Democracy Lab

Finally, Good News from Haiti

Haiti is no economic success story. But that may be about to change.

Haiti has been independent for 209 years, but Haitians don't have much to show for it economically. The country is plagued by poor infrastructure, political instability and violence, an inefficient and corrupt bureaucracy, and low standards of education. These are all factors that make it increasingly vulnerable to shocks from natural disasters and now barely able to support its growing population. While there have been some moments of optimism over the years, they've usually been short-lived. Over the past decade, hurricanes, floods, a devastating earthquake, and an outbreak of cholera have repeatedly derailed an already struggling economy.

Though Haiti has attracted vast amounts of aid and disaster relief, there are few signs of tangible improvements in the lives of most of its people. Donors and the government pledged that economic aid after the 2010 earthquake would be used to "build back better," but the sad reality is that, even if donors keep their pledges, the funds needed for this task are much higher than what has been committed.

The country has suffered negative economic growth in three of the last four decades. As of early 2013, roughly three-quarters of Haitians were either unemployed or trying to make ends meet in the informal economy. Big foreign investors, worried about the political risks, are reluctant to make major commitments. The inability of poor Haitians to exploit opportunities that could lead to growth fuels a vicious circle of high unemployment, persistent poverty, aggravated inequality, and the mass emigration of skilled workers. Today, roughly 82 percent of Haitians with a college education have left the country.

Yet Haiti may be about to make a turn for the better. And the reason has a great deal to do with technology.

Haiti's long record of dysfunction has promoted the creation of a huge overseas diaspora, mostly in the United States and Canada. These emigrants are increasingly affluent, and new information technology is allowing them to play a more active role in Haiti's economy. Until recently the main contribution of overseas Haitians came in the form of remittances to family members back in the homeland. Roughly a third of the country's population depends on income from remittances, which run from $1.5 billion to $2.0 billion annually. But while money transfers certainly help, they aren't as useful as actual investment in Haitian products and services, which would not only create jobs and infrastructure, but also bring in much-needed management expertise and know-how.

Now improvements in communication technologies are causing a surge in diaspora investment in the Haitian economy. The key component is the growth of a highly creative sector of grassroots organizations in Haiti that are committed to helping the poor and eliminating poverty. The two best examples are Zafen and Fonkoze, web-based crowd-funding platforms that are helping focus investment opportunities.

Zafen provides interest-free loans to Haitian entrepreneurs who are unable to find funding from traditional banking sources. The loans are then distributed through Fonkoze, the country's largest (and phenomenally successful) microfinance institution. Between 1996 and 2011, the organization has grown from two volunteers in one location to 899 full-time staffers in 46 branches that serve 333,212 primarily rural-poor clients. With the advent of ventures like Zafen and Fonkoze, members of the successful Haitian diaspora now have a viable mechanism for sharing share their knowledge, expertise, and financial resources with promising local entrepreneurs.

One way or the other, mobilizing the diaspora is likely to be key to the future of Haiti's economy. Back in the late 1970s and 1980s, few outsiders in Europe or the United States were willing to take a chance on the first opportunities for investment in post-Mao China. Chinese leader Deng Xiaoping, understanding this only too well, specifically targeted investors in the ethnic Chinese diaspora, who understood the language, mentality, and bureaucratic culture of the mainland. Deng's government set up the first Special Economic zones directly opposite the thriving capitalist outposts of Taiwan and Hong Kong -- and investment from investors there soon started flooding in.

Similar plans have long been mooted for Haiti. President Michel Martelly, who likes to proclaim that "Haiti is open for business," is trying to set up a series of integrated economic zones that use local inputs for foreign manufacturing, and make Haiti an attractive destination for foreign investment. Martelly's scheme echoes one broached over 30 years ago by then-President Jean-Claude ("Baby Doc") Duvalier. Duvalier spoke of transforming Haiti into the "Taiwan of the Caribbean," a vast factory complex where foreign firms could assemble textiles, electronics, and baseballs for the nearby U.S. market.

For a while, indeed, industry thrived, but it became obvious that the export-zone strategy was incapable of making a significant dent in the country's rate of poverty and unemployment. Coups, crumbling infrastructure, and trade embargoes by the United States and the United Nations directed against the country's military regime created unemployment at around 40 percent in 2010.

Is there any reason to be optimistic this time? The answer, fortunately, is yes. The world economy has changed dramatically since the first wave of export zones were set up in the 1970s. A conspicuous feature of globalization is the decentralization of production, which has benefited large numbers of workers in the developing world. Technological change, lower transport costs, and the resulting creation of global supply chains are shifting comparative advantage in many areas of manufacturing to Haiti's favor. Rising labor costs in China and East Asia are pushing many U.S. firms to move production from those parts of the world to new ones. This movement of manufacturing back to the United States will likely create an expanding manufacturing sector ideally supplied by nearby low-cost countries like Haiti. Complementing these developments, U.S. legislation such as the Hope Act has provided Haiti with access to the American market on very favorable terms. Leveraging the interest of investors from the Haitian diaspora -- though not only them, of course -- could provide the necessary catalyst.

We now also have access to a fairly long history of export zones in developing countries, enabling in-depth studies to identify why some succeeded and others failed. It turns out there are a number of success stories that could be easily replicated in Haiti. The idea is to focus reconstruction and aid efforts toward economic zones as a way of replacing the current haphazard system of allocating foreign aid. Haiti's new economic strategy is evolving along these lines. For what it's worth, the International Monetary Fund is projecting growth in Haiti to accelerate to 6.5 percent in 2013 from 4.5 percent in 2012.

By lifting large segments of the population out of poverty, grassroots movements such as Fonkoze and Zafen have the opportunity to empower the country's population to overcome and reform the traditional impediments posed by the national government -- corruption, inefficiency, and the extractive institutions that have plagued the country for decades. Many Haitians are beginning to gain a sense of what needs to be done to make their government more efficient and accountable. They are beginning have a frame of reference for what is possible. After years of bad luck, a number of key elements are finally coming together for a prosperous new Haiti.

An earlier version of this piece reported that Haiti has been independent for 199 years. Haiti has been independent for 209 years.

HECTOR RETAMAL/AFP/Getty Images

National Security

The Special Relationship Under Austerity

Increasing NATO's bang in a time of fewer bucks.

I arrived in Washington this week with the U.S. challenge to European NATO partners to increase their share of the burden of collective defense ringing in my ears. It is a point that was well made by Secretary Gates, faithfully reiterated by Secretary Panetta, and was delivered with renewed urgency by Secretary Hagel, in the face of the challenge of sequestration.

We, in the U.K. government, want to work with the U.S. to address the challenges of defense in an age of austerity -- and in doing so, to strengthen the Atlantic Alliance. I said here in Washington last year, and repeated in Berlin, that we accept the challenge. I agree that European NATO must up its game. We cannot expect America to lead every operation in every circumstance; European NATO must in the future expect to do more. But talk of American disengagement is disingenuous; a strong NATO is in Europe's vital interest, but it is also in America's vital interest.

Western democracies, on both sides of the Atlantic, are going to have to learn to live with tighter defense resources for the foreseeable future. We must be realistic about the fiscal pressures -- but that does not mean all is lost. We can deliver far greater effective capability in Europe, even within current budgets. Because the problem is not just that too many allies are not spending enough; too often, what they are spending is not delivering proper, deployable capability and is not backed by the political will to deploy. In the short-term, increasing the deployable bang European NATO generates for each buck of defense spending is the best way to achieve a more equitable burden sharing; in the longer-term, as growth resumes, we have to press those partners whose contributions have dropped below what is acceptable to recognize that collective security is not a free lunch.

I am clear that NATO must remain the cornerstone of our defense. Not the NATO of our parents' generation, but an outward-looking NATO, ready to deal with a diverse range of threats emanating from beyond its borders. Collective action is the only realistic response to the challenges we face. Today, in Afghanistan, NATO continues to prove itself as the most effective military alliance the world has ever seen and a force multiplier for all of us.  For a decade, 10,000 British troops have fought alongside Americans as part of a wider coalition of 50 nations, under a NATO umbrella, but embracing new partners, all in a common cause. No other organization could have made that happen.  Our challenge is to ensure that NATO retains that unique capability as we end our combat mission in Afghanistan. 

The United Kingdom is committed to remaining America's most capable ally and the leading force in Europe. We have taken some tough decisions to deal with our own budget challenges, but will continue to field a broad spectrum force, supported by the world's fourth-largest defense budget, ready for the next set of security challenges.  The U.K. Future Force 2020 will be adaptable for the range of missions we will face in the future and interoperable with the United States and other allies. Our new aircraft carriers are under construction, and a new generation of highly capable destroyers and attack submarines are coming into service now. We will soon add the F-35 Joint Strike Fighter to our fast jet force. Our regular army will be smaller, yes, but better equipped and able to call on a larger reserve component. We are investing in our world-classs special forces and the whole force will be supported by the air transport, air-to-air refuelling, cyber and intelligence and surveillance capabilities that are vital to today's operations.

We will retain and renew our continuously-deployed submarine-based nuclear deterrent and will continue working closely with the United States on the next generation of ballistic missile submarines. This capability gives us in Britain the ultimate safeguard of our security in an uncertain world, adds maximum value to the alliance, and provides NATO with a second deterrent force.

In a world where new powers are emerging, our two nations share values and strategic interests, a critical reason why we will remain the closest of partners. A strong transatlantic defense relationship will serve both of our countries well in this uncertain future. And key to delivering it with a shrinking budget is the close cooperation and the advanced interoperability between our armed forces. But as the security challenges change, so must our defense relationships.  Future U.K.-U.S. defense cooperation will be as much about remotely piloted air systems and cyber operations as it is about American and British boots working together on the ground. And developing the same levels of cooperation and interoperability between the European allies holds out the prospect of enhancing the Alliance's military capability -- even in the face of austerity.

SAUL LOEB/AFP/Getty Images