Monday, April 23, 2007 04/23/07-How To Fight Poverty

In today's excerpt--how to fight poverty:

"There is no robust body of economic research showing that particular economic interventions--dam building or malaria fighting or civil-service reform--consistently relieve more poverty than other ones. It is hard enough to measure poverty, and economists vary widely on its extent. It is even harder, and probably impossible, to measure the relative impact of dozens of interrelated strategies to relieve poverty across scores of countries.

"The impossibility of showing which interventions trump the rest is easily forgotten, because development advocates generate a steady stream of claims to the contrary: The key to kick-starting development is said to lie in microfinance, or population control, or greater rights for women, or various other worthwhile challenges. Perhaps the most impressive recent claim of this genre comes from Hernando de Soto, a Peruvian economist, who points out that the poor often lack legal title to their land. Change that, de Soto says, and you give them collateral, and therefore a chance to borrow money and start small businesses. But although de Soto's insight is important, land tenure is not a silver bullet. ...

"There are similar problems with another kind of selectivity proposal. In a Foreign Affairs article published in 1997, Stephen Radelet and Jeffrey Sachs of the Harvard Institute for International Development agreed that a lot of things have to go right simultaneously for development to take off; but they suggested it might be a mistake to try and achieve this on a national level. Rather than address that impossibly vast challenge, Radelet and Sachs argued, it would be better to follow Asia's strategy of creating enclaves of efficiency. Most of the East Asian Tigers created export-processing zones in which corruption and red tape were eliminated, security was reliable, and electricity and transport links were excellent. These enclaves attracted investment, and prosperity radiated gradually outward. China, for example, set up several special economic zones along its coastline, starting in 1980. Within a few years, one of the world's greatest export booms created millions of new jobs, despite the fact that China's national institutions were rotten with corruption. Yet the enclave argument, for all its persuasiveness, raises its own set of questions. What good are export zones if corrupt national institutions lay you open to financial meltdown? And if national institutions are corrupt, won't national politicians be tempted to extract bribes from supposedly uncorrupt enclaves? Rather like Hernando de Soto's land tenure idea, enclaves might start you down the road toward development. But in the end you can't duck the question of [the effectiveness of] national governance, however daunting it might be."

Sebastion Mallaby, The World's Banker, Yale, 2004, pp. 381-2.


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