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Sunday, July 24, 2011

The Trouble With Progressive Economics

Notes on The Trouble With Progressive Economics

This is an excellent little article on economics.  I have been trying to read more about economics to make some sense of what is going on these days.  This piece helped enormously.  If you are in a similar place, give it a read.

It offers an explanation of how we got into the current mess, using the various economic theories of the last hundred years or so. The author does a good job of simply presenting the major tenets of classical, Keynsenian, neo-classical and progressive views of economics.

He makes the point that the Keynesian or progressive approach is to stimulate demand - be it by government spending or private spending. We basically encourage low and middle income families to spend more and more.  Progressive policies are focused more on sharing the wealth, spreading it about equitably, and not on creating wealth - the true classical approach.  That sounds a lot like classical economics, but that school would not give the government any role in creating wealth.  He says that today, we need sustained government intervention and investment in the things that cause wealth creation:  new technology, education, innovation, productivity.  Some progressives actually oppose these programs because they seem to threaten full employment.

He does a nice job on globalization as well.  Instead of viewing it as a threat, where businesses in other countries can out compete us by ignoring labor and environmental standards, we have to recognize that it is inevitable, and work with it and through it.  Protectionism won't help.

I think this approach needs a name - Progressive Classicism?  I like it - try it, it'll grow on you.  It's better than "neo-classicism with a heart" - the failed approach.

Saturday, July 16, 2011

Practical Steps out of Poverty - The Family Independence Initiative

If you have read my blog up to this point, (http://carlscheider.blogspot.com/2011/01/culture-and-developing-nations.html) you know that I am persuaded that CULTURE has a profound impact on economic development.  Culture is defined as "the way people think things work".  The problem with that insight is that if this is true, then there does not appear to be much that one can do to assist people in developing nations that want to escape the poverty cycle.  If the root problem is how they view the world, that changes very, very slowly.

There is a new approach to the problem.  The Family Independence Initiative.  It is described in a recent piece in the New York Times, by one of their columnists, or bloggers - David Bornstein.  Mr. Bornstein has not benefited from my insight into culture and development - but he doesn't really care.  This technique works!  It works spectactularly.

Here's the article:
http://opinionator.blogs.nytimes.com/2011/07/14/out-of-poverty-family-style/?emc=eta1
If it's gone or moved, you can find the author at this blog:
http://opinionator.blogs.nytimes.com/category/fixes/.
And the group that actually implements this technique is called "The Family Independence Initiative".  Itcan be found here:    http://www.fiinet.org/.
     Or send me a note - I have a copy of the article.

The rest of this piece will give you a 25 cent tour of the article.
1 - why this is a big deal.
2 - the characteristics that make this work.
3 - implications for the rest of us!!
4 - caveats.

WHY IS THIS A BIG DEAL?
The End of Poverty: Economic Possibilities for Our TimeMany, many people around the globe are working to end poverty and hunger.  One of the keys is clearly to foster economic development in those areas where poverty is a major problem.  Many, many people live on less than a dollar a day.  People like Jeffry Sachs (The End of Poverty) and the millenium development approach are working hard with large investments to change the physical landscape, the water supply, education, and economic infrastructure of entire villages.  They are having some success, but it is long, hard, slow work.


Development as FreedomSome economists are persuaded that the creativity and energy for development are always present in humans, but they need some fundamental support structures from their government and society in order to unleash this potential.  (Amartya Sen - Development as Freedom).

Others recommend a type of experimental economics - try various incentives to see what works and what does not.  Don't use any theoretical approach as humans are different around the globe.  See Bannerjee and Duflo, Poor Economics.  http://pooreconomics.com/



Poor Economics: A Radical Rethinking of the Way to Fight Global PovertyOur parish has been working with a community in Nicaragua for 25 years to assist their development.  We have done a wide variety of things, from projects, to gifts, to education.  We have made a some progress, but not as much as we would have liked in that time frame.

This approach is a simple set of steps that seems to work very well.  It does not require the injection of large sums of money, and there is no effort from the outside to direct or control what happens.  The whole effort is internal to the group themselves, with very modest assistance from outside.  This is not charity, it is not demeaning.  It enables the power of the group themselves to effect change.  And . . . it works!

WHAT ARE THE CHARACTERISTICS OF THIS APPROACH?
I really encourage you to read the article, and to research it further, but here's a synopsis.
Basis of the approach: 
  • Make resources and funding available more directly to people, not just institutions.
  • Allow families the freedom to determine their own paths, instead of taking direction from case managers and social workers.
  • Encourage and reward personal initiative, instead of penalizing or reducing eligibility for help if a family makes progress.
  • Support and promote mutuality and building social capital, instead of helping individuals outside of the context of their families and communities.
  • Honor resident leadership and expertise, instead of professionals and outside intervention
  • View families as consumers with valuable feedback entitled to hold services and programs accountable, instead of needy victims.
Key steps:
  • Identify a group of low income families in similar circumstances that are willing to work together.
  • These families agree to meet as a group once a month to discuss their goals and any issues they want to raise.
  • The group is asked to create some goals for their families, and write them down.
  • They are asked to fill in a questionnaire each month that tracks changes in things like income, assets, debts, health, education, skills, social networks and civic engagement.
  • For every success in their goals that is documented, they are awarded $30, up to $200 per month.  The funding continues for the first two years, but the group structure is intended to be last longer.
  • The results are audited every three months.
  • The outsiders do not guide the agenda of the meetings, and do not act as facilitators.  They establish a structure, and let the operation up to the families.  They do not even offer friendly advice.
Initially the groups waited for the outsiders to give direction or take the lead. But they soon began to share their goals, define them, and document them.  The results are large increases in family income, in education acquired, savings, etc.
The key things about this approach are:
  • The support provided by the group of families.
  • The sense of self empowerment of achieving actual goals they established.  This touches on the cultural question.
  • The refusal of the outsiders to take charge, or even to offer advice.  The families are completely empowered and in charge of this.
IMPLICATIONS FOR OUR EFFORTS
We at Guardian Angels have actually started down this road, thanks to our years of working with the same group of families, and the assistance of AKF, our coordinating association in Nicaragua.  They had actually initiated the change from us giving things or doing things, to the local community being in charge of their goals.  With AKF's guidance, the community spent a lot of time  and energy defining their own goals - and they did a fine job of that.

Based on the information from these studies, I think we would change a few things.
  • Set smaller, personal goals for individual families, and set smaller goals for their overall project, as steps to implement it.  For example,a goal would be to establish a legal entity to own the land, build the worm farm infrastructure, etc.  This latter could also be a part of individual family goals to take part.  We have tended to ask them to establish ultimate 'dreams', which may appear to them to be almost impossible. Given the cultural tendency in developing countries to feel that they are not able to change things, it would make sense to start out with smaller goals, smaller steps.
  • Document all of these in writing.
  • Track their progress toward those goals in writing.
  • The US version offers a small cash incentive for each goal accomplished.  That does not feel right in our situation.  Rather, I would create a replenish-able fund that is put at the disposal of the local community.  They establish a board to review proposals from individuals and families.  The entire community has to review and approve their community goals.  When approved, the individual or family is given the funds to accomplish their objective.  
  • When the proposal is completed, it is documented in writing to the satisfaction of the local community, and that is submitted to the funding entity.  The fund is then replenished.   
  • The community is asked to pay this investment forward, by assisting in establishing a similar community in another place.  They would be the speakers, assist the trainers, and provide support to another community that is setting about this same activity.  To get a bit larger scope, we could ask that they assist with TWO new communities in this regard.
  • The community continues to meet monthly with the other families, to discuss their progress toward their goals, and provide mutual aid and support.
CAVEATS
This seems to work well in the US, but the cultural impact in developing countries may continue to present a problem. Granted, the group members to this point are generally from a specific sub-culture that has some  elements that conflict with development, but they are surrounded by the larger culture of the nation which supports it relatively well.  In developing nations, the culture of the larger society is less supportive, and the institutions to support development are generally lacking - such as an honest and transparent political system, courts, police, education, etc.

That said, it does offer an alternative that follows good guidelines:
  • Goals are created by local people, not from outside.
  • A social support structure is created, which will endure.
  • Local people are in charge of obtaining the results.
  • A small financial incentive can get things rolling.
  • Tracking and reporting progress provides powerful feedback.
  • A supportive group of other families helps immensely.
Well, what do you think.  Does this have potential?