What are the capabilities of existing organizations? What is needed so
that they can do the maximum that they can do? What business
organizations? What financial organizations? What professional
organizations are there and what can they do? What community
organizations? What faith based organizations and activities? How can
people organize themselves in the best possible way so that they can
progress. How can people organize so that they can best help themselves.
Organizations are a resource
People do not live in isolation. People are part of a society, and “organization” is
essential to a functioning society. The nature and characteristics of organization
have been the subject of debate from time immemorial. People need
organization, and societies benefit from organization. Organizations are needed
to get things done. Organizations are needed for economic efficiency.
But organization should suit the people, and the needs of people and the local
society and the local community.
Throughout history organization seems to have been a vehicle to manage and
channel power. But also through history there has been the realization that
people also had a stake in the nature of organization.
People need to be organized not only through “government” but in all sorts of
other ways. And “democracy” where the leaders of government have their
authority simply because they were voted in by a majority of the voters is not
sufficient to achieve good leadership and a good society
Margaret Thatcher, the former Prime Minister of the UK, when asked
what she thought about elections and democracy in Africa said that
being ruled by leaders elected by the majority required also a framework
of institutions to protect the minorities.
This observation made a long time ago has enduring value. In the USA, few
people are aware of the amazing rights that minorities have both under the US
Constitution and in fact through the advocacy and activism of all sorts of citizen
organizations. And few people have any appreciation of how destabilizing an
election can be when a majority wins, and there are few, if any, protections for
the numerical minorities.
But in order to get things done, people have to get organized. Governments,
especially the governments of empire have always needed a strong and effective
military organization that could carry out the commands of the leaders and keep
peace in the empire. Some things never change. And leaders throughout history
have justified the use of the military as the furtherance of peace. And so it may
But life is not about the military, life is meant to be civil. And a good life is about
getting organized to realize some prosperity and some happiness. And “life is
local” to corrupt the commonly used phrase that all “politics is local”. The fact is
that for almost all people life is about family and friends and community, all of
which are essentially “local”.
And it is therefore “local” that needs to get organized. And in the United States
we see in any local neighborhood all sorts of little local organizations: small
business of all types where people work and products are bought and sold;
schools; places of worship; entertainment; places to eat; transport services;
places to exercise and relax; services of all sorts. In a community there is
everything that is needed for life and living. It is a complex mix of activities.
And in developing countries, communities try to have everything they need for
life and living. There is business of many sorts, there is buying and selling, there
are services, there is worship and entertainment and places to eat. The level of
“wealth” may be different, but the nature of the economics and the essentials of
the society are very similar.
The organizations that need to be strengthened in developing countries so that
development can succeed are those organizations that contribute to the
economic success of the community. Any or all of the entrepreneurs and the
small and medium sized enterprises (SMEs) that are the foundation of the
economic life of the community. And there should also be strengthening of
community organizations that are going to provide communal services of
importance to the community, such as water supply and possible activities in
education or in health and support for needed infrastructure.
Why America works?
In any discussion about development, and especially about failing development
I try to ask what it is that makes America work. There are always some unusual
individual perceptions, but there is also a lot of common ground. The following
list is one set of reasons that were collected at a workshop discussion “Turning
Development Upside Down” in New York in 2001.
capitalist system / available to everyone / appreciation of creativity /
individual rights well protected / justice / court and legal system /
individual initiative / freedom / freedom of speech / entrepreneurship /
infrastructure / infrastructure for communications / stable economy /
high rate of employment / jobs / population is big / scale / legalization of
corruption (campaign finance) / individual and family focus / control of
international institutions ( NATO ... World Bank ... UN) / control of
resources / large centralized corporations / anti-trust laws /
OPPORTUNITY / job opportunities
These items are listed in the sequence they were mentioned by the workshop
participants. I particularly noted that the first two mentioned were “capitalism”
and “available to everyone”. The United States and Americans are not at all shy
of capitalism and the “for profit” economy.
Why America Works
Development success is going to be facilitated when the characteristics included
in the “Why America works?” list are widely established. This is a very different
list of things to do than will typically come from the World Bank, but is not too
far different from the list that might emerge from discussion with professionals,
entrepreneurs and community leaders in the SOUTH.
These characteristics are not a “package”. The characteristics of a successful
society that can succeed economically and in all the other value dimensions of
society will not always be the same. There is no “Coca Cola” franchise solution.
My broad characterization of the United States is that it is the place where an
individual has the most opportunity to do amazing things. And because of this
the performance of America in economic terms is far better than might
otherwise have been expected.
But the amazing opportunity that is available in the United States is to a
surprisingly large extent taken advantage of by immigrants. This is also a great
strength of America. And in some ways a weakness for the rest of the world
since it helps to drive the economics of “brain drain” migration. But it does
confirm that people from all over the world can do great things if the society
allows it and if the infrastructure supports it.
Understanding these elements gives a basis for setting some broad direction.
A new framework
It is going to be very hard to have development success using the ODA
framework that has dominated development for the past forty years. Big
organizations change slowly, and it is time for development to get moving,
having lost so much time and opportunity.
So we need a new framework. But this is not a framework to constrain, it is a
framework to facilitate.
The image of a framework must be one that is positive. The image should
not be a framework as a cage, but more in the form of a ladder. The
framework must make it possible to work together, and to work
independently, doing the most that is possible with the available
Getting people organized
The big opportunity is to get people organized. But it is not just getting them
organized, it is also getting people to do something that is useful. The key is
getting people to help in a process that delivers on economic value adding for
the SOUTH, and does it with the right mix of resource support from the
NORTH. Instead of having people in the NORTH spend money and effort on
advocacy to focus more on the failed old paradigm, the challenge is to help
people choose activities that will provide tangible real benefits for the SOUTH.
There have been amazing successes in getting people mobilized, and the ways to
do this have become even more efficient with the advent of the Internet and
efficient ways of handling communications with large groups. As people get
organized this time, the aim is not to make a noise, it is to make advantageous
People to people - the SOUTH is ready
People in the SOUTH are sick and tired of the failure of development. People do
not want to have to live with the failure. They want to see success. They are
ready for change. But the change has to make sense.
There is a lot of knowledge. People know things can be better. But people do not
have opportunities to make things better. They are looking and will do
something if something is possible.
African people are ready. African leaders are ready. But they do not have the
funding to be successful. African political leaders are stuck with trying to lead
without the resources to make good on the political promises that they might
make. African business leaders know their priorities and how to grow their
business and their employment needs, but do not have the financing. African
communities know their priority needs and how to improve the community's
quality of life, but they do not have the resources.
Future role for existing ODA organizations
There are important future roles for the existing ODA organizations. There are
many things that they can do well, but taking responsibility for success in
development is not one of them.
The Breton Woods institutions and the regional development banks are useful
financial intermediaries. These international financial institutions (IFIs) have an
enormous and ongoing role in helping to strengthen the “public finance” in the
SOUTH. They have a valuable role to play in lending money to major projects
and to the primary financial institutions in countries in the SOUTH.
Projects should be phased out, except for major capital construction. And the
IFIs should limit their involvement in projects to financing. They should
withdraw from the role that they have taken on of “supervising” projects
without taking on “responsibility” for the projects. They should stay just with
The UN specialized agencies should be scaled back so that their work is
technical and advisory with almost no “project” work.
The UN specialized agencies should not be operating as technical departments
of a global “colonial office”, but should reengineer their operations to focus on
specialized knowledge and a clearing house for best practices.
The UN should get strengthened as a government with a global mandate, and
with agencies that support its core work of improving global governance for the
The financing for development should become a function of the global capital
markets with limited interaction with the UN. The IFIs serve as intermediaries
between the pubic institutions of the SOUTH and the global capital markets.
Family is the basic building block of human society. The importance of the
family unit has been eroded in modern society as the super surplus economies
in the NORTH make hedonistic materialism a possibility. But most of society in
developing countries are still faced with shortage economies and the mutual
support of family is still a very important part of society and the economy.
As an economy moves from agrarian to modern industrial the economics of
children changes. In the traditional agrarian society children provide the energy
that is needed for a lot of the routine chores in agriculture and they are
important during the harvest season as well. And children are important for a
lot of the household chores and the preparation of food, not to mention
collection of water and firewood.
And children are also the basis for society's social safety net. Children grow up
and then they are able to look after their parents as they become older. And the
cycle goes on.
So big families have economic value. Children are value adding in the family
structure. With more children more work can get done.
African families and communities
ATCnet is founded on the concept that families and communities know what is
best for their community even though it may not be what the NORTH thinks is
best. It is clear that families and communities are very clear that staying alive is
the highest priority, especially that children stay alive. This relates directly to
security issues, food, water, shelter, clothing, health. Other priorities include
education and economic security and other aspects of quality of life.
The solution for Africa is the people of Africa. The people need access to
resources in an easy and fair way. With access to resources communities can
progress, not in a one step to 21st century modernity, but can progress forward
in a direction that will serve the community well. Community development in
all its dimensions is what is needed, not for one or two communities selected by
the international community, or indeed the government, but all communities,
everywhere. This should not be based on writing of proposals but rather from a
portal or database of organizations at grassroots level across the continent that
can be tested, verified and improved to serve the priorities of their respective
communities. ATCnet is a people based organization and all our effort seeks the
people dimension of development.
I would observe that the same goes for Afghanistan. Afghanistan’s will have
success if the people are given a chance.
ATCnet is a learning organization and a work-in-progress. The challenge is
huge, but the people resources to address the challenge are bigger. ATCnet
needs help to make it possible for existing professional human resources in
Africa to join forces with technology and finances and material resources and
friends so that all the resources are able to work collaboratively to address the
problems. ATCnet is actively recruiting friends and supporters in both the
NORTH and the SOUTH.
The Spirit of Africa
The people of the continent of Africa are rich in spirit. The spiritual dimension
of Africa is healthy while the material dimension is chronically ailing. The
growth of the community of Christians in Africa is matched only by the growth
of the Islamic community in Africa. Africans essentially come from a spiritual
tradition that can readily embrace the theology and practice of the Christian
People get organized
People get organized, but as they do the organization becomes the focus rather
than the people. When organizations mature they get to have a life and a
character of their own. Even though an organization is largely people, it is policy
and procedure that rule and not the ordinary people in the organization. And in
a big organization with many people, it is often just the few people in control
that define the goals and the modus operandi of the organization.
The primary reason why people organize is that many people can do things that
a single person cannot do. The need for people to organize seems to have been a
constant for thousands of years, and history shows that people power can be
There are all sorts of organizations. The following are some ways in which
people organize. They organize as:
- Local government
- State government
- National government
- Cooperatives (COOPs)
- Business associations (like the International Chamber of Commerce)
- Multilateral institutions (like the UN, the World Bank)
- Bilateral institutions (like USAID)
- Advocacy groups
- Non Governmental Organizations (NGOs, INGOs)
- Faith organizations (FBOs)
- Community based organization (CBOs)
- Affinity groups
- Net communities (Listserves)
Life is local
The reason that “all politics is local” is that “all life is local”. Because of this
people in the NORTH are going to have a very low interest level in development
that is taking place overseas and thousands of miles away from home.
People in the NORTH have no need to be interested in the performance of
It is not surprising that people in the NORTH have little interest in the
performance of development. There is not much appearance of any linkages to
local impact in “my back yard”. People can feel safe and secure in “their own
back yards”. But that is not the way the global economy works. Almost
everything that makes people comfortable in “their own back yard” is a result of
an amazing linked global economy, that functions as one huge global village.
People of the SOUTH get no benefit when development resources are being
used without delivering useful outputs. They are affected by the fundamental
failure of the present development process. They are affected by development
performance. They benefit when resources are used well.
There are a number of organizations that have done some amazing work in
pulling people together to support good causes. The energy in these
organizations is impressive. They are evidence that people want to do good and
want to feel good. These organizations do a very good job of creating “feel
good” value in society. Some are faith based. Many are not. Many have a theme
that centers around the social and economic problems of the disenfranchised or
disadvantaged either at home or overseas. These organizations already show
what can be done with “people” power when it is motivated to do something
The following organizations, networks and movements are examples
- Bread for the World
- Jubilee 2000
- Campaign for Nuclear Disarmament
- Vietnam era Peace Movement
- WTO Seattle demonstrations
- G8 Genoa globalization demonstrations
- Civil Rights Movement
- Anti-Apartheid South Africa movement
- Global justice movement
- Sierra Club
Religious communities in Africa
Religion is very important in Africa. The Christian community is large, it is
growing and it is committed to the values of the Church. And so also is the
Islamic community. The spiritual dimension of Africa is strong, and in large part
explains why Africans are so positive in the face of material deprivation and
Religious leaders and the people have the moral authority to be leaders now not
only in the spiritual growth of Africa but also in the building of an economic
foundation for Africa.
The organizational infrastructure ought to be making development a success.
Instead the organization infrastructure is helping to constrain development and
is a significant part of the disaster of development.
People need an organizational framework in order to achieve their full potential.
The whole idea of teamwork that enables a group to do far more than an
individual can do on their own is a perfectly good example.
For some reason I always think of the pyramids as being an example of people
getting organized to do something pretty amazing.
But there are all sorts of others. In fact the industrial revolution could never
have succeeded if there had not been an ability to get people organized.
The building of great canal systems and railroad systems in the 19th century
required enormous organizational initiatives.
And of course the history of great armies is largely a history of organization.
And the history of Empire is another form of organization, and more complex.
The organization and management of Empire had many dimensions. On the one
side there were the mercantile and business and trade dimension, that worked
in collaboration with the administration and military apparatus that “facilitated”
the application of organizational rules. From the perspective of the controllers of
Empire the system worked well and served as a value creating system that
enormously enriched the global economic system, though not necessarily with
equity for all.
Countries in the NORTH now have a complex set of organizations, and
organizational rules. But in general, it can be said that the organizations are ones
that have emerged by a process of evolution to suit the society and serve the
community and facilitate ongoing wealth creation in the economy.
But the organizational framework in the SOUTH is not so effective. Post Second
World War, and the collapse of Empire, a new organizational framework
emerged. This organizational framework reflected mainly the structures that
were carried over from the colonial era. This organizational framework did little
to integrate the strength of local traditional organizations into the framework.
The handover, in retrospect was a disaster waiting to happen. And it did.
The organizational infrastructure is a resource.
The importance of the organizational infrastructure was highlighted for
me at a meeting on government financial managers and auditors around
1992. Someone on the Canadian Auditor General's staff pointed out in
his presentation that everything was able to move anywhere anytime,
especially investment funds, people and knowhow, materials and
equipment, but the organizational infrastructure of the country was
what made the country worse or better than anywhere else. The
government could really make a difference if it delivered on good
governance and created a favorable environment for people and
The NORTH countries tend to have an organizational infrastructure that is well
defined in law and well understood by the international business community
and investors. The same cannot be said of countries in the SOUTH. The
organizational structure in the SOUTH does not have the same stability or the
same dynamic as the organizational structure in the NORTH
Many business people who have worked in the SOUTH have had the
experience of being asked “What law do you want?” in response to
inquiries about the prevailing laws and especially investment laws and
regulations. Sadly, a lot of business people from the NORTH have
interpreted this as a reflection of their “power” and importance, when it
would have been better considered a reflection of a culture gap that is
both wide and deep.
The SOUTH has a lot of organizational infrastructure, but it is not at all the same
sort of structure that makes the NORTH function more or less successfully.
There is a lot of “traditional” law and a lot of expectations within society that
determine how people behave. Few people from the NORTH have much
understanding of this side of the SOUTH's organizational framework and they
look for the laws and regulations and institutions that are common in the
NORTH. What they may well find are NORTH looking laws and regulations
and institutions, but not necessarily with the same spirit and culture. There is a
need to find not only these elements, but also the traditional SOUTH
organizational structures, and understand the role these are having on the way
the society functions.
And we also need to remember that much of the traditional rules are not written
down, but passed from generation to generation orally. And while the modern
economy in the SOUTH may have a corporate or international structure and
legal form, the majority of the population in the SOUTH operates in a traditional
SOUTH framework of traditional law and culture.
But the SOUTH does not have a well functioning organizational
infrastructure. And the NORTH's usual mindset for organization for
the SOUTH does not usually work well for the SOUTH.
The NORTH has an extensive organizational infrastructure, with a large body of
law and regulation surrounding most social and economic activities.
Most of the SOUTH does not have the same level of organizational
infrastructure, and its body of law and regulation is also not at the same level as
the NORTH. But the SOUTH does have framework of societal rules and
business rules that are traditional and ancient. To some extent these old
traditions have been dismantled in the rush to colonize and the rush to
But in order to engage the people that are presently outside the “formal”
organized modern economy, there has to be some organized way of doing
business that allows everyone to participate.
We must get beyond the “one size fits all” and be in a position to have
an organization in any community anywhere in the world that has
community respect and will honor its obligations. Every community
and every person should be able to interface with some organization that
has universal trust and total integrity
The laws and regulations that apply in any country and in any community are
very important in the success of development.
But organizational infrastructure is more than just the written laws and
regulations, it is the way that people integrate laws and regulations into the way
that they conduct their lives and carry out their business dealings.
People do not mind what the laws and regulations are in a situation
where everything is going right and business is doing well and everyone
is satisfied with the outcomes. I saw this in Thailand in the early 1980s
when it was clear that the organizational framework was weak. But
investment flows were booming because investors were making money
The organizational infrastructure is everything that is needed in order for
people to benefit and people to do economic value adding activities.
Government is part of this infrastructure and can facilitate making the rest of the
organizational infrastructure as efficient as it can be.
A Canadian government employee made the point some years ago, that
government was the one institution that could never relocate. If the
country was going to be a good place to live and do business and attract
investment, then government had an important job to do to make sure
that people and business and investment wanted to come to Canada
instead of going somewhere else.
But organizational infrastructure goes beyond government structures and the
laws and regulations. It also includes business organizations.
But there is a need also for people to work together in larger groups. The small
or medium sized business has the potential to be a very much more effective
way to have economic value adding that will make a difference at the
community level, rather than just at the personal level. Business needs to get
organized so that people can be organized, and so that the human resource of
the business can be combined with other business resources to be productive.
An SME contractor in the SOUTH can easily have a well trained owner
or manager, and ten or twenty or a hundred workers, and some
equipment and some working capital, and do excellent work for the
community at costs that are tiny compared to international contractors.
Financing these works creates long term jobs for the workers and
enormous value adding for the community.
Organization and Organizations
Organizing, organization and organizations
Organizations have a role in society, but it is an artificial role, or a role that is
needed for efficiency, rather than being something of inherent importance to
Do as much organizing as possible but only do what is essential. Do what is
easy, and do not waste time and money trying to do things that cannot be done
reasonably easily. Move on to the next stage, and come back later to do more
The process of organizing needs to be iterative. In the organize stage, identify
who or what organization is doing things and where the resources are going to
The result of organizing is organization. But getting into a state of organization
is frustrating in a complex arena, and in any chaotic situation organizing has to
go on for ever.
Organizations are structures that help to do things, to get things done. They can
have many forms, and the best organizations are ones where the metrics of
performance are the best ... that is where the value of the results are the most
relative to the resources used.
Organizations have a role in society, but it is an artificial role, or a role that is
needed for efficiency, rather than being something of inherent importance to
A critical determinant of success
An individual rarely has much power or influence. An individual cannot be
very efficient. The industrial revolution was successful because of the invention
of all sorts of new technology, and also helped by the emergence of ways to
organize large groups of people and to manage and control these huge
Getting the organization right and staying in control using effective
management techniques is a key to success.
Just as a community serves to be a way to manage activities that support socioeconomic progress when there are many people in a geographic location ... an
organization serves as a way to manage more specific activities either within a
community or over a bigger area.
There is a need for the community to have a good level of organization, and
there is also a need for the community and the area to have organizations that
can do things.
It is in organizations at the community level where the most important activities
of socio-economic progress are seen. The organizations at the community level
have already described (starting on page 65) and will not be repeated again
Some, perhaps many, of the organizations at the community level are part of a
larger area, national or international organization.
The economy of a modern prosperous country is based very much on the
success of its business organizations. Virtually all modern wealth is created by
business organizations ... and is a part of the national wealth by virtue of its
location and the domicile of its owners and its employees.
The civility of a modern prosperous country is assured by its governance
organizations. For these to work well they must be fair and they must reflect the
values of the culture. The exact form of governance organization needs to evolve
over time, and be arrived at by a process that achieves consensus between all the
parties affected. The process is complicated, and the stakes are high when there
is a lot of wealth involved.
At the National Level
The organizations of government
There has been a lot of focus by the coalition on establishing the organizations of
government in Iraq so that the country could become peaceful and prosper.
There has been a focus on the idea that this government would operate on
“democratic” principles and therefore the country would be a success.
At some level, there has been progress ... I think ... but I really do not know.
There really is rather little information that is reliable and validated about what
has been accomplished that I can easily access.
But this ought not to matter too much, because socio-economic progress takes
place, not at the national level, but at the community level and is driven by
people and organizations carrying out useful activities all over the country.
Government ministries have, broadly speaking, sector responsibility, and are the
apex organization of the sector with responsibility for the whole country. The
performance of these organizations will have a considerable impact on the
performance of the sectors all over the country. There are a number of issues
that need to be monitored: (1) the budget allocated to the ministry; (2) the
allocation of resources to various programs that are supported by the ministry;
(3) the spatial allocation of money round the country; (4) the performance of the
programs, and the relationship between costs incurred and value delivered.
There may be value in having area organizations so that programs can be more
suited to the area. In the governance of many nations there is a system of
regions, or states, or provinces that has government structures for the area that
supplement those that are at the national level. There is a lot to be said for area
organizations because of the possibility that they can be more sensitive to issues
of physical geography, local cultures, religious beliefs and history. Designed
well, and implemented well, area organizations can be a great benefit to the
socio-economic performance and to fair governance. The downside is that area
organizations can also be another level of overhead that adds little, and make it
easier for funds to be misappropriated and used uselessly.
The oil sector
The oil sector is big and the fund flows coming out of the Iraq oil sector are large
by any standard. The government is expected to earn more than $40 billion from
its oil revenues in 2007 ... and perhaps more than anything else it is this fund
flow that is causing a lot of the instability in Iraq and in the region.
Big national contractors can do a lot of the work that is required for the
reconstruction of Iraq. With money they can buy any technical support and
equipment they need, and they can employ local staff to get the work done. A
few big contractors can concentrate economic power in Iraq in ways that are not
good for competition and maybe not good the Iraq.
The health sector is coordinated at the national level ... but operates at the local
The education sector is coordinated at the national level ... but the students all
come from communities.
At the Supra-National Level
The global corporation
The global corporation has proved to be a very efficient way of generating
wealth ... but the success of the global corporation in generating wealth for its
stockholders has been out of proportion relative to the contributions these
organizations have made to the common good.
A global corporation has all sorts of ways of moving wealth from one
jurisdiction to another and in so doing deprive some countries of the wealth
they need and deserve while facilitating the expansion of wealth for
The efficiency of these organizations and their ability to create wealth is
impressive ... but their role in creating the maximum of socio-economic value is
much less impressive.
The oil industry giants
The oil industry giants have a lot of power in the global market place ... and
though there will, one day, be a shortage of crude oil ... at the present time there
is crude oil in considerable abundance. The money is made as much as anything
during the refining, transport and marketing of the refined products.
While the producer countries have the crude oil ... it has little value as long as it
stays in the ground ... and it is the oil industry giants that presently have the
control of the markets.
The oil industry giants are huge. Each of the major international companies in
the oil industry are bigger by almost any economic measure than most of the
countries in the world ... and by virtue of their scale they are powerful. And
while Europe and North America have spawned the biggest oil giants in the
past, more and more there will be giants also from countries like Russia, China
Banks and financial institutions
There are a growing number of global giants in the banking and financial
services sector. They have the potential to be a powerful force for good ... but
what is good for an economy when they choose to fund an economy is bigger,
more powerful and worse when the capital they control is in flight.
Big banking and finance is very impersonal ... and though the industry has been
very profitable for a number of years, and very good for some of the
stockholders and senior management and traders, it is far from clear how much
damage has been done by the industry at the bottom of the global economic
Drugs, arms and human trafficking
The illegal international trade in drugs, arms and human beings is very large,
and very profitable. Trade in these areas is illegal, but goes on with the
authorities charged with stopping the trade quite impotent. The profits can fund
almost anything ... and anything goes, including murder.
In the case of Iraq, what this means in practical terms is that any weaponry
needed is easily obtained ... it just requires money, and money is one thing that
Iraq has in abundance.
Machinery and equipment. What production capacity is there? Does
business have what is needed? Do the people have access to machinery
so that big jobs can be done by small people. Poor countries have little
production capacity. What is the best way to get more horsepower into
the hands of people.
Production enterprises need working capital and fixed capital. They need
inventories and they need production equipment. Few companies in the SOUTH
have enough investment in working capital nor enough investment in good
Those companies that have been able to invest in materials and equipment and
as a result produce goods to world class quality standards have a chance to
compete in the global market place. But few companies in the SOUTH have
Most companies in the SOUTH do not have the financial backing to invest as
much as is needed. Few companies have the balance sheet to support a larger
investment in working capital and equipment.
The main development support organizations provide little of no help to
SOUTH companies with need for more materials and equipment.
I have worked in many countries in Africa. I recall in Ghana, trying to
help a small business get incremental bank financing to support its
expansion. Even though the company had a solid record of profit and a
solid history of growth, the local bank would only consider more credit
against 100% marketable collateral, and wanted a 42% annual interest
payment. The expansion plans were very realistic, building on a multiyear track record of profit and growth. The bank had no interest in
lending to this client.
Without the materials and equipment to improve the production and the
productivity of the enterprise sector of the SOUTH it will be impossible to have
development success in the SOUTH. The SOUTH needs to be able to make
things that it needs for itself, and the SOUTH needs to have a range of products
that can compete in world markets
A lot of enterprise is owned and operated by the “uneducated”. They do
a lot of work without much support, and they cannot improve much
because this “informal” business cannot speak the language of the local
bank and the international community. They are stuck. And as long as
they are stuck, so is the local economy.
My experience suggests that these enterprises are an enormous opportunity for
an innovative financial institution
Source of wealth
And the SOUTH does not have a good efficient physical infrastructure.
Usually the NORTH's solution to the infrastructure deficit is a high
capital cost big infrastructure project rather than the lower profile
upgrade to infrastructure that removes the critical constraints
Production materials and equipment
Production materials and equipment are short in the SOUTH and a big
constraint. Production materials are short in the SOUTH because of limited
working capital finance and a weak supply chain. Production equipment is short
in the SOUTH because of lack of enterprise finance. In the NORTH there is
much more finance for industry and there is an abundance of production
equipment. There is both new and used equipment in the NORTH to satisfy
almost any requirement imaginable.
Working capital. Does business have access to the working capital and
liquidity it needs. What needs to be done to satisfy working capital
needs? Business can only function if there is inventory and enough
financing for the business to operate. These component of progress are
sadly missing for poor businesses serving poor people and communities
The problem of working capital is endemic in the SOUTH.
Working capital is the capital needed to keep an enterprise operating. It is also
the capital that is needed to keep a national, a community or a family economy
I find the spending of money on study and analysis to be an obscene
waste when there is a chronic shortage of working capital to fund the
solutions that any analysis of shortage will demand. The Famine Early
Warning System (FEWS) that has been funded at considerable expense
by USAID over a number of years. It is a classic example of the problem.
The system shows that food supply has become short. But the solution to
hunger is not much about knowing whether or not there is hunger, but
in doing something to mitigate the catastrophic impact of no food and no
water for a long time. Emergency food stocks need to be easily available
and working capital is needed to fund this.
It is essentially everything except the “fixed” capital, that is, the land and
buildings and machinery and equipment of the enterprise. Production
enterprises need the resources to buy their raw materials, the pay wages and
salaries to convert then into salable product and maybe give credit to their
customers. This is working capital.
And resources to fund working capital are chronically limited in the SOUTH.
Middlemen and traders
One source of working capital in the SOUTH economy is the “middleman” or
“trader”. This role has been written about negatively for centuries and with
some justification. But most social writing about middlemen and traders fails to
report on the useful services that they provide.
Middlemen and traders are as much a part of the natural market mechanism as
stockbrokers are on Wall Street. They exist because they do things that are
needed in the market system.
Do they serve the best interest of the economy as a whole? Almost certainly not.
But that is not the way a market economy functions. Each participant in the
market does the best they can. And the way the market exists almost
everywhere in the SOUTH, the middleman wins and everyone else loses. The
problem is not the middlemen and traders, it is the chronic failure of production
and producers on the one side and buyers and consumers on the other to
respond to the messages from the market. And further it is the chronic failure of
the official development assistance (ODA) community to understand what is
going on and help to facilitate appropriate changes.
I visited a little village in Liberia in the early 1980s. Doe had just taken
over as the President of Liberia. This was Doe's home village. As
President he was now constructing an airfield that was big enough for a
Boeing 737 aircraft, and an army barracks for a brigade. I met for the
whole afternoon with the local village heads. They wanted more than
anything else, to own some little pickup trucks so that they could take
their agriculture product to Monrovia, the capital, to sell themselves
rather than to have to continue selling to the middlemen. They knew the
prices. They knew they could earn more by owning their own transport.
But they could not do it. The reasons were many, including no
financing for the trucks, including the possibility of physical violence as
they initiated a change that would dramatically change the favorable
status quo for the middlemen, including political involvement in
maintaining the favored situation, etc.
Nobody with any power of money was interested in handling a small
transaction that was valuable to the village community. The community and its
needs had no place in the economic development model. Nothing in the ORDA
structure was ever going to be helpful to this remote community.