What is the Problem?
We are facing a global economic crisis. In 2017, the McKenzie Global Institute estimated that between 400 and 800million jobs would be lost due to automation, both digital and mechanical. This is largely as a result of big businesses becoming more and more efficient in their processes and cutting costs including unnecessary salaries. This is not entirely the fault of the big businesses; It is the nature of business to increase profit and eliminate expenses. However the result is often that those jobs that can be eliminated will be. This is also not a new trend. Historically large businesses shed more jobs than they create, and almost all new job creation is done by small and medium businesses (SMEs) and startups.
The Economic Devastation of COVID
This job-loss reality that the McKenzie Institute predicted has been sped up dramatically by COVID-19. The UN estimates that up to 400 million jobs will be lost due to this crisis, and that is in the “formal” economy (those that pay taxes, get regular paychecks, etc). Of the almost two billion people in the informal economy, which represents the most vulnerable workers in the labor market, nearly 1,600,000,000 (1.6billion) could “could see their livelihoods destroyed due to the continued decline in working hours brought on by lockdowns”. This is an unprecedented economic disaster, not simply for the developed world which has spent over $10trillion supporting workers and industry since the crisis began. For those in the developing world, this has become a cataclysmic loss of labor capacity.
Hope for the Future
But there is hope for those in the lower half of the world’s economy. It is not with large corporations, many of which have accelerated their efforts to automate processes and eliminate jobs in order to survive the crisis. Neither is it with charity relief, though that can provide some help in the immediate aftermath of the crisis. No, for those who have lost such jobs, their hopes lie in either the small business around them and/or in the chance to create their own businesses. In fact, crises can often provide tremendous possibilities for new growth. Almost 50% of Fortune 500 countries today were started in the midst of recession. This is the time to create and imagine, and we believe we have the path to do so.
Poverty and Charity
Poverty and Jobs
We are facing a global economic crisis. In 2017, the McKenzie Global Institute estimated that between 400 and 800million jobs would be lost due to automation, both digital and mechanical. This is largely as a result of big businesses becoming more and more efficient in their processes and cutting costs including unnecessary salaries. This is not entirely the fault of the big businesses; It is the nature of business to increase profit and eliminate expenses. However the result is often that those jobs that can be eliminated will be. This is also not a new trend. Historically large businesses shed more jobs than they create, and almost all new job creation is done by small and medium businesses (SMEs) and startups.
The Economic Devastation of COVID This job-loss reality that the McKenzie Institute predicted has been sped up dramatically by COVID-19. The UN estimates that up to 400 million jobs will be lost due to this crisis, and that is in the “formal” economy (those that pay taxes, get regular paychecks, etc). Of the almost two billion people in the informal economy, which represents the most vulnerable workers in the labor market, nearly 1,600,000,000 (1.6billion) could “could see their livelihoods destroyed due to the continued decline in working hours brought on by lockdowns”. This is an unprecedented economic disaster, not simply for the developed world which has spent over $10trillion supporting workers and industry since the crisis began. For those in the developing world, this has become a cataclysmic loss of labor capacity.
Hope for the Future
But there is hope for those in the lower half of the world’s economy. It is not with large corporations, many of which have accelerated their efforts to automate processes and eliminate jobs in order to survive the crisis. Neither is it with charity relief, though that can provide some help in the immediate aftermath of the crisis. No, for those who have lost such jobs, their hopes lie in either the small business around them and/or in the chance to create their own businesses. In fact, crises can often provide tremendous possibilities for new growth. Almost 50% of Fortune 500 countries today were started in the midst of recession. This is the time to create and imagine, and we believe we have the path to do so.
What About Charity
When crises happen in the developing world, the most common impulse of developed nations is to give "aid" or charity in the form of free resources (food, money, clothing, etc). It is a reasonable impulse: if there are people who lack things, then those who have an abundance should generously provide for those who need them. This is no less true with an overwhelming disaster like the current job-loss crisis... if people are not getting wages, the impulse is to give money. While entirely well meaning, charity can often do more harm than good.
Fikkert and Cobert, in their book When Helping Hurts, distinguish between relief, rehabilitation, and development aid. In any disaster, it is entirely appropriate to bring in relief. Those who have lost their homes, businesses, or food sources, need immediate help to solve catastrophic medical situations or to stave off starvation immediately following the disaster. However, if relief continues beyond the crisis and becomes a longer-term way of supporting a community, it unintentionally creates a form of crippling, unsustainable dependency. Once financial resources are given, local charity recipients, who naturally want the free money to continue, unconsciously take on the role of pandering to whatever beliefs the charity givers have about the local problems and solutions. As a result, those local recipients own neither their problems ("we don't need to solve these problems, others will do it for us"), nor the temporary solutions created by the charity ("they are sending us free food... I hope they keep doing it"). And, those solutions only continue as long as the charity does. In addition, and quite unconsciously, recipients often begin to take on a poverty mindset which says “we are the kind of people who need others to help us, because we cannot help ourselves.” Dignity gets swallowed up in the belief that others have to solve their problems.
Worse still, local business and other sustainable solutions which could provide locally-produced and dignity-rich solutions, cannot compete with free resources provided by charity. Whether this is free clothing, food, or money, those that are trying to start businesses cannot sell what the charities are giving away for free. Many such businesses have been forced to fold because of the influx of well-intentioned charitable resources that have continued long past a crisis. And then, when the charity stops the free resources (because of donation fatigue or because the crisis is no longer felt), then there are no sustainable solutions to take the place of the free resources. Often a community that has been dependent on a charity for a long enough time has little choice but to find another charity from which to get the same support. This is why Fikkert and Cobert say that relief should always be "seldom, immediate, and temporary".
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What about Charity?
When crises happen in the developing world, the most common impulse of developed nations is to give "aid" or charity in the form of free resources (food, money, clothing, etc). It is a reasonable impulse: if there are people who lack things, then those who have an abundance should generously provide for those who need them. This is no less true with an overwhelming disaster like the current job-loss crisis... if people are not getting wages, the impulse is to give money. While entirely well meaning, charity can often do more harm than good.
Fikkert and Cobert, in their book When Helping Hurts, distinguish between relief, rehabilitation, and development aid. In any disaster, it is entirely appropriate to bring in relief. Those who have lost their homes, businesses, or food sources, need immediate help to solve catastrophic medical situations or to stave off starvation immediately following the disaster. However, if relief continues beyond the crisis and becomes a longer-term way of supporting a community, it unintentionally creates a form of crippling, unsustainable dependency. Once financial resources are given, local charity recipients, who naturally want the free money to continue, unconsciously take on the role of pandering to whatever beliefs the charity givers have about the local problems and solutions. As a result, those local recipients own neither their problems ("we don't need to solve these problems, others will do it for us"), nor the temporary solutions created by the charity ("they are sending us free food... I hope they keep doing it"). And, those solutions only continue as long as the charity does. In addition, and quite unconsciously, recipients often begin to take on a poverty mindset which says “we are the kind of people who need others to help us, because we cannot help ourselves.” Dignity gets swallowed up in the belief that others have to solve their problems.
Worse still, local business and other sustainable solutions which could provide locally-produced and dignity-rich solutions, cannot compete with free resources provided by charity. Whether this is free clothing, food, or money, those that are trying to start businesses cannot sell what the charities are giving away for free. Many such businesses have been forced to fold because of the influx of well-intentioned charitable resources that have continued long past a crisis. And then, when the charity stops the free resources (because of donation fatigue or because the crisis is no longer felt), then there are no sustainable solutions to take the place of the free resources. Often a community that has been dependent on a charity for a long enough time has little choice but to find another charity from which to get the same support. This is why Fikkert and Cobert say that relief should always be "seldom, immediate, and temporary".