Inequality

This is a guest post by Robert Maxim, research associate, competitiveness and foreign policy, for the Council on Foreign Relations studies program. Manufacturing is growing in the United States, but many companies claim that they face a “skills gap.” These companies have unfilled vacancies, but say that unemployed workers and recent high school graduates do not have the technical knowledge needed to fill them. Apprenticeships have historically taught students the necessary skills for a career in manufacturing. However, there has been a sharp decline in apprenticeships across the United States, some 40 percent over the past decade, and cash-strapped state budgets have forced schools to cut technical education in favor of four-year college preparatory curricula. I recently attended a National Press Club event put on by several manufacturing industry representatives who were in town for the One Voice legislative conference, a federal government advocacy event put on by representatives of the metalworking industry.  They described some encouraging initiatives that companies and communities are taking to address the problem. In Batesville, Indiana, for example, some companies have begun working with local schools to attract and train students for careers in manufacturing. Batesville Tool & Die, which makes metal stamping for vehicles and appliances, has partnered with three other local businesses to help the town’s high school students develop the skills those companies are looking for. Students take a tech-heavy high school curriculum, including technology and engineering classes in partnership with Project Lead the Way, a non-profit that develops STEM curricula for schools. In their junior and senior years, students have the opportunity to take technology classes in Indiana’s Ivy Tech Community College system, and they participate in a weekly eight hour co-op with four local manufacturing companies. At graduation, students in the program are only one semester short of an associate’s degree and have received on-the-job training, without taking on any debt. Additionally, the students have developed personal relationships with local companies that are looking to hire, and have the specific skill set that those companies are looking for. As my colleague Rebecca Strauss has observed, in many cases there is more of a “location gap” than a “skills gap.” There may be unemployed workers who are qualified to fill a skilled position, but if they don’t live in a specific community then they may never hear about available opportunities. Programs like those in Batesville help ameliorate that problem by training local workers and placing them into the local job market. Training programs are most effective in communities with jobs available for workers to enter. Mark Volk knows how important local industries can be to a community’s employment prospects. As president of Lackawanna College in Pennsylvania, he said he has seen the local natural gas industry take off as a result of the development of the Marcellus Shale. Volk has worked with petroleum and natural gas companies operating in the state to develop associate’s degree programs to train students in the technical and business management sides of the industry. Seventy percent of the program’s graduates are hired by major oil and gas companies, and many continue to work in their local Pennsylvania communities. Nonetheless, establishing effective training programs may not be enough. Jody Fledderman, CEO of Batesville Tool & Die, said that many Americans now see technical school as a “second class” education, which makes parents wary and students hesitant to enroll. Ted Toth, CEO of Rosenberger-Toth, which makes parts for satellites and cell phone towers in Pennsauken, New Jersey, said the general public still perceives manufacturing as a “dark, dirty, dangerous, and dumb industry.” Both Fledderman and Toth emphasized that this perception can only be changed on the community level. In Germany, blending technical training with secondary education is common, and many credit that model for Germany’s low level of youth unemployment and strong manufacturing base. According to the New York Times, about 60 percent of German high school students participate in an apprenticeship program. These programs can lead to a formal certification in a chosen field, and more importantly to a job at the company where the student trained. The U.S. ranks poorly among developed countries at developing “middle skills”—education beyond a high school diploma, but less than a bachelor’s degree. Although the U.S. ranks second in the share of its population with a bachelor’s degree, it ranks sixteenth in share of its population with a middle skill degree. The United States won’t be able to improve that ranking without a serious national effort. Programs like those in Batesville and Lackawanna College can create opportunities and change attitudes in a community, but more state and federal support is needed to solve the broader skills mismatch. Manufacturing is growing in the United States again, but this growth could be limited unless more young Americans have both the skills and the desire to take on the job.

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.

Last week I was in Panama, and had the good fortune of visiting the Canal. In its Centennial year, it is a truly impressive feat of engineering, some forty-eight miles long, rising and falling some eighty-five vertical feet (roughly eight stories) overall through three lock systems and six different chambers. Its storied construction is captured eloquently in David McCullough’s The Path Between the Seas—a great read for those interested in this piece of history. The Canal has been a huge source of growth for Panama. Upwards of 13,000 to 14,000 ships go through the locks each year, paying, on average roughly $250,000 for passage (which they wire to the Canal a couple days before entering the line). This direct influx on money (netting the federal government some $6 million a day) is complemented by a huge supporting transportation and logistics service sector that, combined, have helped Panama grow an average of almost 7 percent a year since it gained control of the passageway in 1999—faster than any other Latin American country during this time period. Still, while the country as a whole has gotten richer, not everyone has benefited. Panama’s middle class remains small and inequality high. The sleek skyscrapers that fill the cityscape sit alongside neglected cinder-block apartments. And outside of Panama City’s metropolitan area (where just over one third of the country’s population lives), almost 70 percent of the population lives in poverty (as measured by ECLAC). In fact, Panama’s richest 20 percent of the population control over 60 percent of the nation’s income—a disparity that rivals neighboring countries such as the Dominican Republic and Honduras. With an expanded Canal set to open in 2015 commerce will only increase; many expect the Canal to double its capacity by 2025. While bringing in even greater revenues, as well as likely investment, this growth will further tax Panama’s already overburdened infrastructure, including bridges, roads, and even sewer systems. The challenge will be to make its economic growth sustainable and inclusive, finding more ways for average Panamanians, and especially those in areas far away from the Canal, to share in the benefits from their country’s continuing economic boom.

This is a guest post by Robert Maxim, research associate, competitiveness and foreign policy, for the Council on Foreign Relations Studies program. On Friday President Obama will unveil his plan to curb the surveillance practices of the National Security Agency (NSA). When he does, he could inadvertently give a boost to the ambitious U.S.-European Union free trade negotiations. Last June, just weeks before the first round of Transatlantic Trade and Investment Partnership (TTIP) negotiations, Edward Snowden revealed that U.S. government agencies were collecting millions of European citizens’ personal data. Though TTIP is colloquially known as a “trade agreement,” its primary focus is regulatory barriers, not lowering tariffs. The United States wants to use TTIP to prevent barriers to the international transfer of personal data—the very data that the NSA was collecting in bulk. The disclosures provoked outrage among EU officials, and several European heads of state threatened to call off the trade talks. Though negotiations have since begun, European concerns about privacy need to be alleviated in order to ensure the continued free flow of data. In recent months the EU has dropped its strident rhetoric and began to seek compromise with the United States. President Obama should take advantage of the opening. Privacy is considered a fundamental human right in Europe. In 1995 the EU passed the Data Protection Directive, which codified the right to privacy of personal data. This directive prohibits the transfer of an individual’s personal information to countries that the European Union deems to have inadequate privacy standards, including the United States. Transferring personal data such as names, credit card information, birthdates, or telephone numbers across borders is essential to international trade, and has only grown more important with the rise of the Internet economy. In order to ensure that this type of data could continue to be exchanged, the two parties established a "Safe Harbor" agreement in 2000. This agreement allowed American companies that voluntarily complied with the Data Protection Directive to transfer personal information back to the United States. In response to the Snowden revelations, the European Parliament called for a full review of the Safe Harbor program, which was led by the European Commission’s Justice Minister Viviane Reding. In the wake of the disclosures, Ms. Reding was among the most outspoken critics of the Safe Harbor agreement. She argued that Safe Harbor “could be a loophole” undermining EU data protection laws, and that it was time for the “development of European clouds” so that the U.S. government could not access European citizens’ data. The two sides came to a working agreement in early July, launching separate privacy negotiations alongside TTIP. In theory this structure would allow the trade negotiations to continue even if the two sides could not agree on how to proceed on privacy. In reality, it would be nearly impossible to complete a trade agreement containing provisions ensuring the free flow of data without resolving the issue of privacy protections for that data. In November the EU offered an olive branch. The European Commission published its Safe Harbor review, and called for only moderate reforms to the program. The recommendations included requiring Safe Harbor companies to disclose whether U.S. law allows public authorities to collect data from them, making dispute resolution processes available and affordable to individuals, and enhancing inspections of Safe Harbor compliance and fraud. Considering the staunch public posturing by many EU officials, the report came as a surprise. However, a full overhaul of American privacy law (which is formed from a hodgepodge of different provisions in the Constitution, consumer protection laws, and federal case law, rather than a single directive like the EU) would have been a non-starter, and could have derailed the wider TTIP negotiations. TTIP will be a boon for the EU economy, with studies predicting gains of up to €119 billion per year for EU GDP. By maintaining a hard line on privacy, Europe may have lost out on those economic gains, and the United States probably would not have changed its privacy laws anyway. It is in the United States’ interest to implement the EU’s Safe Harbor recommendations. They are good policies, and will serve as a lifeline for EU negotiators to move past the privacy issue. Additionally, President Obama should incorporate the recommendation from his presidential advisory committee that the personal data of non-U.S. citizens be treated with the same protections as data on American citizens. This will show that the United States has learned from the incident and is committed to treating its allies as equals. Europe is currently undergoing an overhaul of its own privacy laws, which will keep the issue on the forefront of many peoples’ minds. This is not just an issue that the two sides can “wait out.” A trade agreement that protects the free flow of data without resolving how governments can collect and use private data may not gain popular support within Europe. And losing popular support could doom the TTIP effort.

For several decades, the exciting promise of microfinance has been to provide the world’s poorest with access to financial services. But along the way, microfinance has too often become conflated with micro-credit. This is not surprising, given that most of the first microfinance institutions (MFIs) were non-profit organizations that took grants from donors and recycled them as loans. Now, however, many MFIs have reincorporated as banks with the ability to accept savings, and the full promise of microfinance is beginning to be realized. Indeed, the expansion of efficient and effective saving mechanisms and other financial services such as insurance is one of today’s most exciting developments in the effort to tackle poverty. Savings accounts and insurance can help poor people survive unexpected financial shocks brought on by events such as family illness, crop failure, or market downturn. Savings can also improve an individual’s social mobility, ability to invest, and future earning potential. According to the International Monetary Fund’s most recent Financial Access Survey (FAS), “access to commercial bank services has deepened across virtually all regions of the world, with Africa continuing to lead growth in financial access.” In addition, more and more poor people are buying life insurance and internet connectivity and online services continue to boost financial inclusion. Still, approximately 2.5 billion people -- more than half of the world’s adult population – don’t have bank accounts. And most of this unbanked population lives in developing countries. A 2011 Gallup and World Bank poll found that in high-income countries, both rich and poor individuals usually have savings accounts. This is not the case in low-income countries, where travel distance, cost, and documentation requirements hinder individuals from opening accounts. For women, gender discrimination and financial dependence on male guardians can further limit access to formal finance. Last month, I hosted Mary Ellen Iskenderian, president and CEO of Women’s World Banking, and Steve Hollingworth, president and CEO of Freedom from Hunger, to discuss these issues as part of the Council on Foreign Relations’ ExxonMobil Women and Development Series. Our discussion touched on many topics related to financial inclusion, one of which was the important difference between microcredit and microfinance. In some situations, a loan might not be the financial tool an individual needs to climb out of poverty. The World Bank’s recently-published Global Financial Development Report 2014 similarly argues that providing credit indiscriminately can lead to financial and economic instability. In addition, financial services can be rendered ineffective without accompanying financial literacy training. As Iskenderian mentioned during our meeting, development organizations are now pioneering innovative financial literacy training programs, including educational text and voice messages that can be accessed using a cell phone. The Global Financial Development Report 2014 found that classroom-based financial education has less impact than when individuals learn through “teachable moments,” such as applying for a loan or starting a job. Popular entertainment can also be a useful tool in communicating lessons on banking and financial planning. The latest FAS report finds that financial inclusion seems closely tied to overall economic growth. In Africa, for example, there was a nearly four-fold increase in commercial bank depositors per 1,000 adults from 2004 to 2012. The region simultaneously experienced a 40 percent growth in GDP per capita. Similarly, in the Asia and Pacific region, depositors per 1,000 adults nearly doubled over the same period, with GDP per capita increasing more than 70 percent. Still, although developing countries are projected to dominate global saving and investment in years to come, that trend might not extend to the poorest populations. The Middle East and North Africa region, in particular, “has the lowest use of formal financial institutions for saving by low-income households.” The accessibility of financial services remains highly dependent on public and private sector regulation. To encourage low-income banking, governments should enact effective policies that require banks to offer low-fee accounts, allow electronic payments, and grant exemptions for documentation requirements. Less successful policies include debt relief, directed credit, and lending through state-owned banks. Financial institutions, meanwhile, should adopt new technologies such as mobile banking to make financial access easier and more secure. The African Development Bank Group and other financial organizations have already begun pioneering these types of programs. Overall, innovative programs and products that address market failures, meet consumer needs, and overcome behavioral problems can foster the widespread use of financial services. For example, financial products such as index-based insurance can mitigate weather-related risks in agricultural production and help promote investment and productivity in agricultural firms. Still, as Hollingworth lamented, widely accessible crop insurance for farmers, which would improve their financial security immensely, seems to be a long way off.

Looking back at 2013, several developments stand out for their significant potential to better the lives of the world’s poorest. Here are three that will likely reverberate for years to come: 1) The Accord on Fire and Building Safety in Bangladesh This past year saw one of the deadliest factory accidents in history, which killed over 1,100 garment workers and injured another 2,515 in Savar, Bangladesh. The incident came less than a year after the Tazreen Fashion factory fire in Dhaka, Bangladesh took the lives of at least 117 workers. In the aftermath of these tragedies and other shocking safety violations, international actors have finally come together to improve working conditions in the world’s second-largest apparel exporter and, in the process, set new precedents for labor safety in other poor countries. In May, over 100 apparel corporations, two global trade unions, and numerous Bangladeshi unions signed the Accord on Fire and Building Safety in Bangladesh, which calls for “independent inspections by trained fire safety experts, public reporting, mandatory repairs and renovations financed by brands, a central role for workers and unions in both oversight and implementation, supplier contracts with sufficient financing and adequate pricing, and a binding contract to make these commitments enforceable.” Unlike previous labor safety agreements, this one is legally binding and requires companies to reserve sufficient funds for repairs and renovations. The Accord is not perfect – and cut-throat producers will always try to exploit loop holes. Just establishing a system to organize the inspection of the country’s 5,600+ factories poses enormous logistical challenges. In the meantime, apparel companies have been criticized for not compensating or adequately helping those directly affected by the Rana Plaza collapse. But in the wake of these horrific tragedies, the pressure to follow through will likely remain and the accord provides the best basis yet on which to build positive change. The alternative for global companies concerned about their brands is to cut and run. But moving operations to another country would unfairly penalize the millions of Bangladeshi workers who have a found a semblance of middle-class life through factory work. The textile industry accounts for three quarters of Bangladesh’s exports and employs four million people, the majority of whom are women. Shutting it down would have huge economic repercussions and would take away many worker’s best shot at breaking out of poverty. A better response is for companies to make the needed investments in safety, and more broadly in infrastructure to address other supply chain problems. The Accord is an encouraging sign of progress, but its implementation will be the real test of corporate responsibility in Bangladesh and beyond. 2) Rise of Internet and Smartphone Use in Africa In Africa, internet and smartphone usage continues to expand: the continent now has 16 percent internet penetration, 167 million internet users, 67 million smartphones, and $18 billion internet contribution to GDP. By 2025, Africa is expected to have 50 percent internet penetration, 600 million internet users, 360 million smartphones, and $300 billion internet contribution to GDP. A 2013 McKinsey report attributes this growth to “significant infrastructure investment—for example, increased access to mobile broadband, fiber-optic cable connections to households, and power-supply expansion—combined with the rapid spread of low-cost smartphones and tablets.” The implications of the spread of internet technology in Africa are huge. In education, affordable tablets and e‑books can cut costs and improve quality of instruction and teacher training. With Internet access, farmers can find and share valuable information on crop management, finance, pest control, and weather. Internet access can also improve government transparency, efficiency, and productivity. Lastly, e-commerce promises to boost the continent’s overall economic growth, potentially adding an addition $75 billion in annual revenue. All this adds up to a revolution for the continent, and especially for rural communities and public service providers previously unable to access critical innovations and information. 3) Expansion of Payment Networks in East Africa Technology has profound implications for financial services and aid delivery as well. In Kenya, M-Pesa has revolutionized how people spend and move money. Mobile banking is expected to grow even more in the coming years, with international heavy-weights Paypal, Google, and Huawei (a Chinese telecommunications company) joining other companies, such as Obopay, Ericsson, Western Union, MasterCard, Airtel, and Visa already developing and investing in African mobile payment systems. PayPal’s new partnership with Equity Bank in Kenya, for example, will allow Kenyans to access the global PayPal network and could “further transition East African economies away from cash, allowing business to better integrate into the global marketplace.” East African banking has been further transformed by the implementation of the East Africa Payments System. Championed by central banks in the region’s top economies, the EAPS speeds up commercial transactions and allows Kenyans, Ugandans, and Tanzanians to make and receive payments in real time. Rwanda and Burundi are expected to join the EAPS and even help establish an East African monetary union once their economies are more developed. The expansion of mobile banking enables aid organizations to efficiently reach more rural communities and boost economic growth overall.

I recently wrote a memo titled “Banking on Growth: U.S. Support for Small and Medium Sized Enterprises in Least-Developed Countries,” which argues that it is in the United States’ interest to invest in small and medium enterprises (SMEs) in the world’s toughest and poorest economies. Investing in such businesses has diplomatic and financial dividends: it would spur economic development, accelerate progress towards international health and education development goals, and boost stability in fragile economies -- all of which furthers U.S. foreign policy goals. According to the International Finance Corporation (IFC), small and growing businesses account for about 90 percent of businesses worldwide and contribute nearly 30  percent of formal GDP in lower-income countries. Accounting for more than 50 percent of employment globally, these enterprises are key drivers of job creation and market innovation, both of which strengthen economies in societies vulnerable to political and social instability. Yet despite growing evidence that SME investment yields positive economic, development, and security benefits, the United States currently lacks the ability to deploy the full weight of its entrepreneurial knowhow on behalf of entrepreneurs and SME-owners. The Overseas Private Investment Corporation (OPIC) comes the closest to filling this role, but OPIC’s efforts are constrained: it has to work with a U.S. bank when investing in the private sector and cannot offer technical assistance or equity investments. An American development bank that expands and builds upon OPIC’s efforts would give the United States the flexibility to invest in SMEs abroad with fewer restrictions. And it could be done at no cost to taxpayers: for each of the last 36 years, OPIC has actually returned money to the government – most recently $426 million. Some of this money could be deployed to expand OPIC’s capabilities and scope. In the memo, I suggest that the U.S. government do three things in order to effectively invest in SMEs and women entrepreneurs:   1. Invest in and create a new American development bank that would build on OPIC’s framework and provide a "one-stop shop" solution for entrepreneurs in lower-income countries.   2. Encourage the American development bank to invest in locally owned small businesses in order to demonstrate that the SME sector – which investors often view as high-risk – is vital to economic growth and stability. Women entrepreneurs would be a focus of such a development bank given the development benefits of investing in women. 3. Collaborate with others already supporting SMEs, including governments, civil society organizations, private sector entities, UN agencies, international NGOs, and other development finance institutions.   Women entrepreneurs would be a critical focus of the American development bank. There are around 8 to 10 million women-owned SMEs in the formal economies of emerging market countries, and millions more in the informal sector. Women face all the challenges of growing businesses in risky environments that men face, and more. Seen as high-risk clients, investors are usually reluctant provide women with access to the capital, networks, and support they need to build and expand their businesses. By serving women, an American development bank would help female entrepreneurs contribute more to local economies, and in the process help create more prosperous and financially secure communities. The U.S. government stands to reap substantial gains from launching an American development bank that could invest directly in entrepreneurs in lower-income countries. Doing so would help the United States get far more from its aid dollars and address important national security risks associated with weak economies and unstable societies.

Last week, a United Nations expert panel issued a harsh report expressing concern over the construction of a $12 billion steel project in Odisha, India, financed by the South Korean steel conglomerate POSCO. The project reportedly threatens to forcibly displace over 22,000 people and disrupt the livelihoods of many thousands more. The forests and fields now claimed by the Indian government to build the sprawling project have long been occupied by locals, who rely on the land for their livelihoods. As I demonstrated in my Brooklyn Journal of International Law article last year, the tension between aggregate economic growth and the property rights of vulnerable groups is a longstanding development challenge. Often, growth-enhancing land acquisitions financed by foreign investors forcibly displace the original resource users and ignore their property rights claims, intensifying property insecurity and resource scarcity—even while bringing macroeconomic growth. Legally, governments should protect the rights of all their citizens—rich and poor. But the customary rights of subsistence local resource owners are too often ignored by elites, who sometimes even pocket kickbacks from the transnational investments that displace these local resource users.. In India, residents of Odisha decry government ineptitude and corruption for jeopardizing their property rights and livelihoods. POSCO likewise criticizes the government for not effectively resolving land disputes, which have delayed construction for almost eight years. If rights were fairly recognized and adequate compensation granted to current users, then both local owners and aspiring investors who want to play by fair rules would be better off. Raquel Rolnik, UN Special Rapporteur on adequate housing, stressed that “forced evictions constitute gross violations of human rights,” in her statement regarding the Odisha steel project. But what can be done when governments fail to protect human rights and global companies like POSCO stand to benefit? International investors finance these projects and own the companies that develop them, so will profit from their success.  These global investors therefore have an ethical obligation to ensure that the rights of all affected communities are respected, in order to promote economic development that is inclusive and sustainable, and not just beneficial to a wealthy few. In the case of the steel project in Odisha, POSCO’s international investors include ABP, Norges Bank Investment Management, Bank of New York Mellon, Blackrock, Deutsche Bank, and JPMorgan Chase. Fortunately, some of these leading investors already have a framework to safeguard environmental and human rights norms for the projects in which they are invested.  The Equator Principles -- currently followed by 78 financial institutions, covering over 70 percent of international project finance debt in emerging markets -- codify norms for human rights, labor rights, and the environment. The principles also reflect a consensus among multilateral development banks and other development finance institutions regarding environmental and social standards. These principles should be extended to cover all private sector investments, not just project finance, so that they would apply to cases like POSCO’s proposed steel plant, which now threatens thousands of poor rural residents. In addition, the principles need to be strengthened to prevent free riding by member companies seeking to boost their reputations without taking the trouble of actually complying with the principles. An independent monitoring mechanism should be established to ensure that all Equator Principle signatories are really playing by the rules. When voluntary measures fail, mere UN reports, however harsh, are not enough to change the facts on the ground. Impacted communities need advocates to represent their interests in complex legal disputes, which entangle investors from many countries. As I have argued elsewhere, mobilizing international corporate lawyers to represent marginalized communities around the world would level the playing field, and would help ensure the rules of the global economy work for everyone, not just the rich and powerful.

This week, the United Nations convenes its sixty-eight General Assembly session, bringing together heads of state and other high officials from all 193 members of the UN. Although many pressing global challenges crowd the agenda of world leaders, the major theme of this year’s session is the global development agenda after 2015, when the Millennium Development Goals (MDGs), which have guided global development policy since 2000, expire. In several earlier blog posts, I discussed issues that should be considered in crafting the new development agenda. Now the international community must come together to determine what comes next. Even though economic growth has brought wealth to many formerly poor countries such as China, India, and Brazil, over three billion people remain trapped in poverty worldwide.  The tragedy of poverty is not restricted to poor countries.  Indeed, many of the global poor live in rich or middle income countries, and have seen the fortunes of their neighbors rise, while they have been left out and left behind. Thus, the new post-2015 development agenda must address inequality as well as poverty, to ensure that average improvements do not mask intractable suffering, and to focus global attention on the challenges facing the most vulnerable. At the same time, there is an emerging global consensus that environmental sustainability should be a central development goal. The landmark Rio+20 conference on sustainable development, which took place in Rio de Janeiro, Brazil in June 2012, launched the drafting process of the Sustainable Development Goals (SDGs). The SDGs aim to build upon the MDGs, but with a clear commitment to safeguarding the environment for future generations. At a local level, environmental degradation threatens the resources and livelihoods of subsistence farmers and pastoralists; with rivers and forests polluted and misused, they have no way to make even a meager living. And at a global level, climate change caused by unsustainable fossil fuel use is increasingly generating unpredictable droughts and floods, which devastate the poor, and threatening small island nations with rising sea levels. The UN must forge a new development agenda that tackles these concerns regarding environmental sustainability and inequality, in addition to other issues such as rule of law, good governance, personal security, and human rights — all of which are both critical means for improving wellbeing, as well as important ends in and of themselves. The UN’s task is further complicated by the fact that many of the most potent tools in the fight against global poverty are outside the organization’s purview. Thanks to the integration of global markets, the rules governing the global economy are now some of most significant determinants of prosperity and poverty.  These economic rules influence property rights, capital markets and global financial flows, multinational banks and investors, and legal claims and mechanisms for redress – all of which have profound implications for the global poor. The UN recognizes the importance of these issues, but economic governance negotiations usually occur in intimate meetings between finance ministers, not showy events among foreign ministers. Still, the UN has the unique and crucial power to coordinate and solidify global development guidelines for the future. This coming week the General Assembly is holding six events on the theme “The Post-2015 Development Agenda: Setting the Stage,” including high-level events about women, youth, civil society, human rights, good governance, the rule of law, South-South cooperation, communications technologies, global partnerships, water, sanitation, and sustainable energy. Given that nearly half of the world’s population is still trapped in poverty, hopefully these meetings will be more than just rhetoric, and will bring the world one step closer to realizing sustainable and inclusive development.

Extreme poverty, defined as living on less than $1.25 per day, has declined significantly in recent decades. Thirty years ago, more than half of the world’s population lived in extreme poverty - today, less than a quarter do. Still, that translates into some 1.2 billion people living in extreme poverty, and a disproportionate number of them are female. Overall, seventy percent of the world’s poor and about two-thirds of the world’s hungry and malnourished population are women and girls. This is surprising given the fact that many women are employed: they make up forty percent of the international labor force. In the developing world, there are eight to ten million small and medium-sized women-owned businesses, and millions of other women work in the informal economy. However they earn less than ten percent of the world’s income and own less than one percent of the world’s property. On average, women’s businesses tend to be smaller and less productive than male-owned operations. Boosting the productivity of businesswomen in the bottom billion could reduce poverty, grow economies, and create jobs. But what is the best way to support women-owned enterprises? Do poor women need more capital, more skills training, or both? A Roadmap for Promoting Women’s Economic Empowerment -- a new report from the ExxonMobil Foundation and the UN Foundation --explores these questions and offers some interesting insights. The report is unique in that it takes a comprehensive look at both effective and ineffective strategies aimed at helping women launch, sustain, and grow small businesses. Based on empirical evidence from eighteen commissioned studies across four categories (entrepreneurship, farming, wage employment, and young women’s employment), the Roadmap identifies proven, promising, and high-potential interventions that increase women’s productivity and income in developing economies. The report also lays out a diverse set of “lessons learned” derived from the research – including the finding that giving electricity and mobile phones to the ultra-poor  increases their productivity, and the realization that providing capital or skills training alone is usually not enough to help women grow and sustain their businesses. The Roadmap report pays extra attention to agriculture.  According to the World Bank, agriculture employs sixty-five percent of Africa’s labor force and accounts for thirty-two percent of the continent’s gross domestic product. And sub-Saharan Africa still accounts for more than one-third of the world’s extreme poor. It is also the only region where the number of poor people has increased significantly over the past three decades, rising from 205 million in the 1980s to 414 million as of 2010.  Improving African agricultural productivity is critical for reducing poverty. Numerous studies, including some cited in the Roadmap, show that investing in women-owned smallholder farms not only gives women a source of income, but also alleviates malnutrition and hunger. Women account for forty-three percent of the agricultural workforce, but women-run farms underperform those owned by their male counterparts, most likely because female farmers do not have the same access to resources that male farmers enjoy. The Food and Agriculture Organization (FAO) estimates that giving women equal access to agricultural resources could increase yields by twenty to thirty percent. Eliminating gender inequalities in agriculture could raise total output in developing countries by up to four percent, and reduce the number of hungry people in the world by about fifteen percent. As the authors of the Roadmap report point out, “By expanding and sharing knowledge of what is most effective, funders, implementing organizations and policymakers will be better equipped to achieve greater impact for women, and the benefits for families and communities made possible by women’s economic participation and empowerment.” The Roadmap itself is an excellent contribution to that effort.

The Middle East is seldom associated with the start-up world. When thinking of the region, few imagine entrepreneurs working away, hustling to secure funding and find customers for their fledgling businesses. But that image is increasingly a reality. In a region where unemployment among young people is well into the double-digits, a hunger for job creation and connectedness, coupled with technological breakthroughs, has sparked a start-up movement. In his new book, Startup Rising: The Entrepreneurial Revolution Remaking the Middle East, Christopher Schroeder argues that “While economic success is hardly assured [in the Middle East], the rise of a new generation of business entrepreneurs cannot be ignored.” Schroeder, an American entrepreneur and venture investor, was one of the first people to call international attention to the potential of Arab start-ups; in a 2010 op-ed in the Washington Post, he noted that the entrepreneurial shift in the Middle East was “worth watching and supporting.” Now, in the midst of conflict and political upheaval, Arab entrepreneurs are launching a revolution of their own and providing a much needed economic boost to the region. The Arab Spring, paired with the global recession, has weakened many Middle Eastern countries’ economies. Unemployment rates have soared, especially among people under the age of 30 who comprise two-thirds of the region’s population. In 2012, the International Labor Organization reported that youth unemployment rates worldwide were highest in the Middle East and North Africa, at 28.3 percent and 23.7 percent, respectively. The economic toll of the past two-and-half years of conflict is clear. In Egypt, for example, unemployment reached 13 percent at the end of 2012, compared to around 9 percent pre-revolution. As the World Bank noted in a recent paper on the Egyptian economy, 3.5 million people are unemployed, 88 percent of whom are educated and hold at least an intermediate degree. Furthermore, the report found that “Youth, aged between 15 and 29, make up around three quarters of the unemployed, with the largest portion (44% of the unemployed) falling in the 20-24 years age-bracket.” Women have also struggled to achieve their economic potential. According to the World Bank’s 2013 Open Doors report, only 25.2 percent of women participate in the labor market – nearly half the average rate in other lower and middle income countries. That women only account for one-fourth of the region’s work force is even more surprising given that more than half of all college graduates are women. And little has changed over time: female labor force participation has increased by only 0.17 percentage points each year for the past thirty years. Despite these challenges, entrepreneurs in the Middle East are managing to grow micro, small, and medium enterprises that supply up to 99 percent of private sector jobs in some Arab countries. In particular, Amman, Jordan has become a start-up hub. Jordan is an especially conducive place for entrepreneurs as it boasts a strong education system, has invested in Internet distribution channels, and offers one of the region’s most robust media landscapes. Young entrepreneurs are sprouting up in other Middle Eastern cities as well, including Beirut, Cairo, Dubai, Riyadh, and Doha, sparking what is being referred to by some as the “start-up spring.” This phenomenon has been amplified by entrepreneurship accelerators such as Oasis500, Wamda, and Silatech, and emerging regional crowd-funding platforms such as Zoomal and Yomken. As was the case during the Arab Spring, women are a driving force in this revolution. Internet-based start-ups have given Middle Eastern women a portal into the often male-dominated field of entrepreneurship. Arab female entrepreneurs are excelling and even surpassing their counterparts in other regions, making up about 35 percent of the region’s start-up labor force -- more than three times the global average. Internet and technology start-ups, which can be launched and run from home or from all-female offices, are helping women tackle social, economic, and political barriers that often limit their employment opportunities and ability to contribute to local and regional economies. In addition to empowering women, technology start-ups play another interesting role in the Middle East. In a region prone to transition and strife, technology start-ups are more resilient than many other businesses given that their virtual infrastructure is not as susceptible to on-the-ground conflict. Technology entrepreneurs are able to sustain and even grow their businesses in volatile environments. Growing Internet usage in the Middle East, which has historically lagged behind other regions in Internet speed and reliability, is also fueling the start-up movement. For those looking to promote stability and prosperity in the Middle East, supporting and investing in the region’s start-ups is a good option. As small and medium businesses continue to drive regional economies, Arab entrepreneurs, including youth and women, can create a future for themselves while also boosting innovation and growth in their economies.

The Multilateral Investment Fund of the Inter-American Development Bank (IDB) and The Economist’s Intelligence Unit recently published their inaugural Women’s Entrepreneurial Venture Scope (WEVenture Scope) report, which ranks twenty countries in Latin America and the Caribbean based on their business climate for women entrepreneurs. “Women entrepreneurs in Latin America and the Caribbean are potentially one of the greatest underutilized resources in the region,” the report finds, noting that over the past twenty years, a more women in Latin America and the Caribbean have become active in the workforce, which has spurred economic growth. According to the report, Latin American women’s growing incomes led to a thirty percent reduction in extreme poverty from 2000 to 2010. The report’s authors suggest that this reduction would be even more dramatic if there were more female entrepreneurs in the region. Despite mounting evidence that empowering businesswomen has widespread economic benefits, however, their social and economic potential remains largely untapped. The WEVenture Scope report shows that because women in Latin America and the Caribbean are unable to access the capital, resources, skills, and networks that they need to develop their businesses, many female-run microenterprises cannot grow into the small and medium enterprises (SMEs) that drive countries’ job-creation and economic growth engines. In addition, over half of the women entrepreneurs surveyed in Latin America and the Caribbean participate only in the informal economy, leaving them more vulnerable to corruption and further limiting their access to financing. The barriers facing women entrepreneurs in Latin America and the Caribbean are hardly unique to the region. In its 2012 Women’s Report, the Global Entrepreneurship Monitor (GEM) showed that although women’s participation in entrepreneurship differs across regions, there are still fewer women than men entrepreneurs in almost every country. The exceptions: Panama, Ecuador, Mexico, Thailand, Nigeria, Ghana, and Uganda. In fact, studies have shown that women in Latin America and the Caribbean are more likely to pursue entrepreneurial activities than their peers in almost any other region of the world. GEM data shows that twenty-seven percent of the female population in Sub-Saharan Africa and fifteen percent in Latin America and the Caribbean are engaged in entrepreneurship, but women’s entrepreneurship rates in the Middle East, North Africa, Europe, and Asia barely reach five percent. The GEM report highlights a number of factors that could contribute to the low rate of female entrepreneurship worldwide. For example, women usually start their own businesses out of economic necessity rather than opportunity and frequently have less confidence in their entrepreneurial abilities than their male counterparts do. The report’s authors stress that these challenges need to be put in context, noting that gender disparities have cultural and institutional roots, given that entrepreneurship is often a male-dominated field with few female role models. Still, women entrepreneurs continue to play a growing role in economic growth. As of 2012, there were more than 126 million women around the world starting or running their own businesses and an additional 98 million leading established businesses. Many of these women-led businesses employ women as well as men, and more women entrepreneurs enter markets every day.  With fewer barriers in the forms of access to capital, markets and networks, those numbers should climb even higher.

The UN High Level Panel on the Post-2015 Development Agenda, composed of political appointees from every continent, recently issued a highly-anticipated report proposing a new framework for measuring economic, social, and environmental progress and performance. The report urges world leaders to pursue development goals focused on several critical issues that have been sidelined for too long, including governance and rule of law, inequality and social and economic exclusion, and sustainability. As the report makes clear, a rising tide does not necessarily raise all boats, thus a clear commitment to combating inequality and advancing social and economic inclusion must be at the core of the global development agenda. This embrace of social and economic rights indicators presents a direct challenge to the longstanding, wealth-based growth paradigm of development. Furthermore, the recognition that standard growth trajectories are wreaking havoc on the environment, threatening the inheritance of future generations and disproportionately impacting the world’s most vulnerable populations, suggests that sustainability must become a central objective of growth and development policies. This furthers the embrace of sustainable development that began in the 1980s and was eloquently encapsulated in the 1987 Brundtland Report. Lastly, the report puts governance, rule of law, and human rights at the center of the development agenda—both as an ends and as a means to achieving development goals. Still, turning big ideas into actions inherently faces political challenges. The proliferation of various indicators in recent years demonstrates the technical feasibility of measuring everything from rule of law to sustainability. But the data collection process remains controlled by political will and the financial resources made available. Moreover, different indicators can favor some countries over others or incentivize perverse government policies. Therefore, despite the emerging global consensus that multifaceted metrics of development are desperately needed, it remains uncertain whether the international community will be able to come to a consensus around a clear set of alternatives. In my next post I will discuss one set of norms regarding human wellbeing and progress that have already been endorsed and adopted by the global community: human rights.

As I discussed in my last post, governments and international organizations are increasingly taking an interest in alternative ways to measure countries’ development, outside of the traditional measure of gross domestic product. For example, in 2008, the French government commissioned a report from a group of leading social scientists, known as the Commission on the Measurement of Economic Performance and Social Progress, to explore the limitations of current economic and social measures and to propose alternatives. The major recommendations of the commission’s 2009 Report are instructive and mark a departure from conventional wisdom. The commission concluded that, in today’s complex economy, better measures of economic performance are required, specifically ones that take into account household income, wealth distribution, and inequality. More important, the commission endorsed a multidimensional take on wellbeing, which considers factors such as health, education, ability to find work, political voice and governance, social connections and relationships, sustainability and environmental concerns, and economic and physical insecurity. In a relatively radical departure from previous thinking, the commission argued that this diverse set of quality-of-life indicators should consider inequalities, not just overall wealth. The small kingdom of Bhutan has also become a leader in the alternative development measurement movement. Bhutan’s Gross National Happiness (GNH) index, first developed by King Jigme Singye Wangchuck in 1972, aims to chart progress according to the deceptively straightforward metric of “happiness.” Recognizing, as Aristotle did, that happiness does not derive solely from material possessions, the Bhutanese government has rejected per capita income as a measure of wellbeing. Calculated primarily based on household surveys and government data, the index considers seven core indicators of wellbeing: economic, environmental, physical, mental, workplace, social, and political. The Bhutanese government has earned international recognition for its alternative index, successfully championing a UN resolution to include happiness as a development indicator. To be sure, Bhutan’s index is idealistic and might be too complex to be adopted on a global scale. But this tiny country has helped change the thinking of leading development economists and world leaders. Last year, UN Secretary-General Ban Ki-moon called for a “new economic paradigm” based on the premise that “Social, economic and environmental well-being are indivisible. Together they define gross global happiness.” With such high-level backing from world leaders, governments, and international organizations, “alternative” measurements of development and wellness might soon be commonplace.

How should the status and progress of a country or people be measured and judged? For over six decades, the standard metric has been economic production and consumption-—per capita income, as variously defined by gross domestic product (GDP), gross national product (GNP), and gross national income (GNI). These measures are commonly used as shorthand to describe the quality of life in a given country, but in reality they represent a dramatic oversimplification of wellbeing. As a thought exercise, consider the protagonists of Charles Dickens’ classic Christmas Carol: judging by their per capita incomes alone, Uncle Scrooge is far better off than Tiny Tim. But the moral of the play is that wealthy Scrooge lives an undoubtedly miserable life whereas Tiny Tim is poor but happy. Thankfully, over the past thirty years, some leading policymakers, development practitioners, and scholars have begun to challenge traditional measures of wellbeing. As a result, a plethora of alternative indices designed to measure countries’ performance on a range of social and political metrics have emerged. Indicators now exist to measure elusive characteristics such as democratic governance; voice and accountability; rule of law; civil and political rights; sustainability and natural resource consumption; and business climate. Many researchers and policymakers now agree that economic wealth as traditionally measured does not capture progress; that a focus on income alone ignores other essential issues; and that new and more appropriate metrics are needed. The first breakthrough moment in this movement came in the early 1990s with the establishment and wide acceptance of the Human Development Index (HDI). The HDI attempts to give a single concrete number to the complex concept of development, as defined by the economist Amartya Sen. This framework measures development not just in terms of income, but in terms of the ability of individuals to live free and meaningful lives. The human capabilities approach views income as a means to realizing freedom, not as an ends in itself, so the focus is on all the aspects of human development. Around the same time, another equally powerful current of thought brought environmental sustainability to the fore. The global environmental movement first gained traction in 1960s with the recognition that the world’s economic growth trajectory was wreaking havoc on the environment and causing irreparable harm in the form of acid rain, dead bald eagles, deforestation, and toxic water and soil. Environmentalists such as Rachel Carson, author of Silent Spring, argued that any conception of wealth or wellbeing that fails to consider natural resource depletion is fundamentally flawed and misleading--if economic growth comes at the cost of environmental damage, then the depletion of shared natural resources should be taken into account in any honest calculation. Although this concept continues to face resistance from many who see real and immediate financial costs from prioritizing environmental sustainability in terms of profitability, growth, and jobs, the idea also has some powerful allies, including the World Bank, which is currently championing Natural Resource Accounting (NRA). Like a banker marking down the value of a spendthrift’s trust fund, NRA deducts the destruction and depletion of natural resources from countries’ economic production figures. Advocates of sustainable development view environmental sustainability as an issue of inter-generational equity. As first crystallized with the publication of the Brundtland Report in 1987--issued by a high level UN commission chaired by former Norwegian Prime Minister Gro Harlem Brundtland--sustainability should be viewed as integral to economic and social performance, and is required to ensure opportunity for future generations. These newer measurements have critics, and have yet to realize the status of ubiquitous shorthand descriptors enjoyed by per capita income measures. Some skeptics argue that although fine in theory, in practice both the HDI and NRA, along with the myriad of other measures, distort and mislead because they aim to count what cannot be counted. Other critics point to practical issues of public understanding – whereas the meaning of GDP is relatively clear, alternative measures are more complex and difficult to understand. Others argue that per capita income is both a powerful determinant and reasonable proxy for other aspects of development, since poorer countries also almost invariably have more poor people--rendering other measures redundant and distracting. Then, of course, there are those who benefit from the status quo, and would stand to lose from a shift in policies towards new development approaches. This debate is evolving quickly and the policy implications of what we measure and how we measure it are profound. I will be exploring this issue in greater depth over the coming weeks. Stay tuned for more posts on measuring development, and comment or email me to contribute to the conversation.