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September 2013

Is Trust a Crucial Factor in Business Success?

Jacques Morisset's picture
Also available in: Français

Victoria has been running a small business that deals in computers and medical equipment in Dar es Salaam for about five years now. While she is making a bit of money, the business has in fact not grown to a point where she can afford an extra hand.
 
Compared to trends in industrial and emerging economies, small businesses like Victoria’s operating in developing countries have generally failed to become the main vectors of growth, job creation, and innovation. This failure is generally attributed to insufficient skills and financial resources in the hands of local entrepreneurs in addition to unreasonable administrative and transport costs.
 
Valid as these arguments might be, they also miss a crucial factor which might be instrumental in the apparent flourishing of such firms elsewhere – trust, or the lack thereof, of small firms in their operating environment.
 
Maasai women make, sell and display their bead work Distrust – or lack of trust – works against the success of small businesses in many ways. It is depicted in the standard payment policy of 100 percent upfront in order to guard against the risk of not being paid after the merchandise is delivered. Such a policy is detrimental as small firms lose clients who do not always have the resources at hand given their restricted cash flow. Indeed, in the US where less than 20 percent of transactions are on a cash basis, a firm would risk losing many of its customers if it was to adopt such a policy today

Fiscal Strains in the Years Ahead

Augusto Lopez-Claros's picture

The world’s population by 2030 is projected to be 8.1 billion, 2 billion more than in 2000. A full 95 percent of the increase over this 30 year period will take place in the developing world, nearly all of it concentrated in urban areas. There is a relentless process of urbanization under way all over the world which, for instance, has transformed China’s landscape and has contributed to that country’s rapid pace of economic growth. Whereas in 1980 less than 20 percent of China’s total population of close to 1 billion was living in urban areas, by 2000 this share had risen to 33 percent. The urban population during this period expanded from about 190 million to over 420 million, and is projected to reach 1 billion by 2030. Well before 2030 China will have several megacities, with the population of Shanghai likely to exceed 25 million.
The Hai river and surrounding park and high-rise buildings

The Mini-Revolutions of the New Transparency

Gabriel Demombynes's picture

Development economics has been rocked by three mini-revolutions in recent years. The materials, methods, and medium have all been transformed—making for what Michael Clemens and I call “the new transparency” in a new working paper, forthcoming in the journal World Economy. We use the controversy around the Millennium Villages Project (MVP) as a case study to explain what we mean.

GH058S03 World Bank A separate new book, The Idealist, by journalist Nina Munk, traces the trials and tribulations of the Millennium Villages. The account of the attempt to jump-start development in rural Africa has generated reviews in the New York Times and Wall Street Journal. The book jumps back and forth between a profile of Jeffrey Sachs, the project’s tireless promoter, and on-the-scene reporting at two Millennium Villages, which the author visited several times over six years. Munk’s narrative of good intentions stymied by the challenge of implementation makes for a gripping and heartbreaking read, particularly in the account of the site at Dertu, Kenya where ongoing drought overwhelmed the project’s efforts.
 

Convergence or Divergence in Development

Homi Kharas's picture

Community meeting discussing reconstruction of village hit by volcanic eruption The narrative on development economics—the discipline that deals with well-being  in the low and middle income countries where 6 billion people on our planet live—continues to swing back and forth between optimism and pessimism. The United Nations’ High-Level Panel report on the post-2015 development agenda (for which I was the Lead Author) calls for the eradication of extreme poverty by 2030, a boldly optimistic goal. But it also emphasizes that this can only be achieved if we learn from our past mistakes; business-as-usual will not get us there because, despite massive and broad-based progress, too many people are being left behind and too many programs are failing to reach scale, points that pessimists focus on.
 

The global demographic dividend and how to make the most of it

Wolfgang Fengler's picture

From a global demographic standpoint, our generation and those of our parents and grand-parents, experienced the most profound shifts in human history ever. Assuming your grandparents were born around 100 years ago, the world they came into consisted of less than 2 billion people. When I was in primary school, that figure had doubled to 4; I remember apocalyptic projections and calls to stop such uncontrolled population growth. Today, the world is home to almost 7.2 billion people and demographic doomsday scenarios have not materialized.

Three generations at a family owned village store in KabulAlthough human suffering remains tragically widespread, the world is undoubtedly a much better place today than it was 100 years ago.  An average person is healthier, better educated and wealthier than his or her grandparents. Strong growth in poor and emerging nations has fostered the emergence of a global middle class, even in Africa. In most parts of the world, the Millennium Development Goals will also be reached. There are few places left on earth where universal primary enrollment and vaccination have not been achieved, with the associated spectacular drops in child mortality.
 

Why I blog

Shanta Devarajan's picture
Also available in: Français
IN049S07 World Bank
 

I blog for a simple reason: Poor people are poor because markets fail them, and governments fail them.  When markets fail—for instance by underproviding public goods such as swamp drainage or aerial spraying of locusts—governments have been known to step in, provide the public good, and take credit for it.  But when government fails—when public school teachers are absent from the classroom, or government doctors provide no service in the public clinic (to encourage patients to use the fee-paying private clinic), or transport costs are inflated because of a trucking monopoly that is tied to the ruling party—it is not clear who will correct the problem.  For these government failures are the result of politically powerful interests’ capturing the system at the expense of the poor.  Leaders who try to correct these failures risk losing the next election.
 

Who is blogging in Future Development?

Tina Taheri's picture
Today we launch FUTURE DEVELOPMENT – Economics to End Poverty and as Shanta mentions our goal is to generate an evidence based debate that will, we hope, contribute towards making governments more accountable to poor people. 

We are grateful to the many friends and colleagues who will be joining us in this effort. Here is the initial list: