World Bank: Invest in Poor Nations to Fix Global Economy

Justin Yifu Lin, the World Bank’s chief economist, has a proposed fix for the world’s hurting economy: Rich nations – such as the U.S. and China – should invest in poor nations. According to Lin, if developed countries invest in the building of highways, electric power and other basics, the recipient nations will eventually become customers and buy exports from the richer nations/investors:

Justin Yifu Lin said that the global financial crisis should have a global solution, arguing that if low-income countries get investments in electric power, highways and other fundamentals, they’ll escape poverty, grow in a sustainable way and be able to buy exports from countries such as the United States.

It’s a concept that has been explored before in the international development arena, although not within the context of a world financial crisis. In 2002,

By stimulating commerce and development at the bottom of the economic pyramid, MNCs could radically improve the lives of billions of people and help bring into being a more stable, less dangerous world. Achieving this goal does not require multinationals to spearhead global social development initiatives for charitable purposes. They need only act in their own self-interest, for there are enormous business benefits to be gained by entering developing markets. In fact, many innovative companies—entrepreneurial outfits and large, established enterprises alike—are already serving the world’s poor in ways that generate strong revenues, lead to greater operating efficiencies, and uncover new sources of innovation. For these companies—and those that follow their lead—building businesses aimed at the bottom of the pyramid promises to provide important competitive advantages as the twenty-first century unfolds.

But is it that easy?

Recently we wrote a post about the ethical problems involved when a powerful MNC (multi national corporation) invests in an impoverished nation. Although the example of Korea’s Daewoo and Madagascar is extreme and a bit different as it deals with the issue of food security, recent developments in Madagascar suggest that foreign direct investment may not always be welcomed by the common citizen of a developing nation.

Unrest erupted in Madagascar around the same time we posted our original entry on the Daewoo agreement. And while the current political and civil instability in the country is not directly in reaction to the tenant farming arrangement, BBC suggests that the Daewoo-Madagascar “partnership” may have played a big role in the public’s unhappiness:

The final straw for many was the mooted plan to lease one million acres in the south of the country to the Korean firm Daewoo for intensive farming.

Malagasy people have deep ties with their land and this was seen by many as a betrayal by their president.

And so this opens the door to a host of other potential complications.

Investing in a foreign country, be it developed or not, is always a complicated process. But if done responsibly, it can benefit both the investor and the country invested in. And according to Lin, when rich nations invest in poor ones, the benefits may branch out to the entire world as well.

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