Reference:Action Research Approach To Poverty Reduction/Third World Poverty & Attempted Solutions

Section 1 - Third World Poverty

Globally there is a huge chasm between rich and poor societies. It is manifest in the per capita income gap between the industrialized world and developing nations. For over a billion of the planet’s population, the suffering of the poor is manifest in the fact that they try to eke out an existence on less than one dollar a day. Another 1.3 billion struggle to survive on less than two dollars a day. Some 600 million of the world’s children are not in school; many of them forced to labor in the fields and factories along side their parents. Illiteracy among adults in the Third World is a significant problem, as are such difficulties as poor health care, infant mortality, natural disasters, and diseases like HIV-AIDS and malaria.

Below are a few concrete facts (Reality of Aid, 2006; UN Millennium Project, 2006):

• The World Bank estimates that from 1992-2002 the poorest countries on the planet received 43 percent less aid than predicted from previous decades, based on their poverty levels.
• In sub-Sahara Africa between 1990-2001 the population of the poorest of the poor, people who live on less than $1 a day, rose from 227 million to 313 million.
• One individual in three from such countries suffers from malnourishment, and half of their children die before age five.
• Spending to aid sub-Sahara Africa is now less than it was in 1990.
• For the first time since the Iron Curtain went down, military spending around the world grew to over $1 trillion.
• The U.S. is spending over $300 billion per year in Iraq and Afghanistan alone, 76 times more than its Official Development Assistance for health, 196 times its ODA for education, and 480 times its ODA allocated for sanitation and clean water worldwide.
• Eleven million children die annually from diseases related to poverty. Some 300-500 million individuals are infected with malaria, leading to approximately 3 million deaths a year.
• HIV AIDS kills an estimated 6,000 people each 24 hours (2.2 million people per year), while 8,000-plus more are infected each day.
• Millions of school age children are working in fields, factories, or for their families, rather than receiving a basic education.
• 584 million women are illiterate.
• Some 800 million people go to bed hungry every day, one-third of them being children.
• Over 2.6 billion individuals lack basic sanitation.
• One billion people do not have access to clean drinking water.
• Forty percent of the world’s population lacks access to even a simple latrine.
• Back in the 1960s, Africa was a net exporter of food; today, the continent must import one-third of its grain.

Section 2 - The World is Changing – Attempted Solutions

There have been numerous strategies in recent decades attempting to solve the problem of exploding poverty. They include such macro-level interventions as the Green Revolution, which sought to transfer western-style farming methods and equipment to the Third World. Another thrust was modernization, i.e. attempting to impose the well-established political and economic systems of industrialized nations to poor countries. In the 1980s, there was a movement to provide the world’s poor with basic needs such as clean water, schools, health care, and so forth.

But each of these strategies had deficiencies. The transfer of technology was not as simple as expected. Many modernization efforts were inconsistent with native people’s cultural values. Western agriculture depleted the soil in many countries, and providing basic needs was not only costly, but also unsustainable.

In more recent years other strategies have been implemented. For example, the U.N. established a series of “Millennial Goals,” which would raise the donor commitments from rich nations in order to help the poor (UN 2006). Well known academics, such as Jeffery Sachs of the Earth Institute, Columbia University, has popularized the “end of poverty” as an important worldwide objective (2005). Corporate chiefs like Bill Gates of Microsoft (2007) have established family foundations for channeling funds to qualifying development programs. Bono, the lead singer of U-2, the Irish rock band, has played a major role in pressuring officials of wealthy nations to forgive the debts owed by Third World countries (ONE, 2006). Muhammad Yunus, founder of the Grameen Bank, received the Nobel Peace Prize in 2006 because of his impact in using Microcredit to not only lift the poor of Bangladesh, but creating a ripple-effect in spreading bottom-up economic development throughout the world (Yunus, 2003).

Finally, former U.S. President, Bill Clinton, has entered the fray by establishing his new Clinton Global Initiatives (2007). Using his considerable clout, he has organized a series of meetings to bring prominent people together, share ideas, make financial commitments, and implement them. Such individuals include current and former heads of states around the world, royal families, major corporate CEOs, NGO officials, bankers, and so forth. So far, some 570 commitments have been made to various poor countries and projects globally. Some regions being targeted by CGI include Latin America (6 %), Middle East (7 %), Asia (11 %), North America (19 %), and Africa (20 %). So far these “commitments” have generated over $2 billion, and partnerships are being planned for numerous additions.

Among many impoverished people, their problem is that of unemployment and/or under-employment. They cannot obtain jobs because of the lack of investment in the formal economy. In many instances they lack the job skills necessary when there is a factory opening or other job available. Thus, for many of these people the challenge becomes that of creating their own jobs through some form of income-generating projects. Those who struggle in this environment, that of the informal, underground economy (or black market)(de Soto, 2000), face the enormous challenge of obtaining capital for their micro enterprises. These are often hard-working, creative individuals who simply seek opportunity and self-employment. But to launch or to grow their micro enterprises, they require credit, a small amount of working capital to run their tiny businesses and move toward profitability. A lack of access to financial capital thus becomes their major challenge.

Most such individuals cannot obtain financing from regular banks for several reasons. Often, the miniscule amount needed is so small that banks cannot justify the overhead expense of servicing such small loans. Also, the poor usually lack financial credibility. They have no credit history and no collateral that would be equivalent to the loan size needed. For most of them their only option for financing is from a “loan shark” who may charge as much as 300 to 3,000 percent annually. It makes the possibility of success virtually nonexistent. As conservative Milton Friedman, who won the Nobel Prize in Economics, puts it, “The poor stay poor not because they are lazy, but because they have no access to capital.” They are essentially trapped in a losing situation and are unable to get ahead.

The most innovative strategy for addressing this global problem is the recent emergence of Microcredit as a tool for lifting the poor out of poverty. To clarify the meaning of this concept and its associated terms, the following definitions are necessary:

• Microcredit: tiny loans of $50 to $200 each to poor individuals
• Microentrepreneurs: recipient of a microloans with which to start or expand one’s small business
• Microenterprise: a very small, income-generating activity or family business
• Micro-bank: village or communal bank group
• Microfinance: a more inclusive term for all the above, plus, perhaps such programs as client savings accounts, health insurance for the poor, education loans, etc.
• MFI: Micro-Finance Institution which may provide multiple financial services
• NGO: Non-Governmental Organization that offer a range of humanitarian and development services such as literacy, health care, education, schools, aid in response to a crisis such as natural disaster, village development programs, agriculture, women’s empowerment, as well as Microcredit