Wednesday, August 23, 2006


Well, it's been a busy week. We went to Anapoima over the weekend (3-day weekend, that is) but we're back and busy, as usual. I finished reading Confessions of an Economic Hit Man and I have to say it's a good book, but not a great book. There are some very obvious and remarkable observations in the book, but the author has a flair for the melodramatic and, while obviously describing a very particular aspect of foreign assistance, brushes broad strokes over all foreign aid.

In other words, I have serious doubts that his main argument (foreign aid is a self-serving way to impoverish the developing world so that they do what we want) is applicable to the entire category of foreign assistance. In fact, I'm quite sure that it can't be applied. While his narrative is certainly vital to some of the large scale development projects (see Iraq, reconstruction, Haliburton), there is a great deal of development assistance that does more good than bad.

My perspective is influenced partially from an academic position (although development is clearly not one of my most versed areas), but also from someone who has observed firsthand what foreign aid can do for a country, as well as discussed this topic extensively with people in the field.

These inquiries - academic, social, and dramatic - have led me to a rather startling conclusion about development. While these thoughts may be rather novicelike (or may not, I don't know since I have not extensively read much of the academic literature), I have a 3 point plan for what I'll deem "Clever Development". These steps represent some initial thoughts on the subject, should not be seen as authoritative, nor as in order of importance.

Step 1

Infrastructure - An awful lot has been written and said about large scale development projects - Dams, Power Plants, ect. - but not as much attention has been paid to a less sophisticated, but vitally important form of infracture: transportation. The simplest form, roads, is absolutely critical for countries such as Colombia and Ecuador (large jungles) and Bolivia (land locked) to get their goods to markets at reasonable costs.

However, throughout South America and Africa (don't know about Asia), building and maintaining roads hasn't exactly been a top priority. In Colombia, that's likely because of the associated dangers of building roads in remote areas. No one wants their engineers, laborers, or drivers shot up or kidnapped by the guerillas. But, in other countries, this omission is without a doubt, inexplicable.

For example, in Colombia, Peru, and Bolivia, many farmers have two options for crop development - legal and illegal. The legal crops, having a variety of faults, often give way to poppy or coca. Those products not only reap greater financial gains, but they also don't have the same issues with market delivery. A farmer that grows mangos in a remote region simply isn't going to be able to win back his investment if there isn't sufficient infrastructure to ensure timely delivery of said mangos prior to spoilage.

Step 2

Regional Development Plans (RDPs)- I have no idea if I coined the phrase or read it elsewhere. Most likely I'm borrowing it (from Jeffrey Sachs), but RDPs are vitally important for sustainable regional markets in developing countries. Much of the focus in "development" over the last few decades has been on "globalization". Countries are told to open markets, deregulate corporations, float currencies, and make national government spending more transparent. I won't contest those measures as I'm not economist.

However important the macroeconomic picture is, I feel that the regional (internal) picture has been ignored, or at least slighted. Developing nations need to have sustainable local markets to ensure that they can compete on the international level, but also so that they can keep currency in country. It doesn't serve the developing nation if all the profits flow to the developed world. That cycle (as we have witnessed over the last 50 years) merely makes fat cats in the US and Europe richer, while keeping the majority of the world wallowing in abject poverty.

I'll give you an example. The southern portion of Colombia is primarily a potato growing region. For whatever agricultural reasons, other crops don't grow as well there. Thus, the area is highly dependent on the fluxuation of potato prices both internationally and domestically. The government here has little or no interest in providing stability to those regional economies, and thus, the south is an area disproportionately effected by guerillas and narcotraffickers (the two go together like gin and tonic).

Personally, I don't blame poor farmers for choosing to supplement a highly unstable supply of income with a very stable and high earning crop like coca. When you see total and complete poverty, it doesn't take long to figure out that words like "illegal" or "legal" really don't mean much. Instead, I fault the government for realizing that there is a fairly easy solution that could, at least, make a significant difference in those economies.

A Regional Development Plan for this area would look like this: First, it would realize that sugar cane doesn't grow in the south. Why is that important? Well, aguardiente and rum are both made from sugar and alcohol is extremely popular in Colombia. Not only that, the prices of both products are artificially inflated in those areas because of the cost of transport. However, where there are potatos, there can be vodka. It's easy to make, establishing production facilities would be cost effective, and people would buy and drink vodka.

Following this plan would have beneficial economic spillover effects for at least two reasons. One, making vodka means employing more people and more money being added to those regions. But also, making vodka helps stabilize the price of potatos. Greater price stability would mean that farmers don't have to consider alternative (read: illegal) crops to sustain their standard of living. Instead, they would have greater surity that their investments would pay dividends. In short, everyone wins.

This isn't being done here in Colombia. The government doesn't want to do it and the local population in the south simply doesn't have the capital or skills necessary to implement this plan on their own. I don't know why the government doesn't want to act. I assume it's from a rather myopic and narrow view that ignores the grave consequences of regional economic failure (increased coca, violence, and guerillas). But it needs to be done.

Step 3

Diversification and Integration - As seen from the previous example, one of the problems in the developing world is that their products often depend on price flexibility outside of their control. The laws of supply and demand determine the price of roses, potatos, or coffee. While functioning as market economics dictates, this efficiency also exposes developing countries to great vulnerability. Venezuela is a great example. Before the spike in oil prices, President Chavez was little more than yet another failing South American leader (barely surviving a "coup"). However, since the meteoric rise in oil prices, wealth (in some sectors) has skyrocketed and Chavez's influence and importance has followed.

When times are good, things go well. But when the price plummets, poor countries simply don't have the capacity to absorb losses.

To counteract this vulnerability, poor countries have to develop secondary industries. Potatos get sold for soups, but also vodka production. Oil gets sold for cars, but also for (whatever they use petroleum in), etc.

I don't have any grand solutions for Colombia in particular. I don't know enough about the products they produce or the potential that is here, but the point rings true: if a developing nation has tertiary industries it not only helps stabilize prices, but also protects against economic losses. Why doesn't Colombia produce wine, for example?

At any rate, I'm out of time for today. I orginally had a "4 point plan" but my wife is ready for me to pick her up from work, so I have to go. Instead, I'll continue with some other thoughts on the subject as well as elaborating a bit on consumer power in the developed world as a non-governmental measure to influence international economic policy.


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