Expert View: Places Are Poor, Not People

Inclusion Hub spoke with Dr. Ricardo Hausmann, director of Harvard's Center for International Development, about how those who are excluded must be included in the inclusive growth process through interventions to increase their productivity

The Harvard Center for International Development (CID), The World Economic Forum’s Global Agenda Meta-Council on Inclusive Growth and the MasterCard Center for Inclusive Growth convened the Symposium on Inclusive Growth and Development on October 1–2, 2015.

At the symposium, Dr. Ricardo Hausmann, CID’s director and professor of the practice of economic development at the Kennedy School of Government, explained that the poor are not poor because they receive fewer of the rewards of economic growth that they create, but rather, because they create very little. The Symposium presented eleven innovative proposals to meet the needs of poor entrepreneurs and consumers today – and strengthen their ability to build better lives for the future.

Inclusion Hub spoke with Dr. Hausmann about the shortcomings of traditional methods to promote financial inclusion and inclusive growth, and ways to create increased productivity to reduce poverty.

Inclusion Hub: Inclusive growth is economic growth combined with social inclusion. Financial inclusion innovations work to propel one or both of those factors – for instance, micro-loans to allow more people to participate in the small business sector and to drive its growth. What are its strengths and weaknesses?

Ricardo Hausmann: Many of the ideas around financial inclusion had a lot of promise. They gave people the idea that the problem of the poor was that they just lacked the capital to be more productive and richer and so on, so when Accion International and Mohammed Yunus started microfinance, the idea was that this was going to be extremely transformative.

Now that the industry is 30 or 40 years old, the results as they have been evaluated have been much smaller than most enthusiasts expected. I think that there’s a deep lesson there: Access to financial capital is not necessarily the most critical constraint in many places.

There are many other things that are key for productivity that money cannot overcome. You can give people capital, but with that money they cannot build a road; they cannot build a power connection; they cannot build a water system; they may not get the right chain of suppliers; they cannot connect to an urban transport system if it’s too far away; they cannot necessarily get better business ideas for how to use that money. Giving people access to money isn’t sufficiently empowering and doesn’t help get them access to more productive activities. As a result, the microfinance industry has been less transformative than most people wished.

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