The rising tide of income inequality in the United States has grown too noticeable to ignore. The community integration of America’s richest and poorest families would level the drastic differences in environmental and educational opportunities between the rich and poor that exist today and greatly improve social mobility in regions where it is most lacking. It can be achieved by changing the way that federal and local governments approach housing policy and regulation. Although it seems counterintuitive, the federal government must reallocate its spending on low-income housing away from poor neighborhoods and instead invest in affordable housing development in “high opportunity” communities—areas with well-funded school systems and little crime. However, this cannot be achieved without stripping local governments of their restrictive zoning laws, which often act to exclude low-income families from feasibly entering these communities.

The US Department of Housing and Urban Development (HUD) currently spends $32.6 billion a year on developing affordable housing for low-income families and individuals. At first glance, allocating federal funds to the communities that need it most would seem like a sensible policy decision, and most housing nonprofits and state authorities would agree. These coalitions—typical of distressed neighborhoods in cities across the country—argue that subsidizing housing in locations that are already distressed will encourage their growth and revitalization. Yet, as the 2016 election nears and the nation’s burgeoning inequality demands more and more political attention, sociological and economic research has started to poke gaping holes in the conventional practices of the HUD and housing authorities across the country. The problem, they say, is that concentrating low-income development in areas already concentrated with low-income households will compound the US poverty trap for these families and individuals.

Indeed, it is far more likely that the activist organizations centered in these communities are simply desperate for grants and, additionally, that the politicians representing them are eager to claim credit for a façade of development and progress. Yet the money—and the development that comes with it—continues to be directed into low-income areas, and the outcomes are dubious. Many are now claiming that truly helping the poor with subsidies would require development to take place in the aforementioned “high opportunity” communities, which not only provide residents with a surplus of public and educational resources, but shield them from the traumas of crime and violence that are persistently rampant in some of America’s poorest neighborhoods. Yet resistance to any such proposals has been expectedly stiff. For decades the urban planners and administrators of the nation’s more exclusive communities have used zoning laws—laws regulating the use of real property—to exercise protection against their fears of low-earners “free-riding” their public school systems and the potential effects of affordable housing developments on the safety and overall ambience of their towns. Yet the impact of these laws creates not only significant economic segregation, but also daunting barriers to social mobility and abandons our least skilled and educated. The result is a country that is not only unequal but also systematically oppressive and suffocating to the poor.

As a first step, local governments in rich communities must be stripped of their excessive control over land use, not only to allow the government to fund affordable housing in these areas but also to open the door to private real estate developers and businesses who could capitalize on this deregulation. Achieving this would require serious political maneuvering—the constitutionality of zoning has been upheld for almost a century—and, more importantly, a greater public awareness of the socio-economic exclusion that zoning laws create.

This article was featured on the DBJ Instablog on Seeking Alpha.

Three months after the “nut rage” scandal sparked international ridicule and debate over the abuses of family-run Korean conglomerates, a court has convicted and sentenced former Korean Air vice president Cho Hyun-ah on Feb. 12 to a year in prison for illegally forcing a flight to change its route.

Cho, the daughter of Korean Air chairman Cho Yang-ho, forced a taxing plane at Kennedy International Airport to return to the gate in order to remove the chief steward. She was angry because a first-class flight attendant served her macadamia nuts in the original packaging, rather than on a plate.

Passengers in the cabin reported that Cho forced the chief steward to kneel before her and beg for forgiveness. She reportedly threw papers at him, screaming because the flight attendant served macadamia nuts in the “wrong way.”

Since the Dec. 5 scandal, Cho resigned from her post, was arrested for violating aviation safety laws and instigated national debate regarding the perceived arrogance of Korea’s business elite.

This incident, however, is more than an isolated case of “nut” behavior or individual inanity. It provides a glimpse into the larger structural dynamics of power and wealth in South Korea.

Namely, the sense of entitlement and authority that led Cho to turn around a 250-passenger plane illustrates Korea’s chaebol economic structure and the incredible power chaebol families wield. But the overwhelmingly negative reactions to Cho’s actions also demonstrate the growing resistance against the perhaps all-too-powerful chaebol.

The chaebol’s grip

 Chaebol refers to Korea’s largest conglomerates, which are most often controlled by and passed on to family members of the original founder. Internationally known chaebol include Samsung, Hyundai, LG and Hanjin (the holding company of Korean Air), and domestic conglomerates include Lotte, SK, GS and Hanwha. Members of the founding families still largely control these conglomerates, and as a result, their influence in Korea is far and wide.

Samsung, for example, singlehandedly contributes approximately a fifth of South Korea’s gross domestic product, according to a 2011 Economist article. Though known elsewhere in the world for its electronic products, Samsung has a stake in almost all aspects of South Korea’s society and economy. It sells life insurance, builds amusement parks and apartments, produces credit cards and has its own professional baseball team. The company’s subsidiaries build roads, manage oilrigs, operate hotels and hospitals, and even produce chemicals, ships and weapons.

“You can even say the Samsung chairman is more powerful than the South Korean president,” said economist Woo Suk-hoon in 2012.

In fact, Samsung’s influence is so great that the South Korean president pardoned chairman Lee Kun-hee 2009 of his tax evasion and embezzlement convictions. Lee was considered “too important” to the economy to be imprisoned.

Relatives of Lee also wield incredible power. The daughter of Samsung’s founder is the chairwoman of Shinsegae Group, one of the largest department store and discount retailer chains in South Korea. The grandchildren run CJ Corporation, one of the largest food and entertainment companies, known for its movie theaters, pharmaceutics and films.

Similar accounts of incredible power hold true for any of the other dynastic conglomerates in South Korea. Power and wealth are concentrated in a few families, and their personal decisions have the potential to change the daily lives and experiences of South Koreans.

It is not particularly surprising then, that these chaebolfamilies exert such enormous influence. Given the structural dynamics of power and wealth at play, it appears conceivable, that when the Korean Air heiress ordered the plane to turn around, not even the pilot could have overturned her decision.

Growing wealth inequality and resistance

 The chaebol control a significant portion of Korea’s wealth, and income inequality appears to be growing even greater.

South Korea’s GINI coefficient, which measures income inequality, climbed from .306 in 2006 to .315 by 2011. As of 2012, the upper tenth possess 46 percent of wealth, while the bottom half controlled only 9.5 percent.

This growing disparity in wealth has given the chaebol an overwhelming advantage in expanding their economic dominance. These conglomerates often acquire promising start-ups or outcompete mom-and-pops businesses by mobilizing their massive resources. This has stunted entrepreneurship, compelling many of Korea’s most talented to work for these conglomerates their entire careers.

Yet, there appears to be a growing resistance among Koreans against the vacuum-like power and perceived high-handedness of the chaebol. The “nut rage” incident has sparked contentious dialogue and debate for the past few months in South Korea.

“Cho Hyun-ah’s ‘nut rage’ could have resulted in no jail time. But public sentiment seemed to influence the court’s ruling, and they gave her an actual prison sentence,” South Korean lawyer Kim Kwang-sam told Arirang News that “The public’s hostile view of chaebol families – privileged, with an easy life coming from wealthy parents – was loud and clear this time.”

In the days following the incident, South Koreans flooded social media and other websites with content ridiculing Cho and denouncing the abuses of other chaebol. Many called for a boycott of Korean Air, and analysts have speculated that the 6.6 percent drop in passengers in Dec. 2014 from the holiday season a year earlier can be attributed to the “nut rage” incident. During that same period, Asiana Airlines, Korean Air’s primary rival, experienced a 13.2 percent increase in passengers.

A bill called the “Conglomerates Ethical Management Law,” commonly referred to as the Cho Hyun-ah law, is to be introduced February 2015. It will detail punishments for “high-handed conduct” and crimes such as embezzlement committed by chaebol.

While anti-chaebol sentiment has been present in South Korea for quite some time, the “nut rage” incident might signify the first spark that mobilized the government and South Koreans to change the chaebol structure.

Why the chaebol can’t be touched

South Korea, however, has been historically reliant on the entrepreneurial capabilities of the chaebol.

Any account of South Korea’s meteoric economic rise following the Korean War must acknowledge the chaebol’s role. Park Chung-hee, the military ruler who seized power in the 1960s, devoted scarce capital to the chaebol under the condition that they expand Korea’s export economy.

This concentration of economic power had dramatic effects on Korea’s market system. The chaebol spearheaded the industrialization of Korea, converting the country’s agrarian economy into an export powerhouse within a few decades. Between 1960 and 2000, the chaebol were responsible for creating a 13-fold increase in output per capita, enabling the country to be the 10th largest exporter by volume.

Today, the chaebol are even more vital to the Korean economy than they were in the past. As of now, these conglomerates are the only realistic outlets through which Korean manufacturers can export products to the outside world. To hastily decentralize the oligopolistic power of the chaebol is analogous to potentially dismantling South Korea’s export economy, a decision that would undoubtedly be catastrophic to many South Koreans. The collectivization of wealth in so few companies means that any regulation must be approached with extreme caution.

In addition, while many South Koreans harbor misgivings about the chaebol, they also revere the business superstars who carry South Korea’s economy. Some 70 percent of household expenditures, according (incidentally) to the Samsung Economic Research Institute, are used towards private education, often in the pursuit of helping children perform well on tests, gain acceptance to the country’s top universities and then obtain a job in one of the conglomerates.

This is because, realistically, working for a chaebol is one of the few ways Korean youth can secure a stable occupation, accumulate some wealth and climb South Korea’s social ladder. Being hired by a chaebol is considered to be a major life accomplishment, and the prestige of working for a chaebol carries a similar weight as a job at a Wall Street firm does for American students.

“Many Koreans right now have dual minds about chaebols,” lobbyist Lee Cheol-haeng told the Washington Post in 2012. “They say, ‘I hate chaebols, but I want my son to work for one.’”

In an economic environment that is dominated by a few dozen families, many South Koreans resent, ridicule and revere the chaebol all at the same time. As much as people want to weaken the chaebol structure, they simply do not possess the money or resources to compete with the chaebol. Since the chaebol also hold a position of reverence and deep regard, they are viewed as untouchable and their words are absolute.

The result of South Korea’s initial collectivization of wealth has been a self-perpetuating vicious cycle. The larger structures of power and inequality place South Koreans in a position where they must all compete for a spot within a chaebol, rather than compete against the chaebol. But with its endless supply of Korea’s brightest minds who have devoted their adolescence to South Korea’s spartan education system, the chaebol only become stronger, causing even further distrust and dissent among South Koreans.

But the “nut rage” incident has brought to surface the long-suppressed grievances of South Koreans. A scuttle over a bag of macadamia nuts might represent a precursor to change.

Year after year, the U.S. spends the most money on education in the world, but comes up short in results. In 2008, U.S. spent $809.6 billion, more than 5 times the runner-up, Japan, at $160.5 billion. In spite of such ginormous spending, we are falling behind in student achievement in the world. The most recent Program for International Student Assessment (PISA) results show that U.S. students barely achieved the average score in reading literacy, and scored below the average in mathematical literacy. This problem may in part be attributed to the way we spend the mammoth budget, and it’s a conflict between equality and achievement.

In 1971, John Serrano agreed for ideological reasons to be the lead plaintiff—essentially a stage dummy— for reform-minded lawyers who, in their minds, were furthering the equalizing-education legacy of Brown vs. Board of Education 1954 (Arthur Wise 1967; Peter Enrich 1995). The mastermind lawyers believed that the then-current system of funding public school districts with local property tax was unfair to students who lived in areas with low property values because their school districts received much less funding than students who lived in property-rich areas.

The California Supreme Court found in Serrano vs. Priest that reliance on local property taxes leads to significant disparities in educational opportunities, and thus violated the Equal Protection Clause of the U.S. Constitution. Though Serrano was college-educated and his son went to a well-off public school in the area, his Hispanic name mislead some reporters and even scholars to assume that he was a poor Chicano in a property-poor area, struggling for educational equality for his children. It is important to note that this case was not the result of dissatisfaction with the status quo; rather, it was a staged lawsuit for agenda-minded activists.

Using spending-per-pupil to quantitatively measure educational opportunities, the California Supreme Court tried to attain equality by decreeing that property tax must be collected by the local government and then subsequently transferred to the state government, which would then reapportion the tax revenue to districts based on a “district power equalization formula.” In essence, property taxes were divorced from public school districts and henceforth, funding for districts no longer depended on the wealth of the geographical area in which they were located.

The California Supreme Court’s decision in the Serrano case continues to reverberate in California and the rest of the nation. Although the federal equivalent of Serrano, San Antonio Independent School District v. Rodriguez (1973), decided in a 5-4 ruling that unequal funding for public school systems due to disparities in local property values does not violate the Equal Protection Clause, the dissent strongly encouraged states to consult their own constitutions. In fact, the majority opinion explicitly asked the states to deploy their own equal protection clauses and do whatever they wanted to school financing.

That’s exactly what the states did. Approximately 16 state courts immediately followed California’s precedent. In addition, a handful of states including New Mexico, Michigan, Ohio and Kansas revised their public school financing systems in anticipation for litigation. The redistribution of local property tax to equalize public education is a growing trend in America, and it appeals to one of the fundamental founding principles of our great country: equality. In the name of equality, wars have been fought, lives have been lost, and schools have been desegregated. The next step, naturally, is removing the socioeconomic dividers in our education system.

But reform has its costs, and for the public education system in America, it may be one that we can’t afford. After the Serrano ruling in California, numerous studies have analyzed how the centralization of funding has affected student achievement in the public school systems. The conclusions are ominous: school-finance centralization has hurt average educational quality, and as opponents claim, “dumbed down” education.

Take California, the birthplace of this trend, for example. In 1995, 24 years after the reform took place, California’s spending per pupil fell below the trend-line of growth in America. The study (Silva and Sonstelie 1995) contributed half of the drop to increasing enrollment in the public school system, and the other half to the centralization of school-finance. And, utilizing the terminology of the California Supreme Court, one can say that the reapportionment of local property tax directly lowered the educational opportunities for those students involved.

The reformers had hoped that equalization would raise the tail without bringing down the top, but studies have shown otherwise. For example, centralization appears to have a large, statistically significant, negative impact on average SAT scores (Husted and Kenny 200). The reasons for these achievement reductions are not very clear, but numerous conceivable theories have emerged.
One is that competition has diminished between school districts because of centralization, as there is less incentive for schools to attain high achievement in order to attract wealthy residents who expect to receive superior schooling in exchange for paying high local property tax.

Second, lower-income students do not always live in property-poor areas, and thus the benefits of equalizing school finance have not helped them in any significant way. Third, many wealthy parents, knowing that their tax money will not go toward their children’s public schooling, decided to send their kids to private schools, to get the full bang for the buck spent on education.

While equalizing public education sounds phenomenal in theory and laudable in practice, it is impractical in reality. It’s a difficult conundrum: should equality or high educational achievement prevail? One must sacrifice one to uphold the other, and there is little room for compromise. However, with the U.S. falling behind the world in achievement tests and globalization transforming our world into an increasingly competitive platform, how can America succeed?

Investing in education for our future is a must, and if that investment isn’t fully utilized in the most effective ways, we may fall farther behind, and not only in terms of education. If there comes a day when our education fails, our economy crumbles, and our strength diminishes, who then will be the champion of equality?

 

The People’s Republic of China cannot continue to enjoy the same economic prosperity it has enjoyed in the past through its manufacturing-export-driven economy in the next decade. Instead, it must focus its attention on improving domestic consumption of goods and services.

Export-driven economic growth has had an important place in Chinese history. During the imperial era, the Silk Road brought silk and other “exotic” goods from China to the western world. The Silk Trade brought such prosperity to the Chinese empire such that the palace mandated execution for any individual that revealed the process for silk-making.

Since then, China has gone through economic and political turmoil, culminating in the rule of Mao Zedong in the second half of the twentieth century. Deng Xiaoping’s subsequent ascension to the role of “paramount leader” saw economic liberalisation, bringing great wealth and prosperity to the regions that participated in a new manufacturing-export-driven economy.

China experienced a steadily high GDP growth rate over the past 30 years due to foreign investment, lifting many peasants out of poverty and bringing luxuries unimaginable to the previously poor populations in the country.

Through careful economic planning, China has become one of the dominant exporters of consumer goods in the world. Its GDP per capita has risen from a mere $439 in 1950 to over $3000 today.

However, in the recent decade, China’s socioeconomic condition, as well as the global economic downturn in 2008, has necessitated action on part of China’s leaders to change the direction of the nation’s economic planning away from its current method of growth.

China’s success in building consistently high-performing manufacturing-export-driven economy is because of its comparative advantage in the provision of labor.

Due to its large population, China can provide cheaper manufacturing for products ranging from iPods to t-shirts.

However, with the implementation of its One-Child Policy for population control, China’s capability to produce at a cheaper rate has slowly declined. The population growth rate decreased from 1.5% in 1980 to 0.6% at present.

Although annual net population growth is considerable, China faces a rapidly aging population because of the One-Child Policy, and thus there will be a decline in the labour force available for manufacturing-intensive jobs over the coming years.

Furthermore, the standard of living in China has risen dramatically over the past decade, in-line with the growth in per-capita GDP. Labour is no longer as cheap as it was before, and workers in China now make three times as much as workers in Pakistan and Vietnam. There is a shortage of workers in some regions, and some producers have found themselves hiring recruiters to go into the countryside, offering improved benefits and higher salaries to entice workers to join their factory.

In addition, there is a wealth gap between the coastal regions of China, which have seen rapid urban growth and development of infrastructure such as high-speed railways, and the inland, rural areas of China, many of which are still without electricity. The GDP per capita difference between the richest province and the poorest is ten-fold. There is a lack of affordable health care and social security in China, and combined with poor infrastructure in rural areas, social instability is clawing at the central government.

Faced with these issues, it is imperative that China’s government focus its efforts on developing itself internally and encouraging domestic consumption. With a three trillion US dollar currency reserve[v], the government is well-positioned to spend vast sums of money on civil infrastructure, such as electricity and communications delivery. If modern technologies available in cities were brought to the rural areas of China, there would be a change towards a more domestically-driven economy.

China should also increase individual household consumption.  Currently, China’s household savings rate is over 30%, dramatically higher than those of many other nations[vi]. This is due to the lack of social security and the need for Chinese men to own a house in order to marry.

Although Chinese people do consume tremendous amounts of luxury goods, they fear economic uncertainty, and especially with the lack of a government safety net, Chinese households tend to save more money for emergencies, and to provide for elderly family members.

At the same time, there is a low savings interest rate paid by banks, since they are state-run, which cannot keep pace with inflation. These factors combined make the life of the average Chinese citizen less pleasurable than beforee.

The changes facing China’s economy are of potentially great benefit to the standard of living for the Chinese people – better-developed domestic infrastructure would improve the quality of life for millions of peasants living without modern amenities in the countryside, while government incentives for consumption of non-essential goods could provide an opportunity for many Chinese families to acquire new products and live a wealthier lifestyle.

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.