Archive for category: Economy

Information and stories about economy.

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Three Influences of Poverty

Poverty has many causes. While some factors exacerbate poverty, there are five predominant causes of poverty: social inequality, conflict and political instabilities, education, debt and environmental conditions. Here is a closer examination of three of these causes.

Social Inequality

The United Nations Social Policy and Development Division reports that “inequalities in income distribution and access to productive resources, basic social services, opportunities, markets, and information have been on the rise worldwide, often causing and exacerbating poverty.” Countries where inequality is rampant display poor social indicators for human development, insecurity and anxiety. Inequality keeps the poor from moving out of their socioeconomic status.

Inequality limits access to opportunities that can provide the means to escape poverty. In a speech by Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, Kahn explains that Adam Smith, often considered the founder of modern economics, “recognized clearly that a poor distribution of wealth could undermine the free market system.” An example of this is the former apartheid government in South Africa.

Apartheid laws assign rights and space to individuals on the basis of race. In South Africa this meant that while one group was persecuted and forced into poverty, the other group was given access to opportunities that allowed them to advance economically. This increased the gap between economic classes and the amount of people in poverty.

Environmental Conditions

Environmental degradation is the decline in the quality of the natural environment through its atmosphere, land, oceans and lakes. Indigenous groups are among the worsetaffected by such degradation. These groups often depend on the environment to survive and easily fall into poverty when that environment is harmed. A major cause of environmental degradation is climate change.

One of the outcomes of climate change is hunger. The changing climate is responsible for the destruction of harvests and other resources critical to survival. Michael Oppenheimer, professor of geosciences and international affairs at Princeton University explains, “crop yields have detectably changed. As time goes on the poor countries that are in the warmer and drier parts of the planet will feel the crop yield decreases early.” In Oxfam’s report Suffering The Science: Climate Change, People, and Poverty, the organization warns that “Without immediate action 50 years of development gains in poor countries will be permanently lost.”

Recent U.N. reports on climate change noted that “for the first time” that climate change is a threat to human security. The UN notes that the increased migration and the decrease in food are conditions that lead to conflict. The reports warn also that unless the issue is addressed, “nobody would be immune to climate change.” The report reads, “Climate change can indirectly increase risks of violent conflicts in the form of civil war and inter-group violence.” Environmental degradation can not only result in poverty, but can also lead to war.

Lack of Education

Education has lifted people out of poverty and empowered communities to grow economically. A lack of education could maintain or create poverty. Senior Fellow of the Center on Budget and Policy Priorities Jared Bernstein explains, “economists may disagree a lot on policy, but we all agree on the ‘education premium’—the earnings boost associated with more education.”

According to the Network for international policies and cooperation in education and training, a main priority for poverty reduction is primary education. In developed countries almost all children have access to primary education, while in regions such as sub-Saharan Africa approximately 40 percent of children do not attend primary school due to poverty and a lack of access to education. Many people living in poverty in undeveloped countries must give up an education in order to make “a minimal living.” Furthermore, many families cannot afford school fees to send their children to school. This limits skill development and opportunities to escape poverty and create generational poverty.

There are many situations that lead to poverty. As we understand the causes of poverty, we can eradicate it more strategically. These are only three of many causes that must be understood to successfully meet the goal of eradicating extreme poverty by 2030. We created poverty, so we can eliminate it as well.

– Christopher Kolezynski

Sources: Poverty at Large, The Borgen Project, Oxfam, The American Prospect, The Guardian, NORRAG
Photo: The Daily Star

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How Fair is Fair Trade?

fair trade
Fair Trade is a system in which a deal is worked out between artisans or farmers in developing countries and businessmen or a middleman to sell products in more affluent countries for a price in which those producing the items get fair wages for their work.

The goal of these fair trade companies is to replace continual aid (in which the receiving end oftentimes feels helpless,) with a system where the “receiver” is able to create a sustainable lifestyle by utilizing their talents in a business. Over time, Fair Trade companies can build long-lasting relationships with their suppliers.

Paul Rice, CEO of Fair Trade U.S.A., says “The corporate community is increasingly realizing that this model and models like it are a way to align sustainability with profitability, they want a resilient and sustainable supply chain.”

A problem these companies are currently having is that they are not well known among their potential market. Consumer awareness for these products is currently at 55 percent, improving from the 34 percent that it was a few years ago. Consumers are increasingly questioning where their food and products are coming from and becoming thoughtful in their purchases.

Another problem dealing with this issue is the companies themselves. While there are standards for producers, labor, production and the economics behind the transaction, the producers still don’t always seem to receive a sustainable amount.

Ndongo Samba Sylla, a Senegalese development economist, studied common fair trade companies to find that most of the producers are coming from less poor areas rather than the very poor one, crop farmers, and calculated that for each dollar paid by a consumer, only about 3 cents more are given back to producers in fair trade programs than other producers.

Although the percentage comparison is not always favoring the producers in the way we would hope, many companies of this kind do charge more for their products, therefore more money would go to the producer in the end.

Aside from the prices, the standards for this model go beyond economics. The World Fair Trade Organization and the Fair Trade Federation Principles designed regulations for any company that calls themselves fair trade, many of which are not strictly economic.

The standards involve transparency and accountability between the client and the buyer, where the client cannot be taken advantage of. This kind of company must assist the producer, whether it be financial, educational, or market information, in order for the producer to sustain their business. Prompt payment is required, so the producers are able to have consistency, and equal payment between genders for equal work is also a necessity.

Although harder to define, fair trade companies must also be environmentally conscious and respectful of the producer’s culture. The companies are encouraged to use recycled materials (also more economically sustainable,) and companies must respect the manner in which the products are being made by not discouraging indigenous traditions and techniques if the producers do not wish to change them.

Overall, these companies work toward letting producers become sustainable partially through higher wages, but also empowering them through equality and respect they may not be receiving otherwise. Beyond economics, the business practices being upheld by these companies will still benefit the producers and help them succeed.

– Courtney Prentice

Sources: The Economist, The Guardian, Fair Trade, Fair Trade Federation
Photo: Tufts Now

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World’s Students Struggle with Loan Debt

loan debt
Fear not, American undergraduates. While we may have the single most expensive higher educational system in the developed world, students from all over are still accruing debt. You may have heard the statistics, or suffer from them personally: American student loan debt has rocketed to more than $1 trillion, and more than 7 million borrowers are currently in default. Yet, students from all over the world, from Japan to Britain, are also raking up expensive debt to receive an education.

While public university tuition is free in countries like Argentina, Iceland, Norway and Sweden, this does not always mean students finish their education with zero debt. In 2012, approximately 900,000 Swedish students received help from the government, totaling close to 22 billion krona (roughly $3.5 billion). Two-thirds of those funds were loans.

The average student loan debt for the U.K. is between €12,360 and €12,850, where more than 93 percent of students have received some form of financial assistance, accruing debt in the process. The country has even seen a staggering rise in suicide rates as a result of its student debt crisis. Between 2007 and 2011, the number rose to a devastating 50 percent.

In China, average tuition runs at about ¥40,000 annually, though the average family only makes about ¥3,000 per year. Japan, too, is saddled with increasing student loan problems. Between 2001 and 2011, the number of students applying for loans jumped to 70 percent, and 60 percent of its graduating student population since 2009 has been left underemployed or unemployed altogether.

While the United States’ position on student loan debt far surpasses the rest of the world, the global severity of the situation should not be overlooked. In the 21st century, the economy has become global-if one country is hurting, other countries will be affected, too. As student loan debt manages to climb, one can only hope the institutional problem will be fixed sooner, rather than later.

– Nick Magnanti

Sources: Huffington Post, Collegestats.org, Tuition.io
Photo: Boston

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The Effects of Civil War on Education in Tajikistan

After the dissolution of the Soviet Union in 1991, Tajikistan, a small country between Uzbekistan, Afghanistan and China, erupted in a civil war between the Moscow-backed government and Islamists.

The war lasted for five years, greatly hurting the nation’s economy. Around 50,000 people were killed and more than 10 percent of the population fled the country. The war only came to an end in 1997 when the United Nations facilitated a peace agreement.

Since the civil war, the economy of Tajikistan has not recovered and the country is currently Central Asia’s poorest nation. Almost half of the country’s Gross Domestic Product (GDP) is earned by its citizens working out of the country. Meanwhile the nation itself relies on the economies of Russia and China, as well as oil and gas imports.

During the war one in every five schools were destroyed. Since the war, Tajikstan has worked to improve the country’s education.

Tajikistan currently has an enrollment of 97 percent for primary school, 80 percent for secondary school, and 17 percent for tertiary school. Late entry, combined with the early dropout of school aged children, especially girls, lower Tajikistan’s attendance for later schooling.

Although there is a very high rate of literacy, other issues affect its educational system.

Salaries paid to teachers are very low, which leads to low staffing and poorly qualified teachers in schools. This is in part due to the lack of government spending on education. In 1991, 8.9 percent of the GDP was spent on education. In 2005, this figure was down to 3.2 percent.

Due to the negative effects of the civil war on the Tajikstan economy and the immense loss of life, the school systems have been suffering ever since. Although the government has been working to improve access to education, there is still a lot of work that needs to be done.

– Lily Tyson

Sources: BBC, UNICEF, Eurasia
Photo: Asianews

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Conflicting Results on Microcredit Alleviating Poverty


A new experimental study, out June 10th of this year, examines how microcredit, or the lending of small amounts of money at low interest to new businesses in the developing world, may not help jump start poor populations’ financial growth as much as some may think.

The authors of the study, Bruno Crepon, Florencia Devoto, Esther Duflo, and William Pariente, randomly assigned 162 villages in rural Morocco to either receive microcredit (these villages would serve as the treatment group) or not to receive it (and these would serve as the control group).

The researchers, who are affiliated with the Abdul Latif Jameel Poverty Action Lab (or J-PAL), found that microcredit does not lead to families and businesses exiting poverty in the long-run.

This is in opposition to a similar study conducted by Shahidur Khandker and Hussain Samad of the World Bank in March 2014 which found that microcredit increased personal expenditure, labour supply, household assets and schooling of children in impoverished communities of Bangladesh.

Furthermore, Bono, whose humanitarian work in developing nations is highly documented, has lauded microcredit as an effective means of alleviating poverty, stating, “Give a man a fish, he’ll eat for a day. Give a woman microcredit, she, her husband, her children and her extended family will eat for a lifetime.”

However, the researchers at J-PAL found that microcredit decreased the amount of time Moroccan laborers spent on work. The effect on investment was greatly offset by a reduction in income from wages. The researchers concluded that access to microcredit, at least in Morocco, did not result in income gains, personal consumption or education of the youth.

Writers at the Economist are attempting to analyze the conflicting results of these two studies, and learn why they produced such significant differences. One theory is that microcredit may only reduce poverty and increase income in the long run, making short term studies irrelevant and ineffective at gleaning a meaningful answer.

The two studies also took place in two very different countries on separate continents. One can reasonably conclude that there may be social, environmental, or political factors at play, as well. Economists refer to this issue as “external validity,” meaning the extent to which a study’s results are generalizable outside of its given context. The effects of microcredit may not be clear until researchers readily take place, setting, and social and political structures into account.

Further research is needed to know whether lending sums of money to businesses in poor areas of the developing world may actually be a beneficial policy. Crepon and his co-authors are currently planning a follow-up experiment to study the long term implications of microcredit. All involved hope to find some answers to these questionable methods of alleviating global poverty.

-Paige Frazier

Sources: The Economist, The World Bank, MIT Economics, Look to the Stars
Photo: African Microfinance Network

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Free Markets Can Reduce Poverty

The development of free market economies has been accompanied by a large decrease in poverty around the globe. Extreme poverty is virtually nonexistent in the most industrialized countries.

Many people believe that after the fall of the Soviet Union more than 20 years ago, the world went through a wave of globalized development. Capitalism spread and free markets were adopted in numerous countries. Industries became a focus of countries everywhere.

Thirty years ago, 50 percent of people in poor nations were living in extreme poverty. Since the development of global markets, however, 21 percent of people in poor nations around the world are considered to be living in extreme poverty.

Capitalism has some clear effects on a country’s economic system, and therefore on its citizens. Free markets open up trade opportunities, increase competition for jobs and extend life expectancy.

When countries use free markets, they immediately become a global partner in trade. They are more able to import and export their products to a larger market, thus increasing their economic wealth greatly. Countries with higher economic success generally see less poverty in their citizens.

In a capitalistic system, jobs are given to those who work for them, and the workers only get paid when they complete their requirements. When there are more people than positions available, people will increase their efforts to rise above the rest and claim that position. Creating a competitive environment can increase the effort people put forward. Efforts to alleviate poverty must come from a system that rewards productivity and industriousness.

With the increase of economic prosperity in countries with many people living in poverty, they can move from the lowest global income bracket to the middle-income bracket. Data shows that by moving up in economic status, life expectancy increases. When people are in the lowest bracket, life expectancy is around 40; however, in the middle bracket, it increases to 60.

As seen in past experience, developing the free market system may be the best solution for the countries that are facing large amounts of poverty.

Ismael Hernandez, a writer for News-Press.com, said, “Wherever culture and institutions focus on creative and productive activity, you put in motion processes where great civilizations emerge and the lives of people are enhanced.”

— Hannah Cleveland

Sources: Market Oracle, News-Press
Photo: BlogSpot

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USAID: Initiating Smart Investments in Kenya

In January of this year, USAID announced a new poverty reduction initiative in Kenya. In partnership with Kenya Commercial Bank (KCB) and General Electric (GE), USAID promotes investments in Kenya between the KCB and medical institutions that need financial assistance to offer appropriate medical care.

To provide this assistance, banks will grant loans to hospitals and other health centers. These investments in Kenya would have previously been considered unsafe and unlikely to be returned, but under the agreement with USAID, they are guaranteed reimbursement. If a full return cannot be made, USAID will pay back 50 percent of the loan.

The KCB, according to the deal, is obliged to divvy $1 million for medical equipment like MRIs, incubators and other standard-increasing machinery to be used in local health centers. GE has left $660,000 dollars for USAID to use as potential reimbursement funds, though only $500,000 (50 percent) should be used. In return, the Kenyan health services will purchase GE equipment, expanding GE’s global market.

There are some, however, such as Monica Onyango of Boston University, who are afraid this may lead to an overstated importance of imported goods, when in fact, locally manufactured equipment is better for local economic development.

Michael Metzler, director of Development Credit Authority (which is the tool used by USAID to promote loans, as in the initiative in Kenya,) reassures skeptics like Onyango that local business and manufacturing will still have the power Kenya needs it to have to grow. Quoted recently in a Global Post article, Metzler said that “we’d be very sensitive to a deal in which that was the case.”

Aside from the deal’s economic influence, clearer effects of the enhanced medical treatment new loans insure will be seen in public health. This expedites poverty reduction in Kenya by reducing the number of deaths caused by preventable diseases thriving in impoverished communities. These include diseases such as HIV, diarrhea, tuberculosis and malaria.

Illness and poverty go hand in hand, and until one is dealt with, the other is likely to expand. This new USAID initiative incorporates this idea and acts accordingly.

— Adam Kaminski

Sources: Health Poverty Action, Global Post, Federal News Radio
Photo: USAID

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Hunger in Pakistan: Famine or Inadequate Policy?

Hunger in Pakistan has killed many people and affected the lives of many more, especially children. After a drought hit the Tharparkar district of Pakistan’s southern Sindh Province earlier this year, at least 132 young children died, many as a result of malnutrition.

The problem of hunger in Pakistan is not limited to Sindh Province, however. While Sindh certainly has the highest rates of malnutrition and least access to food, Pakistan’s National Nutrition Survey reported that 58 percent of all Pakistani households were food-insecure.

Malnutrition is also widespread; the Pakistan Demographic and Health Survey found that 24 percent of Pakistani children under 5 exhibited “severely stunted growth.”

Why is hunger such a prevalent issue in Pakistan? Some of it has to do with past inflation of wheat prices in the late 2000s, as it was more difficult for people to afford domestic grain. Infrastructural difficulty, such as providing electricity to flour mills, also poses a problem.

Still, the largest factor causing food insecurity in Pakistan is the nation’s own government and its policies that hinder food production and distribution.

Take, for example, the deaths from the drought: the government did not work to distribute food until after the crisis. As the Pakistan Dalit Solidarity Network reports, “the government didn’t act until [it received] reports of children dying” last December, even though animals had been dying since October and rainfall was decreasing. Moreover, government-run hospitals and clinics in the region have been constantly understaffed, making it difficult to get medical care to those who needed it.

Other government policies affect all of Pakistan, not just Sindh. Under the Corporate Farming Ordinance, the Pakistani government leases large tracts of land to foreign investors looking to stockpile crops for their own countries. This takes valuable land away from local farmers while keeping the food away from Pakistani citizens that need it.

The government of Pakistan seems to prioritize profits over its people. During the inflation of wheat prices in 2008, the government increased its wheat exports, depriving many hungry people of food. Even today, much of the wheat that large corporate mills produce leaves the country.

In reality, Pakistan should be capable of providing its citizens with enough food to survive, and there should not be as much food insecurity as there is now. Arif Jabbar Khan, Oxfam’s Pakistan director, affirmed that “missing public policy action and persistent economic inequalities are the main causes of malnutrition,” not droughts or famine.

How can hunger and malnutrition be reduced in Pakistan? Foreign aid providers may be able to earmark funds for the redistribution of grain to poorer areas, and this aid could be cut if the government does not comply.

Nevertheless, political pressure to change food distribution policy must come from within Pakistan itself. The citizens of Pakistan must demand change and hold elected officials responsible for their actions in the polls if the system is to be fixed.

 — Ted Rappleye

Sources: The Guardian, South Asia Masala, Triple Bottom-Line
Photo: Tribune

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TaiwanICDF Provides Clean Water

April 11 marked the official opening ceremony commemorating the completion of a new, groundbreaking water supply system made possible by the Haitian government, the Red Cross Society of the Republic of China and the International Cooperation and Development Fund of Taiwan (TaiwanICDF.) The new water system will reportedly supply safe and clean domestic water for over 90 percent of the area’s inhabitants.

In January 2010 a magnitude seven earthquake devastated Haiti and rendered about 1 million Haitians homeless, a number of which relocated from its capital, Port-au-Prince, to New Hope Village in Savane Diane. As a result, the need for accessible and clean water  increased exponentially, and the new system accommodates this need and serves as a sustainable, long-term solution. TaiwanICDF reportedly showed residents how to maintain and fix the system in the event that it breaks down.

The Taiwanese ambassador to Haiti, Peter Hwang, attended this special celebration, as did TaiwanICDF’s Secretary General, Tao Wen-lung. Wen-lung said the system would provide enough water not only for over 200 homes, but additionally for the village’s health facility, school and nearby agricultural irrigation needs. He described it as “a real godsend for local residents.”

In a video on the TaiwanICDF website, a local resident describes the arduous three-hour process he formerly endured to transfer water from a far-away source back to his home. Now, he has a quick and easy water source practically in his backyard. In the video, the resident also thanks TaiwanICDF for their instrumental role in developing and maintaining the system in his village.

China and Taiwan are hosts to numerous humanitarian organizations. TaiwanICDF is particularly focused on infrastructural and economic development for long-term stability in needy nations and regions, as well as technical cooperation, humanitarian assistance and international education and training. This type of maintainable, long-term investment in developing nations has provided a model by which helpful contributions in such countries can make significant long-term differences.

– Arielle Swett

Sources: ICDF, Taipei Times
Photo: Taiwan Today

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Global Health Investment is a Win-Win Situation

Economists, public officials and humanitarian leaders across the globe are all echoing a new stance on foreign aid: treat it like an investment.

Sure, many areas of the world still require immediate relief in the form of solid goods, but what these communities absolutely require is the stability and means to sustain themselves long-term. In order to break the cycle of poverty, impoverished people need a new cycle altogether characterized by improved economic infrastructure and stability.

The best aspect of the investment approach is that it promises profit. Business executives are now realizing the untapped workforce potential of the world’s destitute. By developing interest in these areas from an economic standpoint, companies are not only opening up access to the world market, but they are seeing positive returns as well.

Companies like Samasource, a Silicon Valley-based startup, have illustrated success in the private sector. Samasource’s model involves big data projects that they break down into manageable tasks for their overseas workers. American tech giants such as Google and LinkedIn benefit from the work and finance of the paychecks of their outsourced employees. As a result, Samasource is profitable and growing while people in rural areas have new access to the technological world market.

Now, imagine taking the approach a step further and funding industries that directly address the critical issues impoverished people face, such as global health investments. Could financing ventures that treat HIV, malaria and infant mortality help those in need and actually boost the economy? More and more people are answering this question with a solid “yes.”

The solution won’t be so simple, however. Devex editor Rolf Rozenkranz recently sat down with Annie Baston who is the chief strategy officer at PATH, an international nonprofit that specializes in long-term solutions to break cycles of poverty. Baston explained the common challenges faced when determining a “best buy” for global health investment. Multiple factors come into play involving technological solutions and systemic reform. These elements need to be carefully orchestrated and illustrated to investors to generate interest and maintain longevity.

In fact, organizations such as The Lancet and their team of researchers have laid out a complex global health investment plan, titled “Global Investment Framework for Women and Children’s Health,” that will secure high health, social and economic returns. Through simulation modeling, The Lancet has found that “increasing health expenditure by just $5 per person per year up to 2035 in 74 high-burden countries could yield up to nine times that value in economic and social benefits.” Their models, published late last year, approach maternal and newborn health, children’s health, malaria, HIV/AIDS, family planning and immunization.

– Edward Heinrich

Sources: DEVEX(1), DEVEX(2), The Lancet, Samasource
Photo: University of Delaware