Employment Is the Solution
Give a man a fish, you feed him for a day; teach him how to fish, and he will not be hungry for life. That is an old cliche, and like all cliches, it has an element of wisdom. But, it does not go far enough. A fisherman with a simple rod and a canoe will not be hungry, but he will still be poor. For him to rise above poverty, he needs steady employment at reasonable wages in a commercial fishing company. Now, his daughter might go on to become an engineer and move up the development ladder.
The starting point for addressing the challenge of poverty is the simple and obvious observation that the primary problem of the poor is that they have a low income. As the above parable indicates, the best way to alleviate poverty is to increase the income of the poor by providing productive employment. It is necessary to view the poor as producers, and emphasize buying from them. Many of the current approaches to poverty alleviation miss this simple point.
The advocates of foreign aid believe that poor countries are caught in a poverty trap and need major injections of aid to trigger economic development.1 The critics argue that foreign aid has failed to reduce poverty because it has emphasized big objectives, big projects, top-down planning, and one-size-fits-all approaches.2 William Easterly instead advocates bottom-up solutions tailored to the local context. Another criticism is that very little aid actually goes to stimulate enterprise development, even though private enterprise is well established as the best path out of poverty. Foreign aid is also accused of creating continuing dependency and fostering corruption.
The advocates of the Washington Consensus believe that free and open markets are the only vehicle for growing a nation out of poverty, and that the trickle down effect will lead to poverty reduction.3 In fact, globalization has not brought the promised economic benefits to many poor people in the developing world.4 The problem with the libertarian free-market approach is that it grossly underestimates the role of the government in economic development and poverty reduction. Ha-Joon Chang argues that today’s economic powers from the United States to Britain to South Korea all attained prosperity through some government intervention in industry.
We have seen that the foreign aid approach sees the poor as passive recipients of charity; the Washington Consensus views the poor as automatic beneficiaries of a trickle-down effect; and the BOP approach envisions the poor primarily as consumers. None of these poverty reduction approaches emphasize directly increasing the productive capacity of the poor, that is, increasing their earning power. To alleviate poverty it is necessary to focus on the poor as producers and to emphasize buying from the poor, not selling to them.
To escape from poverty, the poor need productive jobs and higher incomes. As we saw in Chapter 1, the United Nations’ MDGs outline international goals for eradicating poverty and hunger. By 2006, there was widespread conviction that poverty can only be reduced if people have a decent and productive job, and a new target was added under MDG 1: Reaching full and productive employment and decent work for all, including women and young people. The 2006 United Nations Conference on Trade and Development argues that poverty reduction in the least developed countries requires a “paradigm shift” so that national and international policies focus on developing productive capacities and creating productive jobs.5 The International Labor Organization states “nothing is more fundamental to poverty reduction than employment,” and then goes further and argues vigorously for “decent employment”—work that offers a worker a good income, security, flexibility, protection and a voice at work.6 Employment is not only the key source of income, it also enhances other dimensions of well-being by increasing the individual’s skills, physical abilities, and self-respect.
Increasing employment in poor countries requires three major thrusts: (1) the generation of new jobs; (2) increasing the employability of workers; and (3) making the labor markets more efficient. The first thrust works on the demand side of the labor market by creating job opportunities appropriate to the skills of the poor. The second thrust works on the supply side of the labor market by increasing the employability of the poor through education and vocational training programs. Labor markets, especially in developing countries, have much friction due to a lack of both information and labor mobility. The third thrust would include programs such as job matching and placement services, which help to improve labor market efficiency .
Increasing employment opportunities, employability, and labor- market efficiency means, of course, confronting complex challenges, and there is no magic solution for achieving these goals. A broad range of public policies and private strategies are needed to generate employment for the poor. It is too ambitious and perhaps futile to try to develop a holistic theoretical framework or a comprehensive action program to increase employment for the poor. It is better to make well-targeted and practical interventions supported by conceptual logic and empirical evidence. As we saw in Chapter 5, rather than trying to find the optimal, large-scale solution to poverty, it is preferable to choose a “good enough” starting point, an effective and feasible place to begin, and then take some action. It is worth sacrificing breadth for focus, comprehensive theory for pragmatic action.
Even though the private sector is primarily responsible for job creation, governments, international organizations, and NGOs can and should facilitate this process. Generating employment requires regulatory policies that facilitate the creation and growth of private businesses. The World Bank’s Doing Business project provides a useful basis for understanding and improving the regulatory environment for business.7 In this chapter, I advocate for focusing on the SME sector as the major driver of job creation, looking at TechnoServe’s success at revitalizing the cashew nut industry in Mozambique. I will also focus on increasing the employment of the poor youth. This approach is illustrated using the case study of Employment Generation and Marketing Mission (EGMM), organized by the government of Andhra Pradesh state in India to identify, train, and link unemployed rural youth to jobs in the private sector.