TCS Daily


The "Next Big Thing" for Global Business

By Peter F. Schaefer - December 6, 2006 12:00 AM

Exactly a century ago, Cemex became the first Mexican cement producer. In 2000, Cemex became the largest cement producer in the world beating out France's Lafarge and Switzerland's Holcim. Although the Cemex market profile has changed over the last hundred years, its early success came from their ability to serve micro-markets -- selling a bag at a time to poor folks.

In a micro-market like this, a homeowner who lacks a title to his house and property (an "informal" homeowner) but has a bit of extra cash, might buy a single bag of cement and a dozen cement blocks and use it to add a few square feet to a house wall. Finishing the house often takes years, but in the end he has a real house. And like 55% of all American wealth, this is where he saves -- he lives in his savings "account."

Cemex mastered this part of the market and has prospered. But poor homeowners throughout the developing world remain poor because their savings account is frozen and so they can't leverage their property. Unlike Americans, these informals have no diversity in their savings. Informal shelter, and the cottage industries they often house, are nearly always their total savings. And also unlike Americans, their savings - their capital - can't be used to back up a credit card or get a home improvement loan. An informal homeowner can't even make a contract with a utility company to deliver electricity or water since the utilities have no way to know who owns the house so have no certainty of being paid.

As a result of this capital being "dead" -- that is, their savings are illiquid -- the potential market it represents is rarely considered by multinational businesses. And when they do think about it, they usually conclude that there isn't a viable strategy to open it widely to their products.

But this market could be enormous. It wasn't long after the collapse of the tech stocks that a new conversation started in the business community; "What," they asked, "is the next big thing?" Well today, these informals hold one of the largest discrete pools of capital ever accumulated. But it is not on anyone's radar screen since these frozen savings are held by the world's poor and so they are relegated to the margins of this conversation despite its enormous size.

Nevertheless, this capital is there and eager to enter the global marketplace if only it can be unlocked. So let me propose a "key" for opening the market and then suggest ways for businesses to help facilitate it.

Unlocking Frozen Capital

Several years ago, the World Bank acknowledged that there was a large "informal" (extralegal) business sector in all developing countries. It was not made informal by tax avoidance but by bureaucracy avoidance (see Doing Business 2004). Ongoing research into the structure of these informal economies reveals the legal, regulatory and bureaucratic barriers for small businessmen and homeowners which block their entry into the formal economy. In fact, these barriers impede modernization for the entire society and render futile the various efforts of aid organizations to significantly reduce poverty. This failure compels poor countries to become dependent on outside sources of capital (commercial loans, government debt and foreign aid).

Recently the new US Millennium Challenge Corp. established the criterion for its grant-aid recipients stating that they must remove the barriers to formalization. So far, the MCC's clients have strongly supported this approach, which could signal the start of a quiet revolution. But more needs to be done. If these efforts - and those of many other organizations - are successful, this opening for the poorest people in the world could not only give them a ladder up out of poverty but be "the next big thing" in the global economy benefiting everyone in the equation. But in the end this transformation will be driven by markets and businesses, not changes in public policy which, though necessary, can never be sufficient.

Markets at the Bottom of the Pyramid

Businesses are not philanthropies. So doing business at the so-called "bottom of the pyramid" (BOP) requires new strategies and tactics that are generally not familiar to traditional businessmen. There is a real market at the BOP, and that market could evolve more quickly with the help of the business community. But to capture the interest of multinational corporations, they must see clearly how they can profit from this opportunity.

The first step is being convinced that the market is real, since this capital is essentially invisible. It is the cold, dark matter of global finance. But the informal economies of many countries have been mapped by a number of researchers, and the pattern is consistent throughout all poor countries in every part of the Third World. The force driving the social and economic transformation of these countries in the second half of the 20th Century was urbanization, just as it was in 19th Century in North Atlantic countries. And this trend will continue, even accelerate, for the foreseeable future.

The process is familiar; the rural poor - mainly subsistence farmers or their children - migrate to cities in search of work. But the focus on jobs and employment is misleading. Unlike Mexicans migrating North for jobs, these people, mainly, become entrepreneurs not employees. Some fellow on the sidewalk with his blanket spread out and covered with pieces of fruit is an entrepreneur, not an employee. Even nominal "employees" in informal businesses put their time at risk because they are paid from profits and so are more like partners than employees.

And the system works. There are four to five billion poor, and growing. Look closely. That fruit seller is a successful entrepreneur. He was there yesterday and will be there tomorrow and almost certainly has a house and family.

Another surprise is that these poor entrepreneurs save, although their savings are relatively small and, once made, they become all but illiquid. Moreover, without viable alternatives to savings, this pool of frozen savings is constantly growing, which fuels a process that continuously moves their capital from live to dead, or liquid to illiquid. In so doing it also freezes a large part of national savings.

The economic problem is that frozen savings can't be leveraged or spent without great difficulty and, thus, prohibitive cost. Since any excess earnings must nearly always be invested in shelter, urbanization ends up being a form of forced savings; it's a process of freezing, not a freeing the wealth of the nation. Individually, the size of these invested savings is small, but in aggregate it is huge, correlating with the growth of enormous, third world mega-cities.

The process is almost the same everywhere. It begins when a squatter takes land and starts making a shelter. Any money spent on creating shelter or starting a business becomes frozen in the structure since it is invisible to the law. Every time the squatter expands or improves his home, or invests in his business these illiquid savings continue to grow.

A billion or so poor families and hundreds of millions of informal businesses yield trillions in this "dead capital" (Adam Smith's term). Six years ago, one well-respected researcher published an estimate that this dead capital was worth nearly ten trillion dollars globally. By comparison, the total loss of market capitalization in the 2001 "tech bubble" crash was just over four trillion dollars.

Viable markets in poor countries would provide continuous opportunities for growth and commerce that were not based on speculation but on making and selling real things to buyers with cash. But the cash of these buyers at the BOP is frozen solid so entering this new market is not simply a matter of waiting for the aid agencies to help countries formalize their markets, and then opening up your widget store in the capital city.

The Lost Art of Entering the Formal Market

How can these poor entrepreneurs join the formal market? For years they were carried in official statistics as "unemployed." So how do you even find them? Well, finding them is easy as the poor are living and working everywhere in developing countries just as they were in Scotland when Adam Smith wrote about them 250 years ago. And they live, mostly, in squatter settlements on marginal land and in the fringes of big cities. Their houses are crude by our standards and their businesses are mainly "cottage" industries. But as the numbers of informals grow larger through urbanization, and their settlements become more permanent, so their savings grow.

At the most basic level, their "business" might be to buy a pack of cigarettes in the morning and then sell them one at a time at stoplights for a few pennies profit. But they may also own a small office building, or a truck, or even a fleet of trucks. There is no formula, just the universal condition that they are invisible to the law. They occupy a parallel economic universe, and so are unable to buy products that people with identities, addresses, demonstrable income and credit history take for granted.

The key to unlocking this pool of dead capital begins with legal and regulatory reforms which define and protect private property. This is a political process which America pioneered, intellectually and practically, so we should be experts. But we only did it once and Jefferson is long dead. This means our blueprint is a few centuries old and so now it has become a lost art. Although many developed states run a modern political economy very well, they have forgotten how to build one. The challenge is not to invent a new program. America's Founding Fathers have shown us, and all other developed countries, how to figure out what to do and how to compress this haphazard process of centuries into one of only a few years.

Blueprints, Not Aid; Inputs Not Outcomes

Milton Friedman suggests that what poor countries need today is America's original blueprint. They need those inputs of modernization we established in the 18th Century, not the outcomes we have in the 21st. But it is just these outcomes that we try to export to the developing countries. Western aid agencies and the World Bank work very hard to distribute Western capital to poor countries to little avail. But they have done very little to free up that capital they already have by legalizing these informal homes and businesses. We don't need heavy equipment operators, we need lawyers and political economists who understand the missing pieces.

But there is a moral hazard in expecting the World Bank to do this work because the Bank exists to provide Western capital to poor governments. But the poor countries don't need gifts of outside capital -- they have plenty. They need technical support to create systems that free up the capital already there. Moreover, the World Bank's entire portfolio is around $120 billion and its private sector arm's is around $25 billion. If the existing savings were made liquid, aid funds would be lost with the table scraps.

It is the Western business community, not aid agencies, that needs to become the leaders in fixing this problem. But an effective strategy is much more than a snappy ad campaign. Businesses need to proselytize on behalf of a truly modern economy and then play a part in making it happen. Do well by doing good. They can support the needed reforms in developing countries by a number of means. First, they should have their investment teams quietly suggest to political leaders in poor countries that these reforms are important to their investment decision but will also be useful in encouraging modernity and economic growth for the entire economy, not just the enclave in which these foreign firms operate.

Multinational corporations will benefit in many ways. Most obviously it will expand their markets. If you have a desirable product, there are 4 billion people who might be interested. Also these businesses will gain better property rights for their own investments, products and copyrights. After all, their neighbors, their employees and often their suppliers don't have real property rights themselves so it is somewhat unreasonable to expect them to respect the rights of foreign businesses.

Changing the Climate of Opinion

The business community has a very poor record of supporting free trade think tanks. It is understandable that a company may not wish to fund an NGO advocating significant reforms, no matter how beneficial. They want to sell soap-flakes, not political change. But there is a whole universe of think tanks that very effectively promote a growing global network of free market groups. Organizations such as the Atlas Economic Research Foundation, the Fraser Institute, the Cato Institute, the Heritage Foundation, the Hoover Institution and many others have a real impact on the intellectual climate for change. And university think tanks, such as the Mercatus Center at George Mason University, are becoming more active as advocates not just chroniclers of reform in recent years. These organizations and others like them need significant additional support from the business community.

Here at home, business leaders can support the idea of spreading property rights as a fundamental objective of US foreign policy, something now only a marginal part of foreign aid. Businesses have a vital interest in these reforms and they should press the administration and their Members of Congress to insist on change and also let them know that MCC is on the right track.

And finally, there is considerable profit to be made from engaging in the business of just formalizing the several billion properties and businesses that populate most of the poor countries. Banks, insurance companies, IT firms, law firms, mapping firms and utilities all stand to benefit immediately and directly from the process of formalization. And those businesses already in poor countries will realize immediate opportunities from their newly formal customers.

Changing the Business Model

Because this formalization process is a win-win for everyone - governments, the World Bank/IMF, aid donors, businesses, banks and, most of all, the poor themselves - and because these reforms are enjoying increased visibility (for instance awarding the recent Nobel Peace Prize to a banker to the poor), it is likely that over time these systems will be established in most poor countries just by a slow build-up of momentum. And when this happens these new markets will be opened.

There are two commercial opportunities. The first is to accelerate the process of formalization. Those who will serve this market are the sectors mentioned above. Initially firms that can devise commercial approaches to stimulate and manage these reforms will have the most opportunities. Formalizing a billion properties will require the investment of $300 billion to $500 billion from which businesses will seek to profit.

The second part is selling to the new formals. This is appealing because these billions of poor entrepreneurs have little or no debt secured by their property. And entrepreneurs need capital, so if they were given access to credit secured by their existing property then markets for the entire range of manufactured goods would open up. The challenge here is how do you sell to them, and the answer is right-sizing and credit.

Cemex and Other Examples

Cemex built its early growth largely by serving this mini-market, one which it still serves today. Selling to the market at the BOP cannot follow the Sam's Club bulk model. In fact, in most cases, it can't even follow the Wal-Mart model, though it is intriguing that Wal-Mart is moving into China. Service through training or education, distribution through little neighborhood stores, reformulation and mini-packaging are some of the keys to success at marketing to the BOP.

A new marketing strategy is needed because people who are not exposed to modern manufactured goods may need help in utilizing them effectively. Also, they cannot hop in their car and run over to the store but often have to walk to distribution points. Yes, poor people eking out a living need shampoo, but it need not smell like fresh raspberries. And, finally, they may not be able to buy a pint or a quart at a time. For example, Lever Brothers had considerable success in India by selling single-use packs of shampoo and other products. That's a good model.

But all this only works if the poor can get credit once a house is formalized. This is a significant problem. Banks in poor countries have almost no experience with small loans. They normally make loans to facilitate trade, corporate finance, and to raise sovereign debt. The current Micro-lending model, developed by Nobel laureate Mohammed Younis, is important but mainly to prove poor entrepreneurs are good credit risks, not because it is opening this dead capital. Compared to a securitized loan, social-contract lending is inefficient and relatively costly. Moreover it will never be able to mobilize more than a tiny fraction of the investment needed to fund this transformation. But banks can do it if they employ the power of computers and specialized software programs that allow them to make a profit on a $100 loan. This step is key.

A Rare Win-Win Scenario

Bringing the poor into the modern global economy has benefits across the board, not just for the informals. The governments of poor countries will have a broad tax base so long as the transformation is not used as a pretext for over-taxation or over-regulation, either of which will drive people back into the informal sector and so kill the effort. But there is an enormous incentive to manage such a system sensibly.

If governments can resist using formalization to exploit poor people, they will have security, stability and access to credit. As a result, the overall society will be more stable and so less susceptible to extremism. Foreign aid institutions can stop wasting money on things that don't work. Local businesses will see an increase in their market, so they will buy more from multinational firms thus increasing trade as well as sales. International and domestic banks will acquire a large new pool of secured borrowers. Poor governments can better rationalize their economies and broaden their tax base. And, finally utilities will be able to identify and serve an enormous new customer base.

American firms should go after this business. It's there. Waiting.

Peter F. Schaefer has worked in the Third World since 1970, in both the public and private sectors.

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26 Comments

A possibly bigger thing for the world's poor?
"If governments can resist using formalization to exploit poor people..."

Unfortunately, your whole argument dies on this one phrase. Governments are in the business of exploiting poor people. Asking a government not to exploit poor people is like asking a fish not to swim.

Let's stop thinking at the government or organization level and start thinking at the people level. Let's offer real wealth directly to the minds of the poor.

Imagine "Second Life Academy". A virtual school available for free to anyone with a computer and broadband. Teaching material from Kindergarten to grad school- in English, the language of commerce, with a complement of Language to English courses.

Imagine free or very low cost computers and wireless broadband for the poor world wide. Imagine paying poor children amounts similar to what they would have brought home working for passing their academic goals- as they work through a rich curriculum embedded in a role playing game style virtuality.

And imagine the whole enteprise is a for profit enterprise- intent on capturing and eventually monetizing all those eyeballs for all those years of schooling. Such an enterprise would not be as likely to succumb to socialist hooey as traditional non-profits.

Institutions change when people change. With our technology today we could be within one generation of practically eliminating world poverty.

CeMex
It doesn't hurt that CeMex is a govt enforced monopoly either.

Check it out...
I am currently researching Kiva.org, an interesting concept for those who wish to spend $25 to help the people being spoken of in this article.

I have not done so myself yet since I am curious to read other's views on this organization rather than believe their press.

A very interesting concept though and one that hopefully routes around governmental theft. I anyone here has any experience with this website and organization I would like your feedback.

Please explain...
how building a world-wide broadband system, paying children to use it, and supplying "free" computers will generate a profit.

Also explain how governments will allow this to happen without government oversight.

Laudible goals
However, government will always be involved. I'll use an example that I'm familiar with. I worked in Zimbabwe (1993-4) and lived in the bush with a squad of game scouts. We would frequently stop in at the villages that were home to my team mates. None of these villages had electricity, but everyone had a mudhut, everyone was literate and curious, and no one was hungry (before Mugabe's disastrous land re-patriation). At the time, there was a strong push to electrify the region by damming the Zambezi River. There was strong opposition to this by foreign environmental organizations like the World Wildlife Fund, et al. The villages could not afford generators nor the fuel to run them and the government was (is) too incompetent and corrupt to provide this basic service.

I am going to wonder off here to make a comment. When I think about my old mates, Fibian and Jackson, it's hard for me to not tear up. Jackson is a Shona tribesmen with teeth filed to a point. He is a fierce and dignified warrior, dedicated to preventing poachers from killing the rhinos and elephants that we were working to save. We wore uniforms - mine was new, with creases; his was almost ten years old, but patched many time over under the creases; however, he had worn the soles off of his boony boots some years before, yet continued to wear them to give the appearance and maintain the pride and dignity of a full uniform. There goes a Man. Many of our soldiers in Afghanistan and Iraq know such men.

I've really gone off here and I apologize. Those were good and terrible times. So, I'm trying to get to my point and that is, in order to achieve your goal of a computer and broadband in the hands of every child, they need electricity. To do this, you will need the co-operation of national governments to:
...restrict the influence of do-gooder, western enviro-activist industries;
...grant concessions to foreign investment to open large gravel and lime pits to provide raw material to build the dams; alternatively,
...grant concessions to foreign investment to explore for and develop oil or coal resources to fuel electrical generation systems;
...grant rights-of-way to enable utility corridors;
...grant concessions to foreign investment to explore for and develop metal mines for the copper wire, for the steel to build dozers and loaders to dig the holes to liberate, mill, and refine the materials that go into building the generators, fuel cells, PVC panels, computers, transmission stations, and other machinery and infrastructure necessary to achieve the goals that you desire.

I say yes, it is worth doing. Sorry for the rambling, the issue is much bigger and more complicated that I've been able to treat here, and I hope that this makes sense.

What happened to all the socialist paradises?
Who needs private property or laws to protect it?

Squatter's Rights!
I guess it's hard for many of us in the most advanced countries to comprehend a homestead in 2006. The thought of living informally in a place seems so foreign. I assume, if someone owns the land: the landowner would be compensated for the land. Private charities could aid the formalization of homesteads by purchasing the land. As a person who has lived in the U.S.A. all of his life, I still think the construction of apartments will be the primary method of placing people in a higher standard of living in underdeveloped countries.

ZVATWANA
I was on the e-mail list for Zvatwana (a political website in Zimbabwe) until about a year ago. I guess Mugabe shut it down. It disappeared from the internet suddenly.

The explanation...
Tlaloc:

Governments probably won't like this idea but they may have difficulty stopping it. New wide area wireless technologies will allow data to travel great distances at high speeds. Thin client computers can operate with a small amount of power- hand generated if necessary. Families will go to great lengths to conceal their children's computers and activities if they see it as their ticket to a better future.

The profit will come from enlarging the commerical space of the planet- in other words- advertising. Just as Google currently provides a wealth of free services to its customers who view/click on their ads, so the World Wide Academy (or whatever it is called) will be bringing up a new generation of consumers who will learn about the products and services available as they get the education that will enable them to purchase them.

This is not just an education system for the third world- it is an alternative education system for the whole world. Many of those eyeballs will belong to wealthy first world children whose parents are rightfully fed up with the educational systems in many first world societies. These are kids that advertisers are desperate to reach immediately- look at the prices paid for MySpace and YouTube.

As far as paying for all the third world computers and the poor children who are passing the courses- billions of dollars of aid is already being misdirected to the third world. Once a better model is proven than handing money to various crooks in and out of government, many aid givers (at least the private ones) will see the benefit of having their aid money delivered through the children rather than by current means.

This is really just a twist on the fish vs. teach to fish proverb. Ten or twenty million dollars is probably enough to launch this idea on a limited basis. It could be initially aimed at 4 to 6 year olds in the first world and the more accessible parts of the third world. Every year another level of material could be added as the cohort ages.

The biggest loss to our world economy every day is the use of the minds of the poor. Every poor child is born with just as much potential to serve their fellow man in a hugely productive way as any wealthy child. This is the great unexploited resource of our planet.

Thank you
Thank you prospector for the vote of confidence.

As mentioned in the reply to Tlaloc, thin client computers require little power, I believe sufficient power can be hand generated or solar generated. I know there will be great political difficulties in reaching parts of the third world. However, success in the easier to reach parts should soften up the harder to reach areas.

The key is to use technology to bypass government intervention to the greatest extent possible. Goverments that are determined to keep their people down will be able to do so, but not forever.

Education is not the problem...it's jobs...
Kelly,

A new crop of educated kids graduate from high school and college in those countries every year. These young people are literally the same as young graduates here in America. They have the same access to the internet and they watch the same television our students do.

The problem in those societies is not a lack of educated young players sophisticated and ready to go to work. The problem is that there is no such work.

Parents over there devote a great deal of their disposible incomes to preparing their children to enter the business and professional world because people are ever hopeful that a fundamental breakthrough is just around the corner.

Yes there are lots of uneducated folks but to educate more of them will not fix anything in those economies.

Maybe
In some places, like former Spanish colonies, land was/is owned by a few 'Dons' and peasants and serfs live on the land at the pleasure of the owner, or not.

Recently squatters have been removed from areas in Manila when the property was going to be developed.

Some live under bridges or hanging over the banks of rivers.

But one point I know about the Philippines is that they have a very high duty on imports of all kinds. I don't believe that helps their economy because it only benefits well connected local manufactureres.

squatters can be on public or private land
The problem in many third world countries is the inability or unwillingness of their governments to defend property rights.

The article is interesting but it misses this key issue. If squatters can take the land where they build their houses then someone else can come along and take the houses built by the squatters. You can't make loans secured by an "asset" that is not truly owned by the borrower.

Squatters live on some else's land...
Joanie,

Generally squatters live near an urban area on a vacant, privately owned lot. Sometimes the owner is overseas and his relatives are not keeping the squatters off. More often someone local is getting a small amount of money or free labor. As soon as squatters reach critical mass, (squatters living together tend to be blood relatives from the same village out in the Province) they become dangerous enough that the local players ignore them rather than to confront them and a "live and let live" relationship develops. Of course, they will have small jobs and shop at the corner store so someone has an interest in their presence. It becomes difficult to move people out once they have become an active, growing part of the community and someone at some point said it was OK. Eventually the squatters blend into the local neighborhood and "they" become another part of "us". (Especially when they first showed up because one of their young women was the girlfriend of one of our cousins. Once she has his babies she's a relative herself. And everyone who joins her from back home is her "cousin", isn't she?)

However, the argument that one of these guys living in his two-room, hollow block shack with a corrogated roof owns a home with market value and that he might register a title to serve as collateral for a bank loan is specious. Such real estate is not a "frozen asset" that could ever be put to work raising venture capital or funding household consumption. When a guy needs $100 (worth of local currency) he does a "5-6" deal with a money lender.

The micro loans developed by Mohammed Yunus are simply a formalization of the Indian practice of lending small amounts of money to local little businesses. He did not invent anything they did not already know how to do all over Southeast Asia. He just got a Nobel for doing it (out in the open and) on a grand scale.

The wealth creating, "factor of production" in such an economy is the worker himself. Not his one-bedroom, dirt floored, nipa hut built on someone else's lot.

If at all it rains . . . .
I am an American who worked in rural Zimbabwe from 1987 to 2004.

I admire Peter Schaefer for being hopeful. I am not.

I doubt very much that Africa's problem is a financial one. Africa's problems are social, spiritual, political . . . world-view problems.

Speaking of electricity and development, there was/IS!! a huge coal deposit about one hour from where I used to live and work. They built a paved road all the way to it, and they were going to build a dam and make a coal-fired generating station. But the dad-gum neo-imperialist British company that was financing it insisted on a 51% controlling share. The wise, compassionate, socialist Mugabe government, realizing that the company might then want to make a profit and charge people for their electricity, refused. The project died. The road is still there. It's nice to have it there . . . paved roads are always nice.

But Zim has a hard time paying for its state-controlled electricity now. It buys in hard cash from Mozambique, South Africa, and even Zambia. And the lights went off so often . . . so often!! in the last few years.

As things were getting so bad in Zimbabwe from 2000 onwards, I often asked Zim friends what they thought was going to happen. Even educated people, in private conversation, would often say (referring to their hope for a good rainy season and plenty of maize to eat) "If at all it rains . . ."

Hopeless!!

Global development is the next big thing...
Of course, the author is correct. The next big opportunity is the conversion of cheap labor into dollars (or euros or yen) in emerging markets and the development of those economies into global players.

We assumed that such businesses could not be created in Socialist India or Communist China because their political philosophies were hostile to the mechanisms of financial capitalism. We believed that those governments would need to fail and to be replaced before their economies could get into the game. They had troublesome laws regarding private property, inadequate contract law, no hard currency and virtually no banking systems. We figured they would need to fail utterly like the Soviet Union did and then slowly learn how to become competitive.

We were wrong. Their strong central governments simply stopped putting impediments in the way of financial capitalism and the indigenous business communities in China and India did the rest. In fact, the Russians are still trying to get their economy engaged as they work to reinvent their central government. The general disruption resulting from the dissolution of the Soviet Union led to more social anarchy than economic development.

Now then, what of our assumption that developing nations with cheap labor opportunities but with weak central governments should need to improve their "business friendly" backroom infrastructure before there will be significant opportunities over there? What if this assumption is wrong? What if we could solve the business problems involved (for our companies to go to work) without waiting for the political, institutional and infrastructure fixes?

We would have a very large competitive edge. Unfair advantages are where sustainable profits come from. So this should be attractive. The problem for such markets is that those central governments might always be weak. But their people could nevertheless be very good workers and their business leaders may be capable and sophisticated.

Specific barriers need to be overcome. Not for everyone. Just for one company at a time. In fact to leave such structural impediments in place generally might protect our own interests.

This article is just a long winded way.....
of saying that they lack secure property rights. The absence of property rights is the major roadblock to the poor becoming less so; moreover this devastating state of affairs has been obvious to we Austrian economist types forever. No property rights = no contract, exchange and capital acumulation (or much less that would prevail under a regime of secure property rights).
The importance of secure property rights has also been thoroughly treated by Hernando de Soto in his book The Mystery of Capital.

the neo squatters
The neo squatters have RVs and use Wal-Mart, rest stops, and parks. The Wife and I and 2 kids lived in a private camp for 3 years. Total net outlay was about $3/day.

thinking big
Great article and as Somerled just above said, it looks like the author just read Fernando deSoto's excellent book on this subject. In fact, Somerled is the only guy other than me who claims to be an 'austrian' economist.
In any case tho, the author doesn't give enough credit to the idea of vested interests fighting against such modernisations, indeed even many tin pot governments still are more interested in control, than they are in developing the country. And of course western liberals also are against it because they hate private property and capitalism. These superanuated socialists still look to Cuba as a role model, not Hong Kong, Singapore, or Chile.
And if all third world countries started to finally get richer, then American entertainer flakes like Madonna and Angelina jolie couldn't go to africa and buy babies from their parents.

to Miss Joanie
I'm not sure what your meaning is, but I'm not a native speaker so can't tell about jokes, irony, etc. But v. Mises was anti-socialist and so am I. Some people say that von Hayek sold out, and that Rothbard is more in line. But basically I think I can call myself an 'austro-libertarian'. Often tho we comment on modern things around this place, so maybe you re referring to something else I said.

Miss J.
OK, but maybe getting mixed up on two different subjects; economics and war. Austro libertarians like free economies, me too, but I don't they they talk much about war. On war, some little countries can afford to be isolationist, or pacifist, like New Zealand or Denmark. But the US cannot be isolationist or pacifist as the most important place. But i recommend they don't even bother to fight anymor if they want to be so PC and fight like girls, better fight like they did in okinawa and europe in WW11.

ZVATWANA
It was a very interesting site, a good oposition to the regime. You're right, it must have been Mugabe to shut it down. It is very very hard to live in Zimbabwe this days.

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