Somewhere in Beijing, Xi Jinping is pumping his fist like he just won the lottery. On April 15, the China-led Asian Infrastructure Investment Bank (AIIB) announced its official approval of 57 prospective founding members. As of that date, the bank was also set to raise $100 billion dollars in initial capital, with half of that figure being supplied by the Chinese government. Since the bank’s unofficial announcement in 2013, China has taken on an impressive, responsible role befitting of a rising world power. Yet even more noticeable is the blow the United States’ credibility has taken, thanks to its staunch opposition to the project. Seldom in international relations does U.S. policy fall so painfully flat on its face. The rise of the AIIB, however, seems to be one of those rare instances.

Indicative of U.S failure is the list of Prospective Founding Members, which are not limited to Asian powers or China’s closest allies such as Pakistan and Russia. The bank’s membership has brought together historically bitter rivals, including Iran and Israel, as well as Pakistan and India. Most astounding, however, is the fact that despite staunch pressure and condemnation from the Obama administration, some of the United States’ closest allies have signed on, including South Korea, Germany, France, New Zealand, Australia and even the United Kingdom, with Japan and Canada as the only two major powers yet to agree to the bank’s terms.

It is also important to remember that the AIIB is set to serve an important function in the Asia-Pacific Region. A 2010 report by the Asia Development Bank (ADB), a similar intergovernmental financial institution, forecasted a need of $8 trillion between 2010 and 2020 to meet physical infrastructure demands, with 51 percent being spent for electricity, 29 percent on roads and bridges and 13 percent on improvements to lacking telecommunications networks.

Skeptics, namely Washington, have cited the fact there already exists two well-established development banks in the region––the World Bank and the ADB. While there is certainly validity to the argument of oversaturation, unlike its counterparts the AIIB is geared less toward poverty reduction and more directly toward infrastructure development. Furthermore, the reality is that the World Bank and ADB’s lending capacities sit at approximately only $300 billion and $11 billion, respectively, figures far short of the $8 trillion that is required over the decade. Therefore, it should come as little surprise that World Bank president Jim Yong Kim has been nothing but supportive of the AIIB, stating, “We welcome any new organizations. We think the need for new investment in infrastructure is massive.”

The Obama administration has also voiced concerns over the governance and oversight of the AIIB, citing equal representation and environmental oversight as two potential problems. Yet the ADB and World Bank have been faced with similar problems of their own. In fact, one of the ADB’s largest projects, a coal power plant in Mae Moh, Thailand, is considered by Greenpeace to be one of the worst ecological offenders in all of Southeast Asia. As for the World Bank, a 2010 report by the United States Senate Committee on Foreign Relations noted the institution’s poor record of “achieving concrete development results within a finite period of time” and needed to work on “strengthening anti-corruption efforts.”

While it is naive to assume the AIIB will have a spotless pro-environment, corruption-free record, the fact that the bank is still in its inaugural stages means there is room to effectively work on stamping out these issues that would be more difficult in already established institutions. Indeed, at the bequest of some of its European founding members, the AIIB leadership has already begun drafting a series of environmental standards for its projects, including requiring Environmental Impact Assessment documents (EIA) and environmental management plans (EMP) in order to receive funding.

The final and most pressing concern for the U.S. government is what it sees in China using the AIIB as both a hard and soft power tool, threating the historically U.S. controlled World Bank. There should be little doubt that the AIIB is, in part, an attempt by China to force its way into a heavily U.S.-dominated scene. As Zhao Changhui, economist at the state-owned Export-Import Bank of China, candidly admits, “the founding of AIIB is a challenge to the U.S.’s economical and political dominance. It’s also a challenge to the establishments controlled by the U.S., such as the World Bank.” Yet such statements pose little threat to the United Sates. China, the world’s second largest economy, is an ascendant power that is eager to claim the authority it proportionally deserves due to its size. Rather than fight a losing battle, the United States ought to join the AIIB. As an active member, the United States would be able to work with the other members, many of whom are allies, to shape the direction of the bank in a mutually beneficial manner.

But first, the United States must loosen its fears of a rising China and the implications of the AIIB. Many in Washington perhaps fear the bank’s establishment as the formal decline of American financial supremacy. Yet China is not in the same position that the United States was in when it formed Bretton Woods at the end of the Second World War. The United States and Europe are simply too powerful to be overshadowed in such a way by China, which lacks the unipoliarity of the post-war United States. On the eve of Japanese Prime Minister Shinzo Abe’s White House state dinner on April 28, President Obama took a cue from Chinese culture and attempted to save face, remarking that the AIIB “could be a positive thing.” This about-face only further highlights China’s upper hand.

Source: http://www.flickr.com/photos/imfphoto/7176494253/

Peter Bauer, a prominent developmental economist, argued “there would be no concept of the Third World at all were it not for the invention of foreign aid” (The Economist). He opposed the idea that development aid could provide the capital needed to kick-start economic growth and fight poverty (Kristof). Aid, he argued, politicized economies and more often than not ended up in the hands of government officials. Contrary to Bauer’s beliefs, foreign aid is not fundamentally ineffective. While in its current form it has little effect on economic growth and may even hamper a country, foreign aid can be effective in certain situations if reformed and managed correctly.

Recent studies suggest that foreign aid may hamper a recipient nation in the long run by weakening local institutions and adversely affecting the country’s competitiveness. In a paper published in 2005, Raghuram G. Rajan, former chief economist at the International Monetary Fund (IMF), and Arvind Subramanian, a former IMF researcher, offer compelling evidence that aid appreciates the real exchange rate of a country thereby decreasing competiveness (Rajan and Subramanian). This appreciation has two root causes. Aid increases the price of resources in short supply such as skilled labor and land, raising costs for local business owners and increasing unemployment (Ibid). An inflow of foreign capital appreciates the nominal exchange rate, making the currency (and in turn the nation’s exports) more expensive. The appreciation of the real exchange rate pushes countries away from “export oriented labor intensive manufacturing.” An export oriented economy encourages sensible government policy by providing the incentive of significant economic growth; foreign aid could potentially eliminate this incentive (Rajan and Subramanian). Therefore, governments must spend foreign aid very effectively in order to offset the fall in competitiveness.

In the case of countries like Somalia, current foreign aid provides temporary relief but does not tackle the root causes of the country’s problems: establishing security, providing food and encouraging business (The Economist). The government must limit the influence of jihadists and secure the Kenya-Somalia border, the site of much terrorist activity. Somalia is a hungry country; according to the U.N., 80,000 Somalis may have perished in last year’s famine (Ibid). Efforts must be made to stabilize food production by making it safe again for displaced farmers to return to their farms. In order to encourage local businesses, foreign donors must invest in industrial equipment, telecommunications, and livestock by supplying capital for loans to medium sized companies. Only then does Somalia have a good shot at success.

While most of academia has concluded that development aid is usually ineffective, there remains much discussion over humanitarian aid. In an editorial published in the New York Times, Carol Giacomo, a member of the Council of Foreign Relations, argues that humanitarian aid helps advance stability abroad by providing food and medicine (Giacomo). For example, U.S. foreign aid was cut by $6 billion, or roughly 11%, in 2011, with further cuts looming due to recent efforts by Republicans to trim our budget (Ibid). Giacomo warns that such budget cuts, which represent a tiny portion of our multi-trillion dollar federal budget, would be “hugely damaging.” Indeed, there is evidence that humanitarian aid has had an effect: in the past 50 years, the number of children who die annually has gone down by 60% (Gates). Furthermore in the last decade the cost of fighting HIV and AIDS has gone down significantly (Emanuel). Nicholas Kristof, a Pulitzer Prize winning columnist for the New York Times, tentatively concluded that one-time interventions such as bed-nets and vaccinations are more likely to be effective than sustained efforts (Kristof). Rajan and Subramanian, however, challenge the notion that humanitarian aid is as beneficial as it is purported to be (Raghuram and Subramanian). In fact, it’s just as ineffective as bilateral or multilateral aid because governments “seem to view all forms of aid as going to a common pot and act accordingly” (Ibid).

Perhaps the way foreign aid is administered is at fault. The Center for Global Development, a Washington think tank, put forth a scheme called “Cash on Delivery” (Rosenberg). The idea is simple: donor countries only pay for projects when something good comes out. For example, the United States and Malawi would draw up a five-year plan to improve primary schooling that specifies a set of payments and what must happen for Malawi to get them (Ibid). After the contract is drawn up, the funder takes a “hands-off approach” which allows the recipient nation the freedom to accomplish the requirements on its own (Center for Global Development). Theoretically, “Cash on Delivery” should garner more political support at home for foreign aid than traditional aid would and also create a sense of accountability in aid-dependent countries (Rosenburg). This method is still untried so we cannot know how successful it can be. And, at the risk of sounding cynical, the entire premise of the “Cash on Delivery” is contingent upon the fact that the foreign government (organization, business, etc) is organized enough to accomplish the set goals in a legitimate manner. Back to the Malawi example, if test scores were used to determine the effectiveness of an education program, it would not be impossible for interested parties to alter test scores and escape the scrutiny of foreign auditors. Yet despite skepticism about the effectiveness of “Cash on Delivery” and foreign aid in general, it’s encouraging to know that we have not abandoned the desire to alleviate poverty worldwide.

Kenya is soon to become the next hotbed for genetically modified crops, with its government’s intention to introduce new GM cotton and corn varieties within the next few years. While proponents hail this development as a huge step in the fight against hunger, their notions of boosting productivity to “feed the world” are divorced from how GM crops would actually increase the vulnerability of Kenya’s poorest farmers. In fact, small farmers are the most susceptible to famine in Africa, and so any agricultural development approach needs to be evaluated in terms of its effect on farmers.

GM crops render the agricultural system highly capital- intensive, which is not the right path for Africa’s smallest farmers. The seeds themselves are expensive, and they require massive amounts of chemical fertilizer and water in order to grow. Here the social consequences of India’s Green Revolution must be heeded: the deployment of high- yielding crop varieties and chemical inputs were inaccessible for the nation’s smallest farmers and benefited only large-scale growers. India may have raised its food output, but it came at a great cost to the rural poor. And today, even the greatest beneficiaries of the Green Revolution are now suffering, as farmers’ indebtedness—due to reliance on costly chemical inputs—has led to their suicides.

The development of GM crop technologies sets the stage for agricultural research institutions and multinational seed corporations to trample on farmers’ rights. Many of the seeds controlled by multinationals actually contain traits found in farmers’ traditional crop varieties. They take copies of farmers’ local seed varieties, add new genetic traits, and then sell the seeds back to those same farmers. What an injustice–farmers now have to purchase the genetic resources over which they once had control. When in the 1990s Kenya was forced to slash public funding for agriculture because of World Bank- imposed structural adjustment programs, the Kenya Agricultural Research Institute was starved for cash and had to turn to the private sector. The result: international corporations took control of the nation’s public research agenda, a reality that continues to this day.

If farmers’ rights are to guide the agricultural development in Kenya, then traditional seed varieties must be at the top of the agenda. Farmers can harvest and re-plant the seeds every year, shielding them from expensive seed markets. For the past two months I’ve been visiting smallholder farmers in Kenya, and my conversations with them have revealed that the local seeds are the best adapted to local climatic conditions, rendering them the best option for resilience to drought. Proponents of technological fixes to hunger often assume they have all the answers to dealing with drought, but neglect how farmers’ own indigenous knowledge—like traditional seeds—are a viable solution. Likewise, chemical fertilizer is not the only way to nourish soils; farmers can also employ nitrogen-fixing crops, crop residues, and livestock manure to provide nitrogen to soils.

Indeed, the farmers whom I’ve interviewed in Kenya have told me almost invariably that their biggest challenges are the high cost of seed and fertilizer. It seems, then, that what the development establishment and multinational agribusinesses hail as the answer to food insecurity—external inputs—is actually a key threat to farmers’ livelihood stability. Thus the problem with today’s corporate- controlled global food system is that it forecloses consideration of alternative forms of seed and soil nutrients, which are best suited to the poorest farmers. “Food sovereignty” is the umbrella term that represents these approaches contesting high-input agriculture.

Locally-controlled food systems also warrant a focus on the so-called “orphan crops”—sweet potato, cassava, sorghum, and millet. These crops have largely been abandoned in Kenya in favor of corn, which farmers told me they grow for market opportunities. Yet the orphan crops are important for nutrition, particularly at a time when the need to integrate agriculture and nutrition is garnering increasing attention in high-level policy forums. One challenge is to develop local markets for orphan crops as a way to complement their contribution to farmers’ own nutrition.

Farmers must have a greater say in the global agricultural research agenda in order to mainstream the sorts of approaches that don’t rely on external seed and inputs. The international research establishment— represented by the Consultative Group on International Agricultural Research —has largely focused on improving the productivity of globally-traded commodity crops while neglecting locally-important crops. Yet one promising development is that small farmers have their voices heard in the Association for Strengthening Agricultural Research in Eastern and Central Africa (ASARECA).

“Farmers have been able to initiate a lot of reforms,” said Philip Kiriro, the farmers’ representative on the ASARECA board and the President of the Eastern Africa Farmers’ Federation. “We’ve been able to get researchers to expand their insights to capture orphan crops that are very important for small farmers.”

Furthermore, the International Institute for Environment and Development recently convened a “citizens’ jury” in Mali that brought together farmers to make recommendations on the governance of agricultural research. They suggested a focus on the production and storage of traditional seed varieties, rather than hybrid or GM varieties.

Yet what’s striking to me is that high external-input industrial agriculture—the wrong approach for the poorest farmers—seems to be the prevailing view in Kenya. It is the approach supported by the Alliance for a Green Revolution in Africa, which seeks to bring to the continent the same technical solutions seen in India and Latin America in the 1960s. But why are Kenyan government officials and prominent researchers supporting a type of agriculture that would be detrimental to their poorest farmers? I think this largely has to do with the hidden social costs of an agricultural system dependent on expensive chemical inputs and seeds. While large- scale food production systems in the West may produce massive amounts of food, government subsidies mask their social impact: after all, if farmers are guaranteed a minimum price for their crops, then they remain virtually unaffected by high chemical and seed costs. The fundamental problem is that industrial agriculture is judged narrowly by crop productivity but hardly at all by farmers’ livelihoods. So this model is problematic when transmitted to African countries, precisely because their farmers are affected by high input prices and crop price volatility.

It appears, then, that Kenya’s elites have been co-opted, by international institutions and corporations, into supporting a model for agriculture that would only exacerbate the susceptibility of its small farmers. We’re in an era where “good governance” means not only charting a course of market-led development but accepting as legitimate the arguments put forth by mainstream development institutions. Who, then, will stand up for the poor farmers at risk of losing control over their own food systems? Who will demonstrate that local, agro-ecological methods that don’t rely on high-yielding seeds and chemicals are perfectly capable of achieving food security?

The next few years are sure to be filled with activism on both sides of the crop biotechnology debate, and will serve as a test of whether the food sovereignty movement can effectively battle the intrusion of new crop technologies into Africa.

The average tariff rate in the world’s developed nations is very low. Yet, due to the historical and current political power of land owners, trade barriers (most notably subsidies) on agricultural products remain punitively high, inflicting tangible and substantial economic pain on the developing world. The subsidies remain despite the declining significance of agriculture in developed economies: in 1790, nearly 90% of the American workforce was agricultural, but by 1900, this proportion dropped to only 38%. And currently agricultural labor constitutes only 1% of the labor force and only 1% of American GDP. In 2007 alone, countries in the Organization for Economic Cooperation and Development (OECD), the world’s rich nations, spent a total of $258 billion on farm subsidies, $126 billion of which came from high domestic prices due to tariffs and export subsidies, and the other $132 billion from taxpayers through crop price supports, production payments, and other farm programs. Putting this figure in perspective, it is roughly equivalent to the economic output of the whole of sub-Saharan Africa, and six times the amount of foreign aid given annually to developing economies. Ironically, developing countries are continually under pressure to reduce or eliminate their trade barriers in accordance with WTO negotiations even though the developed world, including the United States, does not oblige. Several years ago, the U.S. lost a case in a WTO dispute settlement concerning the legality of its subsidies, but farm supports were maintained in legislation passed later that year.

Subsidies encourage overproduction of agricultural products and depress world prices. By offering producers a higher price than the prevailing one on world markets, producers can profitably flood markets with surplus crops. American farmers, for example, receive up to 73% more than the world market price for their crops. As a more extreme example, in the UK, each ton of wheat and sugar is sold on international markets at an average price of 40% to 60% below the cost of production. Indeed, for every dollar earned by OECD farmers, 23 cents comes from government policies. Facing such artificially competitive goods, countries without subsidized production are essentially shut out of world markets, deleteriously affecting their economies. Development-focused nongovernmental organizations have lambasted developed countries for their exclusionary policies. As an Oxfam report exclaims, “the harsh reality is that [developed nations’ trade] policies are inflicting enormous suffering on the world’s poor. When rich countries lock poor people out of their markets, they close the door to an escape route from poverty.” While this statement is exaggerated, and the domestic policies of developing countries themselves play the greatest role in determining the welfare of their respective people, the economic pain caused by the distorted trade practices of the OECD rich nations is indeed significant.

Agriculture has historically been the foundation of developing economies. It provides food, security, creates employment, and generates local capital. Statistically, agriculture provides employment to about 60% of the labor force of the average developing country and contributes one quarter of GDP. Agricultural exports amount to about 15% of total merchandise trade. World market prices for agricultural commodities have followed a general downward trend over the past several decades due to increases in efficiency and yield, but significantly exacerbated by the subsidies in the developed world. In the short run, one could argue that the low prices for imported staple foods benefit consumers in developing countries, but they also lead to an increased dependence on imports to ensure national food security, increasing vulnerability to world price changes and exchange rate volatilities.

Even more importantly, lower prices for crops translate into lower incomes for farmers in the developing world. Studies by the International Food Policy Research Institute concluded that lower prices resulting from protectionism and subsidies by OECD countries cost developing nations $24 billion annually in agricultural income, and because developing countries are particularly dependent on agricultural income, the income lost due to subsidies in the developed world is likely to have very large multiplier effects throughout developing economies. Further studies have shown that a reduction of agricultural subsidies and implicit trade barriers by OECD nations would produce substantial benefits for both developing nations and developed nations alike. If high income countries liberalized their trade policies, their welfare would rise by almost by almost $32 billion, and the welfare of developing nations would rise by $12 billion and net agricultural trade would triple. Notice that most of the benefits of liberalization accrue to the developed world. This is because their consumers are footing most of the bill in the form of tax dollars and higher domestic prices.

Agricultural subsidies in developed countries have a particularly strong economic impact when they are provided for crops also grown in developing countries. A couple examples will help illustrate this point. Sugar is an agricultural product in which developing countries have a distinct cost advantage to producers in the OECD due to their suitable climates and supply of cheap labor. However, farmers in the developing world face steep competition from the heavily subsidized sugar coming from American and European ports. From 1991 to 2001, support to OECD sugar producers averaged $6.35 billion, which is just slightly less than the combined value of developing nations’ sugar exports which total to about $6.5 billion per year. Due in large part to this support, the share of developed countries’ exports in the world sugar market has risen, and consequently, the share of exports from developing countries has declined from 71 percent during the period from 1980 to 1985, to only 54% of world sugar exports in the period from 1995 to 2000.

Cotton provides an even more powerful example. Ten million people in Western and Central Africa depend directly on cotton production for their livelihood. Cotton accounts for 40% of exports in Burkina Faso and Benin and 30% of exports in Uzbekistan, Chad, and Mali, and cotton production alone in these countries amounts to over 5% of GDP. It is thus a very important source of income, and any fall in the world price of cotton, such as the fifty percent decline since the mid 1990s, will have a pronounced negative ripple effect throughout these economies. Despite this decline in price, American cotton production grew 42% between 1998 and 2001 and presently accounts for 20% of world cotton production. Coupled with this increase in production, U.S. cotton subsidies have doubled since 1992. America’s 25,000 cotton farmers now take in $230 for every acre of cotton planted, totaling to $3.6 billion in subsidies, more than the entire GDP of Burkina Faso. It is estimated that the elimination of U.S. cotton subsidies would reduce American production by 25%, reduce exports by 40%, and increase world cotton prices by 12%. All of this would lead to about an $80 million gain in producer surplus for the five key cotton exporting nations of Africa.

While the trade policy of the developed world does not intentionally seek to hamper the trade and economic welfare of developing countries, it does so implicitly by providing domestic agricultural subsidies to the very goods which developing countries export, causing significant economic suffering in those countries. Perhaps, when considering how we can influence and spur the growth of the world’s developing nations, before turning our efforts overseas, we should first focus our attention on how we are contributing to the problem — not the solution –at home.

More than half of the world’s adult population lack access to formal financial services. Bhagwan Chowdhry, UCLA Anderson Professor of Finance, proposes a FAB idea to tackle the issue. Financial Access at Birth (FAB) is a social and economic innovation that seeks financial inclusion. According to Center for Financial Inclusion at ACCION International, where FAB is housed, “Full financial inclusion is a state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. Financial services are delivered by a range of providers, most of them private, and reach everyone who can use them, including disabled, poor, and rural populations.”

The Economist, CNN, Forbes, Fast Company, Smart Money, and others, featured FAB because of its compelling aim to give every child at birth a unique universal ID that connects to a saving account with a small initial deposit. The account created and the financial identity secured will create an infrastructure as a humanitarian delivery channel. This delivery channel can be used for providing information, health, education, and emergency aid to the last-mile population.

The Paganucci Fellows Program – a summer internship for Dartmouth students held at the Tuck School of Business – has taken on the role of conducting a feasibility study on FAB in Ghana, a potential first location for FAB. This program empowers five Dartmouth undergraduates who wish to make a difference in the world with the unique opportunity to utilize resources and mentorship at Tuck. The stated goal of the program is to “support Tuck’s efforts to study complex social issues and the ways in which businesses can create positive social and financial value; in effect, the ‘double bottom line’.” As a team, Paganucci Fellows are pursuing a global development consulting project to fuel their passion for international development and to acquire skills that will help pursuing future endeavors in social services.

In the process of conducting the feasibility study on FAB in Ghana, the Paganucci Fellows have defined key questions that the FAB model must resolve prior to implementing a pilot program. The team is also working on a website launch strategy as FAB rolls out a public relations campaign in association with its appearance in the final season of the popular HBO series Entourage this August. Paganucci Fellows are also responsible for developing a strategy and preliminary invitation lists for the global consultations that FAB plans to conduct beginning in Fall 2011.

So far the research has been conducted using web-based secondary sources and a series of interviews based in Hanover. Some of the interviewees include Ghanaian students (both in Ghana and at Dartmouth), Dartmouth and Tuck Professors, World Bank employees, and NGO founders in Ghana – Dana Dakin, founder of WomensTrust, and Ben Schwartz, Dartmouth College ‘06, founder of World Partners in Education. These interviews have been informative about the context in Ghana regarding FAB and have helped the team to prepare a preliminary feasibility analysis for the country.

The Paganucci Fellows hope to resolve some of their questions in Ghana in order to ensure that FAB rolls out in its most effective and efficient form. The team is hopeful that the journey can be one of the first few steps for the budding FAB to improve the quality of millions of lives.

Make no mistake; most international development literature has made clear that developmental aid is rather ineffective. There are many obstacles to development that can render massive amounts of monetary aid ineffectual. International aid faces problems with governments that are not fully committed to development goals, infrastructural problems that prevent money from reaching the people who need it most, and even issues when it comes to determining the best way to combat poverty. However, it has been shown that appropriately allocated developmental aid can be successful in bettering the lives of the bottom billion. For example, within the healthcare sector, aid has helped to increase life expectancy in developing countries over the last four decades by 20 years. In addition, over the past 30 years we have seen a 50% reduction in illiteracy rates and an increase in quality education due in part to aid. Furthermore, we have seen a decrease in the number of people living on less than a dollar a day. Lastly, a study showed that per capita economic growth was higher in countries that received more aid than in the countries that received less aid. This growth provided an incentive for more investment into these developing nations and lowered poverty rates as a result.

Therefore, international aid plays a role in the improvement of quality of life in many regions all over the world. Collectively, “the West,” has spent around $2.3 trillion dollars on developmental aid in the last five decades. The United States government alone spends around $22 billion dollars on foreign aid where about $10 billion dollars more are contributed by private citizens. However, as donor countries face economic turmoil in the global recession, there will be a drop in aid because they will not be able to afford to give away the same percentage of their GDP that they did in more prosperous times. It is speculated that official aid to developing countries might fall by around $20 billion dollars this year due to the economic meltdown. Perhaps more importantly commodity prices will fall during this economic recession, and countries that depend on exporting will be hurt.

Suzanne Freidberg, Assistant Professor of Geography at Dartmouth College, notes that historically, economic recessions have negatively affected developing exporting countries, citing the bankruptcy of Upper Volta (now Burkina Faso) during the Great Depression. The economic recession will therefore lead to undermined growth and decreased aid for the world’s poor. Yet Freidberg warns not to take a simplistic view of this crises by reminding us, “…falling commodity prices can be bad for countries that are dependent on exporting… cotton or copper or whatever, but the extent of the price of the goods they need falls as well, like [fuel]. That may balance it out.” She goes on to warn us about an over exaggeration of the affects of this economic crisis on the third-world poor, because “many members of that bottom billion have never really benefitted from the aid in the first place.” So if the international development community wants to really help the third-world poor, they must provide safety nets to protect the poor in developing nations during times of crisis, economic or otherwise, because they are the ones most hurt.

Since 1949, the United States has devoted itself to, in Truman’s words, “aid the efforts of economically underdeveloped areas to develop their resources and improve their living
conditions.” The International Monetary Fund was founded upon these words, to be an institution that helped countries grow economically and reduce poverty around the world. The IMF provides loans to countries on conditional terms, so that the countries can grow economically under global guidance. The World Bank also provides loans, credit and grants for developing countries to grow. In the past however, their system of aid and loans have hurt the developing world as much if not more than they have helped it. Freidberg notes that during the “economic recession of the 1980’s… the difficulties were compounded by the structural adjustment policies that were imposed by the World Bank and IMF.” And in the wake of this economic crisis, both NGOs are working to speed the recovery, but their post-crisis actions cannot necessarily save the world’s poor from being unduly hurt by the global recession. Furthermore, considering the relatively slow recovery process of developing countries from economic shocks, post-recession measures will do little for the world’s poor, whereas protection against economic crises would go a lot further in helping. The world’s poor need insurance against these global crises that start in the developed world and trickle down.

Due to the economic crisis, world trade is expected to drop by more than 13%, which has detrimental affects to the developing world. That fact coupled with the decreased levels of aid will exponentially affect the poorest countries due to magnification. The global recession has hurt NGOs like World Neighbors, a 60-year old international developmental organization that helps around 500,000 people a year. The organization’s budget has dropped from $10 million, ten months ago, to $6 million today. This is a substantial loss in aid available to give for development and will result in many programs for the world’s poor being undermined and scaled back. “If international aid does fall dramatically, then certainly people who are dependent on certain kinds of programs will be hurt by it,” says Freidberg.

The question of how we can protect the world’s poorest people from feeling the magnified effects of this time of economic hardship and falling international aid is one that has many answers. One answer is for the international development community to shift into promoting lower risk activities that will make it harder for the developing area to be adversely affected by the economic recession. However, a shift into low risk activities also leads to lower returns on investment. This is a problem, because the rapid economic growth we all would like to see in the developing world cannot come from low-risk activities. According to Freidberg, economic recessions heavily affect the formal economy of developing nations, because they are more dependent on world markets. So in this time of global recession, a movement away from supporting these kinds of businesses that are particularly sensitive to world markets would not hurt.

A simple way to insure the world’s poorest from the problems that arise as a result of economic turmoil is to make sure the programs implemented by the international development community provide as many different protections of the poor as possible. In 2005, an estimated one in six people raised themselves above the $2-a-day poverty line, yet due to this economic crisis an estimated 65 million people will fall below that $2-a-day poverty line this year alone. Thus, it is imperative that developmental programs provide their beneficiaries with as many safeguards as possible. For example, the NGO KickStart that sells micro- irrigation technologies, such as pumps, to poor farmers to increase their crop yield offers a one-year replacement guarantee for their product. They also test every single one of their products before they sell them to the risk-averse farmers. If a product the farmers buy fails them, then that could be the difference between life and death. So it is imperative that the international development communities try to shield the poor from shocks like the economic meltdown we are seeing today or more direct shocks like those disasters due to weather.

In developing countries there are also informal risk-sharing networks, through one’s family or tribe that protect people from crises. It would help to formalize these institutions and ideally create a kind of collective insurance system for poor communities so they could shield themselves from times when, the world economy is bad or when there is drought.

Another way the international development community can protect the poor is by teaching and encouraging saving techniques amongst them. If the poorest people have savings, they will be able to survive even in times of crisis. They will have insurance to continue their lives and invest in low risk activities that could lead to steady economic growth. That with the coupling of access to credit…

An effective insurance model, but one that would be hard to institute, would be an insurance net that protected the world’s poor. Now, this kind of safety would be impractical for the governments of developing regions to implement because it would not be cost effective for these generally inefficient governments to set up such a system. It would have to be implemented by the NGOs operating in the developing countries. Micro-insurance, that could protect the poor from economic shocks, environmental shocks etc. would be a feasible way to provide a safety net. The model would be a slight variation from the micro-credit programs that have already been implemented in developing regions all over the world. On micro-insurance, Freidberg states “think micro-insurance is something that would be…I mean insurance in general, be useful, regardless of the state of the global economy, because micro-insurance for small farmers for example. For a lot of small farmers the more perennial concern is the weather. And that’s something that they need insurance for.” It is easy to think that a fall in international development aid will have cataclysmic effects on the third-world poor, yet in reality the truth is that the global poor have a history of survival. They are people avoiding destitution, and the creation of the informal economy is a testament to the sophisticated ways in which they have managed to survive. Freidberg expresses this notion by saying that, “people [in third world countries] have been coping with crisis for years.” So we should not fall prey to the dire predictions of extreme poverty in the third-world due to this economic crisis, because there always has been extreme poverty in these nations and the poor have always found ways of surviving. Instead of post-crises measures, the international development community should focus on protecting the poor from crises in the future. Working to teach savings techniques, offering micro-insurance, and putting in place safeguards for development programs will all help the bottom billion immensely during times of crisis.