The Family and Economic Development:
Socioeconomic Relevance and Policy Design
by
Maria Sophia Aguirre, Ph.D.
Department of Business and Economics
The Catholic University of America
Doha Conference Preparatory Sessions
Geneva, Switzerland
August 23-25, 2004
The Family and Economic Development:
Socioeconomic Relevance and Policy Design
Maria Sophia Aguirre, Ph.D., Department of Business and Economics, The Catholic
University of America
I.
Introduction
Is the family relevant for economic development? Some would argue that the family is
key for economic development because they see it as an obstacle to achieve “sustainable“
development. Marriage, the union of a man and a woman, generate children. They believe that
the earth is limited. Therefore, the more we are, the poorer we will be.1 In addition, others
within this group see the family as a hostile place for woman and children. Consequently, they
contest, if poverty and abuse of women is to be eradicated, it has to be monitored and regulated
by national and international laws as well as by institutions.2 Finally, other within this position
see the family as a problem for development because they believe that large populations, by
perpetuating poverty, threaten government stability in developing countries and in the world.
This in turn causes instability within their countries as people fight to access scarce resources. It
also, they believe, causes resentment towards developed countries because they are rich. 3
Others argue that the family is key because it makes “sustainable” development possible.
This is so, because healthy families are needed for the economy to fulfill its purpose. 4 Growth of
population does not equal poverty, they maintain, poorly structured families and societies as well
1
. Historically, economists holding this position based the relationship between population growth and real growth
on Malthus' Theory of Population and Income. Thomas Robert Malthus (1978) introduced a relationship between
population growth and what he termed subsistence. The first grew geometrically while the second increased only at
an arithmetic ratio. Thus, he proposed the existence of an inverse relationship between population growth and
development derived from the law of diminishing returns. This law is the belief that more people mean fewer goods
for each person; thus, as population grows, poverty inevitably increases. Brown (1999) captures the typical
arguments used in this position. A further corollary of this perspective, some times is identified as NeoMalthusians. They see people as destroyers of resources and violators environmental limits. Among the leading
representatives of this group are Ehrlich and Brown. Their seminal works are Ehrlich (1968) and Hardin (1968).
For a more resent presentation of their position see Ehrlich and Ehrlich (1990) and Hardin (1998) and for a detailed
analysis of their views see Simon (1996 a-b), Furedi (1997), Wolfgram (1999), Johnson (2000), and Aguirre (2002).
2
. See de Beauvoir (1949), Friedan (1963 and 1997), Millet (1971), Amoros (1997), and Coomaraswamy (1997) for this
perspective. For a review of this position see Aguirre and Wolfgram (2002).
3
. Memorandum 200 of the National Security Council states this position clearly. For a more thorough discussion
of this view see Kennedy (1993) and Eberstadt (1995).
4
. Since the seminal work of Gary Becker on human capital, many other economists have supported this position.
Among them is another Nobel Laurete, Amartya Sen. For their position on human capital and the family, see Becker
(1991) and Sen (1994).
2
as bad economic policies foster poverty.5 Finally, others consider that the family makes
sustainable development possible precisely because of its connection with population. They
believe that population control policies, by hampering human generation, undermine families
and economic development, as it leads them towards an “aging population trap” as oppose to the
“population trap” predicted by Malthus.6 How people perceive the connection between the
family and economic development is critical, for it is by these perceptions that domestic and
international economic and social policies are formulated and implemented. Thus, it is equally
critical that people ensure their perceptions are grounded, not in rhetoric and emotions, but in
established scientific and empirical data.
I would like to argue that the focus on family and population is not necessarily incorrect,
but that both the population control policies used and the approach of some international
organizations and countries to the family are mistaken. This is so because: 1) healthy families
are essential for a country as they have a direct impact on human, moral, and social capital, and
therefore, on resources use, economic activity, and economic structures; and 2) resources are
used inefficiently when directed towards policies that weaken families instead of policies that
strengthen them.
This, in turn, hampers the sustainability of real economic growth and
perpetuates poverty.7
In the second part of this paper, a basic framework of the role of the family in the
economic activity is presented. This section is followed by the socioeconomic relevance of the
family. Section four addresses some of the main economic living condition of families in
developing countries. The policies most often proposed together with some of the policies that
have proven helpful to the family in developed countries are examined in section five. This
section is followed by a review of two useful initiatives introduced in developing countries as
tools of strengthening poverty-striking families. The paper finishes with the conclusions.
5
. See Sen (1981 and 1998), Fukuyama (1999), Aguirre (2001), and Kilksberg (2000 and 2001). There are also
those who attribute the present problems not to population but to the distribution of resources given the present
structures. Some of these authors include Dobson (1997), Matson (1997), Rabkin (1997), and Kiester (1999).
6
. See Simon (1992 and 1996, a-b), Eberstadt (1995 and 2000), and Aguirre (2002).
7
. On this point, I have good company: Gary Becker, Nobel Laureate 1992 stated that “No discussion of human
capital can omit the influence of families on the knowledge, skills, values, and habits of their children and therefore
on their present and future productivity.” Becker (1991). Similarly, Amrtya Sen, Nobel Laureate 1998 has
reminded us that “[t]he human development approach must tale full note of the robust role of the human capital,
while at the same time retaining clarity about what the ends and means respectively are. What needs to be avoided
is to see human beings as merely means of production and material prosperity.” Sen (1994)
3
II.
How Does the Family Fit in the Economy and It Socioeconomic Implication
Elsewhere I have argued that when addressing the relationship between family and
economics, it is important to consider the characteristics of the family and how the economy
relates to these characteristics.8 One of the characteristics of the family is that it is the first form
of society. A person normally comes into the world within a family, and it is within a family
where the child first develops and matures as a human person. In addition, the members of the
family are human beings and, therefore, they are in need of material things to survive and
develop. It is this need to obtain and to consume goods and services that explains the reason for
economics and the role that the family plays in it. In this sense then, we can say that the family
is the first and most fundamental place where production and spending acquire their meaning. It
follows that it is precisely in the ability to foresee both the needs of families and the optimal
allocation of the inputs of production to satisfy those needs, which constitute an important
characteristic of a well functioning economy.
Table 1, presents a sketch of how the economy operates and why a well functioning
family is necessary for sustainable economic growth. The economy has three fundamental
activities: production, exchange, and consumption (Table 1, Column 1). In order to produce, the
economy needs to use resources. These resources or factors of production are labor, capital,
land, and entrepreneurship.9 It also needs to optimize the use of these resources because, at any
given point in time but not over time, the resources available are limited.
Households or
associations of households that take the form of corporations or some other type of institution
provide these resources. In this process, human capital plays a key role as it affects not only the
quality of the labor force, but the manner in which these resources are used to obtain the desired
production to cover the basic needs.10
8
. See Aguirre (2001).
. In economics land captures all natural resources, labor includes the work time and work efforts that people devote
to producing goods and services. This includes both physical and mental efforts. The quality of this work depends
on human capital. Capital includes tools, instruments, machines, buildings, and other constructions that business use
to produce goods and services. It does not include financial capital (money, stocks, bonds, or any other type of
financial instruments) because, although they enable people and business with financial resources, they are not use
to produce goods and services. In this sense they are not productive. Finally entrepreneurship is the human resource
that organizes all the other resources. It is the resource that coordinates the ideas generated about how and what to
produce, make business decisions, and bear the risks that arise from these decisions.
10
. Human capital is generally understood as the physical and technical efficiency of the population. For a clear
presentation human capital and the family see Becker (1991.)
9
4
Table 1
How does the Family Fit in the Economy?
Basic Activities
Means Used
Role of the Family
Purpose
Production
Resources and
Human Capital
Basic Needs
Human, Moral,
Income and Profit
Optimization
Exchange
Market
Social Capital
Consumption
Buying power and
Appropriate
Distribution
distribution
Wellbeing
(welfare)
In order to obtain the income or retribution for their contribution of resources, each
person and/or institution need to exchange. This exchange takes place in the market. 11 In order
for the market to last, a necessity to exchange and some basic economic institutional and
structural conditions, such as competitive terms of trade or openness to trade, need to exist. It
also requires other fundamental features such as trust, communication, order, and political
stability need to be present as well.12 It is for this reason that human, moral, and social capitals
play a fundamental role.13
How and which goods and services get produced and how those
contributing with their resources are paid depend on the choices made by those producing them.
When income and profit are not obtained, the production is typically stopped and often,
corrupted structures of individuals and institutions take over.14
11
. Here the market is understood as any arrangement that enables buyers and sellers to get information and to do
business with each other.
12
. Fukuyama (2000), Kliksberg (2000),and Sen (1998)
13
. For a definition of human capital see note. 9. Social capital has been defined in several ways. One definition
that encompasses most of them is “an instantiated informal norm that promotes cooperation between two or more
individuals. These norms can range from a norm of reciprocity between two friends, all the way to complex and
elaborately articulated doctrines like Christianity and Confucianism.” (Fukuyama (2000, p.3.) Human capital is
generally understood as the physical and technical efficiency of the population. For a clear presentation of social
capital see Fukuyama (2000) and for human capital and the family see Becker (1991.) Already Coleman (1999) in
his seminal paper on social capital had emphasized both the interrelation that exists between social and human
capital as well as the fundamental role that the family plays on their development. Specifically, Coleman states:
“But there is one effect of social capital that is especially important: its effect on the creation of human capital in the
next generation. Both social capital in the family and social capital in the community play roles in the creation of
human capital in the rising generation. (p. 109)”
14
. Recession, capital flight, black markets, and other type of disruptions in the economy are typical feature of
political and economic instable in developing countries.
5
To consume, one needs first to obtain goods and services. To obtain these goods and
services, one needs buying power and a distribution system that will allow consumers to reach
them. The distribution of buying power typically takes place through income and profits, but it
is redistributed. There are three ways this transfer from one person to another takes place: by
voluntary payments, by theft, or through taxes and benefits organized by the government. In
addition to history, nature, and luck, each player in the economy influences how the
redistribution will take place by the way they behave and the way they vote.15 Thus, for an
appropriate distribution to take place, i.e., for this distribution to actually meet the needs of the
family and by doing so to contribute to both the welfare and wellbeing of its members, a fair and
equitable distribution system for goods and for buying power are fundamental. It is within the
family and through its influence that it exercises in the decision process of individuals, that this
appropriate distribution is ensured or disrupted.16
The grounds on which capitalist theories have defended private property have been the
economic agent's work. These theories propose that because it is a given economic agent who
carries out work, he is therefore the owner of it. Thus, they conclude, he has the right to keep and
enjoy its fruits. However, this justification is incomplete, since no one could work having not first
received some type of education and/or training. Furthermore, no one can work without the help of
others. Thus, to same extent, any input of production or product, is not the economic agent's alone.
Other members of that society have rights upon the same product, beginning by the members of his
family. This implies that while it is possible to find support for the right to private property based
on a person's work, it does not mean that this right is absolute. Private property encourages
production and belongs to someone, but the product of this property transcends the owner since he
does not work in isolation or for himself alone.
Using the previous analysis, we can understand why several elements of the economy
degenerate if they are not ordered towards the family: What is the motivation to work without a
family? What is the point of an economic agent saving or investing beyond retirement (i.e. future
15
Concerning the issue of luck, history and growth see Easterly, et al (1993), Barro and Lee (1993), and Long and
Summers (1993). For how choices affect economic growth see Becker (1974 and 1993).
16
. Elsewhere I have argued that it is within the family that the need for distribution is mainly felt and that it is for
this reason that it is through the family that the economy transcends the mere individual level. Distribution within
the family is usually carried out through the women. One can see, therefore, the importance of the women’s role in
the economy. Woman, because of her characteristics, has the capacity to distribute goods in a just manner,
according to the specific needs of each member of the family. This is an important idea when thinking on income
distribution theory and policy as well as on sustainable real economic development. See Aguirre (2001).
6
consumption) or even death without the family? What moderation would there be in consumption
and spending if there were no family? What is the role of government if not to meet, at least in a
subsidiary manner, the needs of the family? An economy that is based exclusively on profit and
selfish individualism could be successful for a period of time, but it would not last (among other
things because it will not produce enough population which without, no economy is possible). It is
man, the economic agent, that works, and he naturally belongs to a family. Since it is also the case
that man develops within the family, then it follows that he, as the economic agent, will be better
fitted to contribute the most to society and vice versa when the family is being promoted by the
economy in which he works.
So far we have seen that family consumption needs give rise to economic activity, and that
the families affect economic production, exchange, and consumption by the influence that it
exercises on each of its members. At the same time, as the members of these families contribute to
the economy, private property and other institutions and services such as factories, health and
hospitality services, housing, education, social securities, national security, etc., develop so as to
complement and meet the needs of these families. Therefore, if we are to understand any economic
issue, the way in which that given issue affects the family as a whole or a given member of it must
be evaluated carefully. This is directly and indirectly the most important reason for economic
activity.
III.
Socioeconomic Implications
Today, there is a large body of scientific evidence that clearly indicates human beings
develop in the best way within a family that is functional, i.e., with his biological or adoptive
mother and father in a stable marriage.17 The academic and social performance of a child is very
closely related to the structure of the family in which he lives and this is important for the quality
of the human and social capital.18 The psychological stability and health of a child is closely
related to healthy families and this is important for worker’s productivity and government
finances.19
17
. Among other see Bisnaire et al (1990), Amato and Keith (1991), Featherstone et al (1992), Neighbors et al
(1992), Downey (1995), Aquilino (1996), Teachman et al (1997), Fagan and Johnson (2002), present some of this
evidence. For a review of the literature regarding this subject see Rector et al (2003 and 2004).
18
. Among other studies see Grissmer et al (1994), Bolger et al (1995), US Department of Education (1994, 1996),
Fuerst and Petty (1996), Fagan (1999), and Fagan and Rector (2000).
19
. Among other see Houseknexht and Sastry (1996), Evans et al (1997), Sun (2001), Kubrin (2003), and
7
Social science research also shows that the breakdown of the family is a symptom of a
sick and weak society. Women abuse is twenty five times more likely to occur in irregular
families20 and children abuse is six times higher.21 Men who have witnessed domestic violence
are three times more likely to abuse their own wives and children. 22 Non-maternal care increases
children’s aggressive and violent behavior23 and substance abuse and teen-age pregnancy are
higher in broken families.24
In addition, a broken family breeds poverty. Families, women and children of broken
families, have a higher probability of living in poverty.25 Figure 1 to 3 present the percentage of
families, women, and children in poverty by race and family structure for the U.S. In all cases
single parents are significantly worse off than marriage couples. This is especially revealing, as
with the case of the U.S. one can make a parallel between races and levels of education and
income. In general, whites are better educated and have a higher income than blacks. Hispanics,
on the other hand, often not only do not command the language but they are illegal. This is
reflected on their level of education and income.
Figure 1
Percentage of Families that are in Poverty by
Family Structure and Ethnicity, 2002
70
54
60
47.4
50
40
29.2
27.1
30
14.1
20
10
7.7
4.4
6.1
0
Married
Single
White
Married
Single
Asian and Pacific
Married
Single
Black
Married
Single
Hispanic
Source: Poverty in the U.S., US Census Bureau, September 2003, Table A-1.
Zwaanswijk (2003).
20
. U.S. Department of Justice (1998). McCloskey (2002) reports that in the United States, the mothers and children
not living in a traditional family were particularly vulnerable to abuse: "41% of the Anglo and 48% percent of the
Mexican-American women had ever been married to their abusive partners." Data available for other developed
countries report the same trend.
21
. Fagan (2002). Here also, data available from European countries and Canada report similar results.
22
. APA (1996).
23
. Smith and McVee (2003).
24
. Jeynes (2001), Dube (2003), and NCASA (2003)
25
. Rector et al (2003).
8
Figure 2
Percentage of Women that are in Poverty by
Family Structure and Ethnicity, 2001
60
52
50
45
37
40
30
24
20
10
8
5
0
Married
Single
Married
White
Single
Married
Black
Single
Hispanic
Source: National Center for Children in Poverty, A Statistical Profile, March 2002.
Figure 3
Percentage of Children that are in Poverty by
Family Structure and Ethnicity, 2001
60
49
50
48
40
30
26
22
20
10
8
6
0
Married
White
Single
Married
Black
Single
Married
Single
Hispanic
Source: March Current Population Survey, US Census Bureau, March 2002.
It is true that the European countries, which have various family support and income
maintenance programs in place show a less damaging povertization of women and children as a
consequence of family breakdown. However, this fact is only an indication of the effectiveness
of these programs to lighten the effect of povertization of women and children. They have yet to
9
solve the social problems that the breakdown of the family brings as well as the financial burden
that imposes in government finances.26
In fact, empirical evidence shows that when the family is disrupted, the individual and
social costs are very large.27 Furthermore, experience of many years of population control
policies has lead many developed countries to serious finance problems.28 Figure 4, depicts the
welfare expenditures of some developed countries vis a vis the foreign debt from the two largest
debtor countries and Taiwan. Welfare expenditures include all social programs plus social
security pensions.
Figure 4
Developed Countries Welfare Expenditures vs
Developing Countries Debt in 2002
32
16
Nigeria
Mexico
70
FD
191
WE
251
221
Brazil
UK
393
France
462
728
Germany
US
2120
0
500
1000
1500
2000
2500
Million of Dollars
Source: CIA World Handbook, 2003
The combination of social security plus family and health welfare expenditures for developed
countries were on the order of $2,120 billion dollars for the U.S., $728 billion for Germany, $462 billion for
France, and $393 billion for the UK, in 2002.29 Brazil, Mexico, and Nigeria’s expenditures are smaller but
significant considering the size and economic conditions of these countries. It is instructive to note, that the
26
. Farley (1995) presents detailed data.
. Among others see Duncan (1994), Mongomery et al (1996), Housekneckt and Sastry (1996), Mirowsky (1999),
Kubrin (2003), and Schramn (2003). For a review of the literature see American Medical Association (1992),
Fukuyama (1999), Fagan (1999), Fagan and Rector (2000), and Aguirre (2001).
28
. An extensive study of the effects of aging population on the public pensions of developed countries can be found
in Chand and Jaeger (1996.) Also see UNFPA (1998), which is dedicated to this topic, and Longman (1999). Japan
and some countries in Western Europe are already in crisis.
29 Social security expenditures in the U.S. constitute 27% of this amount, while for France is 25%, for Germany is 21%,
and for the UK is 17%. (OECD Statistics)
27
10
welfare expenditures for the U.S., Germany, France and the U.K. are bigger than any of the less developed
countries' foreign debts, which is particularly interesting in light of the difficulties these countries have in
repaying these debts. With the exception of the U.S., these developed populations are significantly smaller
than the developing countries of Mexico, Brazil, or even Nigeria. For example, as shown in Figure 4, the
U.S. welfare expenditures are nine times the foreign debt of Brazil, the largest debtor, and 58% bigger than
Brazil's 2002 GDP. Similarly, it is eleven times the foreign debt of Mexico and 2.3 times the size of
Mexico’s GDP. Nigeria’s debt, the second largest in Africa, equals 68.2% of its own GDP but is still more
than eight times smaller than Brazil’s debt, yet Nigeria still finds it difficult to pay off the debt despite its oil
exports. U.S. welfare expenditures are sixty-six times Nigeria’s debt.
Even after adjusting for the difference in population sizes, the combination of social
security plus family and health welfare expenditures for developed countries remain much higher
than the debt of these developed countries. Population in the U.S. (288 million) is only 1.65
times that of Brazil (174 million), 2.87 times that of Mexico (100.5 million), and 2.44 times that
of Nigeria (117.8 million). The population in the UK (58.9 million), France (59.6 million), and
Germany (82.3 million) is roughly less than half of the size of the population of Brazil. When
analyzed in per capita terms, the numbers are more revealing, welfare expenditures per capita are $ 8,850
for Germany, $ 7,750 for France, $ 7,360 for the US, $ 6,670 for the UK, $ 1,440 for Brazil, $ 700 for
Mexico, and $ 140 for Nigeria.
It is obvious that developed countries are unable to afford expenditures of such
magnitude. These numbers demonstrate why it is very important for all countries, but especially
for developing countries to protect its family and its population.
Their present economic
situation does not allow for the same mistakes that developed countries made and are now trying
to repair. If these countries are to experience real economic growth, both their family and their
population ought to be protected from breakdown and implosion respectively.
IV. The Status of the Family in Developing Countries
The family faces serious health and poverty problems, especially in the developing world.
They often lack income and assets to attain basic needs: food, shelter, clothing, and acceptable
levels of education and health. They lack access to human assets, as they do not have skills and
training and at times even good health. They also lack access to natural assets such as land.30
30
. With the expansion of urban population, the poor and the near-poor, often live in crowded urban settlements
11
They often do not have access to infrastructure or physical assets such as housing, sewers,
electricity, etc. as well as to financial structures such as savings and access to credit. They also
have diminished access to social assets, such as networks of contacts and reciprocal obligations
that can be called on in time of need, and politician influence over resources. Finally, they are
without aging security, as they have no access to sound social security systems.
In most
developing countries, the social security system is provided by the families, yet, these are
becoming smaller as population control polices are imposed in these countries either by their
own governments or by developed countries.31 Furthermore, these policies are often targeted to
the poor as they are considered the ones in most need of such policy. 32 Access and the return to
these assets not only depend on the behavior of the market, but also on the performance of
governmental and private institutions. The performance of them, in turn, is closely link to
human, moral, and social capital.33 These problems make families in developing countries
highly vulnerable to adverse shocks, as they are unable to cope with them.
Table 2 presents an overview of the environmental primary health, welfare, and living
conditions in low-income countries as compared to Developed countries. Two characteristics are
clearly shown: 1) developing countries population live under much worse conditions than
developed countries and 2) the type of access available to the different service, for the most part,
where heavy rains can wipe out their homes, where access to clean water and basic sanitation is also low and they
are at high risk of diseases such as malaria, tuberculosis, and diarrhoeal. In addition they have precarious
employment, in the formal or informal sector. If they are located in rural areas, they typically live and farm on
marginal lands with uncertain rainfall. (UNDP, 2002)
31
. Among others, the United Nations has encouraged compulsory population control programs, through their own
institution or through other international organizations, as a condition for international aid. Such links are clearly
stated in the UN international conferences’ programs of action such as ICPD’94 and its follow up, Beijing (1995)
and Copenhagen (1995). In September of 2000, the UNFPA presented a strategic approach entitled A Global
Strategy for Reproductive Health Commodity Security. The report emphasizes the importance of responding to the
present crisis in developing countries by increasing access to reproductive health commodities in developing
countries, especially contraceptives and condoms, and states that “all partners must work together to expand their
efforts on global and national levels. These broadened efforts, which include improving advocacy and resource
mobilization, strengthening national capacity, reinforcing programme sustainability and coordination, have already
started.” http://www.unfpa.org/news/features/rhcs.htm.
32
. In some countries, regulation of fertility includes compulsory measures such as forced sterilization or
sterilization performed without proper informed consent, contraception, and abortion. Introduction of chemical
contraception techniques and frequent legalization of abortion have been widespread while policies in favor of
welcoming new lives have been weakened. In recent years, Mexico, Peru, Brazil, Guatemala, India, Pakistan,
Uganda, Zambia, and several other developing countries have denounced forced sterilization. However, such
sterilization measures have not been limited to less developed countries; cases have been found in Sweden among
handicapped women as well as in several refugee camps. Based on the information available, the first victims of
these programs seem to be innocent and helpless populations. Some of these matters have been described in Sen
(1996), CLADEM (1998), Mosher (1983).
33
. See note n. 11.
12
is of better quality in developed countries. Close to 50% of the population in developing
countries lacks basic water and sanitation. Although access to improved water and sanitation fair
better than house connections, they are still below the population access of developed countries
by almost 40%. Improved water is significantly higher in urban cities than in rural areas and
access to affordable essential drugs has improved significantly but still, developing countries fall
behind developed countries.
Table 2
Environmental Health, Welfare and Living Conditions in
Low Income Countries vs Developed Countries, 2001
Indicator
House Connection: water
House Connection: sewerage
House Connection: electricity
Water consumption (liter per person)
Improved water (rural/urban)
Wastewater treated
Solid waste disposal: landfill or incinerated
Solid waste disposal: other (dump, recycled, etc.)
Improved Sanitation
Affordable essential drugs
Under-five mortality (per 1000)
Public Expenditures on Health (%GDP)
Paved Road
Telephone mainlines (per 1000)
Cellular subscribers (per 1000)
Internet access (per 1000)
Literacy
% of population with
access
Developing Developed
Countries
countries
48
99
46
99
62
100
30
600
69/92
100/100
29
97
31
78
66
22
77
100
69
91
107
6
1.3
6.2
19
94
87
597
75
605
26.5
400.1
49
100
Sources: Human Development Report, 2003 and Millennium Development Goal Indicators, 2003.
Paved Roads as well as access to water and electricity are an important part of rural and
market development. Developing countries a access is very low in paved road access but it fairs
better in access to electricity. However, this level of access is mainly in urban and not in rural
areas. When telephone and cellular accesses are considered, we find that about 8% of the
population has access to these means of communication. However, when looking at these
statistics over the past ten years, one can see a trend towards the expansion of cellular phones
13
over telephone landlines.34 Developing countries are moving directly into wireless services,
which, in turn allows them to access the Internet without the need of a large infrastructure. In
China, for example, it is estimated that about 480 million youth will have access to the Internet
before 2005. This implies access to a wealth of information that before was banded or nor
available for a large part of the population in this country. Yet, while these means provide
access to information, education, and potential markets and, in doing so, open new opportunities
for economic growth, for it to be sustainable infrastructure is required. Developing countries
have still significant portions of population without access to it.
The family faces serious health problems, especially in the developing world due to
infectious diseases and poor quality health programs and sanitation access.35 The main health
risks and causes of death for man and woman are:36

Cardiovascular diseases (kills 16.7 million per year)

Malignant neoplasms (cancer) (kills 7.1 million per year)

Injuries (kills 5.2 million per year)

Respiratory diseases (kills 3.7 million per year)

Perinatal conditions (kills 2.5 million per year)

Respiratory infections (kills 3.9 million per year)

HIV/AIDS (5 million new cases and kills 2.8 million per year)

Diarrhoeal Diseases (kills 1.8 million per year)

Tuberculosis (TB) (8 million new cases and kills 1.8 million people per year.)

Malaria ( 300-500 million new cases and kills 1.2 million per year)

Maternal condition (kills 540,000 per year)
With the exception of the first three and HIV/AIDS, these diseases are rare and treatment is
accessible in developed countries at a remarkably low cost. (Table 3). WHO (1999a) reports
that the majority of deaths from infectious diseases can be prevented with existing cost-effective
strategies. Bednets can prevent 50% of all malaria deaths; Directly Observed Treatment (a short
course) can prevent 60% of all TB deaths; and oral rehydrations therapy can prevent up to 95%
34
. Developing countries access per 1,000 people to cellular phone was almost null for Developing countries in
1990. Telephone mainlines access, on the other hand was 6 and 21 respectively. (WHO (2003), Table 11.)
35
. The “burden of these diseases is highest in deprived areas where there is poor sanitation, inadequate hygiene and
unsafe drinking water.” WHO (1999b), chapter 2, p.2.
36
. WHO (2003), Annex Table 3. The diseases are presented in order of magnitude.
14
of deaths from diarrhoeal diseases. Most of those who died due to diarrhoeal diseases are
children. Furthermore, the cost of treatment per capita of malaria is $5 cents, for TB is $60 cents
and for diarrheas is $1.60.
Table 3
Low Cost Effective Interventions
Cost of Treatment and (Annual Cost per Capita)
U.S. dollars
Treatment
Chemotherapy for TB (6 months )
Contraceptives (HIV)
Hydration salts for Diarrhea
Pneumonia Antibiotics (5 days antibiotics)
Measles (1 douses of vaccination)
$0.26
Malaria
Costs
$20.00
($0.60)
$14.00
($1.90)
$0.33
($1.60)
$0.27
Effectiveness
95%
($0.50)
98%
$10
($0.05)
100%
99%
(85%-95%)1
95%
High
Sources: CDS, WHO
1. Although WHO reports an effectiveness of 99%, the literature reports lower results.
Gallup and Sachs (2000) have estimated that malaria alone has wiped $74 billion from
the economies of 31 African countries between 1980 and 1995. The productivity of a worker
with malaria is reduced by 60% and to this must be added indirect costs associated with the
disease such as hospitalization. This same study argues that if the rich countries were to provide
$1 billion a year for an indefinite period, they could help pay not just for drugs, insecticides, and
bed-nets, but also for a fund that could be drawn upon once any malaria vaccine were developed.
The economic gains of such investment for sub-Saharan Africa’s combined gross domestic
product (GDP) would be between $3 and $12 billion a year. It is also known that 75% of TB
infections and deaths occur in the 15-54 year age group, which economically is the most
productive group in the population. A treatment course costs only $20; successful treatment
returns productive people to jobs and to normal life in the community.37
AIDS, which places seventh among the leading causes of death, has captured the
attention and the funds of almost the entire world. Although the number of cases is high, it is
37
. Johns Hopkins Center for Tuberculosis Research, http://www.hopkins-tb.org/news/index.shtml, p. 2.
15
significantly lower than the reported new cases of malaria and tuberculosis every year.
According to the 2003 UNAIDS report, the main modes of the transmission of this disease vary
across regions and are mainly three: homosexual activity, injected-drug-use, and heterosexual
activity.38 This means that, in most cases, transmission of AIDS is a matter of behavior and,
high-risk behaviors should be discouraged and replaced by healthier lifestyles. Furthermore, it
means that without addressing that behavior, the response to prevention strategies will always be
limited, as proven by Uganda.39 It was not until the ABC program was implemented that
Uganda began to make significant strides in reducing the spread of AIDS.40 Clearly, the $1.60
per capita cost of condoms was put to more effective use. In fact, the statistics indicate what few
officials are willing to admit, that the AIDS epidemic is a crisis of shattered mores, where
sexuality is no longer guided by traditional norms but promiscuity. The message is clear: the
38
. While in developed countries, Central Europe and Central Asia, and South Asia transmission is mainly due to
homosexual activity and injected-drug-use, in the other regions this is not the case. In fact, the principal source of
the spread of HIV is heterosexual transmission and poor health services with the exception of China, where the main
cause is injected-drug-use and blood transfusion. (UNAIDS, 2003) The use of condoms does not solve either
injected-drug-use or blood transfusion or heterosexual transmission when the one infected is the men.
39
. Although condoms give the best protection against HIV, the risk of infection is reduced by 87% for men, the risk
reduction for women is not as high because of physical differences. David and Weller (1999) point out that while the
principle is the same in both HIV and pregnancy prevention, important differences prohibit the simple assumption
that condoms will perform as well for HIV. First, there are more routs of transmission for HIV, second HIV can be
transmitted at any time of the woman’s cycle, and third, HIV particles are smaller than the male cell and can easily
leak through condoms. Thus, they recommend for the prevention of sexual transmitted HIV infection abstinence or
long-term monogamy with a seronegative partner (For a complete list of references on this evidence see the same
article.) In addition, it must be added that certain condoms increased the risk of HIV infection on women because of
the use of certain chemical components such as nonoxinol-9, which diminishes the immune system and cause
vaginal infections (UNAIDS, 1996). This explains why the use of condoms in developed countries have been, to
some extent, successful in decreasing the rate of spread of AIDS but it has not been the case in developing countries
and China, in fact it has made it worse. Condoms in cases of heterosexual transmission when the one infected is the
man do not help but only fosters more promiscuity. For a more detailed analysis see Green (2003). At the resent
meeting of UNAIDS in Thailand, this country case was used as an example of the success of the use of condoms to
reduce the spread of AIDS. It is worth noting that, according to the June UNAIDS 2004 Thailand Country Profile
HIV/AIDS Situation in Thailand and National Response to the Epidemic, over half of the prevalence of HIV in
Thailand is due to drug transmission (IDUs). Condoms will have no preventive effect. The past “success” of the
“100 percent condom performance” can only be attributed to the pervasive nature of prostitution within Thailand
(where is the women who is infected and therefore the main source of AIDS transmission). Instead of fighting
prostitution or discouraging it in any way, UNAIDS’s report specifically states that “[a] generally tolerant approach
was taken towards sex work.” In fact, it is supported by the strong push for condom use. Looking at other factors
within the country, condoms seem to have actually failed the Thai people. Statistics from the World Health report
2003 illustrates that mental illness as well as divorce, common indicators of social health, are on the rise. In fact, the
same UNAIDS report acknowledges that “Mental health of the Thai people is going downhill.” One needs to
question how any institution or government can call such state of affairs a “success.”
40
. The ABC program emphasizes and encourages abstinence and marital fidelity rather than the use condoms. It is
relevant to note, that before Uganda incorporated the ABC program, the country had a wide spread of condom
supply. In spite of this, AIDS continued to spread rapidly during this period. Studies show that from 1991 to 2001,
HIV infection rates in Uganda declined from 15% to 5% and among pregnant women, HIV prevalence dropped
from 30% to 10%. (Ministry of Health of Uganda (2001)).
16
only way to avoid acquiring HIV through sexual contact is abstinence from sexual involvement
or restricting sexual activity to a mutually faithful, monogamous, life-long relationship with a
similarly uninfected heterosexual partner. In most cultures and for all recorded history, this
relationship is known as marriage.
A worker with AIDS costs business in sub-Saharan Africa around $200 a year in lost
productivity, treatment, benefits and replacement training, i.e., about a year’s salary, and the cost
for treatment is approximately 10% of the GDP.41 A number of economic studies also conclude
that the AIDS epidemic is slowing the pace of economic growth and depleting the wherewithal
to deal with the leading causes of death such as diarrhea, malaria and tuberculosis.42
Majority of deaths due to maternal conditions are caused by poor access to health care.
Most of these maternal deaths occurred in developing countries (mainly Africa and South East
Asia) and account only for 1.9% of female’s deaths.43 For the most part, they could have been
avoided with a simple delivery kit package or medical attention (the cost per package is $1.60).
V.
Solutions Often Proposed
The positive correlation between human capital and economic growth, infrastructure and
economic growth, healthy institutions and economic development, as well as health and income
per capita, are well-known relations in international economic development. These correlations
are commonly thought to reflect a causal link running from human capital and infrastructure to
economic growth, from healthy institutions to economic development, and from income to
health. Recent economic analyses, however, indicate that human capital is essential to both, the
development of healthy institutions (social capital) and for infrastructure and technology to allow
economic development.44 Furthermore, these economic analyses also indicate that health status
(as measured by life expectancy) is a significant predictor of subsequent economic growth as it
contributes to human capital growth.45
The approach that international organizations have taken towards dealing with the
problems of poverty and lack of economic development that families face in developing
41
. http://www.unaids.org/publications/documents/epidemiology/determinants/saepsp98.html.
. Bell et al (2003.)
43
. WHO (2003), Annex Table 2.
44
. See note 11.
45
. Bloom and Canning (2004) and for a more extensive list of citations see WHO (1999b).
42
17
countries have been outlined, among other places, in the eight UN Millennium Development
Goals defined in the UN Millennium Declaration.46 These include:
1. Eradicate extreme poverty and hunger


Reduce by half the proportion of people living on less than a dollar a day
Reduce by half the proportion of people who suffer from hunger
2. Achieve universal primary education

Ensure that all boys and girls complete a full course of primary schooling
3. Promote Gender Equality and Empower Women

Eliminate gender disparity in primary and secondary education preferably by 2005, and at all levels by 2015
4. Reduce child mortality

Reduce by two thirds the mortality rate among children under five
5. Improve maternal health



Halt and begin to reverse the spread of HIV/AIDS
Halt and begin to reverse the incidence of malaria and other major diseases
Reduce by three quarters the maternal mortality ratio
6. Combat HIV/AIDS, malaria and other diseases


Halt and begin to reverse the spread of HIV/AIDS
Halt and begin to reverse the incidence of malaria and other major diseases
7. Ensure environmental sustainability: land and air



Integrate the principles of sustainable development into country policies and programs; reverse loss of
environmental resources
Reduce by half the proportion of people without sustainable access to safe drinking water
Achieve significant improvement in lives of at least 100 million slum dwellers, by 2020
8. Develop a global partnership for development: development assistance and market







Develop further an open trading and financial system that is rule-based, predictable and non-discriminatory.
Includes a commitment to good governance, development and poverty reduction—nationally and
internationally
Address the least developed countries’ special needs. This includes tariff- and quota-free access for their
exports; enhanced debt relief for heavily indebted poor countries; cancellation of official bilateral debt; and
more generous official development assistance for countries committed to poverty reduction
Address the special needs of landlocked and small island developing States
Deal comprehensively with developing countries’ debt problems through national and international measures
to make debt sustainable in the long term
In cooperation with the developing countries, develop decent and productive work for youth
In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing
countries
In cooperation with the private sector, make available the benefits of new technologies—especially
information and communications technologies
Two of the main means promoted to achieve these goals have been population control
and the support to popularize the use of condoms as a means of managing the crisis of AIDS and
poverty. Proponents of these means contend that this leads to "safe sex."47
46
. United Nations Millennium Declaration, A/55/L.2, 2000.
. Examples supporting this assessment are numerous but a good summary is given by Dr. Nafis Sadik, UNFPA
Executive Director who stated that “UNFPA’s work is guided by the Cairo agreement, which called governments to
provide universal access to reproductive health by 2015, especially family planning.” UNFPA, Press Release,
POP748. Similarly, USAID spent a total of $848 million on domestic and international HIV/AIDS programs -including research, surveillance, interventions, and evaluation and another $871 million in 2002
47
18
Population control has been mainly promoted, as previously mentioned, on two main
premises: the existence of an inverse relationship between population growth and development
derived from the law of diminishing returns as proposed by Malthus (1798), and the NeoMalthusians view which see people as destroyers of resources and violators of environmental
limits. The basic argument of these positions can be reduced to four main points. First, rapid
growth in population means the spread of poverty and rapid growth aggravates conditions such
as poor health, malnutrition, illiteracy, and unemployment.48
Second, population threatens
government stability in developing countries and encourages confrontation between developed
and developing countries.49 Third, population pushes future generations to scarcity, and an
unsustainable environment carrying capacity.50 Fourth, population growth is a symptomatic of
the larger problem of women's oppression—the more children a woman has, the less opportunity
she has for her own self-actualization and development.51
In summary, assuming a fixed level of resources, this position predicts a decrease in per
capita income in two ways: 1) more consumers divide any given amount of goods, and 2) each
worker produces less because there is less capital, private and public, per worker. In addition,
the growing number of young children poses an additional burden in the reduction of
consumption because they consume but they do not produce. Finally, population growth hinders
economic growth because, by reducing savings and education, it reduces investment. A key
assumption of this theory is the ceteris paribus condition where resources are given and therefore
constant.52 The problem, of course is that the scientific evidence points in the other direction,53
suggesting that economic theories used to support population control polices are unfounded and
(http://www.state.gov/g/oes/rls/fs/2001/3547.htm.) In a press release on July 9, 2000, USAID announced that up to
that point they have provided one billion condoms through their AIDS prevention efforts.
48
. This argument was incorporated in the 1974 UN Bucharest Document.
49
. This argument is clearly stated in the Memorandum 200.
50
. This argument was incorporated in the 1992 UN Rio Document.
51
. This argument was incorporated, among other documents, in the UN 1994 Cairo and 1995 Beijing Documents.
52
. For more details see note 1.
53
. Analyses at both levels suggest that there is no statistically proven simple relationship between population
growth and economic growth, population size and economic growth, population size and resources, or population
growth and environment. The absence of a correlation contradicts the conventional Malthusian deductive
conclusion. The only persuasive argument in the face of this absence of correlation, as Simon (1996b) points, is a
plausible scenario in which one or more specified variables that have been omitted from the analysis would, in fact,
lead to a negative relationship between population growth and economic growth. Thus, results suggest that
population growth is not the only relevant variable for development and thus, empirical evidence suggests that
Malthus' dynamic growth theory has failed. These works include Denison (1985), Rosenberg and Birdzell (1986),
Scully (1988), Barro (1989), Simon (1992), Birdsall (1995), Eberstadt (1995), and Agenor and Montiel (1999), and
Aganor (2000).
19
do not do much for the development of less developed countries.54 On the contrary, empirical
results suggest that it hampers their most important resource: population, and sets countries on a
path towards a population trap.
A growing proportion of the retired population compared with the active working
population characterizes an aging society. The reversal of the age pyramid affects several
countries today, developed countries mainly although developing countries are beginning to be
affected as well. The causes of the present aging population are complex. Some sources have
been found in the living conditions and socio-cultural changes. Among these are included:





Decreased infant mortality.
Sharply increased mean age at which women first give birth.
Labor codes that do not facilitate women’s desire to harmoniously integrate their family
life and professional activity.
In developed countries, a widespread attitude that keeping a certain quality of life is more
important than having children posing a paradox that Wattenberg describes in The Birth
Dearth: “In the wealthier age of history many youth say that they can not afford to have
more than two children.”
A divergence between pessimism and hope experienced by the population.
Implosion and the consequent aging in population bring with them serious problems for
developed and even more so for less-developed and developing countries. Some of these
problems include:


A smaller population needs to support an aging population that is less active and has a
greater need of healthcare and medical services. If one adds to this the fact that most
social security systems are predominantly of the pay-as-you-go type, the absence of
younger generations endangers the possibility of supporting the elder population.55
Saving rates are affected by a society's age structure, mirroring the change in an
individual's saving rate over the life cycle. This, in turn affects investment.
54
. It has been almost fifty years since China implemented its one child policy. Yet it was not until China began to
open its economy that it’s gross GDP showed steady growth.54 Similarly, life expectancy has increased. Infant
mortality has decreased more than 64% since 1970, malnutrition has been reduced by more than 20%, and the
number of children receiving vaccination has increased by 79%. Alphabetization among adults has increased from
48% to 85.8% between 1970 and 2001. Primary education has increased from 60% to 97% while secondary
education has moved from 45% to 70% during the same period, while tertiary education reached 54%. Once again,
the main improvements have taken place since the middle to late 1980s, when China had begun to implement
policies that foster a more opened and market economy.
55
. See footnote 28. In resent years we have witnessed the centrality that social security took in elections all over
the world. The debate was not about whether to fix Social Security but on how to fix it. Equally, in the EU a heated
battle is being joined on several fronts. Germany has undergone a reform that reduces government-provided
retirement benefits while encouraging private savings. France has begun the implementation of a restructure of their
pension system, and the EU is debating how to make pension funds more attractive in all 25 of its member nations.
20






Solutions proposed to alleviate the situation include resorting to euthanasia. In fact, some
EU countries have already legalized it.
Within the active population there is a tension between the young and the somewhat older
people, as the latter try to protect their jobs while younger generations enter into reduced
job markets.
An impact on education: in order to provide for the economic burden of the elderly, there
is a great temptation to cut down on the money allocated for the training of new
generations. Consequently, the transmission of cultural, scientific, technical, artistic,
moral and religious common goods is thereby endangered.
Danger of ‘moroseness’, or a lack of intellectual, economic, scientific, and social
dynamism and reduced creativity, resulting in systemic stagnation.
The problem of increasing illegal immigration into population imploding countries
accompanied with a significant impact on the countries receiving this large
immigrations.56
Increasing loneliness among the population because of small families and reduction of
extended family (Eberstadt, 1995).
It is clear that the promotion of population control to obtained sustainable economic
development will not help solve any of the above problems but rather worsen them.
The cost of malaria to African countries is 1-5% of GDP.57 Direct and indirect costs of
malaria in sub-Saharan Africa exceed $2 billion. The World Bank lending at the end of 2003
amounted to $300 million for malaria and $560 million for tuberculosis. The WHO funds
allocated for these diseases totaled $369 million in 2002- 2003. At the same time, the World
Bank allocated $1.5 billion in grants, loans and credits to fight HIV/AIDS over the past five
years. The cost of antiretroviral regimens has decreased significantly ($12,000 per year to $500)
in the past five years thank to the efforts of many institutions providing affordable medicines to
those who suffer of HIV/AIDS in developing countries. Although malaria and tuberculosis
constitute a much larger problem for the economies in many developing countries, these diseases
are systematically left at the margin when comes to actual funding. None of the amounts
allocated for malaria or tuberculosis compare to the annual population assistance levels of $2
billion a year. Yet, scientific data reports that access to family planning increases both adults
and sexual promiscuity and use of condoms increases the risk of contracting AIDS.58
56
. Europe is a prime example of this.
57
. Africa Malaria Report, 2003. Http://www.rbm.who.int/amd2003/amr2003/ch6.htm
. Kaiser 2000, Paton 2002, USAID 2003. For the spread of AIDS through the use of Condoms see UNAIDS 1996
and NACHD 1999.
58
21
This misuse of funds does not only affect health but also other fundamental elements of
economic growth. Figure 5 depicts the expenditures on grant-financed development activities of
the UN system between 1990 and 2001. While population assistance has significantly increased,
expenditures on grant-financing allocated towards transportation, science and technology,
energy, employment, industry, and trade and development expenditures initiatives have
decreased significantly.
Figure 5
Expenditure on Grant-Financed Development Activities
of the United Nations System by Sector
(Percentage of total)
16
Percentage of Total
14
12
10
8
6
4
2
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Year
Population
Transport
Science and Technology
Energy
Communications
Employment
Industry
Trade and Development
Source: Compiled from Comprehensive Statistical Data on Operational Activities for Development,
years 1990-2003.
The contrast is even more striking when the use of grant-financed development activities
on education versus population are examined. (Figure 6). As previously mentioned, such a
misallocation of funds directly hampers human capital and, in doing so, it hampers economic
development. This simple change in allocation of funds would save billions of dollars in
countries across the world that could be allocated, instead, towards the increase of human capital
(education), basic infrastructure and health services, among others.
22
Table 6
Expenditure on Grant-Financed Development Activities
of the United Nations System by Sector
(Percentage of total)
16
Percentage of Total
14
12
10
8
6
4
2
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Year
Population
Education
Source: Compiled from Comprehensive Statistical Data on Operational Activities for Development years 1990-2003.
Developed countries seem to be realizing the consequences that the breakdown of the
family has had in their society. Therefore, they are seeking out policies that will help reverse
this trend. They seem to know that redistribution of income towards the victims of such
disruption is not enough, thus they have begun to develop and implement legislation that
supports families vis a vis other types of arrangements. Great Britain for example, in the 1999
released a report entitled Supporting Families, advancing a proposal to create an Institute for
Family and Parenthood to advise parents in matters regarding the education of children. It also
proposed the elimination of the 24 hour-notice of civil marriage and the introduction of
preparatory classes, so as to encourage couples to become aware of their right and duties in
marriage. Similarly, the U.S. has supported a marriage initiative, which aims at strengthening
marriages by preparing couples to marry and by assisting those who are in need.
France has also shown a significant shift in family policies, which are directed to
reinforcing family supports. For example as of 1999, all families with at least two children
receive family subsidies independent of their income level.
It also extends child-support to
parents to 19 years of age, or 20 if the dependent is a student. It also expands credits and
subsidies for family housing. Holland and the U.S. have both introduced, as a labor right,
23
parental leave for family needs, thus giving rise to ‘family days’ benefits. The goal is to
facilitate parents balancing their family as well as their work obligations. 59 In summary, we can
say that industrialized economies as a whole have been supporting new efforts to reverse the
negative effects of the weakening of the family and reinforce this basic unit of society.60
At the private sector level, businesses are also responding to the need of strengthening the
economy. They feel first hand the consequence of its disruption. Some of these initiatives
include systems of flexible working hours for men and women, work sharing, the provision of
facilities so to allow women to work from their home some days of the week, in house child care,
and the extension of maternity leave with an option to work on a part-time basis for some
additional time.
VI. Helpful Initiatives in Developing Countries
1. Microcredit
Microcredit, the provision of small loans to the poor is a development approach that has
gained increased attention in the past two decades.61
Some microfinance institutions or
organizations, including the often-cited ACCION International in Latin America, Grameen Bank
in Bangladesh, and Bangladesh Rural Advancement Committee (BRAC), have been providing
credit since the mid-1970s or early 1980s. Only in the last decade or so, however, has the
popularity of microcredit as a means of fostering development attracted significant energy and
resources from high profile donors. Among these donors are governments, through the support
of bilateral development agencies, as well as multilateral sources such as the United Nations
(UN), the World Bank, regional development banks, and international NGOs (Figure 7).
59
. Women work more hours than men in both developed and developing countries and spent more hours in nonmarket activities, mainly their homes. The 2003 Human Development Report indicates that on average, women in
developing countries work at least 20% more hours per day than men and they allocate about 60% of their time
towards the family. In developed countries, the difference is 5% but they still allocate 64% of their time towards
they family.
60
. It is worth noting that the European Union Parliament has denied homosexual couples the right to married and to
adopt children, in this manner sending a clear message of support towards protecting marriage and children.
61
The "poor" are generally identified as those persons living below the poverty line established by a country and the
"poorest" or "very poor" are those at the bottom 50% of that group. These definitions, cited in the Microcredit
Summit Declaration, have been determined by the Policy Advisory Group of the Consultative Group to Assist the
Poorest (CGAP).
24
Millions of USD
Figure 7
International Commitment
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1979-1990
World Bank
1991-1993
IDB
Years
US AID
1994-1997
African DB
1998-2001
Asian DB
Note: It includes the World Bank, USAID, IDB, ADB, ADB, UN
'Give a man a fish, feed him for a day. Teach a man to fish, feed him for a lifetime.'
Microcredit services are targeted to the poor who, because of the expense of small transactions or
because they lack collateral, literacy or other requirements, do not have access to the financial
services provided by formal banks and other formal financial institutions. The lack of economic
opportunity caused in part by the lack of access to credit and formal financial services, is a
serious hindrance to initiatives made by the poor to improve their families’ quality of life and to
overcome dependency. By supporting their own initiatives, microcredit provides opportunity to
these families and in the process, allows them to gain both economic and personal development.
It also helps them manage risk and smooth consumption in the face of sharp fluctuations in
agricultural yields and prices, economic shocks, and even natural disasters. Thus it becomes a
valuable means to facilitate the development of human and social capital.
In developing countries, this poorest group without access to formal economic
opportunities is predominantly women.
Initially, many microcredit institutions and donors
focused their lending primarily to women borrowers, however it soon expanded to married men.
Microcredit impact studies have shown that resources in the hands of women are more likely to
be used for the benefit of the household than resources in the hands of men.62 This suggests that
there are valid arguments that targeting microcredit to women borrowers more often results in
the greater benefit of the whole family.
62
Some of the studies supporting this evidence include Pitt and Khandker (1998) and Todd (1996).
25
Rather than temporarily providing poor persons with donor- or government-dependent
(material) capital at subsidized interest rates, effective microcredit institutions, as distinct from
social welfare institutions, successfully loan to the poor at market competitive commercial
interest rates. They use innovative collective monitoring methods of group lending to strengthen
repayment performance and charge interest rates that fully cover operational costs. While few
microcredit institutions are currently viable, i.e. not heavily donor-dependent, they are moving
towards this goal and they are doing this successfully.
Microcedit has shown to be a successful dollar-efficient lending method.
It has
effectively opened doors to low-income populations in developing countries while generating
significant financial return. Figure 8 to 11 present the return to equity, the return to assets, the
debt-equity and the portfolio risk ratios for several microcredit institutions in Latin America
respectively. In all cases these institutions significantly outperform the Citigroup, one of the
leading financial institutions in the world. While the Citigroup reported a return on equity of
20.2% in 2003, F.J. Nieborowski reported a return on equity of 80.3%. On average, Latin
American microcredit institutions generated a 22.3% return on equity (Figure 8). Similar results
can be found for the Return on Assets (Figure 9). The debt/ratio reported by Citigroup in 2003
was 11.6 while the same ratio for Latin American microcredit institutions has not excided 4%
(Figure 10). This last number is not surprising as one expects Citigroup to enjoy a higher
credibility that this small institutions. Finally, Figure 11 depicts the portfolio at risk. While
Citibank reports a low 1.4%, other microcredit institutions report lower rates and overall, they
are significantly lower than commercial banks in those countries. Nevertheless, the high level of
return experience by microcredit institutions has begun to attract private investors and venture
capitals, thus further expanding opportunities to the poor.
Table 8
Microcredit vs Citigroup Return on Equity
26
F.J. Nieborowski
80.3%
CMAC
55.0%
53.2%
Compartamos
Adopen
50.9%
CMAC Arequipa
54.7%
49.8%
Confia
FIE
24.9%
WWB Popayan
Average for Microrate
17.0%
22.3%
Citigroup
20.2%
0%
10% 20% 30% 40% 50% 60% 70% 80% 90%
RO E
Source: MicroRate Database, Sample of most profitable profiles, 2003
Table 9
Microcredit vs Citigroup Return on Assets
F.J. Nieborowski
21.5%
Compartamos
21.0%
WWB Popayan
16.0%
CMAC Arequipa
8.0%
CMAC
6.7%
Confia
5.9%
FIE
2.1%
0.3%
Adopen
Average for Microrate
1.8%
Citroup
1.6%
0.0%
5.0%
10.0%
15.0%
20.0%
ROA
Source: MicroRate
Database, Sample of most profitable profiles, 2003
Table 10
Microcredit Debt/Equity Ratio
27
25.0%
3.5
3.3
1997
1998
3.54
3.5
1999
2000
4
3.9
2001
3.8
2002
2003
Source: MicroRate Database, Sample of most profitable profiles, 2003
Table 11
Microcredit vs Citigroup Portfolio at Risk
5.8% 6.1%
5.6%
6.9%
3.6%
1.7%
1.4%
FI
E
Po
pa
C
ya
om
n
pa
rt
am
os
F.
C
J.
on
Ni
fia
eb
or
ow
sk
i
C
C
M
M
A
A
C
C
A
re
qu
ip
a
do
pe
n
A
W
B
W
te
or
a
M
ic
r
A
ve
r
ag
e
fo
r
C
itr
ou
p
0.2% 1.0% 1.0%
Source: MicroRate Database, Sample of most profitable profiles, 2003
Taking advantage of the close link between microcredit activities and poor borrower
households, many programs also link the provision of credit access to compliance with other
28
social measures.
In many cases, microcredit organizations require the client participation in
these non-business services in order to maintain credit access. These services are designed to
meet social development objectives and often include education programs in nutrition, sanitation,
childcare, and family planning.
Yet studies have shown that institution productivity is
significantly reduced when social programs of these types are required or included. This is so
because funds that otherwise could be used to help the poor through microfinance are used
instead to cover overhead costs and salaries of those involved in the social programs offered,
mainly NGOs. Figures 12 and 13 depict the social to financial staff of institutions by region and
by institutional characteristics. They depict these effects clearly.
For the most part, Grameen Bank models typically have non-business social programs
attached to their lending activities and these are required. Most of these institutions are found in
Asia, some in Africa, and only few in Latin America. Figure 12 shows the ratio of social staff to
financial staff by regions. Not surprisingly, the highest ratio is shown in Asia and the lowest in
Figure 12
Ratio of Social to Financial Staff by Regions
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
Latin America
Asia
Africa
Source: Paxton, Julia. A Worldwide Inventory of Microfinance Institutions.
Washington, DC: Sustainable Banking with the Poor, The World Bank, 1996.
29
Figure 13
Ratio of Social to Financial Staff by Regional Institutional Characteristics
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Banks
Savings Banks
Credit Unions
NGOs
Source: Paxton, Julia. A Worldwide Inventory of Microfinance Institutions.
Washington, DC: Sustainable Banking with the Poor, The World Bank, 1996.
Latin America.
Similarly, Figure 13 present the same ratio but by type of institution. The
highest ratio corresponds to non-governmental organizations (NGOs) as they tend to have the
highest quantity of social programs attached to the microcredit operations.
Two ways in which the productivity of microcredit employees is often measured are the
number of borrowers per staff (NBS) and the number of client per credit officer (NCCF). Figure
14 present these ratios by regions. Institutions that follow the Grameen Bank model capture
Asia, for it in here where the majority of these institutions are operating. Consistent with
previous measures, Grameen bank institutions are the least productive while Africa shows the
highest productivity, followed by Latin America.
One institution that, because of its
characteristics, has been extremely successful biases the results in Africa. If this is removed, the
results are closer to the Latin American case but still outperform it by a small margin. It is worth
noting, however, that this one African institution does not follow the Grameen Bank model.
Clearly, a group-lending model without attached non-business social objective programs is the
most successful and efficient model of microcredit to help the poor and their families are to be
helped.63
63
Due largely to the local organization and varied structure of microcredit providers as well as to the difficulty in
tracking individual client or family effects, there is no one, systematic, and broad-scale impact evaluation of
30
Figure 14
Productivity Indicators
500
450
400
350
300
250
200
150
100
50
0
445
NBS
NCCF
221
150
134
169
75
Latina America
Gramen Bank
Africa
Source: MicroRate and Grameen Bank
NBS = number of borrowers per staff and NCCF = number of client per credit officer
Microcredit, also has something else valuable to offer. By design, it fosters development
by instigating habits that are fundamental for economic growth: responsibility, accountability,
trust, market operations, education, and creativity.
Because of the environment in which
typically the poor find themselves, these habits are often lacking in many of the institutions they
encounter or live in. Thus, by providing this opportunity, microcredit institutions effectively
contribute to the building and strengthening of both human and social capital in a small yet very
significant way.
While microcredit is not the answer to all the many and various problems faced by the
poor, it can be said that it is a tool with real potential for helping to lift the economic resources
trapped.
All the same, without denying the need for a holistic approach to poverty and
acknowledging that lack of access to credit is not the sole problem faced by the poor, it is not
necessary to assert that microcredit programs must be the source of all types of development
services for the poor. In fact, productivity measures suggest otherwise.
microcredit programs on borrowers and/or their families. Nevertheless, household impact studies have been
performed on a small number of microcredit programs, mostly in Bangladesh. Their results indicate that microcredit
can foster positive benefits for the family. Sebstad and Chen (1996) review 32 studies that evaluate the impact of
microcredit on household economic security, enterprise stability and growth, and individual control over resources.
The 32 studies include 41 programs in 24 countries in Asia, Africa, and Latin America. For the most part, these
studies measure household benefits using the tools mentioned above. Family benefits have most often been
measurable in terms of increases in household income and assets as well as positive changes in household
consumption patterns.
31
2. Heavily-Indebted Poor Countries Program
For so many years, concessional lending to the developing world has been a central point
in the issue of debt, but despite all this, most poor countries could not meet their debt obligations.
In the 1980s and early 1990s, strategies to ease up repayment terms for poor countries were
pursuit, including further concessional relief.64
However, it became clear that countries’
repayment problem was not temporary and that a more comprehensive solution was needed. In
1996, a new debt relief program was initiated called the Heavily–Indebted Poor Countries
(HIPC). This initiative is today under the leadership of the IMF and the World Bank.
HIPC is relevant, because it is the first comprehensive approach to reducing the external
debt of most heavily indebted countries, as it includes both macro-economics and social
programs. Because of this, the initiative has the potential to place debt relief within an overall
framework of poverty reduction. A mix of debt forgiveness and debt relief funds from creditors
is activated at the completion point, i.e., when reforms are implemented correctly and a period of
adequate performance is completed. It is the hope that this new approach would actually help
heavily indebted countries shift from endless debt restructuring to enduring debt relief.
External debt servicing has been predicted to be reduced by approximately $50 billion and the
World Bank has committed itself to reduce its debt claims by nearly $11 billion.
In order to qualify for the forgiveness of debt, a country must:
1) be eligible for
concessional assistance from the IMF and the World Bank; 2) face an unsustainable debt burden,
beyond available debt-relief mechanisms; and 3) establish a track record of reform and sound
policies through a well defined Strategy for Poverty Reduction Program (PRSP), which includes
domestic macroeconomic adjustments as well as structural social policy reforms as previously
mentioned.
Of the 40 countries eligible, most of them in Sub-Sahara Africa, ten have acted upon it.
Of these, five countries reached their completion point by 2001 (Burkina Faso, Uganda, Bolivia,
Tanzania, Mozambique) and the other five countries still in the process of implementation
(Senegal, Nicaragua, Guyana, Mali, Benin). Strategies for Poverty Reduction Programs vary by
country as, the initiative requires each country to delineate their own strategy. Evidence from
these countries thus far indicates, that some have been more successful than others in both their
macro-economic and the social policy design and efforts.
64
. Among these, the Brady and the Baker Plans were the two most relevant efforts.
32
Table 4 presents a summary of the SPRP components followed by the countries that
reached the completion point in 2001. As one can see, programs vary widely from country to
country, but they center mainly around three issues: education, health, and governance. These
three areas essential as they facilitate or hamper the development of human, social, and moral
capital.
Table 4
Strategy for Poverty Reduction Program
Components
Country
Education
Health
Governance
- Reduction of
corruption
- Training of
government
personnel
- Increase police and
prison numbers
- Job evaluation pay
increase
Burkina Faso
- New Schools
- Policy reform for
hiring and retention
of teachers
- Immunization
- Staff in primary
health care facilities
Uganda
- Reduction of
Illiteracy
-Increase number of
teachers
-Expand technical
education
-Expand quality and
coverage of basic
education
- Expand Rural
education
- Reduction of
gender disparities
Increase funds
- Staff in primary
health care facilities
- Renovation of
hospitals
- Increase spending
on health
- Expand the
coverage of quality
health
- Transparency in
the distribution of
drugs
- Reproductive
health
Bolivia
Zambia/
Mozambique
Other
- Main road program
- Introduce pension
- Expand sanitary
infrastructure and
- Social safety nets
- Disaster relief
- Expand provision
and quality of water
Some of the positive effects found in both African and Latin American Countries include
an increase of social expenditures to government revenue of 6% (from $4,407 in 1999 to $6,897
in 2001) in addition to an over all improvement of social indicators. In addition, on average, per
capita real spending on education and health increased by 3.4% and 3.3% respectively, which in
turn contribute to increasing awareness of the relevance that education has for the expansion of
human capital. According to the strategies defined thus far, on average 40% of the countries
annual interim relief will be spent on education and 25% on health care.
33
Programs that directed resources towards education and health (children and tropical
diseases) were especially successful such as those implemented in Uganda, Tanzania, and
Bolivia. Also helpful were anticorruption programs, although with different degrees of success.
Burkina Faso reports better results than Uganda. Programs addressing infrastructure issues and
labor training in Uganda and Bolivia also performed well. Overall, however, much is still left to
be done.
On the other hand, programs that report negative results include those directed to fund
armaments, those who failed to define clear processes for accountability, as it was the case of
Mauritania and Mali. Also negative results were reported by programs that focused mainly on
reproductive health and AIDS at the cost of more fundamental needs. Countries reporting
negative results in this area include Zambia, Mozambique, Senegal, Ghana, Nicaragua, and Mali.
This last case is especially serious because limited budget savings, led these countries to transfer
more funds to creditors than they were able to invest in basic services. Most of the medicines
and tools of reproductive health and AIDS proceed from developed countries.
VII. Conclusions
Economic development is an outcome of more than economic processes.
It is an
outcome of economic, social, and political processes that interact with and reinforce each other
in ways that worsen or ease the achievement of economic development. To achieve economic
development, opportunities need to be promoted, empowerment at all levels facilitated, and
stability ensured. This requires actions at local, national, and global levels. How can priorities
be decided in practice? What framework is needed to ensure sustainable development? Data
from across countries and sciences seems to suggest clearly that it is the family that should be the
point of reference if sustainable development is to be achieved. This is so not because the family
is a problem to economic development but rather the contrary. It is the solution, for it is within
the family where human, moral, and social capital, all sine qua non conditions for an economy to
develop, are supported or hampered. Children develop best within a family that is functional,
i.e., with biological parents in a stable marriage. This means that the family is a necessary good
for economic development and thus it should be promoted and protected if sustainable
development is to be achieved.
34
At the same time, data across sciences also show that the breakdown of the family
damages the economy and the society since human, moral, and social capital is reduced and
social costs increased. Today, when the family is in need of assistance to be strengthened,
solutions that assume Malthusian and Neo-Malthusian theories are not helpful. This is so,
because these theories are seriously flawed on many levels and policy actions based on such
assumptions are inefficient and hampers real sustainable development. They lead to: an aging
trap, the weakening of the family, the creation of health problems as well as the worsening of
health problems that already exist, and the inefficient use of resources that otherwise could be
use to foster real economic development by providing education, infrastructure, training, etc.
This last effect has proven not only to waste resources, but also cause serious financial burden
for governments. This effect should not to be underestimated. Developed countries today are
straggling with the burden of such financial pressures and they are not only wealthy economies
but they have savings. One can see, what a disastrous effect these financial burdens would have
in less developed countries, where not only wealth is insufficient, but savings are rare. The
future of these poor countries relies on their population. Thus, forcing these countries into a
population trap, would condemn them to unsustainable development.
Actual priorities and actions need to be designed for each country’s economic,
sociological, structural, and cultural context, even each community. But even though choices
depend on local conditions and circumstances at a given time, generally it is necessary to always
consider what would be the impact of any policy on the family, as it behooves countries its
promotion and protection. There is hope. Some of the recent reevaluations of family policies in
developed countries in favor of healthy families seem to point in the right direction. Microcredit
and the HIPC initiative are other example of how funds can be used efficiently to provide
opportunities to those most needed, and by doing so, strengthen families in distress.
35
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