A crash course in changing the world.
As a mexican economist I regard economic incentives as one of the more powerful forces that affects human behaviour, basically due to its "natural" tendency to overcome other forces (as moral values, social preferences, state of law) in situations where there are a large number of needs to be satisfied and limited number of resources. Which is actually THE case of all societies with needs of development (undestanding development as the increase in the amount of people in a nation's population with sustained growth from a simple, low-income economy to a modern, high-income economy).
Also let's remember, that Free-Market structures had shown over the last centuries to be the most effective mechanism to achieve economic growth, and by this growth many individuals all around the world have increased their incomes and reached levels of welfare higher that those of their parents, an so on. (see: The World Economy: a millenial perspective, by Angus Maddison, OECD). But this growth is not a sufficient condition to overcome poverty or to reduce inequalities (between countries a/o between individuals) as we have seen all around the world, where the differences between poor and rich have been growing instead of reducing the gap.
So, you may ask, are market mechanism the answer to poverty and development?....my answer YES.
It may not seem as the most intuitive solution, to use the same mechanisms that created such inequalities, but in fact economic incentives are the most effective ways to achieve certain Public Policy or Social Programs, not because the market is the"holy" answer but because if a market mechanism is properly designed it lets people to clearly weight cost and benefits for their actions, and let them choose by THEMSELVES, their prefered outcome and not impose some desired outcome decided by a goverment or someone else, meaning freedom of choice.
+ Conditional transfers programs: programs in which cash transfers are made to selected individuals with the condition to accomplish certain activities or requirements, to keep receiving it. (see: Cash vs kind, self selection & efficient transfers, Blackorby-Donaldson). Some impressive results had been achieved with this programs when used by goverments of institutions, because individuals receive help in cash and need to stick to the program to keep receiving this help. The most important around the world are:
- Oportunidades (Mexico): created with the objetive to break poverty cycles in which many families have lived through generations. It gives a certain amount of money to mothers of family in poverty situations through 3 components: Education (gives family money per kid in school, increasing if the children keep studing year after year and quit if taken out), Health (+ money if family commits to assit each month to a local health clinic), Food (+ money if mothers use a provided nutritional pounder to each meal)
-Bolsa familia (Brazil): similar to oportunidades but more focused in the educative component since 1996.
-Chile Solidario (Chile): combine monetary subsidies for potable water and old-age.
+ Microfinancing: Credit for groups of enterpenuers who live in poverty situations or because of the risk their low-income takes, are not suitable for market credit institutions (banks). They normally base in the Grameen model created by nobel laurete Muhammad Yunus, in which low micro-credits are given to groups of enterpreneurs from local communities so they can invest it in the best business available in their regions, and they ALL commit to repay the credit a few weeks later, if they succesfully pay the first credit they will be eligible for greater amounts of credit. If any of the members defaults its part of the credit the group has the choice to either pay the lossing money, if benefical for them. Many examples Banco Compartamos (Mexico), Grameen Bank (India), Cooperativa Empreender (Colombia).
All of these mechanisms with great results to bring Economic Opportunities to individuals based in market structures, where people can decide by themselves what goods to buy and which investments to do. Just think about it:
Who can better decide which are the most profitable and productive activities in El Alto, Bolivia you or the persons living there?
Which is the best way to keep parents from taking their kids out of school so they can work and brig money home?
How can we dissapear the nutrition gap between rich and poor, persistent through generations?...
So, the most important question should not be if market mechanism can help economic development but instead which economic mechanism can help me to solve this or that problem?