The Challenges With International Development
International development has long been a key area of study in modern economics. Time and time again, studies have shown how adding women to the workplace improves firm level growth, improving access to sex education lowers unwanted pregnancies, putting libraries in small towns can improve literacy rates… the list goes on. But what pushes these studies beyond just the research phase? How can these changes be implemented on a country-wide level? One of the main challenges with international development is trying to get a diverse cast of actors to catalyze – and more importantly, sustain – these types of microeconomic changes that can contribute to broader country level growth and development. Each actor faces a different set of incentives and thus, coordination is central to the success of these types of changes in driving international development.
There are three main categories of actors who are key in a developing economy: federal and local government, private firms (domestic and international) and nonprofit organizations. Each has its own advantages and challenges to drive development.
Governments have the power to create institutional change, a power noted development economist Daron Acemoglu would argue is the most important part of enabling growth. However, governments are also prey to partisanship, election cycles, corruption and political turmoil. Furthermore, they aren’t always well financed and typically face tough decisions on how to allocate their limited tax revenues. Thus, in every country, governments have differing levels of influence on development.
In that way, private firms can have a more flexible approach to driving growth and are incentivized to do so. Technological and educational advancements that further firm growth typically drive revenue and profit which make it a no-brainer that firms should be invested in broader economic growth to drive micro firm level success. Sometimes though, firms can also get stuck in a trap waiting for government institutions to support and enforce key changes that need to happen to enable growth. For example, a World Bank study found that female workforce participation in Southeast Asia can boost GDP growth substantially. Though firms may be willing to hire more women, they are waiting on infrastructure changes such as support for child and elder care and safe transportation to and from work provided by the government to help change social norms and in turn, enable women to successfully join and stay in the workforce. This has been proven out in Bangladesh where women now make up 34.6% of the workforce due to key social changes in the average age of marriage and improved mobility enabled by the government.
The third type of actor in international development is nonprofit organizations. The community is somewhat divided on how effective nonprofit institutions can be in enabling real change versus bandaid solutions. The nature of nonprofit funding is at times one-off making maintaining and sustaining real change-oriented programs a challenge. Take the example of an NGO that installed water pumps in African villages for just $7,000 each. Less than two years after they were installed though, a UNICEF report found over ¼ of the pumps installed in Zambia in need of repair and “reliant on child labour.”
According to the J.W. McConnell Family Foundation president, “the nature of our times is such that the magnitude and degree of complexity of our challenges exceed the capacity of any one sector to resolve.” The biggest issue in international development is not a lack of interest, funding or desire to drive growth and improvement, but a lack of coordination across key actors – governments, firms and nonprofits – to align incentives and drive real, maintainable change. Until we start to achieve that better, development will continue to happen in fits and starts as it has in the past.