Please Do Not Teach This Woman to Fish

Why poor countries have too many entrepreneurs and not enough factory workers.

Is there anyone out there who doesn't think small business is the lifeblood of any economy? From Washington to Warsaw, politicians and pundits just can't speak highly enough of plucky entrepreneurs. Even in poor countries, entrepreneurship is one of the most important forces underpinning economic growth, but the best way to raise living standards and reduce poverty is not necessarily to make everyone an entrepreneur. So why do so many costly development programs apparently ignore this fact?

Once upon a time, people who wanted to fight poverty believed in direct approaches that solved identifiable problems one by one. If you wanted to make farmers more productive, you gave them fertilizer. If you wanted to boost manufacturing, you set up factories. To help both of these sectors grow and export goods, you built roads and ports. These kinds of investments quelled hunger and raised incomes in many countries. But recently, an indirect approach arose with promises of still greater benefits.

Daron Acemoglu and James Robinson, social scientists and authors of the bestseller Why Nations Fail, showed through their research that open and inclusive institutions could help economies to grow in a more organic way. This new thinking was embodied in the "golden thread" proposed by David Cameron, the British prime minister. In a Wall Street Journal op-ed in 2012, he suggested that countries pursue the "conditions that enable open economies and open societies to thrive: the rule of law, the absence of conflict and corruption, and the presence of property rights and strong institutions." In other words, given the right environment for business, an economy would bloom on its own.

Cameron's view might have been music to the ears of the newspaper's free-market-loving readers, but it also fit well with an existing fad in the global development community: entrepreneurship. Being an entrepreneur allowed poor people to take hold of their destinies, seizing the means of production -- at least on a small scale -- and realizing their full potential in the economy. High-profile investors based in rich countries, like Acumen Fund and Endeavor, strove to support "high-impact" entrepreneurs in poor countries. And microfinance programs made thousands if not millions of small loans to poor people so that they could start their own businesses.

From the point of view of economic growth, it did not all go swimmingly. First, the investors from rich countries included many non-profits and social investors who did not pick their targets based solely on profitability. They had their own measures of "impact" that steered their financing, things like environmental preservation, access to sanitation, and employees' incomes. Their investments might have reduced poverty in the short term, but it was anyone's guess whether they would add the most to an economy's productive capacity in the long term. Whenever they totted up their own achievements, they forgot to subtract the counterfactuals -- how much income and how many jobs would their motivated entrepreneurs have produced even without their help?

Along with them came the microfinance programs -- as well as many other aid schemes designed to promote entrepreneurship -- which were often based in rural villages where repayment would be enforced primarily by peer pressure among the members. These programs tended to target women, who were viewed as more reliable stewards of the groups' money. Some women did manage to start their own businesses with the loans they received, but the verdict of research into microfinance's ability to reduce poverty was decidedly mixed.

There was a simple reason for this. By trying to make microfinance less risky and more sustainable, the program managers also made it less effective.

To understand why, consider a common-sense question: How big can a business be in a rural village? There aren't many customers there, and incomes aren't very high either. A business would have to serve several villages to start creating jobs in any significant numbers. Now, consider rural women with families. They may be reliable repayers of loans, but they're much less mobile than single men. Single men can move to cities, or at least cover a lot of ground in the countryside, in an effort to win new customers. By contrast, even women without children face constraints on their movements in plenty of countries.

Microfinance may have given a lot of people a little, but it was never designed to give anyone a lot. Unlike the microenterprises founded in rural villages, businesses that serve lots of customers take advantage of economies of scale in production and distribution. These economies of scale are essential for economic growth. After all, which economy is more productive -- one in which every single person is an entrepreneur, or one in which a minority of entrepreneurs employ the majority of people?

In fact, poor countries already have many more entrepreneurs per capita than rich countries. More entrepreneurship is not what they need; economies of scale are. Indeed, the most productive economies are the ones that balance economies of scale with the benefits of competition. Too many businesses, and workers will fall short of their maximum productivity. Too few businesses, and monopolists will gouge consumers, quash innovation, and fail to serve the entire market.

Cameron's golden thread of economic and legal reform would indeed make it easier for businesses to thrive, but not just the small, rural businesses favored by the global development community. Eliminating corruption and strengthening property rights would be a green light for some of the world's biggest investors, both domestic and foreign. These are the kinds of players who open massive industrial parks, agribusiness facilities, and research centers. With investments in the millions and billions of dollars, they create hundreds or thousands of jobs at a stroke.

Of course, these jobs won't always go to the rural women helped by microfinance programs. Microfinance programs may be one of the best ways to help them, short of having their children take jobs in cities. Nor are these jobs necessarily the ones that fulfill the social goals in the mission statements of Western nonprofit organizations. But they are the kinds of jobs that brought hundreds of millions of Chinese out of poverty and could someday do the same for Indians, Haitians, and Congolese. In these countries, the quickest way to escape poverty is likely to be via bus to the nearest city for a manufacturing job. Hundreds of millions of economic migrants know this, but so-called antipoverty experts are just beginning to understand it.

Unfortunately, lobbying for the policy shifts that will set the stage for mass job creation is not what most people in the global development community are good at. They specialize in micro-level programs that allow them to have a hands-on relationship with the people they're supposed to be helping, not the macro-level changes whose widespread benefits are more difficult to attach to a single human face. As long as that's true, the progress they buy with billions of dollars worth of antipoverty programs will never amount to more than rounding error.

Most of these programs are a lot more efficient at generating heartwarming stories than they are at creating jobs, except perhaps for the people from rich countries who are paid to run them.

Mohammad Asad/Pacific Press/LightRocket via Getty Images


Take 2 Ambien and Call Me When It's Over

I’d rather spoon my own eye out than sit through this year’s Think-Tank-a-palooza.

Nobody seems to be happy with U.S. foreign policy these days. It's not hard to see why. Relations with Russia are frosty and could get worse. China is throwing sharp elbows and looking for opportunities to shift the status quo in Asia. The NSA is out of control. Afghanistan and Iraq were failures. Libya is a mess, Syria is worse, and Secretary of State John Kerry's quixotic effort at Middle East peacemaking was a farce. Al Qaeda keeps spreading and morphing no matter how many leaders our drones and Special Forces kill. With criticism mounting, U.S. President Barack Obama defended his basic approach at West Point and hardly anyone came away feeling any better. And now we are having a pointless squabble over repatriated POW Bowe Bergdahl.

With nearly everyone -- from Afghanistan War veterans to former envoy Lakhdar Brahimi to former Ambassador Robert Ford to MoveOn.org -- upset about how things are going, it's time for our premier foreign-policy institutions to step up with some outside-the-box thinking on how the United States could do better. Surely well-informed experts can offer fresh thinking on how the United States can deal with a world that seems to spin more out of control each month.

By a lucky coincidence, three prominent foreign policy think tanks have either recently held or are about to convene annual conferences on the state of the world and America's role within it. On June 12-13 the venerable Council on Foreign Relations (CFR) will hold its annual member's conference in New York. In Washington, the Center for a New American Security (CNAS) will be hosting its own conference on June 11, one day before the CFR event. And back on May 16, the once-iconoclastic New America Foundation convened its own annual meeting, under the heading "Big Ideas for a New America."

I've been looking over the programs for these three gatherings, and my first impulse is to yawn. Instead of a diverse array of speakers offering fresh ideas, or a clash of divergent world-views and policy prescriptions, the programs for all these events are heavily populated by the usual suspects: prominent foreign-policy practitioners, policy wonks, and public figures whose views are already familiar to anyone who's been paying attention to the travails of U.S. foreign policy.

Check out the bold-faced names on the CFR program. In addition to sessions run by the Council's own fellows, attendees will hear from former Secretary of State Madeleine Albright, former World Bank President Robert Zoellick, former Federal Reserve Vice Chair Alan Blinder, and former Under Secretary of State (and my Harvard colleague) Nicholas Burns. For the dinner entertainment, PBS's Charlie Rose will interview Senator John McCain. With the possible exception of Hampshire College's Michael Klare (who is scheduled to appear on a panel on resource scarcity), there's no one on the program with a surprising, controversial, or edgy take on the world or the role the United States should play in it.

What about CNAS? Their one-day conference will kick off with some well-known foreign experts: Wolfgang Ischinger of the Munich Security Conference, Amos Yadlin of the Institute for National Security Studies in Israel, and Zhu Feng of Peking University, all of them familiar insiders. Then you get Congressman Paul Ryan, retired admiral and former NATO Chief James Stavridis, and veteran Defense Department official William Lynn III. Other speakers include former National Security Advisor Stephen Hadley, veteran Middle East hand Dennis Ross, and Nick Burns again. Attendees will also hear a keynote speech from -- drum roll -- current National Security Advisor Susan Rice.

Were things any different last month at New America's conference last month, which addressed both foreign and domestic policy issues? The organization's founders intended it to challenge conventional wisdom inside the Beltway, but the agenda at that conference was still dominated by a roster of familiar faces. The opening keynote was by -- there he is again, John McCain -- and other speakers included financier and Obama-insider Steven Rattner, Sharon Burke from the Defense Department, media power couple Susan Glasser of Politico Magazine and Peter Baker of the New York Times, Eric Schmidt of Google, Inc., and FP's Tom Ricks and Rosa Brooks. The closing keynote was by Hillary Clinton; presumably you've heard of her too.

Don't get me wrong: the people participating at these events are all smart and knowledgeable, and attendees will undoubtedly glean nuggets of wisdom from them. I always enjoy listening to Nick Burns, for example, and CNAS Senior Fellow Colin Kahl (who is moderating a panel next week) is very sensible about U.S. Mideast policy. Michael Lind of New America remains a delightfully independent voice on many issues, including our dysfunctional foreign policy. So I'm not trying to diss any of the people who spoke at NAF last month or who will speak at CNAS or CFR this week.

Moreover, it's easy to understand why conference organizers stick with familiar faces: putting a bunch of established foreign policy VIPs on the program helps guarantee a big turn-out and highlights the organization's "convening power." And in our celebrity-mad world, many people would happy to catch a glimpse of somebody like McCain or Clinton, even if neither says anything new or thought-provoking. Sticking to establishment figures also avoids controversy: you don't have to worry about donors getting upset about the program or government officials refusing to appear on the same dais with someone they regard as radioactive.

But given the widespread dissatisfaction with the state of U.S. foreign policy, is this really the best we can do? Wouldn't it be more interesting, and more importantly, more useful for these organizations to cast the net more widely, and include people whose ideas on foreign policy were serious, well-informed, yet outside the current consensus? I'm not suggesting that CFR or CNAS invite a Taliban spokesman to participate (though lord knows that could be very revealing), but here are a few proposals for how these organizations might improve their otherwise staid proceedings.

Instead of asking the audience to listen to John McCain (whose views on foreign policy are no mystery at this point), why not have Charlie Rose interview Rand Paul?  Or better still: put Paul and McCain together and let Charlie interrogate them both.

How about inviting a serious critic of American over-commitment to speak at one of these internationalist gatherings? What about Andrew Bacevich from Boston University or Barry Posen from MIT? Both have impeccable credentials and Posen has a new book out on U.S. grand strategy that deserves wide exposure. If you wanted to generate some interest and edify the audience, put Posen on a panel with Robert Kagan, who recently defended the neoconservatives' failed approach to U.S. grand strategy in The New Republic and let them debate the issue of U.S. military engagement at length. Ohio State Professor John Mueller has written some terrific books and articles challenging the alarmist tendencies in the U.S. foreign policy establishment, and he's an entertaining speaker as well. If you're looking for a different perspective on terrorism, for example, send him an invitation.

Similarly, it's hard to think of anyone who has had more impact on debates about U.S. national security policy in the past year than Edward Snowden, Glenn Greenwald, or Laura Poitras. Even if you disagree completely with their views, all three have shown themselves to be knowledgeable and thoughtful critics of our overly energetic surveillance regime. So where's the panel discussion on secrecy and national security policy, pitting Greenwald against a representative from the intelligence community like Michael Hayden, Mike Morell, or Paul Pillar?

Let's get even more creative, and put technology to work. Get Edward Snowden on Skype from Moscow and let attendees at the conference ask him questions. If they wished, participants could grill him to their heart's content. I have no idea if Snowden would agree to participate in such an event, but a session like that would be the antithesis of dull and people might even get their minds stretched a bit.

And then there's the media. I've got no problem with establishment figures like Charlie Rose, Tom Ricks, Carla Robbins, or Susan Glasser appearing at events like these; indeed, I think it's a good thing. But why not spice up the mix with uber-blogger Andrew Sullivan or some of the academics who are now writing for The Monkey Cage? Where is Oscar-nominee Jeremy Scahill, or the tag team of Dana Priest and William Arkin, who wrote the book (literally) on Top Secret America. Where's Jane Mayer from the New Yorker, or even a real contrarian like Gareth Porter?  

Instead of playing it safe, I wish organizations like these had the imagination and courage to be bold. By all means keep some of the current insiders, but bring in Rashid Khalidi and Chas Freeman on the Middle East, Flynt and Hillary Leverett on U.S. policy toward Iran and Syria, Stephen Cohen on Ukraine, and Robert Kaplan and Australian Hugh White on Sino-American relations. I'm not saying that these people are necessarily right; my point is that an audience interested in being challenged and educated should hear a wider range of views than they typically get at these meetings. Pair them up with other people who are inclined to challenge the conventional wisdom and let a hundred flowers bloom; the resulting exchanges would edify the audience and the speakers might even learn something from each other.

If American foreign policy were going swimmingly, it would be easy to shrug off my proposal and say "if it ain't broke don't fix it." But that's hardly the case: we've had twenty-plus years of foreign policy fiascoes, yet we continue to turn to the architects and supporters of these failures for advice on what to do next. This makes no sense; we need to rethink how we do business.

One of the strengths of U.S. democracy is supposed to be its openness to fresh ideas, and to arguments that challenge deeply embedded beliefs. America was founded on a set of ideas that were radical in their time, and continued ferment and debate ultimately discredited both slavery and Jim Crow, brought women the franchise (belatedly), and transformed public attitudes toward smoking, gay marriage, and a host of other shibboleths. Intense foreign policy debates also overcame isolationist sentiment after World War II. Since the end of the Cold War, however, establishment thinking about foreign policy has been defined by an alliance of liberal hawks and even more hawkish neoconservatives, with disappointing results for sure. There's no time like the present for a more wide-open discussion.

If you'd like U.S. foreign policy to be more effective, competent, humane, and above all, successful -- and who wouldn't? -- letting some fresh air into the usual conference proceedings would be a step in the right direction. It's too late to change the programs for this year's meetings. But as Red Sox and Cubs fans learned a long time ago: there's always next year.