George Mason University's MERCATUS Center offers an argument against microfinance as a sustainable solution for reducing poverty. The paper titled "Microfinance in Action: The Philippine Experience" argues that microfinance often supports short-term consumption needs rather than providing long-term income security. Instead of microfinance initiatives, the paper makes the case for improving property rights as a more efficient method of small business finance.
The paper provides a convincing argument that microfinance can be a "band-aid" solution. However, the idea of the poor obtaining financing from mortgaging a land title is less appealing. Land is seldom titled among the poor because it is not economically efficient to do so. Although there is a large dollar value in the collective land value of any poor region, there is little economic benefit in the cost of researching title and perfecting a security. Additionally, land is often collectively owned by extended families or clan groups which delegate ownership rights by a means that is often different than is done by Western or National legal systems.
Saturday, March 31, 2007
MIT Research Paper Describes Consumption Habits of Abject Poor
New research titled "The Economic Lives of the Poor" from MIT describes the consumption habits of people living on an income of $1 per day (the abject poor) and $2 per day (poor). A key finding is that the poor are not limited to purchasing subsistence goods, but rather have a significant amount of discretionary income.
The research data additionally somewhat discredits the concept that extreme poverty is defined by insufficient subsistence goods such as food. For a typical family surveyed spending on food consumption ranged from 56% - 74% (the researchers speculated that the large difference in consumption on food is in part based on the relative discrepancy in domestic consumer goods. For example, India produces low cost electronics) followed by a median expense of 10% of income on festivals (including weddings, funerals, or celebrations) and alcohol and tobacco which ranged from a median of 4.1% in Papa New Guinea to 8.1% in Mexico. Spending on education averages 2% of income across the households surveyed.
For every 1% increase in income, the average amount of increase on food spending is .067% (Deaton & Subramanian, 1996). Additionally, the amount of television ownership increases from 14% to 45% across nations surveyed when income increases from $1 to $2.
The data compiled in the paper is based on the World Bank's Living Standards Measurement Survey (LSMS) and the Rand Foundation's Family Life Survey.
The paper raises concerns about the effectiveness of foreign aid. Based on MIT's research, direct food aid may contribute to a higher level of discretionary spending among the poor rather than raising levels of health. However, a micro-credit initiative may see mixed results. The lack of entrepreneurial opportunities likely is constrained by the absence of productivity supplies. Although, the significant amount of luxury purchases by even those who are considered abjectly poor likely creates a large pool of potential consumers for a small entrepreneur.
The research data additionally somewhat discredits the concept that extreme poverty is defined by insufficient subsistence goods such as food. For a typical family surveyed spending on food consumption ranged from 56% - 74% (the researchers speculated that the large difference in consumption on food is in part based on the relative discrepancy in domestic consumer goods. For example, India produces low cost electronics) followed by a median expense of 10% of income on festivals (including weddings, funerals, or celebrations) and alcohol and tobacco which ranged from a median of 4.1% in Papa New Guinea to 8.1% in Mexico. Spending on education averages 2% of income across the households surveyed.
For every 1% increase in income, the average amount of increase on food spending is .067% (Deaton & Subramanian, 1996). Additionally, the amount of television ownership increases from 14% to 45% across nations surveyed when income increases from $1 to $2.
The data compiled in the paper is based on the World Bank's Living Standards Measurement Survey (LSMS) and the Rand Foundation's Family Life Survey.
The paper raises concerns about the effectiveness of foreign aid. Based on MIT's research, direct food aid may contribute to a higher level of discretionary spending among the poor rather than raising levels of health. However, a micro-credit initiative may see mixed results. The lack of entrepreneurial opportunities likely is constrained by the absence of productivity supplies. Although, the significant amount of luxury purchases by even those who are considered abjectly poor likely creates a large pool of potential consumers for a small entrepreneur.
Wednesday, March 21, 2007
Arkansas Divestment Campaign's Success in State Legislature
On Monday Bill SCR20 to encourage state retirement companies to identify companies operating in Sudan and divest from those companies received a do pass recommendation from the state joint committee on Public Retirement and Social Security Programs. The current status of the bill can be viewed online.
We would like to congratulate the students at the University of Arkansas who began and managed a successful divestment campaign.
Although we are concerned about the ideology of legislating what is an appropriate investment practice, we do feel that state retirement plans have a responsibility to to clearly indicate what activities an investor's funds support and to offer alternative fund options when their is a serious question of harm. We commend the state legislature in simply encouraging fund operators to become transparent about their portfolio activities rather than going so far as to define a moral investment by statute. It is clear that state retirement accounts have a social and legal responsibility to define their investment holding's conduct in Sudan and offer a divested fund option for pensioners.
In the future, we hope to see more publicity given to the Darfur genocide and an initiative to inform the state's investors about their ability to divest personal funds from companies that are complicit in the genocide.
Visit the Arkansas STAND website for more information on the Arkansas Student's divestment campaign and their platform against the Darfur genocide. Further information can be found at the international Sudan Divestment Taskforce website.
We would like to congratulate the students at the University of Arkansas who began and managed a successful divestment campaign.
Although we are concerned about the ideology of legislating what is an appropriate investment practice, we do feel that state retirement plans have a responsibility to to clearly indicate what activities an investor's funds support and to offer alternative fund options when their is a serious question of harm. We commend the state legislature in simply encouraging fund operators to become transparent about their portfolio activities rather than going so far as to define a moral investment by statute. It is clear that state retirement accounts have a social and legal responsibility to define their investment holding's conduct in Sudan and offer a divested fund option for pensioners.
In the future, we hope to see more publicity given to the Darfur genocide and an initiative to inform the state's investors about their ability to divest personal funds from companies that are complicit in the genocide.
Visit the Arkansas STAND website for more information on the Arkansas Student's divestment campaign and their platform against the Darfur genocide. Further information can be found at the international Sudan Divestment Taskforce website.
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