UPDATE: Art Carden makes an important emphasis regarding this post and contibutes an ungated link to his paper. See comments/bottom of post.

Last week marked 150 years since the beginning of the Civil War. Victory for the North meant more than the preservation of the Union. It meant that slavery could no longer continue as a viable factor of economic productivity. It meant the end of the terrible institution that deemed human beings were property, and heralded an important step in the long American struggle for universal human rights.

New York Times headline declaring Union victory on April 10, 1865

But it also reinforced the cleavage between an industrial, prosperous North, and a rural, underdeveloped South, a distinction that persists in some ways even today.’ The Union won in large part because of its industrial advantage, and its victory installed in the South what should have been better conditions for economic growth – liberal, more universal property rights and the abolition of slavery.

So what happened? A 2009 paper by Art Carden[1] argues that it was the very insertion of these new freedoms and property rights into a society designed for slavery that led to the divergent development of North and South.

Before the War, Southern social networks were based on hegemonic bonds relying on power imbalances and the threat of violence. The South was heavily invested in racial subjugation – slavery directly accounted for over a quarter of the GDP. The region spent an enormous amount of resources to justify slavery, hiring silver-tongued apologists like John C. Calhoun to spin slavery as humane. In this light, slavery was an economic institution that was designed for racially hegemonic society.

The silver tongue at work: "Never before has the black race of Central Africa, from the dawn of history to the present day, attained a condition so civilized and so improved, not only physically, but morally and intellectually."

While the Civil War radically restructured Southern laws to promote racial equality and property rights, the hegemonic bonds were resistant to change. This generated a major friction, Carden writes, that manifested through the racist Jim Crow laws and, most gruesomely, lynchings that openly defied the new freedoms for blacks.

The backlash against black self-determination, the politically-enforced segregation, and the conviction that one race was inferior were societal phenomena that hurt economic growth. For example, segregation and racist violence meant that markets were smaller and the division of labor shallower than it could have been. Mutual fear and distrust made contracting and doing business across racial boundaries more expensive. As a result, Carden writes, “Southern entrepreneurs, innovators, and laborers relied more heavily on kinship networks and informal arrangements than on formal markets.”

And these factors were self-reinforcing, Carden argues, breeding a cycle of mistrust, ignorance and poverty.

Gary Becker once wrote that people lose out on the potential gains from trade if one group is able to indulge in “tastes for discrimination” against another. As the legacy of slavery wound its way into postbellum Southern society and politics, it hindered the way freedom and property rights should have boosted the economy, denying the South the full bounty of American development.

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Photo credit: New York Times and Wikispaces

FOOTNOTES
1. Here’s the ungated version.↑

I’ve been working at DRI long enough to recognize bad aid, and yet my skin still tingles when I watch the TOMS Shoes’ One Day without Shoes video. I know, I KNOW…but I just can’t help being swept away by montages of beautiful young people “taking action” set to a backdrop of a dramatic Matisyahu song. So I bared my feet for the cause:

Raising awareness on the dirty subway platform

Raising awareness next to a discarded beer can

Raising awareness on the sidewalk with cigarette butts

Sure, this whole event really just helps TOMS sell more shoes, and sure, it was cold and raining in New York, and sure, I solicited bewildered stares, watched mothers shield their daughters from me, and possibly contracted hepatitis, but wasn’t I raising awareness about the real, complex challenges facing developing countries? Because wouldn’t African people hate to be shoeless on a rainy day in the Village, too? Also, do you think I could be a foot model?

TOMS, a for-profit shoe company, likes to use highfalutin’ NGO buzzwords like “accountability,” “awareness” and “change” in its marketing. It just published its first “giving report.” Which is fantastic…except that the campaign reinforces the stereotype that Africans are so pathetically destitute that they need anything we can give them, while allowing us to ignore both the condescending implication that the only hope for the poor is our charity, and the negative impacts of gifts-in-kind on local economies.

I also attended a One Day Without Shoes event held by the TOMS Shoes club at NYU. When I prodded my fellow students a bit about why they supported TOMS, the main message I came away with (and here please note my sample size n=2) was that people should buy the shoes because, with little time and disposable income to spare, it’s an easy way to be charitable with the things we do already.

In a way the attitude itself makes sense – it’s a fundamental economic principle — but it manifests itself in a giving model (and this goes for BOGO and gifts-in-kind in general) that runs backwards. Instead of taking a fundamental problem that people face – say, unsafe conditions for children – and thinking of what they need to help solve it, this model takes a solution – shoes – and staples it to some problem that people have. And by attempting to view the whole spectrum of issues through this single-dimensional proto-solution, it’s easy to forget about all the unintended consequences.

It’s obvious that the TOMS aid-vertising works, that it can successfully generate a huge grassroots-style movement of well-intentioned people by not only playing into their sense of justice but also providing them with a way to “do something.” But, as I ended my own half-hearted participation in One Day Without Shoes, I remained unconvinced that easy aid could ever be good aid.

What I am certain of, however, is that nobody should EVER have to walk around barefoot in Greenwich Village.

Klout employs such measures as followers, list memberships and retweets to present a comprehensive global metric of Twitter and social media effectiveness. Table 1 lists the Klout scores of various thought leaders in development:

We regret the low positioning of Aid Watch, with a Klout score of 53. This fact is partially – but not entirely – offset by Bill Easterly’s higher placement of 65. (Please don’t tell him that @viewfromthecave is way higher).

Nevertheless, Aid Watch will implement a 4-point comprehensive plan of reform to achieve 3 indicators on the way to the MDGs: 1) enhance our social media influence 2) improve our Klout metric and 3) elevate progress towards the MDGs:

• Intensive Social Mediafication: We will increase investment in our twitter account in order to promote intensive tweeting in an effort to “shock” the Klout metric into growth
• Retweet incentivizing: Drawing upon pledged support from imaginary donors, Aid Watch will offer a free multicolor wristband to anyone who retweets our tweets
• Aggressive List Creation: We will establish an independent commission to create and monitor Twitter lists in which Aid Watch may claim membership
• Randomized experiments on tweets: Tweets will be subjects to RCTs in which the popularity-potential of tweets is rigorously assessed

On a side note, Vivek Nemana’s disappointingly low Klout score of 10 has elicited reactions including “angst,” “shame,” and “humiliation.” We recommend an intensive “shock therapy” regiment of savvy Tweets and follower-count obsession in order for Vivek to escape the Klout trap.

Ben Ramalingam, author of the blog (and forthcoming book) Aid on the Edge of Chaos, explains this another way in an interview with Dennis Whittle:

[I]nternational aid has been built on a very particular way of looking at the world, and this continues to dog its efforts. As a senior USAID colleague put it, because of our urgency to end poverty, we act as if development is a construction, a matter of planning and engineering, rather the complex and often opaque set of interactions that we know it to be.

…The whole system disguises rather than navigates complexity, and it does so at various levels – in developing countries and within the aid system. This maintains a series of collective illusions and overly simplistic assumptions about the nature of systems, about the nature of change, and about the nature of human actors.

So the end result of all of this is that poverty, vulnerability, disease are all treated as if are simple puzzles. Aid, and aid agencies are then presented as the missing pieces to complete the puzzle. This not only gives aid a greater importance than perhaps it is due, but it also misrepresents the nature of the problems we face, and the also presents aid flow as very simple.

Instead of engaging with complexity, it is dismissed, or relegated to an afterthought, and the tools and techniques we employ make it easy for us to do this. We treat complex things as if they were merely complicated.

What is the difference? As Ben goes on to explain, complicated systems can be modeled mathematically, but complex systems cannot.

[For complex systems,] there is no mathematical model which can say, if X is the situation then do Y. Sustainability, healthy communities, raising families have all been given as examples of such complex systems and processes. Peacebuilding would be another, women’s empowerment, natural resource management, capacity building initiatives, innovation systems, the list goes on and on. Complexity science pulls back the curtain on these processes and it can force you to think about the world you live in in a different way.

Thanks to Dennis for this pointer to Ben’s work. (See also Nancy Birdsall’s blog post about Dennis on the occasion of his retirement from GlobalGiving.)

It’s official: Indian politicians have agreed to regulate the private microfinance sector…by choking it in a tangle of bureaucracy and corruption.

As everyone from David Roodman (on this blog) to the Cambridge randomistas (in the FT) has been saying, Indian microfinance needs reform, not a roundhouse kick to the face. But now the state of Andhra Pradesh has passed an overbearing law which makes it illegal for MFIs to lend to people with multiple loans (which is 70% of rural households), or to lend to members of Self Help Groups without permission. State regulators may also shut down MFIs at any time for vaguely defined “sufficient reasons,” and lenders can only collect payments at government centers – an open corridor for corruption.

The head of Microfinance Institutions Network said: “The bill will make it impossible for microlenders to operate in the state and effectively put us out of business there.”

Soon these ladies will no longer be smiling. Okay, just kidding, I don’t actually know that. But still!

Private microlending in Andhra Pradesh was successful because there was excess demand for credit that government-backed programs and non-profits were not satisfying. But with the for-profits squeezed out, their six million clients will be forced to return to more informal lenders such as village loan sharks.

In 2009 a similar incident happened in Nicaragua with uncanny parallels to Andhra, right down to the multiple lending and political involvement. The “No Pago,” or No Payment, movement resulted in the judge-ordered liquidation of a top microlender and a dragged-out microcredit crisis.

India was like a Petri dish for microfinance experiments, which meant that initiatives like self-help groups, mobile banking, and MFIs played off each other’s shortfalls. Eventually, the competition between the agents – if mixed with a healthy dose of regulation – might’ve fostered better, more effective systems of microcredit.

But this legislation is a discouraging blow to would-be microfinance entrepreneurs, who’ve been basically told that at any time the government might decide to shut down their businesses – and their ideas.

Investors in for-profit ventures might also be frightened away by the idea of losing money when politicians decide to tighten their grip around microfinance’s throat. In a worst case scenario, the new law could legitimize similar actions by politicians in other countries who are pandering for votes or have their own personal beef with microfinance. Some countries, like Peru, already have stable, well-organized regulation in place, but they’re exceptions.

On the other hand, what happened in India could be a wake-up call, as Tim Ogden argues, about the unrealistic expectations that donors, supporters and governments maintain about microfinance. If that’s the case, then clear-headed thinking about its flaws and benefits could pave the way for better regulation, better financial literacy programs and more effective, more diverse microfinance products.

Next week, Indian politicians plan to ban all Bollywood movies for “sucking the blood from the poor” because they charge for movie tickets.

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Photo credit: flickr

Vikram Akula, CEO of SKS Microfinance, India’s largest for-profit microlender.

The impending collapse of the microfinance industry in Andhra Pradesh, one of India’s largest states and a major hub of microfinance, is the ultimate example of a silver aid bullet…not being a silver aid bullet at all. The New York Times reports:

India’s rapidly growing private microcredit industry faces imminent collapse as almost all borrowers in one of India’s largest states have stopped repaying their loans, egged on by politicians who accuse the industry of earning outsize profits on the backs of the poor.

Responding to public anger over abuses in the microcredit industry — and growing reports of suicides among people unable to pay mounting debts — legislators in the state of Andhra Pradesh last month passed a stringent new law restricting how the companies can lend and collect money.

Even as the new legislation was being passed, local leaders urged people to renege on their loans, and repayments on nearly $2 billion in loans in the state have virtually ceased. Lenders say that less than 10 percent of borrowers have made payments in the past couple of weeks.

The FT apocalyptically adds:

The crisis that began in Andhra Pradesh threatens to spill over to the entire sector, with other states already feeling ripples against the industry. That could trigger a wave of bank defaults nationwide and a rural liquidity squeeze.

But is microcredit really as bad as it seems? Last month, the Wall Street Journal wrote:

Microlending companies say that often where they have investigated suicides attributed to their lending, they have found that microloans were among the smallest of the many problems of the people that have killed themselves.

And in a Journal Op-Ed:

Up until a month ago, at the biggest lenders, less than 2% of borrowers in the state were missing payments on their microloans. The payment crisis, where people abandoned their repayment schedules, happened only after [Indian politicians] told borrowers they didn’t have to pay. If this borrowers’ rebellion was triggered by dirty lenders, one would imagine the default rate would have expanded gradually before tipping into crisis.

Doesn’t quite sound like the end of microfinance as we know it, but we’ll keep our ears perked. Can micro-lending be both for-profit and sustainable for development?
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Image Credit: neytri

I remember wanting to save the world when I bought my first (and only) pair of TOMS Shoes. I was a freshman at NYU and involved in a handful of Save the Child Soldiers/Darfur/Fair Trade student clubs. With TOMS, just $50 of my (parents’) money would buy two pairs of shoes – one for me and one for a poor shoeless child somewhere – plus raise a few dollars for one of these clubs. Besides, those shoes were hip.

The real "Chief Shoe Giver" is you, the customer.

Looking back—and looking around me now at the high TOMS saturation on campus—I realize that TOMS Shoes is extremely well-marketed, extremely popular, bad aid.

TOMS follows a Buy-One-Give-One (BOGO) model where a customer pays for both pairs of shoes. But buying poor children $25 shoes is simply not cost-effective. Donating clothes to the poor in poor countries is not the same as, say, donating winter clothing to the homeless in New York. For one, shoes don’t cost $25 in the areas where TOMS donates; local shoe salesmen will sell footwear for much, much less. While TOMS insists their giving is considerate of the local economy, they don’t explain how. At its worst, local shoe merchants can’t compete with the continual influx of free shoes. (TOMS produces its shoes in China, Argentina and Ethiopia and gives them in 24 countries.) It’s funny how TOMS can call itself a “movement” and yet get away with offering very little information on the movement’s business practices or measured impact.

Consider how else you could spend those $25 you invested. If the aim of wearing shoes is to prevent soil-borne diseases such as hookworm, then $25 would go much further if invested in sanitation. You might give to an NGO that builds latrines, for example, which serve more people and last years longer than a pair of shoes. (For an extensive explanation of these and other problems with the TOMS model, read Peace Corps volunteer Zac Mason’s blog or the Good Intentions are Not Enough blog.)

So why did I buy TOMS that day? I’d venture that my personal reasons weren’t all that different from hundreds of other college kids like me. We come to college wanting to do good. At the same time, we want to buy cool things. So it’s exciting when these two come together, and we get the chance to give back as we consume. TOMS is literally a prime example of what Slovenian philosopher Slavoj Zizek calls “cultural capitalism”: you combine acts of goodwill with acts of consumption (Zizek sees this as a sort of personal redemption for being a consumer).

Come to think of it, I never wore my TOMS even once.

We buy TOMS Shoes or Fair Trade chocolate or poverty-fighting water bottles because we genuinely want to help. But in the frenzy of do-gooder consumption we stop thinking all the way through. We fail to ask how our money will help, and we overlook how our good deeds might actually do harm. We forget that what we want to do for others might not be the same as what they really need.

It’s too convenient to hand our credit cards to businesses that promise to do good; making a real difference also requires information, accountability and careful consideration. We talk extensively on this blog about NGO accountability. Shouldn’t customers ask the same of their favorite social entrepreneurs?

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Photocredit: Flickr user loveandmusic18

Jeff Gettleman has an unnerving piece in the New York Times on the inability of UN peacekeeping forces to protect civilians in the Democratic Republic of Congo. In one particularly gruesome consequence last July, rebels gang-raped 242 people (including a one month-old baby and a 110 year-old woman, according to the Guardian) in the village of Luvungi, just 11 miles from where dozens of peacekeepers were stationed. Gettleman writes:

Despite more than 10 years of experience and billions of dollars, the peacekeeping force still seems to be failing at its most elemental task: protecting civilians…many critics contend that nowhere else in the world has the United Nations invested so much and accomplished so little.

On the other hand, David Bosco at Foreign Policy chalks it up to problems of perception:

part of peacekeeping’s image problem is that it’s asked to handle some of the world’s worst conflicts and then given very little credit for moving situations from awful to merely bad.

And Jason Stearns writes in the CS Monitor that while the peacekeeping force may have been negligent, the main problem is corruption within the Congolese army:

So long as … impunity within the army reigns, these kinds of abuses will continue to happen. Just look at all of officers recommended for sanctions in UN Group of Experts reports and various human rights documents. Almost none have been arrested.

These explanations gloss over a simple necessity that MONUSCO, and many previous failed PKOs and aid efforts, fundamentally lacked: a reliable system of communication. Despite $1.35 billion a year and 18,000 peacekeepers, correspondence between Congolese civilians, peacekeeping troops, and UN officials remains deficient. As Shakespeare could have told the UN, failures in communication between the parts lead to easily-preventable blunders which lead to tragedy.

For instance, Gettleman reports that because “there is no cellphone service in the area or electricity, it is not always simple to know when there is an attack. The United Nations…is now trying to install solar-powered high-frequency radios in some villages.”

Could someone please explain why, if there was no cellphone service or electricity, and peacekeepers had been operating in remote areas like Luvungi for 10 years, these radios weren’t installed before the UN embarrassed itself a little earlier?

But that’s not all. Marcel Stoessel, Oxfam’s country director in DRC, told Voice of America that many of the peacekeepers do not speak French, and do not have interpreters. That means that villagers often can’t inform peacekeepers about major threats or problems.

The Guardian wrote that MONUSCO insists it didn’t know about the attacks for more than a week, adding, “Two UN officials in Kinshasa told the Associated Press they heard it from media reports, even though the UN’s small civil affairs office in Walikale is charged with protecting civilians.”

In fact villagers did warn the peacekeepers about a coming attack, but their entreaties were lost in translation – the interpreter-less peacekeepers dismissed it as a false alarm.

While many things can complicate a peace-keeping operation, we shouldn’t excuse the UN for failing on something as simple as installing radios or hiring interpreters.