Hard lessons for economic development

Andrés Thompson

While foundations around the world have had some real achievements in building ‘social capital’, they cannot make the kinds of investments in marginalized communities that will allow them to become economically self-sustaining. Bottom-up foundation-funded economic development projects are not enough to alter the distribution of wealth.

So what is to be done? What foundations can do is to act as convenors, bringing in the private and public sectors as partners in order to try to create the basis for a community’s long-term well-being. But this is a long-term strategy, and a political rather than an economic one.

It’s a commonplace to say that no single strategy is enough to cope with poverty, inequality, discrimination and authoritarianism. The term ‘sustainable development’ has therefore become current, a label which covers – to define it in very broad terms – a complex, multi-faceted and sustained effort to bring a better quality of life for human beings, in particular for the disaffected and disadvantaged.

Many grantmaking foundations around the world have embraced this notion and have invested millions of dollars, euros, pesos and other currencies in a large number of projects. And there have been some notable achievements in the field of empowerment of communities, self-organization, consciousness-raising, increasing self-esteem and strengthening of cultural identity, all of which are essential as a starting point for moving forward – the so-called ‘soft’ side of development.

The ‘hard’ side of development

However, the big challenge – the ‘hard’ side, the economics of development – remains. Foundation money is not enough for economic regeneration, job creation and income generation. All it has been able to achieve so far are small-scale ‘demonstration models’ for increasing the income of the poor – through microlending, cooperatives, microenterprise development and the like.

The assumption underlying these strategies is that change may happen as a result of these successful (but isolated) cases being replicated on a larger scale. This may happen under fortunate conditions, but the question remains: if the so-called ‘trickle-down effect’ of growing economies in developing countries has not benefited the poor and if the bottom-up efforts of foundation-funded development projects are not enough to alter the distribution of wealth, what is to be done?

The Kellogg Programme in Latin America

In an attempt to explore responses to the challenges of poverty and its continuation from generation to generation, the W K Kellogg Foundation has been undertaking an ambitious programme in Latin America and the Caribbean over the last five years to support the efforts of local communities in well-defined micro-regions to face the challenges of economic, political and social exclusion. Working through alliances of public, private and non-profit institutions, particularly local youth agencies, these local efforts are striving to increase and improve the social, human and productive capital in communities. Almost all of the 23 initiatives are producing significant advances in terms of organizing the local youth-led movements (frequently using sports, arts and cultural projects as a starting point). In the rest of this article, I will attempt to describe the key issues faced in this strategy and the main lessons learned so far. Since this is ongoing work, I am certain that more will arise in the future.

The underlying assumptions

One of the assumptions on which the programme is based was that since it’s impossible for a foundation to invest in large-scale economic development projects, their role should be to try to build from the bottom up a variety of community-driven income-generation projects focused on a particular territory. In the case of North-eastern Brazil, for instance, dozens of initiatives were supported to: (a) strengthen already existing productive chains like fishing, family agriculture, handicrafts; (b) help build producers’ associations and cooperatives; (c) map economic development initiatives with market potential; (d) launch microcredit programmes focused on youth-led initiatives; (e) incorporate new information and communication technologies; (f) experiment in alternative economic approaches like fair trade, solidarity economics, organic farming and ecotourism; (g) attract the business sector with social responsibility practices; (h) implement courses of professional education and training in the public education system or through organizations with some expertise in the field; (i) influence and inform public policies that can support economic development.

Another, more basic, assumption (perhaps an obvious one) underlying the programme is that no single sector or institution can do it alone. Consequently, a lot of time and effort has been invested in trying to attract the public and the business sectors to the original initiative of non-governmental and community-based organizations and to try to build a locally owned and appropriate shared vision for the well-being of these communities. Different types of alliance have been formed as a result, reflecting the local interests and balance of forces, but so far none of these alliances has been successful in launching ambitious economic development plans.

First lesson learned

Whatever the economic development strategy chosen, it is important to build the combination of institutions appropriate to the economic dynamics of the territory. It is not enough to put together every interested stakeholder; they need also to have the skills, knowledge and competencies (and history) to be able to read the opportunities and challenges, and to make the right choices with scarce resources. Finding the right balance between the productive potential of a territory and its market potential requires a professional expertise that is usually not found in impoverished communities.

Alliances with institutions outside the territory that can also contribute to build local capacities are crucial here but such partners are hard to find. It is clear, however, that without a conscious effort to build the right partnerships, it is almost impossible to move beyond small-scale projects.

Second lesson learned

Traditional economic theories of development fail when the focus is placed on helping communities to tap their own potential and build local capacities and ownership of the economic development process. No single economic intervention can produce that kind of change. Technologies, market knowledge, capital investments in infrastructure, solid and fair financial institutions, appropriate public policies, employment strategies, strategic thinking – all these and more are needed to really produce a sustainable impact on the economic life of communities.

Third lesson learned

Strategic models of economic development do not stand alone! Both the trickle-down and the bottom-up approaches in developing countries have been extensively based on theoretical economic models without taking into account local conditions. The weaknesses of such models lie not so much in the idea of being trickle-down or bottom-up, but in the fact that most of them do not take seriously the complexity of specific power relations and the macro-economic and political settings in the places where they are implemented. In the case of the Kellogg Foundation programme in Latin America, the level of power and influence that young people can bring to bear to push their economic initiatives would be very low without outside help.

A starting point?

These three lessons are perhaps a starting point in addressing the ‘hard’ side of development. Foundations obviously cannot do it alone. They – we – must play the convening role, bringing together different players and making the right strategic choices as to where and when their investments can mobilize other local and external partners. They must rely on different types of expertise and expose themselves to critics and failure. They must take risks and make long-term commitments with little visible short-term effect just at a time when the pressure for ‘meeting goals’ is rising everywhere.

In weak democracies, helping communities to build their own future often involves affecting the established balance of economic and political power. Investing in the capacity of disenfranchized communities to do that is a political strategy, not an economic one. The democratization of power relations through helping to increase the voice and participation of those affected by the current unequal economic development is implicit in that political choice.

Are foundations able and willing to face that challenge?

Andrés Thompson is Program Director for Latin America and the Caribbean, W K Kellogg Foundation. Email andres.thompson@wkkf.org

The author would like to thank Rui Mesquita Cordeiro, Kellogg Foundation Program Associate, for helping form the ideas in this article. The opinions in it do not necessarily reflect those of the Kellogg Foundation.

Further reading
Ricardo Morán (2004) Escaping the Poverty Trap: Investing in children in Latin America Washington: IDB Inter-American Development Bank.
Ricardo Morán and Enrique Aldaz-Carroll, ‘Escaping the Poverty Trap in Latin America: The role of family factors’ in Cuadernos de Economía, V 38 (114), pp155-190, August 2001.

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