In the Shadow of the Hot Sun: Aid Effectiveness & Informal Economies in the Digital Era

The shortcomings of foreign assistance, the potential of new technologies, and what the First World could learn from the Third.

The Price of Assistance

Even with the stopover in Switzerland, the ride from Dulles Intl. to Jomo Kenyatta was a long one. Somewhere over the Sahara I began to reflect on the project I was embarking upon.  As a health worker, I was sent by an international NGO to teach better hygiene practices to those living in Kibera, an informal settlement located in Nairobi, Kenya.  Last summer fuel prices were on the rise.  The $2,300 price of the plane ticket was shocking.  When I was told that the population I would be assisting lived off of a dollar a day I calculated that the same money the NGO spent on my travel could have sustained a Kibera resident for six years.  Yes, I  possess a few specialized skills.  Yes, my experiences and education have given me some understanding about the field of international development.  But how much of an impact would I truly make on the people I was so eager to help?  I started to evaluate my effectiveness.

Window shopper.

Kibera certainly has its share of problems, ranging from weak governance to crippling poverty, but it’s not completely destitute. One prominent feature of the slum is its bustling marketplace.  Even though the government does not recognize the settlement, residents are able to live and work in Kibera  by exchanging goods and services amongst each other and out of these transactions unofficial institutions are created. How does the informal economy drive indigenous innovation to keep its participants afloat?  How effective is it compared to foreign assistance?  The answers to these questions could help to define the murky underbelly of globalization.  In addition, emerging new technologies have the potential to flattened traditional hierarchies and provide new opportunities that accelerate economic development in impoverished regions around the world.

First World Interests

The emerging global social network.

Why offer foreign assistance to developing countries in the first place?  The economist Paul Collier notes that, “a cesspool of misery next to a world of growing prosperity is both terrible for those in the cesspool and dangerous for those who live next to it”  (Collier, 2007).  The United Nations Millennium declaration echoes this thought.  “Responsibility for managing worldwide economic and social development, as well as threats to international peace and security, must be shared among the nations of the world and should be exercised multilaterally” (UN, 2000).   The world is becoming more interconnected every day.  Constraints on food, water, and energy, quickly change from local to transnational issues (NIC, 2008).  As a response, governments and non-government organizations promote economic development and welfare programs in developing countries (OECD, 2008).

An old joke.

How effective they are is another matter all together.  Foreign assistance boils down to an etic intervention.  The efficiency of an outside party solving the societal problems of another population should be considered.  Domestic policies and institutions primarily shape development and aid plays a minor role at best (NSC, 2009).   Solutions can only be achieved by deep understanding of the challenge at the local level.  Often development workers encourage reform policy by working with host governments to build schools, distribute drugs, organize elections, train the military, and disperse loans.  Yet, critics of foreign assistance point out that this in not an effective approach to administering aid.  Instead of promoting growth, recipients who are handled with kid gloves are nurtured into a culture of dependency (Easterly, 2006; Moyo, 2009).

polyp.org.uk

Policy intended to spring developing countries into the global markets of the industrialized world such as the structural adjustment programs of the International Monetary Fund has often created the opposite effect.  Recipient countries like Jamaica have become vulnerable due to interventions, multinational organizations have exploited their weak economic environment, and the average citizen is worse off (Black, 2001).  International markets are a reality, but quickly introducing fledgling economies to the same markets used by industrialized nations creates a shock to local industry instead of tempering it.  Injecting foreign investment into a country does not necessarily mean that funds will trickle down to the bottom of the pyramid.  Before the Arab Spring, Egypt was seen as a favorable trading partner with Europe and the United States even though newly available goods and services were prohibitively expensive to anyone but the wealthiest Egyptian.  As a result, Egypt was home to a booming black market (Nelson, 2010).  The situation proved to be unstable and the civil unrest that came as a result toppled President Mubarak’s government.

Local leaders are often blamed for nepotism and corruption.  Literature on Africa points to tribal cleavages that create the traditional patrimonial brand of feudalism that exists today.  Foreign assistance pours in funds for democratic reforms and elections are held, but the same corrupt leaders continue to remain in power for years to come (Hyden, 1999).  More efforts are made on the part of the donors to remedy the situation, but little changes.  It’s not that the plans are not brilliant, but who is approached in the partnership.  So often development interventions are political agreements between elites.  Donors broker deals with existing government officials and the beneficiaries are not the underclass majority, but the patronage system that leaders must rely on to stay in power (Nye, 2011).

US oil exported to the developing world.

That’s just the foreign assistance that ends up overseas.  Much of the funding stays within the donor’s economy. When Palestine won a seat in UNESCO in November, there was an outcry from the international community because the United States froze $200 million in foreign assistance to the Palestinian Authority.  However, most of that money was earmarked to stay in Washington to compensate US contractors and fulfill oversight requirements (Levy, 2011).  A bureaucratic machine must be satisfied domestically before any project can be implemented overseas.  If foreign assistance was seen purely from a business point of view, the costs far outweigh the benefits.  How can the fidelity of such development interventions go on for years?  Assistance is not motivated entirely by the empathy of altruistic donors, but strategic security and economic interests (Nye, 2011).

Some critics of foreign assistance like Dambisa Moyo call for a complete pull out of aid (Moyo, 2009).  This is an extreme suggestion because war and epidemics transcend borders and are rightfully a global concern.  In addition, we are all inextricably linked to a global market.  Isolation and protectionism will not create development as we have seen from the import-barring commodity markets of the past (Collier, 2008).  Yet, theorists like Moyo have a point.  Native innovation will provide far more sustainable solutions than self-serving foreign interventions.  How can we empower the impoverished to rise above their current conditions?

The heart of the informal sector: Cairo bazaar Pre-Arab Spring.

Innovation Under the Hot Sun

One area of great potential is the informal economy.  There seems to be an inverse relationship between governance and the black market.  As governments grow weak, often through corruption, they are unable to provide basic social services to their citizens.  As conditions worsen, the disenchanted population chooses to exit the system and create their own unregulated sectors that run parallel with the formal economy.  The informal sector satisfies community needs that the government can or will not (Gerxhani, 2004; Schneider, 2005).  It is difficult to precisely measure the size of the informal economy, but SIDA estimates that in 2000, informal employment in Africa, Latin America, and Asia was 78%, 57%, and 45-85% respectively.

The average share of the informal enterprise sector in non-agricultural official GDP varies from a low of 27% in Northern Africa to a high of 41% in Sub-Saharan Africa. The fact that such a large number of countries in Sub-Saharan Africa have such estimates reflects recognition of the importance of the informal sector in total GDP. The contribution of the informal sector to GDP is 29% for Latin America and 41% for Asia.

(Becker, 2004)

Undereducated and marginalized groups such as women and children perform most of the duties in the informal economy, but have little control over its management (Becker, 2004).  The result is a system that allows workers to sustain themselves at subsistence level, but little room to develop larger scale markets that create profit.

Shining a path towards property rights.

The potential of the informal economy’s cheap and prolific workforce has attracted economists and development workers alike who wish to harness its power.  The most well known is Hernando de Soto, whose Institute of Democracy and Liberty, is credited for reforming his native Peru.  By identifying parties that operate within the country’s informal agricultural sector, Soto’s organization partnered with the local government to issue land title documents to farmers.  Once land claims were formally acknowledged by the government taxes could be collected. By formalizing land use and taxing it, more Peruvians began to participate in governance, demanding accountability, and the country became more democratic.  Soto believes that by legitimizing the informal economy other social problems plaguing Peru, like the Shining Path guerrilla movement disappeared (Soto & Orsini, 1991).  One of the main reasons that the implementation worked so well in Peru was because it was the brainchild of a Peruvian and was endorsed by the local government.  De Soto refers to other countries including El Salvador, China, Russia, Thailand, and South Africa that have benefited from his model, but not all who that have adopted the plan have enjoyed the same success (Andelman & Voigt, 2011).

Bucolic splendor.

One obvious shortcoming to the Soto method is that one must be attached to land to be eligible for a title that the government can tax.  This may work to get the ball rolling in rural Peru, but to say that most of those living in poverty are land owners is not reflective of the global demographic (Andelman & Voigt, 2011). Populations move to the city from the countryside in search of better economic opportunities.  When they arrive they possess little material assets, let alone land ownership.    Reforming land rights certainly can have an impact on the rural informal economy, but how does the bottom billion survive in the cities?   Soto doesn’t account for urbanization other than to say that increased land rights will discourage migration over the long term (Andelman & Voigt, 2011).

Treasure chests.

Enter the Jua Kali.  The term is Kiswahili for Hot Sun and it explains the conditions that the majority of Nairobi’s micro-manufacturing workforce must endure to make a living.  When faced with little resources at their disposal, the Jua Kali will collect the bricolage of any scrap material available and construct it into every day commodities ranging from household items to car parts to refurbished electronics.  Kenya’s light manufacturing industry was formed organically in the slums when individuals took the knowledge learned by the Indian mercantile class and decided to strike out on their own (Daniels, 2011).  The results are clusters of manufacturers who make do with what they have and invent what they don’t.

Click to read for a tweet “Making Do” by Steve Daniels.

Groups are formed along tribal and family lines and tend to strengthen productivity rather than inhibit it compared to patrimonialism in politics.  Familiar relationships create a vast horizontal network that is more egalitarian than top down hierarchies.   The collectives start when an individual becomes good at putting out a product and makes enough money to hire an assistant who eventually decides to start their own independent enterprise.  Unfortunately, lack of intellectual property rights means that the apprentice will set up a shop next door to the master and offer the same exact goods and services. However this allows each party to share ideas and responsibilities with the one another (Daniels, 2011).  It also creates fierce competition and a kind of Social Darwinism that makes the Jua Kali industry an example of free market capitalism in its truest form.  Innovation flourishes amongst the Jua Kali, but it is centered on the means of production rather than the finished product.  If a tool is unavailable, a worker will gather what resources are available and invent a contraption to get the job done.  However, because of lack of credit and patent protection, risks are too high to create diversity amongst the products themselves (Daniels, 2011).

Foreign assistance in the form of business and vocational training would be useful in this area. Many of the Jua Kali report improved productivity when they receive access to education and microfinance (Daniels, 2011).  Yet, other forms of development charity have been harmful.  Donations of used clothing to the developing have wiped out emerging garment industries in Kenya and Tanzania (Kenny, 2011; McCormick, Kinyanjui & Ongile, 1997).

Searching for greener pastures.

The Jua Kali successfully service the informal economy, but is there potential to reach larger, formal markets?  Simple products are traded back and forth between the two and some artisans are able to penetrate the international marketplace with traditional crafts.  However, because the nature of the Jua Kali is fragile past levels of subsistence, it has a difficult time expanding.  Foreign and government interventions have attempted to strengthen the sector by encouraging unions and coops, but this has backfired. Formalizing and politicizing the Jua Kali has only made it prone to corruption that is neutralized by the chaotic wheeling and dealing of its original form (Daniels, 2011).

Keep sucking.

The Jua Kali way of life is an example of organic innovation based on appropriate technologies.  Westerners organize sustainable development design fairs and museum exhibits that showcase inventions that boast the ability to accelerate economic growth.  They claim that, “if well-established stakeholders mutually benefit from cross-sector collaboration over a long period, then the other 90 percent will actually reap the benefits from products designed with them in mind” (Ju, 2011).  While, some ideas have merit, many of the devices are unfeasible beyond academic exercises.  True sustainable development must come from indigenous solutions at a grassroots level.  The genius of the Jau Kali is that their work is built in direct response to the local environment.  Likewise, proponents of globalization often discount the information that flows South to North, but they could learn a lot from those deemed eligible for foreign assistance.

The jua kali provide important lessons for Western economics that compel us to revise our notion of efficiency. Economic and environmental efficiency can be gained from resource constraints, rather than boundless choice, and from linkages among small, independent enterprises, rather than from vertical integration. Indeed, instating these notions of efficiency will be necessary to foster a more sustainable and equitable form of development around the globe.

(Daniels, 2011).

Gold Farming Cyberpunks

By incorporating the Jua Kali philosophy into Western economic theory, paths between formal and informal economies could be easier to access.  Mutual growth and legitimacy should be promoted.  Whether the West chooses to participate or not, developing world entrepreneurship will still leak through.  The horizontal hierarchy of the informal economy is very similar to the decentralized architecture of the Internet (Saveri, Rheingold & Vian, 2005).  It may be difficult for informal economy actors to successfully export their material goods to the formal markets of the developed world, but there is increasing access to the fast growing knowledge economy.

“Can you hear me now?”

A few years ago, the developing world was isolated from industrialized nations, but the ubiquity of mobile telecommunications has changed all that (Radelet, 2011).  Remote communities can talk and text to anyone on the planet and the Internet is creating further connectivity.  The barriers of entry are still high, but it’s becoming progressively easier to access and benefit from this evolving virtual space.

Will Bitcoin one day dwarf the Gold Standard?

It may be that as the world becomes more connected, an unregulated formal economy will only grow instead of contract.  The prevalence of pirated DVDs, music, and software applications on the Internet is a testament to that.   However, online economies can incorporate both developed and emerging economies simultaneously.  Over 400,000 Asian workers and prisoners collect virtual gold in video games and exchange it with 10 million consumers for real currency in a trade worth over 700 million pounds a year (Davis, 2009).  Online games like World of Warcraft award players virtual gold for successfully completing tasks.  The gold is redeemed for armor and weapons that allow the players to progress faster through each level.  Asian players collect gold, but instead of powering up, sell it to Western players for real cash.   The industry is certainly exploitative.  Asian gold farmers work in sweatshop conditions, but the practice illustrates how emerging economies are able to participate in the new frontiers of the digital economy.

Lil’ Bow Wow.

As the digital age evolves, residents of the developing world may use Jua Kali methods to extract money from the pockets of their colonial masters.  One example is the Sakawa Boys of Ghana.  When Western computer owners decide to recycle their old computers, they wind up in dumps in places like Accra.  Locals go through the rubbish to salvage anything of value.  Bits and pieces of hard drives and CPUs are reassembled into new computers and they often contain information about their old owners.  In a scheme that the Ghanaians learned from neighboring Nigeria, unemployed youth laboriously rebuild the machines and phish the World Wide Web pretending to be women in search of love.  Using the old data found on the hard drive, they exchange e-mails, photos, and even phone calls with gullible lonely hearts in the developed world until cash changes hands (Vice Media, 2011).

Masks reveal as they conceal.

What makes Sakawa unique from all the other Internet scams is that the conmen appeal to a local witchdoctor for success in a job comparable to finding a needle in a haystack.  Whether or not the charms of juju actually work is beside the point.  By incorporating indigenous ritual into the Internet scam, Sakawa has become something distinctly Ghanian.  Sakawa is a term that has extended beyond animistic Internet fraud and is now used to describe any aspect of Ghanian economic mobility.  It’s spawned spin-offs in the legal, local music and film industries that have led to an explosion of cultural and economic growth.  Sakawa songs and movies are favored over American imports and even government officials are reported to be involved in the ritual.  By developing its Jua Kali sector and tapping into the black market, Ghana has gotten its mojo back.  Yes, the practice is illegal, but national identity has been revived and the country is profiting from the 21st century global, digital era (Vice Media, 2011).

No juju required.

Digital Emergence

Naturally, the informal economy’s initial forays into the Internet will not last.   The Chinese government cannot tax the virtual gold trade and has made the exchange for cash illegal (Davis, 2009).  In Ghana, government leaders are compelled to suppress Sakawa after foreign investors have pulled out of the country and formal, international e-commerce is now seen as too risky (Vice Media, 2011).  That’s not to say that either of the practices have stopped, only that the schism between formal and informal sectors widens.  However, the knowledge economy of the Internet is still in its infantile stages and this makes it a perfect place for international actors to address poverty alleviation.  The Jua Kali are proving to be Internet savvy and if legitimate economic opportunities are presented online, the poor can interact with the rest of the world in mutually beneficial peer-to-peer trade.  Money earned over the Internet can flow directly into local communities, without the sluggish bureaucracy and disingenuous politics of foreign assistance middlemen.  Those who make their fortunes off the World Wide Web can buy the property rights in their communities, as Soto suggests, needed to influence governance and build stronger social institutions.  The challenge remains to legitimize the online informal economy so that government can tax and regulate income.  Foreign assistance is needed at the global level to petition actors like the World Trade Organization to reform e-commerce so that it benefits everyone from the top to the bottom.  It is in the interest of the industrialized world to include the developing countries.  This is not a zero-sum game.  An increased labor force can boost productivity globally in a virtual environment nondependent on limited natural resources. Yet if the poor are discounted, schemes like Sakawa will only become more sophisticated and threatening than just spam in the inbox.

Acknowledgements

I’d like to thank Rene Botta, Janet Ballantyne, and Frank Young for helping me to conceptualize my ideas about international development and assistance.

My conversations with Tim Edwards, Fred Oelsner, and Mark Sevier continuously provide insight into life in the field.

But most importantly I’m in gratitude to my countless friends who live and work in the informal sector including Bonface Mutukaa, John Ssentongo, and Robert Muwonge (seen below shortly past 2:41) who always gave me a good deal on water from the borehole.

References

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