{"id":799,"date":"2012-02-11T01:27:47","date_gmt":"2012-02-11T01:27:47","guid":{"rendered":"http:\/\/mediaforsocialchange.org\/?p=799"},"modified":"2016-07-11T03:43:18","modified_gmt":"2016-07-11T03:43:18","slug":"in-the-shadow-of-the-hot-sun-aid-effectiveness-informal-economies-in-the-digital-era","status":"publish","type":"post","link":"https:\/\/jplarroque.com\/index.php\/2012\/02\/11\/in-the-shadow-of-the-hot-sun-aid-effectiveness-informal-economies-in-the-digital-era\/","title":{"rendered":"In the Shadow of the Hot Sun: Aid Effectiveness & Informal Economies in the Digital Era"},"content":{"rendered":"

The shortcomings of foreign assistance, the potential of new technologies, and what the First World could learn from the Third.<\/em><\/p>\n

[youtube http:\/\/www.youtube.com\/watch?v=O56AXbm2CzU]<\/p>\n

The Price of Assistance<\/span><\/strong><\/p>\n

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.\u00a0 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.\u00a0 Last summer fuel prices were on the rise.\u00a0 The $2,300 price of the plane ticket was shocking.\u00a0 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.\u00a0 Yes, I\u00a0 possess a few specialized skills.\u00a0 Yes, my experiences and education have given me some understanding about the field of international development.\u00a0 But how much of an impact<\/em> would I truly make on the people I was so eager to help?\u00a0 I started to evaluate my effectiveness.<\/p>\n

\"\"

Window shopper.<\/p><\/div>\n

Kibera certainly has its share of problems, ranging from weak governance to crippling poverty, but it\u2019s not completely destitute. One prominent feature of the slum is its bustling marketplace.\u00a0 Even though the government does not recognize the settlement, residents are able to live and work in Kibera \u00a0by 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?\u00a0 How effective is it compared to foreign assistance?\u00a0 The answers to these questions could help to define the murky underbelly of globalization.\u00a0 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.<\/p>\n

[youtube http:\/\/www.youtube.com\/watch?v=KpjPU7JFbeQ]<\/p>\n

First World Interests<\/span><\/strong><\/p>\n

\"\"

The emerging global social network.<\/p><\/div>\n

Why offer foreign assistance to developing countries in the first place?\u00a0 The economist Paul Collier notes that, \u201ca 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\u201d\u00a0 (Collier, 2007).\u00a0 The United Nations Millennium declaration echoes this thought.\u00a0 \u201cResponsibility 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\u201d (UN, 2000).\u00a0 \u00a0The world is becoming more interconnected every day.\u00a0 Constraints on food, water, and energy, quickly change from local to transnational issues (NIC, 2008).\u00a0 As a response, governments and non-government organizations promote economic development and welfare programs in developing countries (OECD, 2008).<\/p>\n

\"\"<\/a>

An old joke.<\/p><\/div>\n

How effective they are is another matter all together.\u00a0 Foreign assistance boils down to an etic intervention.\u00a0 The efficiency of an outside party solving the societal problems of another population should be considered.\u00a0 Domestic policies and institutions primarily shape development and aid plays a minor role at best (NSC, 2009). \u00a0\u00a0Solutions can only be achieved by deep understanding of the challenge at the local level.\u00a0 Often development workers encourage reform policy by working with host governments to build schools, distribute drugs, organize elections, train the military, and disperse loans.\u00a0 Yet, critics of foreign assistance point out that this in not an effective approach to administering aid. \u00a0Instead of promoting growth, recipients who are handled with kid gloves are nurtured into a culture of dependency (Easterly, 2006; Moyo, 2009).<\/p>\n

\"\"<\/a>

polyp.org.uk<\/p><\/div>\n

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.\u00a0 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).\u00a0 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.\u00a0 Injecting foreign investment into a country does not necessarily mean that funds will trickle down to the bottom of the pyramid.\u00a0 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.\u00a0 As a result, Egypt was home to a booming black market (Nelson, 2010).\u00a0 The situation proved to be unstable and the civil unrest that came as a result toppled President Mubarak\u2019s government.<\/p>\n

\"\"<\/a>Local leaders are often blamed for nepotism and corruption.\u00a0 Literature on Africa points to tribal cleavages that create the traditional patrimonial brand of feudalism that exists today.\u00a0 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).\u00a0 More efforts are made on the part of the donors to remedy the situation, but little changes.\u00a0 It\u2019s not that the plans are not brilliant, but who is approached in the partnership.\u00a0 So often development interventions are political agreements between elites.\u00a0 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).<\/p>\n

\"\"

US oil exported to the developing world.<\/p><\/div>\n

That\u2019s just the foreign assistance that ends up overseas.\u00a0 Much of the funding stays within the donor\u2019s 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.\u00a0 However, most of that money was earmarked to stay in Washington to compensate US contractors and fulfill oversight requirements (Levy, 2011).\u00a0 A bureaucratic machine must be satisfied domestically before any project can be implemented overseas.\u00a0 If foreign assistance was seen purely from a business point of view, the costs far outweigh the benefits. \u00a0How can the fidelity of such development interventions go on for years?\u00a0 Assistance is not motivated entirely by the empathy of altruistic donors, but strategic security and economic interests (Nye, 2011).<\/p>\n

Some critics of foreign assistance like Dambisa Moyo call for a complete pull out of aid (Moyo, 2009). \u00a0This is an extreme suggestion because war and epidemics transcend borders and are rightfully a global concern.\u00a0 In addition, we are all inextricably linked to a global market.\u00a0 Isolation and protectionism will not create development as we have seen from the import-barring commodity markets of the past (Collier, 2008).\u00a0 Yet, theorists like Moyo have a point.\u00a0 Native innovation will provide far more sustainable solutions than self-serving foreign interventions.\u00a0 How can we empower the impoverished to rise above their current conditions?<\/p>\n

[youtube http:\/\/www.youtube.com\/watch?v=etx64jlVev8]<\/p>\n

\"\"

The heart of the informal sector: Cairo bazaar Pre-Arab Spring.<\/p><\/div>\n

I<\/span><\/strong>nnovation Under the Hot Sun<\/span><\/strong><\/p>\n

One area of great potential is the informal economy.\u00a0 There seems to be an inverse relationship between governance and the black market.\u00a0 As governments grow weak, often through corruption, they are unable to provide basic social services to their citizens.\u00a0 As conditions worsen, the disenchanted population chooses to exit the system and create their own unregulated sectors that run parallel with the formal economy.\u00a0 The informal sector satisfies community needs that the government can or will not (Gerxhani, 2004; Schneider, 2005). \u00a0It 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.<\/p>\n

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.<\/p><\/blockquote>\n

(Becker, 2004)<\/p>\n

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).\u00a0 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.<\/p>\n

\"\"

Shining a path towards property rights.<\/p><\/div>\n

The potential of the informal economy\u2019s cheap and prolific workforce has attracted economists and development workers alike who wish to harness its power.\u00a0 The most well known is Hernando de Soto, whose Institute of Democracy and Liberty, is credited for reforming his native Peru.\u00a0 By identifying parties that operate within the country\u2019s informal agricultural sector, Soto\u2019s organization partnered with the local government to issue land title documents to farmers.\u00a0 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.\u00a0 Soto believes that by legitimizing the informal economy other social problems plaguing Peru, like the Shining Path guerrilla movement disappeared (Soto & Orsini, 1991).\u00a0 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.\u00a0 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).<\/p>\n

\"\"

Bucolic splendor.<\/p><\/div>\n

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.\u00a0 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.\u00a0 When they arrive they possess little material assets, let alone land ownership.\u00a0 \u00a0\u00a0Reforming land rights certainly can have an impact on the rural informal economy, but how does the bottom billion survive in the cities? \u00a0\u00a0Soto doesn\u2019t account for urbanization other than to say that increased land rights will discourage migration over the long term (Andelman & Voigt, 2011).<\/p>\n

\"\"

Treasure chests.<\/p><\/div>\n

Enter the Jua Kali.\u00a0 The term is Kiswahili for Hot Sun <\/em>and it explains the conditions that the majority of Nairobi\u2019s micro-manufacturing workforce must endure to make a living.\u00a0 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.\u00a0 Kenya\u2019s 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).\u00a0 The results are clusters of manufacturers who make do with what they have and invent what they don\u2019t.<\/p>\n

\"\"<\/a>

Click to read for a tweet “Making Do” by Steve Daniels.<\/p><\/div>\n

Groups are formed along tribal and family lines and tend to strengthen productivity rather than inhibit it compared to patrimonialism in politics.\u00a0 Familiar relationships create a vast horizontal network that is more egalitarian than top down hierarchies. \u00a0\u00a0The 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.\u00a0 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).\u00a0 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.\u00a0 Innovation flourishes amongst the Jua Kali, but it is centered on the means of production rather than the finished product.\u00a0 If a tool is unavailable, a worker will gather what resources are available and invent a contraption to get the job done.\u00a0 However, because of lack of credit and patent protection, risks are too high to create diversity amongst the products themselves (Daniels, 2011).<\/p>\n

\"\"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).\u00a0 Yet, other forms of development charity have been harmful.\u00a0 Donations of used clothing to the developing have wiped out emerging garment industries in Kenya and Tanzania (Kenny, 2011; McCormick, Kinyanjui & Ongile, 1997).<\/p>\n

\"\"

Searching for greener pastures.<\/p><\/div>\n

The Jua Kali successfully service the informal economy, but is there potential to reach larger, formal markets?\u00a0 Simple products are traded back and forth between the two and some artisans are able to penetrate the international marketplace with traditional crafts.\u00a0 However, because the nature of the Jua Kali is fragile past levels of subsistence, it has a difficult time expanding.\u00a0 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).<\/p>\n

\"\"

Keep sucking.<\/p><\/div>\n

The Jua Kali way of life is an example of organic innovation based on appropriate technologies.\u00a0 Westerners organize sustainable development design fairs and museum exhibits that showcase inventions that boast the ability to accelerate economic growth. \u00a0They claim that, \u201cif 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\u201d (Ju, 2011).\u00a0 While, some ideas have merit, many of the devices are unfeasible beyond academic exercises.\u00a0 True sustainable development must come from indigenous solutions at a grassroots level.\u00a0 The genius of the Jau Kali is that their work is built in direct response to the local environment.\u00a0 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.<\/p>\n

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.<\/p>\n

(Daniels, 2011).<\/p>\n<\/blockquote>\n

[youtube http:\/\/www.youtube.com\/watch?v=kBz211cryhU]<\/p>\n

Gold Farming Cyberpunks<\/span><\/strong><\/p>\n

\"\"By incorporating the Jua Kali philosophy into Western economic theory, paths between formal and informal economies could be easier to access.\u00a0 Mutual growth and legitimacy should be promoted.\u00a0 Whether the West chooses to participate or not, developing world entrepreneurship will still leak through.\u00a0 The horizontal hierarchy of the informal economy is very similar to the decentralized architecture of the Internet (Saveri, Rheingold & Vian, 2005).\u00a0 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.<\/p>\n

\"\"

“Can you hear me now?”<\/p><\/div>\n

A few years ago, the developing world was isolated from industrialized nations, but the ubiquity of mobile telecommunications has changed all that (Radelet, 2011).\u00a0 Remote communities can talk and text to anyone on the planet and the Internet is creating further connectivity.\u00a0 The barriers of entry are still high, but it\u2019s becoming progressively easier to access and benefit from this evolving virtual space.<\/p>\n

\"\"

Will Bitcoin one day dwarf the Gold Standard?<\/p><\/div>\n

It may be that as the world becomes more connected, an unregulated formal economy will only grow instead of contract.\u00a0 The prevalence of pirated DVDs, music, and software applications on the Internet is a testament to that.\u00a0\u00a0 However, online economies can incorporate both developed and emerging economies simultaneously.\u00a0 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).\u00a0 Online games like World of Warcraft<\/em> award players virtual gold for successfully completing tasks.\u00a0 The gold is redeemed for armor and weapons that allow the players to progress faster through each level.\u00a0 Asian players collect gold, but instead of powering up, sell it to Western players for real cash.\u00a0\u00a0 The industry is certainly exploitative.\u00a0 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.<\/p>\n

\"\"<\/a>

Lil’ Bow Wow.<\/p><\/div>\n

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.\u00a0 One example is the Sakawa Boys of Ghana.\u00a0 When Western computer owners decide to recycle their old computers, they wind up in dumps in places like Accra.\u00a0 Locals go through the rubbish to salvage anything of value.\u00a0 Bits and pieces of hard drives and CPUs are reassembled into new computers and they often contain information about their old owners.\u00a0 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. \u00a0Using 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).<\/p>\n

\"\"

Masks reveal as they conceal.<\/p><\/div>\n

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.\u00a0 Whether or not the charms of juju actually work is beside the point.\u00a0 By incorporating indigenous ritual into the Internet scam, Sakawa has become something distinctly Ghanian.\u00a0 Sakawa is a term that has extended beyond animistic Internet fraud and is now used to describe any aspect of Ghanian economic mobility.\u00a0 It\u2019s spawned spin-offs in the legal, local music and film industries that have led to an explosion of cultural and economic growth.\u00a0 Sakawa songs and movies are favored over American imports and even government officials are reported to be involved in the ritual.\u00a0 By developing its Jua Kali sector and tapping into the black market, Ghana has gotten its mojo back.\u00a0 Yes, the practice is illegal, but national identity has been revived and the country is profiting from the 21st<\/sup> century global, digital era (Vice Media, 2011).<\/p>\n

[youtube http:\/\/www.youtube.com\/watch?v=8im_BjPdWac]<\/p>\n

\"\"

No juju required.<\/p><\/div>\n

Digital Emergence<\/span><\/strong><\/p>\n

Naturally, the informal economy\u2019s initial forays into the Internet will not last.\u00a0\u00a0 The Chinese government cannot tax the virtual gold trade and has made the exchange for cash illegal (Davis, 2009).\u00a0 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).\u00a0 That\u2019s not to say that either of the practices have stopped, only that the schism between formal and informal sectors widens.\u00a0 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.\u00a0 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.\u00a0 Money earned over the Internet can flow directly into local communities, without the sluggish bureaucracy and disingenuous politics of foreign assistance middlemen.\u00a0 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.\u00a0 The challenge remains to legitimize the online informal economy so that government can tax and regulate income.\u00a0 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.\u00a0 It is in the interest of the industrialized world to include the developing countries.\u00a0 This is not a zero-sum game.\u00a0 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.<\/p>\n

Acknowledgements<\/span><\/strong><\/p>\n

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

My conversations with Tim Edwards, Fred Oelsner, and Mark Sevier continuously provide insight into life in the field.<\/p>\n

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.<\/p>\n