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Countries need strong communities and empowered individuals to lift themselves out of poverty


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The Conversation

David Echeverry

Assistant Professor of Finance

The economic development is not strictly a topic of living standards and consumption levels. The economic development is primarily that the decisions of communities promote the human flourishing of their members. That is, that they place the emphasis not so much on the quantity of a community's consumption but rather on the quality of its decisions and how to improve them in the pursuit of the common good.

On the other hand, the financial aid to countries in development (generally well-intentioned) does not shake off centuries of Eurocentrism and colonialism. To avoid falling into the white savior syndrome the basic question is how to approach communities in need of financial aid from the outside.

Common property and community

Elinor Ostrom won the 2009 Nobel Prize at award Economics for her work on the governance of the commons. Much of her work demonstrates that the care of these goods must start from the community itself and be adapted to its cultural norms.

On the other hand, economist William Easterly criticizes the technocratic paradigm, which conceives reality as a problem awaiting a technological and scientific solution. Thus, it would be wrong to think that a multilateral agency or a government can successfully implement an economic intervention without understanding the institutional and social environment at which it is aimed financial aid. In the internship, an economic policy designed in this way can generate a consequence contrary to the desired one.

With these two concerns in mind: how to approach communities without preconceptions of white savior, and how to understand their internal mechanisms of collective action, we have worked on the experimentalEconomics , which allows us to test assumptions of economic theory regarding the behavior of individuals when their own interest and the collective interest come into conflict.

Equity and reciprocity

Through laboratory economic field experiments in various Colombian communities, we have deciphered patterns of collective action to discover that sometimes an economic intervention can go wrong when it applies incorrect assumptions about its beneficiaries.

Consistent with Ostrom's findings regarding the governance of the commons, we find that agents who live off common-pool resources make good management of them because they have a preference for equity. That is, they care not only about their own monetary income: they also want that income to be in line with that of others.

Moreover, in line with Easterly's critique of the technocratic paradigm, we saw that when reciprocity is an important motive in a community, the imposition of a fine by an outsider affects the community's coexistence. Thus, collective action is affected by an external economic intervention.

Coordination to avoid poverty traps

Another issue to consider in the study of collective action is coordination.

If someone stops at a red light, it is not because he cares about sacrificing his mobility for someone else's. It is because he knows that when the light changes, the roles are reversed. It's because they know that when the light changes, the roles are reversed. Signaling radically decreases coordination costs by getting everyone home faster and safer.

While cooperation has an element of sacrifice on behalf of the community, coordination is merely a reduction of communication frictions that are costly for all actors.

In the context of the economic development , it is well established that coordination failures represent a threat because they create poverty traps and hinder economic growth.

As an example, we have studied the implementation process of a conditional cash transfer program in Colombia. The program, aimed at improving the nutrition, health and Education conditions of children from low-income families, makes the beneficiaries coordinate better among themselves, something that is not explicitly proposed in the plan but is achieved in the internship, because they meet on a monthly basis, thus getting to know each other and developing a sense of identity with the program. This is another example of an unintended (but positive) achievement of a government policy of development.

Empowered communities and individuals

Going back to Easterly's ideas on the economic development of poor communities, external economic intervention pills not only lack long-term effectiveness deadline but can contribute to the disease of poverty, particularly when a poor country is operating under dictatorship.

The best financial aid to the economic health of poor countries is to improve individual rights and the strength of local institutions.

Policy has a better chance of success if the emphasis is on empowering individuals and communities. At final, understanding collective action is of great importance for the study of economic development .