it sometimes works: organizations like the ones listed above receive grants (or loans) from individuals or foundations in the United States. Then, working through an international bank, they use the money to back loans MFIs borrow from local banks in the developing world. The MFIs then use this money to finance microloans and other services for people living in poverty. Ultimately, the MFIs are responsible for paying back the local banks, but if they don’t, the organization, through its international bank partner, repays the local bank using the donated or loaned capital. In this way, loan guarantees can help poor communities in developing countries access money and financial services. MCE Social Capital (MCE), a U.S.-based nonprofit impact investing firm that lends directly to MFIs, innovates on this approach. Instead of upfront contributions, MCE collects pledges from foundations and individuals (its “guarantors”) to make tax-deductible contributions to MCE if (and only if) a MFI fails to repay the MCE loan. MCE pools these pledges—now over $100 million from 85 guarantors—and uses them as collateral to borrow from U.S. financial institutions, including First Republic Bank, the Overseas Private Investment Corporation (OPIC), and New Resource Bank. After a thorough due diligence process, MCE then lends to MFIs serving rural women in more than thirty developing countries. MCE’s loan guarantee model diversifies the funding of MFIs by unlocking capital from U.S. financial institutions that do not typically lend MFIs money. And by soliciting pledges rather than actual upfront contributions, MCE’s guarantors retain and continue to earn returns on their capital. With loan default rates at 0.03 percent and the risk distributed across the pool of pledges, a guarantor can facilitate millions of dollars of lending at a relatively small cost. For example, a guarantor who signed MCE’s pledge in 2006 has enabled nearly $3 million in loans into the developing world, all while making only $12,000 in tax-deductible donations to MCE. To date, MCE has funded more than 400,000 microloans and other services (health programs, insurance, savings accounts, and business training) worth more than $160 million, reaching hundreds of thousands of people. MCE is now exploring opportunities to use its loan guarantee model to tackle other market gaps, including the lack of small and medium-sized enterprises (SMEs) financing in sub-Saharan Africa, where nearly half of SMEs report lack of money as the biggest constraint on operations and growth. For thousands of years, loan guarantees have given hesitant lenders comfort to invest in potentially risky borrowers. MCE and other organizations are now adapting this mechanism to help more people and businesses across the developing world access capital and financial services.

This post marks the launch of a new feature on the Development Channel, "This Week in Markets and Democracy." Each Friday, CFR’s Civil Society, Markets, and Democracy Program, will highlight the week’s noteworthy events and articles. 1. Rampant Corruption at FIFA On Wednesday, Swiss police raided a Zurich hotel and arrested several top officials of the global soccer governing body FIFA with plans to extradite them to the United States. The U.S. Department of Justice is charging them, along with former FIFA officials and top sports marketing executives, with corruption, money laundering, conspiracy, and racketeering. “These individuals and organizations engaged in bribery to decide who would televise games, where the games would be held, and who would run the organization overseeing organized soccer worldwide,” said U.S. Attorney General Loretta E. Lynch. The Department of Justice estimates that officials received$150 million in bribes and kickbacks since the early 1990s. FIFA has long been mired in inconclusive corruption scandals. Now the United States and the Swiss government—which is investigating bribery allegations in Russia and Qatar’s bids for the 2018 and 2022 World Cups—are unveiling the rampant, systematic corruption plaguing the international organization. The arrests have received overwhelming support from the global soccer fandom. Even senior soccer officials have expressed support. In a statement, the European soccer federation (UEFA) said, “These events show, once again, that corruption is deeply rooted in FIFA’s culture. There is a need for the whole of FIFA to be ‘rebooted’ and for a real reform to be carried out.” These investigations not only offer an opportunity to clean up soccer’s international governing body, but they are also a boon for anti-corruption organizations and activists—illustrating how domestic laws and courts can help change even the most opaque and powerful international organizations. 2. FAO 2015 Report shows chronic hunger reaches record lows This week, the Food and Agriculture Organization of the United Nations (FAO) released its annual hunger report, which monitors global food deprivation and security. According to FAO estimates, chronic hunger worldwide fell below 800 million for the first time since FAO began tracking it. The FAO also reports that the majority of the 129 monitored countries achieved the 2015 Millennium Development Goal of halving domestic undernourishment. Developing regions, however, missed the MDG target, though narrowly (by less than one percentage point). FAO Director General José Graziano da Silva optimistically stated, “The near-achievement of the MDG hunger targets shows us that we can indeed eliminate the scourge of hunger in our lifetime. We must be the Zero Hunger generation. That goal should be mainstreamed into all policy interventions and at the heart of the new sustainable development agenda to be established this year." These gains are particularly impressive given they occurred in the face of economic recessions, volatile commodity and food prices, extreme weather and natural disasters, and political instability—all of which aggravate food insecurity. Yet, progress has been uneven across world regions. Over the past few decades, East and Southeast Asia as well as Latin America and the Caribbean significantly reduced hunger within their borders. Sub-Saharan Africa and South Asia, on the other hand, lag behind, and the two regions are now home to over half of the chronically hungry. Breaking with the global trend, the undernourished population in Sub-Saharan Africa actually increased by 25 percent since 1990-92. For these laggards, the FAO calls for inclusive economic growth, agricultural investments, and expanded social protection as the ways to reduce hunger. 3. It’s possible to lift people out of poverty Poverty eradication is the first goal of the sustainable development framework, the proposed successor of the Millennium Development Goals. World leaders have committed to ending extreme poverty by 2030. The problem donors, multilaterals, nonprofits, and private sector partners confront is that poverty is a complex, multidimensional issue—which encompasses lack of access to health, education, financial services, capital, and markets. Programs often suffer from shoddy implementation, prove difficult to replicate across countries, achieve results in one aspect of individuals’ lives but not the others, or fail to deliver benefits that last. Against this backdrop, a new study published in the May 2015 issue of Science offers if not a panacea, certainly hope. Authored by several development economists, including MIT’s Abhijit Banerjee and Esther Duflo and Yale’s Dean Karlan, the paper presents findings from six randomized control trials (RCTs) implemented in Ethiopia, Ghana, Honduras, India, Pakistan, and Peru. In five of the six countries, it finds that multipronged poverty reduction programs—which they call graduation programs—can deliver sustainable benefits. By providing a productive asset, training, access to savings, health care, regular home visits, and food or cash for a few months to a year, they find that household income and consumption not only increased during the intervention, but continued after. This suggests that a concentrated approach can raise people out of poverty in the long term, good news indeed.

Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is by Deirdre White, chief executive officer of PYXERA Global. In January, the United Nations put forward the Open Working Group proposal for the Sustainable Development Goals (SDGs): a set of seventeen goals, along with 169 associated indicators. This proposal will be voted on by the United Nations General Assembly this September. While it has many merits, it doesn’t, in the end, help practitioners make the most progress in bettering people’s lives. First, the SDG proposal is overwhelming. Not only are there too many goals, but each one is also quite expansive. For example, the first goal to “end poverty in all its forms everywhere” is both broad and ambiguous. Many of the other SDGs such as “ensure healthy lives and promote well-being for all at all ages,” and “provide access to justice for all… at all levels” are similarly far-reaching. Because of their breadth, these goals will be difficult for development organizations to operationalize. For example, the first SDG—“end poverty”—does not translate easily into a specific set of interventions on the ground. Additionally, the SDGs approach human development in a piece-meal fashion, addressing poverty, food security, education, health, employment, and sanitation as stand-alone challenges. This isolationist approach is detrimental because it discounts the systemic nature of development challenges and thus makes the task of tackling them larger. Effective and efficient sustainable development requires coordinated rather than independent campaigns on all fronts. While it may be too late to reconceptualize the SDGs, framing them differently would help development organizations overcome their shortcomings. We at PYXERA Global have examined the seventeen SDGs and distilled them, as shown in the below graphic, into four lead focus areas: health, human rights, natural/human environment, and economic opportunity/employment. Click to enlarge: PYXERA Global four lead focus areas. Reframing the SDGs makes them more accessible and digestible for practitioners. By consolidating the overwhelming volume of goals, PYXERA’s framework enables organizations to concentrate on a specific focus area that they are well-suited to address. Additionally, the framework allows practitioners to recognize areas of overlap among different development objectives and to design programs that address their systemic nature. By taking into consideration the interrelatedness of the goals, practitioners will be able to address societal challenges more quickly and sustainably. For example, when addressing community health, one must consider not just health alone, but also issues of water and sanitation (goal six), food security (goal two), and the promotion of healthy lives at all ages (goal three) to ensure long-lasting change. Yet, it’s not enough to create an actionable development framework. It is critical that the United Nations and proponents of the SDGs also emphasize a tri-sector approach. While goal seventeen encourages global partnerships, a cross-sector approach explicitly brings together different sectors. Public, private, and social sectors all contribute unique strengths and tools. Each has a role to play in creating the systemic change needed to make sustainable and real progress on human development. Social sector organizations build legitimacy and trusted relationships at a local level. They also ensure that efforts deliver meaningful impact to the most vulnerable communities. Government, on the other hand, creates the enabling environment necessary for social change to be effective, providing infrastructure, educational facilities, and social services. And whereas the public sector rarely has a tolerance for failure, the private sector experiments with solutions to weed out inefficiencies, provide financial resources, and drive critical technological innovations. In my own work at PYXERA Global, I have seen how tri-sector partnerships align the strengths of different sectors to achieve better results. The Joint Initiative for Village Advancement (JIVA), for example, is a community development program aimed at enhancing livelihoods in three rural villages in Rajasthan, India. The program is a partnership between the residents of the three villages, the John Deere Foundation, PYXERA Global, and the community-based NGO Jatan Sansthan. Each partner brings complementary competencies and specific expertise in agriculture, community development, and gender. These contributions have translated into integrated interventions in agriculture, income security, education, and infrastructure. After two and a half years, JIVA has contributed much to these three villages: over half of households adopted at least one new agriculture practice, leading 50 percent of farmers to substantially increase their profits. JIVA’s after-school program enrolled 100 percent of primary school drop-outs across all of the villages, helping 84 percent of them reintegrate into formal schooling. At the same time, JIVA’s educational intervention helped students across the villages improve test scores. While the SDGs articulate our highest hopes for human progress, our efforts must be grounded in an integrated, tri-sector approach to truly ensure realistic, sustainable progress against today’s development challenges.

Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is by Leora Klapper, lead economist for the World Bank’s development research group. On a recent visit to Dhaka, Bangladesh, I toured garment factories and spoke with factory workers about the financial challenges they face. In my conversations with female employees, I learned that although they own bank accounts, many don’t use them for an important transaction: paying their children’s school fees. Instead, these women pay in cash, costing them time and money. They take two long, expensive bus rides across town to the school. They take the day off from work, meaning a day without pay. Even the women’s employer isn’t happy with the situation; he’d rather they were able to work. Owning a bank account is a vital first step toward financial inclusion—a step these women have taken. But the real benefits come from frequent account use, meaning they have not reaped the full reward of account ownership. In this, these factory workers are not alone. Across Bangladesh, 10 million adults with bank accounts pay their children’s school fees in cash. And in developing economies globally, more than 500 million adults with an account do the same. The 2014 Global Findex database, an update of the world’s only comprehensive gauge of global progress on financial inclusion, tracks these figures. The World Bank—with funding from the Bill & Melinda Gates Foundation and in partnership with Gallup Inc.—launched the Global Findex in 2011. Like the first edition, the data for the 2014 update was collected from interviews with nationally representative and randomly selected adults aged fifteen and older. Nearly 148,000 people were surveyed in 143 economies during the 2014 calendar year. The 2014 data show that in East Asia and the Pacific, Latin America and the Caribbean, and the Middle East more than 60 percent of adults with an account pay utility bills or school fees in cash. In South Asia, 42 percent of adults with an account have left it unused for a year or more. In developing economies globally, almost 90 percent of adults who pay utility bills and 85 percent of those who make payments for school fees do so in cash. Yet the same cannot be said for high-income, OECD economies: among adults in those countries who pay utility bills, the majority makes such payments digitally, either directly from an account at a financial institution or via mobile phone. Why the discrepancy? Perhaps individuals in developing economies are not aware of an existing electronic payment option. Maybe those schools do not have electronic payment systems in place. If so, it is up to banks, mobile money service providers, and others to make the technology available to end users, like schools and utilities. Yet there is more that governments and the private sector can do to boost account use among adults worldwide. For example, both the private and public sectors can pay wages and other transfers, such as unemployment benefits, digitally instead of in cash—which could add over 400 million new account holders. Governments and the private sector can also encourage account holders to use digital services, such as remittance payments. Currently, 355 million adults with an account send or receive domestic remittances in cash or through a money transfer operator. But digital transfers could be even easier and cheaper for workers and their families. Governments and financial institutions can work together to support the transition to digital payments—governments through regulations permitting correspondent bank agents, and financial institutions by developing networks of mom and pop shops that make sending and receiving digital payments more convenient. For example, in China, over 800,000 small merchants disburse government payments made to accounts. However, digitizing payments and shifting cash payments into accounts is not without challenges. For account use to increase, governments and the private sector must make upfront investments in payments infrastructure and guarantee a reliable and consistent digital payment experience. New account owners need to be educated on the basic interactions involved in a digital payment system – using and remembering PINs, understanding how to deposit and withdraw money, and knowing what to do when something goes wrong. By presenting data on how adults globally save, borrow, make payments, and manage risk, the Global Findex quantifies the gaps in financial inclusion—and the market opportunities—and  reveals how governments and the private sector can help underserved populations benefit from financial services.