How a Sensible Mix of Adam Smith Can Revive Africa

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Last month, during a trip to Zambia, I was given a graphic lesson about real poverty and how difficult it is for extremely poor farmers to escape from a subsistence existence in a country where most people live on two dollars a day. But I was also given two object lessons in how, at the "grass roots" level, families can begin to escape the subsistence poverty trap.

Zambia is very poor; about seventy percent of the population relies on smallholder farming for a subsistenceliving and the agricultural sector provides about 30 percent of the country's GDP. But Zambia is not a basket-case country. The politics are civilized and non-violent, and the political process is reasonably democratic. Ex patriots are not persecuted and the country has substantial mineral assets. Property rights also exist and are moderately, though far from perfectly, well-defined. So there is hope for economic development.

The question, then, is why so many farm households in Zambia are unable to work their way out of extreme poverty. The answer is far from simple, far from easy, and far from one dimensional, not least because the problem is extremely complex. But, in Zambia as in many other countries in sub-Saharan Africa, there are at least four major challenges that almost every poor farm household faces. The first is a compellingly inadequate transportation infra-structure and the second a severe lack of physical capital (even the simplest and most basic machinery and equipment). The lack of capital equipment and access to technology is closely linked to the third challenge, lack of access to sources of finance beyond the local village, and the fourth challenge is a severe shortage of human capital (education and knowledge).

These are not new economic development problems: along with the absence of effective property rights, they have been recognized as the major causes of persistent poverty for decades. Too often, however, they are overlooked by shaman policy wonks and policy makers seeking magical silver bullet quick fix solutions (for example, various crop insurance schemes for people who have almost no experience with any financial instruments) for deep-seated long term poverty problems.

Nevertheless, when at least some of the four long term poverty challenges - lack of education and knowledge, access to finance, and access to even modest technologies, and compellingly inadequate transportation infrastructures - are addressed, good things can happen, especially when the household has entrepreneurial leadership.

Two farm families in Southern Zambia, seventy miles apart, had been working with a non-government organization (NGO) that provides very small short term microfinance loans to smallholders to purchase equipment like mechanical water pumps and critical inputs such as fertilizer and herbicides. There was a condition;the families also had to participate in extension education programs that would enable them to grow new (to them) cash crops. Critically, each of the two farm households purchased, owned and had sole control over the use of a water pump which they then used to irrigate part of their land to raise vegetables (cauliflower and tomatoes) as cash crops, instead of planting all their land to maize.

Within a year, each family had repaid the loan with interest from the NGO, even though both families faced major problems in accessing markets. One of the households, an extended family of about 15 members that farmed aboutfive acres of land, lived about twelve miles from the town where they marketed their tomatoes and had no access to any mechanical form of transport or any paved roads. Their transportation and marketing strategy consisted of two women from the household walking from the farm to the town carrying about forty pounds of tomatoes in baskets on their heads. Arriving in town, they would then seek out the best price among the local buyers, often receiving very modest prices for their crop. Then they would walk home. Nevertheless, the women and the family considered the tomato enterprise to be worthwhile; after two years of raising tomatoes, the family was enjoying a record level of income, able to buy a few consumer durables, and pay for their children's schooling.

The other family had more land (about fifty acres), but also more people (about one hundred people were in the extended family). However, with the mechanical pump, the farm family was able to irrigate about four acres on which they raised cauliflower and lettuce, and had also created three ponds in which they raised fish. Somewhat better off and less cash constrained, the family were also able to transport their produce to market through leasing a pick up. As a result, they were able to access markets in two major towns (one 40 miles away and the other over 100 miles away) and, using information obtained by cell phone, improve the profitability of their operation.

Anecdotes are always a dangerous basis for designing policies or developing hypotheses in any field of science. However, these two stories have a common theme. Give people with entrepreneurial skills access to knowledge, and, through modest financing, some equipment and technology. Then, if they have some sort of access to markets and are held fiscally accountable for their loans, they can begin to do very good things for themselves, their families, and, almost inevitably, their communities. That's not silver bullet magic; that's just a sensible mix of Adam Smith's invisible hand and a wise approach to improving the human condition.

Vincent Smith is a visiting scholar at the American Enterprise Institute (AEI), and a professor of economics in the Department of Agricultural Economics at Montana State University. 

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