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Approaches to Development in Areas of Extreme Poverty:

Foreign Direct Investment vs Foreign Aid

Pamela Hartley

Advisor: Dr. Elyse Carter Vosen

Senior Capstone

The College of St. Scholastica

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Glossary of Acronyms

UN: United Nations

IMF: International Monetary Fund

WTO: World Trade Organization

FDI: Foreign Direct Investment

GDP: Gross Domestic Product

CPI: Corruption Percentile Index

HDI: Human Development Index

ODA: Official Development Assistance

OECD: Organization for Economic cooperation and Development

MDG: Millennium Development Goals

LDC: Less developed Country

BRICS: Brazil, Russia, India, China and South Africa

MNC: Multinational Corporations

OXFAM: Oxford Committee for Famine Relief

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Part 1: Foreign Direct Investment (FDI) vs Foreign Aid

Introduction

Development has been an issue concerning many experts including political scientists

and economists in the international arena. Tackling development and looking for the best way to

go about it has created a great dilemma among international organizations like the United

Nations, World Bank, International Monetary Fund etc. As globalization expands and

interdependence becomes a reality, a country's development is an issue that concerns

independent organizations, governments, corporations and people of all countries because of

how the world scene is structured today; it is all interconnected. Former US President Bill

Clinton understands that “we live in an interdependent world where social and economic

problems soon collide, and therefore networks of cooperation will be the dominant mode of

success in the 21’st century.” It is no longer realistic to say the ‘west and the rest.’ Today,

whatever happens in less developed countries or emerging markets affects what goes on in the

developed world, this is why it is increasingly more important for everyone to become part of

this dialogue and to become involved in this globalized society. The question is, what is the best

way to help a country develop, especially countries who have a large population living in

extreme poverty? Foreign aid and foreign direct investment are two methods used by

governments, international organizations and more developed countries in the race towards

development. This paper will examine these two approaches to development and will analyze

which has been more effective in helping people and countries develop sustainably over time.

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International Development

International development on a global scale has been extremely uneven. The gap between

the rich and the poor is greater than ever, and even with greater development and economic

growth the distribution of the wealth remains uneven and the poor continue to be poor while the

rich become richer. In recent years countries have been increasingly growing in terms of trade,

Gross Domestic Product and international positioning. Economic development, which combines

processes of capital accumulation, rising per capita incomes, increasing skills in the population,

adoption of new technological styles and other socio economic changes have been the key to the

overall growth.1 These patterns demonstrate that it is possible to rise out of poverty and to

achieve relative prosperity in terms of income disparity and distributions of resources. Newly

industrial countries (NIC) such as South Korea, Taiwan, Hong Kong and Singapore, also known

as the four tigers or four dragons, clearly exemplify successful processes of fighting poverty

through economic drive and sustainability. Each of these countries has thrived in different

sectors and industries that were increasingly more competitive on world markets, which in turn

led to rising income levels throughout the entire population because they focused on creating

attractive markets for investment. These developing countries’ economic triumph is allowing

them to establish a concrete middle class.

To further explain this, it is essential to establish a distinction between economic growth

and economic development. Society in general looks at these as mutually equivalent, however,

they are very different and they have dissimilar goals in mind. Economic growth looks at the

expansion of communities through the use of the economic factors of production (labor, labor,

capital and entrepreneurship). On the other hand, economic development focuses more on

1 Pevehouse, Jon C. "International Development." International Relations. By Joshua S. Goldstein. N.p.: Perason, 2010. 459-92. Print.

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making livability better by creating more jobs, improving education standards and access,

enhancing public safety regulations and building a stronger sense of community. This distinction

is crucial because it highlights the fact that growth does not necessarily lead to development and

understanding this notion is key.

One of the major ways countries are achieving tangible economic development is through

import substitution and export-led growth. Import substitution has initially helped countries such

as Mexico and Venezuela by developing their local industries to produce items that they had

previously been importing and therefore increasing local labor within borderlines. For example,

Venezuela isolated other producers/countries when they started producing their own goods such

as manufacturing goods and auto industries. Initially this was a great idea, boosting their

economy and creating more jobs locally. However, as time went by, Venezuelan’s had no

product diversity and prices went up, essentially rebounding the economic success Venezuela

once had. On the other hand, export-led growth has also allowed newly industrial countries such

as South Korea and Taiwan to develop automotive and tech industries that can compete in

specific areas in the world economy. Export-led growth focuses on creating a suitable

environment for exports by establishing competitive exchange rates and essentially adapting to

the world economy. This turned out to be more successful than import substitution and it is

evident in today’s South Korea’s success and Venezuela’s struggle.

Additionally, through these development methods Venezuela, South Korea and many

other countries that are trying to compete, have gained economically but at the same time have

lost culturally. Every time a country tries to adapt to the demands of the economy, it loses a bit

of its essence and cultural background, and this is something that each country goes through in

their efforts to be more attractive for investment. That is why throughout these processes of

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growth and development it is important for economists and political scientists to look at all

countries not only as economies or governments but also as homes for many people, something

that is easily forgotten nowadays.

In these times of change and adaptation, people in poverty must be and feel empowered

in order to be able to be part of the change that is taking place beyond borders. The World Bank,

for example, has concluded that inequality holds back growth by wasting human potential.2 The

Bank also recommends extending access to health care, education and jobs in order to create

even greater economic development. Empowering individuals and communities, and giving them

the tools they need to overcome the constraints of poverty, eventually creates a more concrete

middle class with not only more earning power but also more agency and a louder voice.

Without this, true development is near impossible.

Unfortunately, governments constantly forget about this factor and instead focus on

achieving growth by relying on foreign assistance or foreign aid. The different types of aid—

including bilateral aid, multilateral aid amongst others—allow governments to invest in the

growth of communities and countries as a whole under specific circumstances such as removing

tariffs or waving taxes that may not be necessarily the best for the nation. (Could use a citation

about forms of aid). Most foreign aid consists of bilateral grants and loans from governments in

the dominant powerful North to exclusive governments in the dependent South that fulfill these

special conditions. However, the programs of foreign aid do not address the underlying, systemic

causes of poverty, the position of poor countries in the global economy, or local political

conditions. One of the major flaws of foreign aid is the oversimplification of it. The foreign aid

model needs to be redesigned for specific countries; the needs of Bangladesh are not the same as

2 Pevehouse, Jon C. "North-South Relations." International Relations. By Joshua S. Goldstein. N.p.: Perason, 2010. 459-92. Print.

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the needs of Haiti and unfortunately that is not evident to many of the institutions that provide

aid. Even though on paper, aid seems like a great idea, sometimes it drives countries into more

debt and makes the global South increasingly more reliant on the North by increasing the

dependency of developing nations.

Arguably, in my opinion, aid is a different form of neocolonialism. It creates ties between

countries that weren’t there before and in most cases aid brings a whole sphere of influence with

it giving the donor nation power of the recipient country. This whole concepts creates a riptide

effect where instead of countries actually moving forward, they are stuck in a perpetual state of

development having the funds to move forward but not having the tools, political stability or

even knowledge to actually leave the state of development they’re in.

The Problem

Poverty is commonly defined by policy experts as “the state or condition of having little

or no money, goods, or means of support.3” The World Bank states that over 3 billion people live

with less than $2.50 dollars a day which is known as the extreme poverty line. Behavioral

scientists and economists define poverty as “the gap between one’s needs and the resources

available to fulfill them.” These larger structural factors make it important to highlight the

difference between poverty and actually being poor. Living in a state of poverty refers to lacking

resources and access to them, while being poor refers to lacking capital. The poor use less

preventive health care, fail to follow drug regimens, are tardier and less likely to keep medical

and employment appointments, are less productive workers, less attentive parents, and worse

managers of their finances. All of these behavioral characteristics that exist in systemic

3 poverty. Dictionary.com. Dictionary.com Unabridged. Random House,

Inc.http://dictionary.reference.com/browse/poverty (accessed: August 11, 2014).

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intergenerational poverty help explain why the poor can’t escape the situation of poverty they

live in.

In this structural sense, countries in extreme poverty do not have the same human capital

as developed countries. This is due to the lack of access to education, healthcare facilities and

even proper governance. Furthermore, they lack not only this human capital but also the

geographic capital. Most poor countries tend to be landlocked, making development more

difficult with less access to production and trade routes, which in today’s world is undeniably

necessary for economic success. Countries stuck in this cycle of extreme poverty also tend to

have high levels of corruption, few systems for maintaining accountability and a large gap

between the rich and the poor. In each of these countries, the capital and the resources are clearly

there, however their uneven distribution creates two different realities inside a single country

making the question of development even more complicated. There continues to be an uneven

flow of resources that endangers development and highlights a huge problem in the development

equation.

For years, a countries success and development has been measured in GDP which again,

in theory, is alright. But in reality, this superficial measure only looks at a broad picture and

doesn’t actually look at living conditions, access to utilities and basic services, corruption levels,

education standards etc. That is why I believe that there needs to be an innovative way to

actually measure poverty levels and development. And I am not alone. This will be further

explained later on.

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Defining Foreign Aid

In the field of international relations, foreign aid is a “voluntary” transfer of resources

from one country to another4. Foreign aid can be a sign of diplomatic approval, an effort to

strengthen military ties, a reward from the donor government for good behavior, a means to

extend the donor’s cultural influence, a way to provide infrastructure that will benefit resource

extraction for the donor country and for any other type of commercial access. These reasons

behind foreign aid can be positive or negative; nonetheless they usually always come with an

attached political agenda which highlights why many countries are skeptical about foreign aid.

Foreign aid can be given by individuals, organizations and governments. There are different

types of foreign aid including emergency aid, development aid, humanitarian relief, food aid etc.

For the purpose of this paper we will focus on development aid, or as it is officially called,

Official Development Assistance (ODA).

Official development assistance is the most significant and common because it is the

classic justification for increased government influence from one country to another. ODA refers

to “aid from national governments for humanitarian purposes and for promoting economic

development and welfare in low and middle-income countries.” 5 Official Development

Assistance is “development aid provided to developing countries with the clear aim of economic

development (OECD).”6 It can be given in several forms, but the most common ones are in

forms of grants and in form of loans making countries increasingly more interdependent.

Accepting official development assistance commonly comes with hidden implications. Several

times the donor country has higher stakes that go beyond just helping another country out. Donor

4 https://www.boundless.com/political-science/foreign-policy/modern-foreign-policy/economic-aid-and-sanctions/ 5 http://www.globalissues.org/article/35/foreign-aid-development-assistance 6 http://www.oecd.org/dac/stats/officialdevelopmentassistancedefinitionandcoverage.htm

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countries usually see the developing country as a potential place for investment or as a way for

them to gain more influence geographically.

“Aid potentially can contribute to democratization in several ways: (1) through technical

assistance focusing on electoral processes, the strengthening of legislatures and judiciaries as

checks on executive power, and the promotion of civil society organization, including a free

press; (2) through conditionality; and (3) by improving education and increasing per capita

income, which research shows are conducive to democratization (Knack page 251).”7

In this context, aid attempts to create a civil society including groups like labor unions

and entities that promote human rights such as non-governmental organizations. Aid tries to

create a society where government is more accountable and transparent, and where members of

the society itself can feel knowledgeable, be able to critique those in power, and thus feel entitled

to pursue a lifestyle where democracy is predominant.

Defining Foreign Direct Investment

In contrast to foreign aid, foreign direct investment is more intentional and instead of a

hidden agenda, it is more open about expectations from one country to the other. FDI is “an

investment made by a company or entity based in one country, into a company or entity based in

another country.”8 This investment is highly important because it is commonly placed in

infrastructure such as roads and bridges, and developing countries depend on it. According to the

World Bank, this type of economic activity promotes growth and development because FDI

boosts the economy and makes it easier for countries to produce due to better infrastructure and

modernized avenues of production. The World Bank believes that “FDI and small business

growth are the two critical elements in developing the private sector in lower-income economies

7 Knack, Stephen, Does Foreign Aid Promote Democracy? (September 2000). IRIS Center Working Paper No. 238. Available at

SSRN: http://ssrn.com/abstract=260047 or http://dx.doi.org/10.2139/ssrn.260047 8 http://www.investopedia.com/terms/f/fdi.asp

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and reducing poverty (World Bank)”9 because it diversifies the economy by adding more

producers and therefore more competitive prices which in turn makes them more manageable

and accessible. The Organization for Economic Development and Cooperation (OECD) agrees

that “FDI creates direct, stable and long-lasting links between economies”10 through several

different means/channels:

“It encourages the transfer of technology and know-how between countries, and allows

the host economy to promote its products more widely in international markets. FDI is also an

additional source of funding for investment and, under the right policy environment, it can be an

important vehicle for development (OECD).”11

Essentially, the OECD considers FDI as an important tool for development because of all

the opportunities that come with it. FDI can be interpreted as a link between countries that is

necessary for not only better communication but also improved stable relationships between

governments. This cross-border investment as the OECD calls it, is attempting to create a long

lasting and long-term relationship between countries for the benefit of both. This is why I argue

that foreign direct investment has the possibility to be more beneficial and in reality more

permanent than foreign aid. It is seen more as a business transaction and in economics this is

undeniable. The long lasting interest and investment that country A has in country B has the

potential to be more beneficial than a one-time loan or grant.

Economists understand that “isolation from international capital markets” is not the right

move, and instead argue in favor of opening up towards foreign direct investment.12 German

economist Peter Nunnenkamp, suggests FDI provides a stronger stimulus to economic growth in

9 http://www.oecd.org/cfe/smes/31919278.pdf 10 http://www.oecd-ilibrary.org/sites/factbook-2013 en/04/02/01/index.html?itemId=/content/chapter/factbook-2013-34-en 11 http://www.oecd-ilibrary.org/sites/factbook-2013-en/04/02/01/index.html?itemId=/content/chapter/factbook-2013-34-en 12 Joseph E. Stiglitz, ‘Capital Market Liberalization, Economic Growth, and Instability’ (2000) 28 (6) World Development 1075-1086 at 1077.

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host countries than other types of capital inflows, because FDI is considered less prone to

crisis. He notes, “direct investors typically have a longer-term perspective when engaging in a

host country (Nunnenkamp).”13 Overall these arguments suggest that FDI represents more than

just investment and capital flow. According to Stiglitz and Nunnenkamp FDI also creates a

partnership by providing access to internationally known technologies and management skills

that were not available before. Essentially giving struggling countries a secure roadmap towards

development, while at the same time gaining from the profit that the actual investment brings. In

the eyes of an economist alone, there is nothing wrong with this model that seems to be a sound

solution to the problem of poverty and development. However, it seems equally important to

consider cultural and social implications in the use of foreign direct investment. What cultural

losses offset and often come about as a result of material gains? How will the gains be

distributed? Will the growth reach the ones who truly need it? How will the growth be

measured?

OECD and Aid

Foreign aid began with the Marshall Plan or the European Recovery Program as some

know it. In 1948 the United States, under Secretary of State George Marshall, implemented the

Marshall plan, designed to help European economies recover after World War II, and in turn

avoid the spread of communism. Through this plan the US attempted to rebuild and rescue

Europe’s economies by removing trade barriers and creating new industries. The Marshall Plan

represents one of the first if not the first instance where one country helped others develop; this

was the beginning of foreign aid.

13 http://www.cuts-international.org/FDI%20in%20Developing%20Countries-NP.pdf

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The Marshall Plan allocated $15 billion US dollars to European countries. It provided

technical and economic support, and in return, the European countries had to join the

Organization for European Economic Cooperation, now known as the Organization for

Economic Cooperation and Development (OECD)14. By joining this organization, the weak

European nations gave up some sovereignty to the United States. The US required that European

nations have free trade amongst them because this was the only way, according to the US, that

they could prosper. This was a small predecessor to the European Union today. Belgian

economist Herman Van der Wee, argues that in liberalizing trade, the Marshall Plan

…gave a new impetus to reconstruction in Western Europe and made a decisive contribution to

the renewal of the transport system, the modernization of industrial and agricultural equipment,

the resumption of normal production, the raising of productivity, intra-European trade.15

When the Organization for European Economic Cooperation transitioned to the

Organization for Economic Cooperation and Development, many changes were made and as a

result more countries joined. The OECD was officially founded in 1961 to stimulate economic

progress and promote free trade. Today 34 countries are part of the OECD and they all

demonstrate high levels of human development in terms of education, access to healthcare, low

infant mortality rates and high-income economies. Members of the OECD have the

responsibility to help less fortunate countries develop because of the high levels of development

that they have achieved. Because of this unprecedented potential for development, “as early as

1996… the OECD pioneered a set of concrete development objectives that could be measured

and monitored over time.”16 In 2000 these evolved into the Millennium Development Goals

overseen and approved by the United Nations.

14 http://www.oecd.org/marshallanniversary/themarshallplanlessonslearnedforthe21stcentury.htm 15 http://www.academia.edu/2967943/What_effects_did_the_Marshall_Plan_have_on_the_future_Europe 16 http://www.unece.org/fileadmin/DAM/stats/publications/Measuring_sustainable_development.pdf

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Reaching the Millennium Development Goals

The United Nations has established eight development goals they are trying to achieve by

2015. For the purpose of this paper, we will focus on the four that are most relevant in terms of

economic, social and political development. The first development goal considers extreme

poverty. The UN established the aim by 2015 to “eradicate extreme poverty and hunger”,

“achieve universal primary education”, “develop a global partnership for development” and

“promote gender equality and empower women.” These four millennium development goals are

only part of what the UN is trying to tackle, however for our purposes, they are crucial because

they are the most relevant in terms of development and have higher implications for

sustainability.

As of now, there are very few success stories. Very few countries have reached or have

even approached the development goals. Countries such as Brazil and China have reached some

of the goals but not all. By enforcing mandates and publicly encouraging development, the UN is

trying to promote a culture where all the goals are reached and this is unfortunately very far

away from becoming a reality. As a result of drastic foreign policy changes and creating an

attractive environment for investment, China has reduced its extreme poverty by one third,

meaning that one third of the population formerly considered poor is no longer living with less

than one dollar a day. Also, by changing trade regulations, Brazil has increased its network of

trade, allowing for greater quality development in the country. Through its expansion Brazil has

created more trade agreements and regional partnerships that have propelled the country toward

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extraordinary development.17 South Korea has also restructured its economy and created a

country that is very attractive for foreign direct investment.

When trying to develop global partnerships of development, the OECD keeps records of

how much each member country gives toward aid. Ideally, each member country would have to

give 7% of its GDP (gross domestic product) to aid; however this is not possible for each

country. Upon the foundation of the OECD, all member countries agreed to the 7% aid standard,

however no country has met that goal. Due to the ongoing financial crisis and social instability

facing most developed countries, governments have reduced the amount of aid they distribute.

This huge depreciation, with aid decreasing by nearly half, has affected many developing

countries that depend on aid. OECD members during the past fifteen years have distributed an

average of 3% of their GDP which is unacceptable according to the UN and hinders the

advancement towards fulfilling the Millennium Development Goals.18

Role of International organizations

In the arena of development, the UN is not the only entity that has stakes in the game.

Foreign Direct Investment does not only help business grow but it is also the foundation for

long-term relationships between countries. With regard to FDI, it is the corporations’ duty to

determine how to use or allocate its resources. If a mining company for example wants to set up

shop in rural areas of Peru, they have to invest in infrastructure such as roads, electricity, and

communication avenues in order for their business to succeed. Investing in these infrastructure

components is a way in which different entities help a country develop. By investing in specific

17 http://www.economist.com/news/finance-and-economics/21607851-setting-up-rivals-imf-and-world-bank-easier-running-them-acronym 18http://stats.oecd.org/qwids/#?x=2&y=6&f=3:51,4:1,1:1,5:3,7:1&q=3:51+4:1+1:1+5:3+7:1+2:262,240,241,242,243,244,245,246,249,248,247,250,251,231+6:2002,2003,2004,2005,2006,2007,2008,2009,2010

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areas of foundational support, a corporation not only helps the community develop but also

benefits from gains that the product will create in the long run.

Working with other international organizations, on the other hand, is somewhat similar in

that there is more at stake on the table, but international organizations look for a return of their

investment in a different way. By helping a country develop, international organizations help the

standard of living rise and promote development as a whole. International organizations such as

the UN, IMF, World Bank and INGO’S have this broader goal in mind. As time goes by it is

increasingly more common for corporations and independent companies to venture into the non-

profit sector in terms of corporate responsibility. More and more independent businesses are

willing to contribute by giving donations, facilitating communication or donating time and

knowledge. Organizations, for profit and not for profit, strive to help other countries develop to

not only benefit the recipient country but also the entire global structure. By having countries

reach a developed status, the economic flow of capital goes up for all. As John F. Kennedy stated

in 1963, “all boats rise with the tide” and more recently Wellstone’s famous quote “we all do

better when we all do better.”

Who receives foreign aid?

In a world where aid is scarce, not all countries are fortunate enough to receive aid, and

there always remain questions about whether it is the right amount, or if they should be receiving

any aid at all. Countries who receive foreign aid are labeled as ‘developing,’ a label which is

mostly negative and indicates that the country has a long way to go. A developing country has

high levels of income inequality, social and political instability, economic obstacles to trade, an

underdeveloped industrial base, and low living standards. Today, countries such as Peru, Bolivia,

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Ethiopia and Somalia are deemed developing countries simply because of political instability,

economic disparity, big gaps between the rich and the poor and high levels of corruption.

It is interesting to highlight that countries who receive more foreign aid are those who

have longer and stronger political ties with donor countries. The United States alone gives a total

economic development aid of about 22 billion dollars. In the case of the United States, it gives

out more foreign development aid to Middle Eastern countries such as Afghanistan, Israel and

Pakistan, countries to which it has strong political ties. It is difficult to determine which comes

first, political/military interest or economic investment/aid. Most likely it seems that political and

military interest come before foreign aid because it is difficult for me to believe in the altruism of

developed countries in today’s world.

Two views on Foreign Aid

These two approaches each tackle a different aspect of the problem of development. It is

important to restate than foreign aid is not the same as foreign direct investment. Not only do

they come from different avenues, but they also approach the problem of development in

distinctive ways. Whenever there is a debate about foreign aid, two American economists’ names

will come right up. Renowned experts Jeffrey Sachs and William Easterly, both at universities in

New York, have debated for years about the right approach for development.

According to Jeffrey Sachs, the West, meaning primarily the United States, does not give

enough aid. He believes that development aid works if the donor country funnels enough money

into the developing country’s economy. Sachs argues that while the rich North dedicates $100

billion on a yearly basis to lift the developing world out of poverty, this amount is insufficient.

He uses the Harrod- Domar model to explain how aid works, proving that economic growth can

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be achieved through capital accumulation; meaning savings.19 In order to accumulate that capital,

Sachs believes developed countries need to give out more aid to allow developing countries to

save money and create growth in the long run.

William Easterly, on the other hand, completely disagrees with Sachs. Easterly believes

foreign aid can improve individuals’ short term living conditions, but it cannot end an entire

country’s long-term poverty. Also, he believes that if a country were to receive aid, it should be

focused on those areas where experts have identified quantifiable objectives, and it should be

utilized by organizations which can be held accountable, because without accountability there

cannot be any development. Easterly recognizes that developing countries lack what he defines

as a civil society, meaning that it is very difficult for these countries to fully develop because

corruption will always be present. Through all of this aid debate, Easterly has worked closely

with Zambian economist Dambisa Moyo.

Moyo has a firsthand perspective on foreign aid, completely arguing against it. According

to Moyo “money from rich countries has trapped many African nations in a cycle of corruption,

slower economic growth and poverty.”20 Making the poor poorer and slowing down the

economic growth of each developing nation because of the increased dependence aid creates.

Criticisms

As with any topic in global relations, there is always a debate about which approach is

better and what development model should be followed. Both foreign aid and foreign direct

investment have major criticisms against them, especially in areas of extreme poverty. Foreign

19 http://www.romeconomics.com/harrod-domar-model-explained/ 20 Moyo, Dambisa. Dead Aid: Why Aid Is Not Working And How There Is A Better Way For Africa. Vancouver : Douglas &

Mcintyre, 2009. Print.

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aid seems to gather more criticisms than FDI. Dambisa Moyo argues that “the insidious aid

culture has left African countries more debt-laden, more inflation -prone, more vulnerable to the

vagaries of the currency markets and more unattractive to higher-quality investment.”21 She

insists that if the developed world wants to help Africa develop, it needs to invest in it, viewing

African nations as equal partners rather than charity cases. She and other experts see aid as

inefficient, since most aid does not actually go to the poorest who would need it the most.

Donors want to give aid to the poorest countries, and these are likely to be autocratic and corrupt.

As another economist notes, “most aid, even in its new and allegedly improved forms, has not

contributed to economic development or even to the alleviation of poverty (Phillips).”22

A clear example of this phenomenon is Ethiopia. Across Africa, over 70 percent of the

public income comes from foreign aid, and in Ethiopia, distribution is surprisingly uneven. As

Moyo notes, “aid constitutes more than 90 percent of the government budget, however only a

mere two percent of the country’s population has access to mobile phones (Moyo).”23 This

simple fact demonstrates that even though Ethiopia receives a lot of foreign aid, it may not be

sustainably distributed, Ethiopia is still struggling to develop, and is still extremely dependent on

the first world. Foreign aid can often cripple nations instead of helping them stand on their own

two feet. As Moyo elegantly points out in her book Dead Aid, “the net result of aid-dependency

is that instead of having a functioning Africa, managed by Africans, for Africans, what is left is

one where outsiders attempt to manage its destiny and call the shots (Moyo page 43).”24 Even

21 Moyo, Dambisa. Dead Aid: Why Aid Is Not Working And How There Is A Better Way For Africa. Vancouver : Douglas &

Mcintyre, 2009. Print. 22 http://www.foreignaffairs.com/articles/140106/david-a-phillips/development-without-aid-the-decline-of-

development-aid-and-the-r 23 Moyo, Dambisa. Dead Aid: Why Aid Is Not Working And How There Is A Better Way For Africa. Vancouver : Douglas &

Mcintyre, 2009. Print. 24 Moyo, Dambisa. Dead Aid: Why Aid Is Not Working And How There Is A Better Way For Africa. Vancouver : Douglas &

Mcintyre, 2009. Print.

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though she focuses in Africa, this reality is true for every developing nation that still depends on

the developed world.

In the case of foreign direct investment, the analysis takes into consideration the

resources of the recipient country. Critiques against foreign direct investment assert that

developed countries extract resources from third world countries, in essence, again, this can be

interpreted as a form of neocolonialism because it seems that developed countries utilize

developing countries for their own benefit. Nunnenkamp argues that “developed countries still

attract a higher share of worldwide FDI (Nunnenkamp page 4).” A widely perceived problem

with FDI is that it concentrates in a “few large and fairly advanced developing economies”

(UNCTAD 1995; Collins 1998) such as Brazil, India and Mexico.25 Leaving other even less

developed countries without the investors they need.

Overall, countries that are resource rich consequently and luckily tend to attract larger

levels of foreign direct investment. This disparity highlights the problem of resource extraction

and in some cases brain-drain that developed countries create in less developed countries

(LDCs). In most cases, developing countries try to attract foreign direct investment by generating

an environment attractive to investors. However in several cases this level of adaptation comes at

a high cost. Some countries let go of environmental regulations so that Company X will invest

and set up shop in their country, which in reality creates some gains for the developing country

but in the long run creates more costs. Other countries have to open up their markets to Western

influence because of the influx of Western culture and demand. Stores like Wal-Mart and

McDonalds become more predominant and they surrender space to Westernization by giving up

cultural sovereignty. This set of dynamics and new demands also highlight two of the greatest

25 http://www.cuts-international.org/FDI%20in%20Developing%20Countries-NP.pdf

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problems that developing countries face, the problem of major monetary corruption and cultural

losses.

By wanting to be increasingly more attractive to investors, several developing countries

let go of what makes them unique. They fall into the trap of the West and the ideal of modernity.

Developing countries tend to believe that cultural and social tradition will not work alongside

innovation and development. That is why they tend to let go of characteristics that set them apart

in order to blend in and fit it the model of an attractive investment environment. Most

commonly, countries have tried to adopt capitalistic values that make them eligible for

investment. For example in Asia, countries such as South Korea, Taiwan and China have focused

on technological innovation and having the latest technologies while at the same time giving up

their cultural sense of saving and modesty.

Part II: Case Studies

Throughout the past ten years, developing countries have shown a greater real GDP

growth than developed countries. Peru is one example of a country who has achieved a GDP

growth of 10 percent, which is higher than a superior more developed first world country. This

however does not necessarily mean the country is better off. It just means that it has more space

to grow and a higher ladder to climb. Additionally, Brazil, Russia, India, China and South Africa

form part of the economic bloc known as the BRICS. These countries have registered major

growth throughout the past years and have become major players in the economic arena. Similar

to Peru, this major gross domestic product growth demonstrates that they have more areas to

develop than their neighbor countries.

The BRIC countries have been prime destinations for investors because of a few things.

They all have large pools of cheap labor, lenient environmental regulations (more like

22

nonexistent), somewhat stable government, large territories and excellent geographic location

making it very accessible to trade routes. These characteristics make them an ideal place for

countries to invest.

China has occupied a prominent place in every headline when talking about economic

success. China, has mobilized a large labor force, increased its exports, and has become known

as a safe place to invest. China is doing things right in economic terms today, in contrast to the

past. What sets China apart from other countries with similar characteristics? What economic

factors lie behind China’s success? To answer these questions, the Republic of China has

focused on foreign direct investment, attracting several major investors and creating a climate

where it is not only safe but also profitable to invest. China has fostered an environment where

FDI directly creates economic development. As a growing nation, it has received about 20

percent of all FDI given to developing nations over the last ten years (World Bank). When

looking at Gross Domestic Product, China is the third largest economy in the world after the

United States and Japan. Having this great economic success in mind, FDI accounts for

generating about 2.5 percent of GDP over the last five years. This might seem like a small

number, however looking at China’s size and its presence in the world economic scene, this

number is not only proportionately substantial but also an indicator of trending economic

success.

Looking at the bigger picture, FDI has catalyzed not only China’s immediate success but

also its longer-term economic reform. China’s ministry of Commerce, the MOFCOM, states that

corporations and industries that solely rely on FDI now account for half of China’s exports and

imports (World Bank).26 These enterprises generate 22 percent of industrial profits and they

26 http://www.worldbank.org/en/news/feature/2010/07/16/foreign-direct-investment-china-story

23

employ 10 percent of labor, meaning that economically, China’s success is primarily due to FDI.

China has registered strong economic growth in the past 25 years because of economic reforms,

shifting from a communist mentality to a capitalist one. Because of FDI, and economic policies

that support this investment, China has maintained a 10 percent growth rate during the 1980-

2010 period. This is a true success story.

An important question raised by China’s growth is that of labor markets and human

rights. China has relied on cheap abundant labor and its production has opened up to a globalized

world in need of accessible products in demand worldwide. China’s activists’ top priority is to

“address the growing inequality between the country’s newly rich strata and the hundreds of

millions felt in poverty in the countryside or laid off from jobs in state-owned industries in the

cities.”27 Not only is regaining a sense of equity important in establishing solid economic growth

and equal distribution of income, it is a social justice issue. By empowering not only the rich, but

also the nameless, China’s labor force is increasing and more people are willing to work for an

adequate living standard. China’s success did not only come with internal political reforms, but

also came about when it opened up its markets and borders to an international system.

FDI in China has not only created economic growth, but it has also promoted social and

political stability. Being desirable and fertile ground for FDI requires a stable, transparent and

accountable environment, one that is appealing and safe for investors. All of these factors also

create economic development and at the same time strengthen institutional capacity, giving

China the ability to help others as well. China has taken advantage of its recently established

stability, playing an important role in foreign affairs and positioning itself strategically in

developing nations. It has not only offered loans with no political conditions to African nations,

27 http://www.oecd.org/daf/competition/competition-and-poverty-reduction2013.pdf

24

but has also opened up its trade relations establishing trade agreements with resource-rich

countries in Latin America to improve its export-led growth. Even though the trade agreements

provide mostly positive economic prospects for the free flow of ideas and goods, it also opens up

a space for potential exploitation such as low wages and environmental regulation violations.

It is also important to take into account that China’s shift to an economic power has been

difficult not only because of the massive change in political and social atmosphere but also

because of the cultural and social implications. In a country where people have a history of

poverty, getting them to spend instead of save is a major obstacle in China’s shift to

capitalism. On the other end of the spectrum, China’s cultural orientation is also changing.

Chinese society is shifting as China becomes more capitalist and economically competitive.

Similarly, India has presented great economic growth on the world stage throughout the

past ten years. As a former British colony, India’s large English speaking population and

democratic government allow for it to run alongside Western economies, and its stability

provides a safe environment for investors. Today India is unique and somewhat unheard of.

There is no country this big and democratic. India holds the title of the world’s largest

democracy. It has always allowed privet sector activity and in fact it has encouraged it.

India keeps thriving in the technological arena, especially in the service and information

sector, making it a close ally to American Multinational corporations (MNCs), mostly as call-in

customer service and support centers. This country has emphasized its resources in developing

skill intensive rather than labor-intensive manufacturing having in mind their large labor pool of

over 13 million people. Currently over 86 percent of India’s per capita GDP is spent of students

in higher education in comparison to only 14 percent invested in primary education (IMF).28 This

28 http://data.worldbank.org/indicator

25

drastic difference highlights the value of higher education in Indian society and the

cultural/structural divide it still holds.

India has also developed its human capital. It is a lead innovator in medical technologies

and human potential. Even though India has not reached China’s level of success, it is on track to

do so. There is this ongoing unspoken but evident competition with its neighbor China and it

shows no signs of slowing down. Both countries have shared a similar path to development in

terms of their resources and approach to economic growth. Large labor pools mean cheaper labor

and great access to technologies, which form major selling points for FDI. India has been ranked

second in global foreign direct investments in 2010 and remained among the top five attractive

destinations for international investors during 2010-12 period, according to United Nations

Conference on Trade and Development (UNCTAD). Ernst and Young's 2010 European

Attractiveness Survey ranked India the 4th most attractive foreign direct investment (FDI)

destination in 2010, and strikingly, the 2nd most attractive destination following China in the

next three years.29 India is an emerging market where businesses from all over the world want to

invest.

The income of the average extremely poor in India increased by 14 percent, from $0.84

to $0.96.”30 This puts India in the success story pool because of the focus there is in the country

to develop and maintain its ongoing political and economic stability. India has turned away from

state planning to much more free domestic markets and vigorous participation in world trade.

This has accounted for its idiosyncratic success.

India shows signs of developing and maintaining ongoing political stability, despite

fallout from its colonial past. Since gaining independence in 1947 India has followed a path

29 http://www.forbes.com/fdc/welcome_mjx.shtml 30 www.worldbank.org/economicpremise

26

towards development. In this path there has continuously been an uneven distribution of

opportunities across states between the “fast-growing peninsula versus the slow-moving

hinterland (IMF).”31 Unfortunately India still holds the lowest average wage rate in the world.

This simple fact highlights that India even though sustains amazing development, this

development is not unanimous.

Within India there are many different countries, different stages of development.

However, “worries are mounting about the uneven distribution of opportunities across states (the

fast–growing peninsula versus the slow-moving hinterland), sectors (services versus

manufacturing or agriculture), and skill and education levels (call-centers versus cow-herds).”32

These different stages of development have been the source of major corruption problems within

government entities. Millions of famers have been committing suicide because of increasing

frustrations with the system. Huge problems such as hunger and poor nutrition indicators; the

inadequate provision of basic needs like housing, electricity and other essential infrastructure;

the poor state of health facilities for most people; and the slow expansion of education are still

there.

As inequalities grow, there is also a rise in the middle class. India is shifting socially and

structurally which has helped it compete. India’s youth today lives in a different society that is

defined by a large spectrum of languages, religions, ethnicities, and political thought. Something

that a few years back was unheard of. Today’s youth, define their own generation as one that is

different from the one that existed for their fathers and grandfathers. This gives them a unique

advantage to move the country forward towards positive growth and development. In general

even though we know development is never only economic, India has struggled to let go of their

31 https://www.imf.org/external/pubs/ft/wp/2006/wp0622.pdf 32 https://www.imf.org/external/pubs/ft/wp/2006/wp0622.pdf

27

cultural background but it is slowly heading towards becoming more westernized by being more

open to other cultures and social norms.

South Korea is also another success story on the economic scene. South Korea has “a

dynamic private sector, reinforced by a well-educated labor force and high capacity for

innovation, has capitalized on openness to global trade and investment (Heritage Foundation).”33

South Korea has restructured its policies in order to create an attractive environment for

investors. Similar to China, South Korea understood early on that its government and business

leaders had to change its policies—social, political and economic—in order to attract investors.

After the Korean War, South Korea was one of the world's poorest countries with only

$64 per capita income. Economically, in the 1960s, it lagged behind the Democratic Republic of

the Congo. South Koreans found this economic status unacceptable and agreed that many

changes had to be made. Fortunately, South Korea was one of the few countries which truly

benefited from US foreign aid, given primarily for political reasons. Because the United States

viewed South Korea as an important ally in the Cold War period, between 1946 and 1978 the US

gave South Korea about 60 billion on foreign aid, more than any other country at that time.

South Korea managed this aid effectively, and made a special point to set up strict limitations on

the influence the United States would have in the country. The government of South Korea only

accepted foreign aid, but made it clear that it was not interested in other policies that the US

wanted to implement. South Korea, against American advice, focused on building up large

economic business conglomerates to focus on small- and medium-sized companies. This

conglomerate approach led to South Korea’s success in the technological arena where companies

like Samsung and LG ultimately stood out.34

33 http://www.heritage.org/index/pdf/2014/countries/southkorea.pdf 34 http://www.heritage.org/index/pdf/2014/countries/southkorea.pdf

28

South Korea is known as one of the success stories of the United States assistance

program, but South Korea itself does not completely credit USAID, South Korean economists

argue that their success is due to a mix of policy changes, US foreign aid, and a large pool of

foreign direct investment.

“The United States helped to pave the way by patient investment which kept this war-

shattered nation supplied with food and other necessities, laid an infrastructure in a land almost

devoid of natural resources, created educational opportunities, built several layers of experienced

administrative personnel and ended Korea’s international isolation (Council on Foreign

Relations).”35

This was only the start for South Korea. After US Aid laid the economic foundation,

South Korea worked to build a structure of economic growth and move towards political reform

to ensure the proper growth of their nation.

Political changes formed one of the most important factors in growth: a strong leader like

Park Chung Hee led to a decrease in the nation’s corruption index. Through strong and often

painful changes in economic and political policy, Chung Hee established a public sector where

corruption was unacceptable. He ignored American advice and “took a pragmatic approach to

corruption. Instead of cracking down on corrupt businessmen as urged by the US, he

expropriates their bank shares and assigned them to invest in import-substitution industries, such

as fertilizers (The Guardian: Global Development).”36 Chung Hee took control of the bank’s

assets and created a system where they would not survive if they followed corrupt practices.

Today South Korea enjoys political and economic stability, moving from being one of the

poorest nations in the world during the 1960s and relying on aid from the OECD Development

Assistance Committee, to reaching a level of economic success leading it to become a member of

35 http://www.foreignaffairs.com/print/24078 36 http://www.rtpi.org.uk/media/12550/transformation_in_the_country_of_a_thousand_hills.pdf

29

that same donor committee. South Korea has become the only OECD member to transition from

recipient country to donor country. Despite the lack of mineral resources mentioned earlier,

through the initial help of foreign aid, it has also strengthened by its manufacturing-based

economy by being able to import the raw materials it needs. Today, South Korea is the global

leader in shipbuilding and the production of LCD screens, mobile handsets and memory chips.

South Korea is also an economic success story.

Nonetheless, these economic successes come with cultural losses and major cultural

compromises. Becoming more globalized and interdependent brings new technologies and ideas

but it also comes with new cultural practices, different views and social structures. The good

thing is, or bad thing depending on how you look at it; South Korea, China and India are all

adapting and making these cultural novelties their own. They have understood that in order to

compete globally they have to adjust locally and this is exactly what they are doing.

Part III: Working towards global development

In an effort to find the best method to tackle extreme poverty in developing countries,

while still recognizing their cultural riches, approaches of foreign aid and foreign direct

investment have to be restructured to address problems with corruption and the possibility of

neocolonialism in mind. Previously, there was a transfer of resources from rich to poor. This

transfer is extremely superficial and in reality the first world held all the power. Accompanying

this simple transfer of resources from West to the Rest, engagement with developing countries

was superficial, with the rich countries holding all of the power and authority. As a result of

political policy changes, acknowledgement of cultural norms and strengthening economic

structures, we now have stronger partnerships and greater insistence on transparency and

30

accountability built upon an international civil society that is beginning to gain more influence in

the world. “With inequality rising almost everywhere in Asia, governments need to urgently

expand and improve their public investments in inclusive growth (Takehiko Nakao- Asian

Development Bank).”37 This notion however, is not only true for the Asian region. It is true for

the entire developing world.

Now, instead of measuring a country’s development in terms of GDP that only measures

a country’s monetary capital, we have to look at the human capital as well. The United Nations

and The World Bank have started using measures such as the human development index (HDI)

that encompasses educational attainment, health care, and access to resources, and the corruption

percentile index (CPI) to look at a country’s development as a whole. Measures as CPI and HDI

were implemented because international organizations realized that measuring GDP was not

enough and they needed a clearer picture of how development was evolving. Essentially both

CPI and HDI promoted more accountability and more accurate measurements of a countries

well-being. These new measures were necessary and they are contributing to a better

understanding of development worldwide.

In all this it is important to highlight that one size does not fit all. The economic model

that helped South Korea develop will not necessarily help Paraguay. Paraguay not only has

different natural resources but different social structure, different cultural norms, and a different

political history. It is important to take into consideration geography, culture, political systems

and the people itself. In reality, the solution to poverty is not foreign aid or foreign direct

investment alone, but rather the solution comes from within the people, from their passion and

dedication to escape a situation of extreme poverty. They must have an investment in and a

37 http://www.adb.org/news/adb-urges-asia-use-fiscal-policy-make-growth-inclusive

31

vision for what they will do with any resources they obtain and a system for getting these

resources to where they need to go.

As Jim Yong Kim, President of the World Bank stated, “unless you invest in people, you

are not going to see growth in the long term, the medium term, and maybe even the short

term.”38 This is why I believe we must start by working to redefine philanthropy. Instead of

simply calling people “the poor” and creating an invisible divide, we must get to know them: get

to know their stories, and learn about their dreams in order to help them reach them. By not

alienating the poor, by raising consciousness of who the poor are as human beings, we are

recreating the idea of philanthropy and reinventing the concept of poverty. The most effective

form of action, experts have finally recognized, is to follow a concept of praxis—or critically-

informed action—championed by Marxist thinkers such as Paulo Freire, creating consciousness

and allowing the poor to leave a state of oppression by building a sense of ownership. Freire

believes that “critical and liberating dialogue, which presupposes action, must be carried on with

the oppressed at whatever the stage of their struggle for liberation (Freire, 65).”39 Through one

on one discussion and long-term dialogue, we can create a partnership between people and

institutions, governments and individuals, developed and developing countries. By building

communication between entities we can work towards sustainable development.

This way instead of investing in Brazil, Russia, Ecuador or Paraguay, developed

countries and governments will invest in actual individuals and communities. By investing in the

ones who have the ideas and the passion businesses are investing in the human capital instead of

depleting resources that are already inaccessible or scarce. At the same time, this collaboration

38 https://www.devex.com/news/jim-kim-addressing-inequality-investing-in-people-critical-to-sustainable-growth-83275 39 https://libcom.org/files/FreirePedagogyoftheOppressed.pdf

32

creates and stabilizes a middle class that in turn will promote a civil society, where

accountability and transparency become fundamental to the economic and political structure.

This shift in thinking creates greater gains and looks at development differently; no longer

focusing on the economic gains but instead looking at individual gains. In this way developed

and developing countries are cooperating in the short run in order to make it possible for all

nations to compete in the long run.

Therefore, moving out of a state of poverty requires cooperation from all parties. Echoing

the work of forward-thinking economists and political scientists, OXFAM has been endorsing a

new approach towards development, an inclusive development strategy which “promotes

transparency and accountability, enhances cooperation through collaboration between civil

society and the private sector.”40 Development initiatives are more effective for poverty

reduction when all stakeholders—especially citizens in marginalized communities—are actively

involved in the planning, execution, and monitoring of development programs. A corollary idea

to inclusive development is that of patient capital. This term coined by Jackie Novogratz from

Acumen Fund (NGO) refers to microfinance and the long-term investment in the ideas of

passionate individuals.

This combination of inclusive development and patient capital are a sound solution for

true development that is quantifiably measured in personal success stories. One such story comes

from OXFAM. Juan lives in Guayamerin, a town bordering Brazil, and owns just seven acres in

a field. However, he is part of the Agro-forestry Farmers Association of the Amazon region of

Bolivia, which practices sustainable farming methods, encouraging mixing plants, restoring

native species and diversifying both seeds and harvests. This organization was founded with

40 http://www.oxfam.org/sites/www.oxfam.org/files/inclusive_development.pdf

33

OXFAM’s help, and today it brings together 300 families in a successful farming collective. For

Juan and many other farmers in Bolivia, having land was the first step, and having the

technology and resources to develop it came next, as a result of this association. OXFAM invests

in small communities, in local farmers, and today these farmers in Bolivia have built a

sustainable community that exports agricultural goods to neighboring countries. Their

collaboration represents an even better success story.

Another success story is represented by a man named Artemio, who knows firsthand "the

poor pay more for water than the rich; they pay 10 to 12 times more for water of doubtful origin

(OXFAM)."41 Those who live in neighborhoods without water mains rely on water brought in

cistern trucks, paying around two dollars for a 200-liter barrel. Artemio lives in Villa Maria del

Triunfo in Lima, Peru, one of the poorest areas of Lima. Artemio came up with what many at

first called a crazy idea. He researched a little bit about fog catchers and he thought that if people

in other countries could do it, so could he. Artemio had a wonderful idea, but he didn’t have the

resources; as someone living in extreme poverty, he did not qualify for any type of bank loans.

However, USAID decided to invest in his idea. Each net, complete with a tank, costs less than

$800 to construct.

“We were able to fund a project that takes Lima's 98 percent humidity and helps turn it

into an opportunity to obtain clean water. This gave Artemio and many of his neighbors the

ability to count on a daily supply of 50-150 liters of water. The fog nets mean we have

practically no water costs in the winter months; it's a saving of around 60% in our cost of

living.”42

This simple solution has created another success story, benefitting not only one person

but also many people in that neighborhood and beyond.

41 http://www.oxfam.org/sites/www.oxfam.org/files/inclusive_development.pdf 42 http://www.oxfam.org/sites/www.oxfam.org/files/inclusive_development.pdf

34

On a more global scale, the success story of Muhammad Yunus is the perfect example of

how social entrepreneurship, inclusive development and patient capital have come together to

make an exportable model. Yunus is a Bangladeshi social entrepreneur, banker, economist and

civil society leader who was awarded the Nobel Peace Prize for founding the Grameen Bank and

pioneering the concepts of microcredit and microfinance. The Hindi word ‘grameen’ means

village, since it is a bank for the people. Remarkably, Yunus decided to invest in women. He was

one of the first to believe in women’s potential and a few years later former Secretary of State

Hillary Clinton agreed with him. She knew that just as women’s rights are human rights,

women’s progress is human progress.”

Yunus started it all by giving groups of five women a small loan; he found over time that

his approach resulted in a 98 percent return rate of all loans, higher than any other bank. By

investing in women—their ideas, their dreams and their goals—Yunus created a thriving

network of capital flow. He pioneered the idea of microfinance because he believed in the people

that he invested in.

This groundbreaking approach towards development and investing in groups of people

succeeded because of how small groups of women held each other accountable. They understood

that this was a unique opportunity. Men believed in them for the first time, they were open to

working with them in an equal field and this was an opportunity that they would not risk losing

by not paying their micro-loans. The Eurocentric and patriarchal ideals of individualism,

isolation, and competition were starting to shift towards a more collaborative approach.

Part IV: Conclusion

35

The social problem of extreme poverty is one that is not easy to solve. Until recently this

problem has been addressed by measuring countries’ monetary productivity as a whole instead of

analyzing the system that underlies the experience of the poor. Almost in their entirety

developing countries are viewed as a place for extraction of resources and agricultural heaven.

These developing countries remain true to their tradition and work with minimal infrastructure

and resources, which some may argue is in essence the cause for their own poverty. “More than

three quarters of those living in extreme poverty are in rural areas and nearly two thirds of the

extremely poor earn a living from agriculture (The World Bank).”43 Access to essential utilities

such as electricity, water and sanitation are very limited among the poor. This is why now more

than ever individuals must be open to change, continue having innovative ideas, and do what

hasn’t been done before; work hand in hand with businesses and organizations that are willing

and able to provide infrastructure, information and resources.

Today it is true that we are reaching a unique moment in our history. The eradication of

poverty is within our reach, close than it has ever been before. The reality is that “at least 721

million fewer people live in extreme poverty in the world today than 30 years ago (World

Bank).”44 The World Bank agrees that to start, we need to know “who the extremely poor are,

where they live, and where poverty is deepest and harder to end.” With a focus on ending

poverty and reaching the Millennium Development Goals, there is a larger demand for actually

knowing the poor. Innovators and international organizations are beginning to demand to know

more about the 1.2 billion extremely poor individuals whose stories are encapsulated in these

goals. The first step in truly ending the poverty trap requires us, in economic terms, to know who

43 Poverty Reduction and Economic Management 44 www.worldbank.org/economicpremise

36

the consumer is. Once this knowledge is established, measures and approaches can be tailored to

fit the profile of the poor or in this case the consumer.

This transformative approach of thinking of the poor in this way can potentially change

the entire view of poverty by commodifying the poor and making them more attractive for

investment. This innovative idea shifts the relationship of those in privileged and powerful

positions with those who haven’t had the same access or resources. In a unique sense this gives a

voice to those who weren’t heard before. It opens a space for the “genius of the rich to unleash

the genius of the poor (Tony Meloto).”45

Overall it is evident that there is no single solution to ending poverty or even fighting it.

Through this research I have concluded that the most beneficial solution is a combination of

foreign aid and foreign direct investment. Such a combination makes a meaningful companion to

the concept of cooperation. And, such cooperation means giving up a certain degree of control,

especially on the part of those in power; it is necessary to go through that liminal phase of doubt

and work as a team to eradicate extreme poverty through cooperation, dialogue and long term

partnerships.

In my opinion, we have to look at how we tackle the problem, and to do so, we must

return to the concept of praxis. The West can no longer impose a neocolonialist method of

foreign aid. It is true that developing nations do need some aid, but instead of imposing

Eurocentric views and marching in with all of the solutions, the West needs to listen first and

then work together with the people of a given community to mutually create a long lasting

solution and long term benefits. As OXFAM observes, “foreign aid works best as a tool in the

hands of effective local leaders, those trying to solve their own problems in their own nations

45 http://www.amphilsoc.org/sites/default/files/proceedings/490405.pdf

37

and neighborhoods.”46 The most powerful ingredients for success are imagination, passion,

dedication, and determination, and those are found in individual people and in their ideas, not in

governments or economies.

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