Listen more to the Little People, less to Big Governments

The development debate continues, but some local initiatives contribute more light on the resolution of the issues in contention than the 'debate' at the high levels of abstraction common among the participants associated with the 'big donors' and 'big recipients' .

From the psdblog:

"Cookie-cutter approach to social enterprise

Two years ago, [Alicia] Polak founded The Khayelitsha Cookie Co., which now employs 11 women from the sprawling shantytown to bake high-end cookies and brownies that are distributed to top hotels, restaurants and coffeehouses throughout South Africa. The cookies come packed in plastic with a cartoon on the front showing a big, African 'mama' in traditional dress and the company slogan: "Creating opportunity one bite at a time."
For Polak, the entrepreneurial venture is about making money, but also much more. "My driving force in this company is that I want them out of those shacks," says Polak of the hundreds of thousands of people living in poverty in South African townships. "I want to help change their lives using this company as the vehicle."

For more information on this project see:
http://psdblog.worldbank.org/psdblog/2006/07/a_cookiecutter_.html

"The goal of the Wharton initiative is to:

Move philanthropy away from dependence on charitable donations to projects that can sustain themselves financially over the long term. "What you set in motion is a virtuous cycle," [Ian McMillan] explains. "The more money you make, the more people are helped. The more people who are helped, the more money the entrepreneur makes." He also points out that entrepreneurs can be successful in developing economies on very little profit. "What looks to be not much profit in the eyes of a U.S. entrepreneur is a lot of money in those countries. They're much happier with a smaller profit."

For details of Wharton’s Initiative see: http://www.wharton.upenn.edu/whartonfacts/news_and_events/newsreleases/2006/p_2006_5_494.html

Comment
Adam Smith inquired into the nature and causes of wealth and these initiatives are in line with his findings. It is not top level ‘aid’ programmes that make a difference (bad governments, corrupt ministers and officials, poorly managed spending and waste ‘spend’ the aid faster than contribute to a country’s development.

Smith’s own country, Britain, in the mid-18th century had a fair degree of corruption it should be remembered and this afflicted the very top of society. Some of this corruption was embedded in government and some in finance - the South Sea Company in the early part of the century was followed throughout the century by the machinations of the East India Company. So it is not a case of modern moral superiority.

Despite the corruption at the top (just don’t feed it!) it is what happens on the ground that counts for societal development. It is the small time, individualistic, entrepreneurial activities of thousands of people who never receive ‘aid’ from abroad, but who put together, despite all the difficulties of corrupt local officials, the courts and police or other armed bands (sometimes misnamed as ‘armies’), little profit- making schemes of buying and selling, transporting and distributing, often at low levels of profit per item, that gradually, slowly but steadily, open the road to development.

The example Smith made of Diderot’s pin-factory has gone round the world several times a day and that employed only 18 persons (the less famous pin factory he visited employed only 10 persons). These were not large technologically driven enterprises favoured by local governments (more chances to steal) and by big donors and lenders (more quickly gets headlines that western politicians are ‘doing something’). It is myriads of little enterprises that raise a country to wealth creation. The big concerns will come in time, but the bedrock of development is the small enterprise, run by ‘market mamas’, mothers, (occasionally) their men folk and their kids.

The examples above are perfectly consistent with the Smith’s inquiry, as reported in Wealth of Nations. Check the references, read Smith on capital formation and development, and draw your own conclusions.