Over the past five decades, the continents of Africa, Latin America and Asia have, together, received more than a trillion dollars in aid. Yet it is difficult to avoid the conclusion that this worldwide collaboration among donors and recipients has failed.
Much has been achieved with these funds, not least in the areas of health, family planning, education and other social services. Many people now live longer, healthier and more fulfilling lives than could have been possible without these financial flows. They have also helped to create much needed infrastructure of various kinds. Their countries can boast of telephone systems, power stations, roads and refineries that would not otherwise have existed.
Five lost decades of international development
Yet a very large number of people in the developing world are still on a never-ending treadmill of poverty, deprivation and marginalization. Some 2.5 billion people live in abysmal conditions. Many have no drinking water sources or toilets in their homes, let alone electricity or other modern amenities for their most basic day-to-day needs. They have access to virtually no product or service resulting from modern science beyond safety matches, kerosene lamps, bicycles, and of course the ubiquitous transistor radio. Possibly 1.5 billion live below the officially defined ‘poverty line’ of US$1 income per day. Roughly one quarter of all these people live in India.
At the same time, the environmental resource base on which people depend is degrading. The forests, rivers and soils in tropical regions, where most developing countries are located, are gradually disappearing.
Seen from the vantage point of what needed to be done – to eradicate poverty, get through the demographic transition and regenerate the environment – the five decades of so-called international development have been five lost decades.
Responsibility for this outcome cannot, of course, be placed at the door of donor agencies alone. As argued elsewhere, it is largely the result of the structure of the global economy, with systems of production and trade that are highly biased in favour of countries that have already industrialized.
The need for another development
For those who have travelled the 50 years down this road with their windows open, it has become obvious that the future belongs to smaller, more decentralized initiatives that involve the active participation of the people affected. To be successful, action must be designed from the bottom up. It has to be much more sensitive than before to issues of gender, social justice, environment, community and local culture. And it must lead to financially and ecologically sustainable institutions.
The way out of the problems is not all that complicated. The goals of development need to be redefined. The central goal today for any developing country must be to create sustainable livelihoods. Large numbers of sustainable livelihoods. For example, to close the unemployment gap by the year 2010, India will need to create between 12 and 15 million off-farm jobs each year.
The second goal for a country like India must be to accelerate the rate of economic growth. While the nation’s planners debate whether this rate should be 6 or 7 per cent per year, eradication of poverty within a reasonable time frame will need growth rates perhaps as high as 15–18 per cent.
Failure of the modern sector
The ‘modern’, formal sector is not capable of creating this many jobs or this kind of growth rate. Today, it can hardly create 1 million jobs per year and 6 per cent real economic growth.
The reasons for this failure lie in the structure of industrial production that we have adopted, without adaptation, from the West. Its capital costs are too high and its gestation periods too long. Production systems that rely on large, complicated and expensive technology, imported raw materials and components and sophisticated management systems mean large investment, much of it in foreign exchange. The average cost per job created exceeds $100,000. In India, plants of this kind can take two to six years to bring into operation.
Once a factory starts, the financial costs of a slowdown in production because of labour problems become unacceptable. In such a context, it is only natural that the technology is specifically designed to replace labour by machines; to decreate jobs, not to create them; and to exclude the poor, the unskilled and the marginalized. With continued emphasis on large industries, the numbers of unemployed can only grow over time.
Potential of the small scale
There are, of course, sectors for which the economies of scale work only with large, mechanized units. These probably include steel making, oil refining and car manufacture. But, despite the admonitions of economists, most industries can be commercially viable even at quite small scales. Some offer returns on investment that are twice as high as those for their larger counterparts. If the full costs of the processes and resources used in manufacturing and delivering products are taken into account, and no subsidies are allowed for energy, transportation, financial and other services, small-scale production can become highly competitive.
In any case, only small and microenterprises (SMEs) can do the job that needs to be done on the job front. What is more, they can also accelerate economic growth, not only at the local level but also for the nation as a whole. The return on investment is usually much higher than for a large industry and, needing only small amounts of capital and gestation for each unit, they can proliferate much faster.
As evidence of this, SMEs already form the backbone of the Indian national economy. They account for more than 60 per cent of industrial production in India, more than 65 per cent of industrial exports, and more than 70 per cent of industrial employment. They could potentially account for an even larger share.
Being small, dispersed and largely unregulated, the environmental and social impacts of SMEs are often quite negative. To overcome this, they need access to adequate technology, credit, marketing channels and management expertise. They need a basic minimum investment: there are innumerable technology-based micro-industries that could be set up today and run profitably which require capital in the range of $500 to $50,000.
Such enterprises can usually directly create several jobs in a village or small town, each at a cost of less than $500 – one-hundredth of the cost of creating jobs in large urban industries – plus a similar number of upstream or downstream jobs at an even lower cost. At the same time, they permit very high returns on investment, often with payback periods of less than a year.
Industrialization based largely on environmentally sound and job-creating microenterprises can create the livelihoods and growth rates India needs. Development Alternatives, a not-for-profit corporation based in India has, over the past 15 years, designed and developed a dozen technologies and techniques that are the basis of commercially viable microenterprises or development projects. These technologies are franchised to entrepreneurs, and the organization provides full technical, marketing and management support to help make the business a success. Other services include feasibility reports, access to financing and quality control.
The following are examples of Development Alternatives technologies (sold under the brand name of TARA) that are already in the market.
A new roofing tile made of microconcrete (20 per cent cement, 80 per cent sand and stone aggregates), TARAcrete uses no fibre or other chemicals. Its manufacture involves a sophisticated process but one that with proper training and technical support can be carried out at the village level. The equipment comprises a vibrating table and tile moulds, together with a curing tank and storage space. The total capital investment needed for a new TARAcrete enterprise is approximately $3,000. The enterprise creates five direct and four indirect jobs (skilled carpenters and helpers). The payback period for the entire capital investment is 12–15 months. Nearly 200 units have thus far been franchised throughout India and at current rates of market growth 1,500 are expected to be installed by the year 2000. Some 20,000 houses have now been constructed using this material as roofing.
This mechanical press provides sufficient compression to manufacture high-quality mud blocks – unfired bricks – for housing and other construction. The material and energy saved in making the mud blocks provides a significant ecological impact. The total capital investment for a Balram enterprise is approximately $500, with a payback period of 15 months. It creates one skilled and four unskilled jobs. Several thousand Balrams have been sold to entrepreneurs, NGOs and development projects.
TARA (‘Flying Shuttle’) Loom
Now widely recognized as the most advanced handloom weaving machine available, it has the ease of operation of a traditional loom but a productivity approaching that of a powerloom. Its versatility permits weaving of anything from coarse woollen blankets to cottons and fine silks. It produces textiles of high quality that are, therefore, extremely marketable. The TARA Loom retails for $500 and has a payback period of 12–18 months. It creates two jobs, both of which can be in the home. More than 3,000 Flying Shuttle Looms have been sold to clients in every state of India and in several countries abroad.
DESI Power (Decentralised Energy Systems India Private Limited
A member of the Development Alternatives Group, DESI Power establishes village-level power stations in joint venture with village governments and local enterprises. It uses only renewable energy like solar, wind, microhydro and biomass and supplies commercial energy to small industrial units and local households. Eliminating transmission and distribution costs, minimizing the cost generation and placing electricity directly within the control of the community, DESI Power is highly competitive with grid electricity. One DESI Power station based on local biomass fuel costs $70,000. Using financial capital at semi-commercial rates, it has a payback period of about 7–10 years.
Lessons and conclusions
The experience of Development Alternatives shows that a more direct attack on poverty is possible provided the technology choices, financing systems, marketing channels and institutional frameworks are properly designed. The emphasis for technology has to be on small scale, use of renewable resources and employment of local skills. The product mix must respond more to local, basic needs than to the global market.
The current lack of financing for technology-based microenterprises (amounts that lie between the Grameen-type household loans and the bank finance available to typical small-sector industries) is a major barrier to the profileration of SMEs.
Financial support is also needed for independent sector organizations that combine social objectives with businesslike methods and provide basic technical and other supports without which such microenterprises cannot be viable.
The logic of disbursing public funds forces donor agencies to favour large-scale, centralized and ‘hi-tech’ projects. They are easier to appraise, monitor and report on. They are also more in tune with accountability requirements and with the need to ‘tie’ donor consultants, products and services to the projects. In any case, high overhead costs preordain such large projects. One way out for donors is to build the capacity of intermediaries, including large NGOs and foundations, to manage smaller grants for them.
Dr Ashok Khosla is President of Development Alternatives.
For further information contact Development Alternatives.
Tel +91 11 696 7938
Fax +91 11 686 6031
PWBLF working with companies in India
The Prince of Wales Business Leaders Forum (PWBLF) is a UK-based international charity made up of 57 multinational companies (MNCs) with a specific remit to promote socially responsible business practice (SRBP) and sustainable development in developing economies. PWBLF has been active in India, working with Indian companies and MNCs in partnership with multilateral and bilateral donors and the NGO sector, since late 1990.
In 1995 PWBLF established the Indian Business Community Partnership Trust (IBCPT), a national group of both Indian companies and MNCs. Its aims include:
- to accelerate the involvement of MNCs in the community in partnership with local business and NGOs;
- to demonstrate and publicize, both within India and internationally, models of good practice in SRBP.
Based in New Delhi, IBCPT also works in conjunction with a Partnership Advisory Group (PAG) consisting of other international and national donor agencies and NGOs working in India. PAG both identifies development priorities and works with the private sector in the design and implementation of social programmes that reflect core business practice.
Current priorities identified by PWBLF and IBCPT in India are:
- sharing what works in the field of SRBP with state-owned industries;
- examining issues raised by the relocation and rehabilitation of indigenous people as a result of private sector infrastructure projects;
- working with a group of manufacturers sourcing out of India on issues such as health and safety in the workplace and child labour, initially in the brass and glass industry;
- working with UNAIDS to educate businesses about the economic reasons for being involved in HIV prevention and to share case studies of successful prevention methods;
- building a network of other business coalitions in South Asia;
- giving training in how to evaluate and benchmark the success of social programmes.
PWBLF is planning an INSIGHT visit to India in March 1999, in conjunction with the Aga Khan Foundation and PricewaterhouseCoopers, to demonstrate to a group of CEOs, probably mainly from Europe, examples of private sector–NGO collaboration.