Repurposed Economics for Development Finance Challenge. Is it plausible?

In my early years, rural landscapes and vibrant townships blended seamlessly—a canvas where the threads of poverty intricately woven themselves into the fabric of daily life. My childhood home bore witness to two constants: my parents’ tireless entrepreneurial spirit, and their unmatched compassion those in need around us. Initially, their fervour for enterprising puzzled me, but as the years unfolded, it became evident that their pursuit transcended mere financial ambition. It wasn’t just a strategy to lift the family out of poverty; it was also an effective tool to extend a helping hand to our neighbours.

Poverty and its associated development challenges are inherently pervasive. Surprisingly, despite ongoing efforts to tackle these challenges, levels of inequality continue to rise as access to basic services is far from being human right. When it comes to interventions, there seems to be an underestimation of development challenges such as poverty, as programs tend to be linear and tackle surface issues. Our weapons do not match the war at hand.

The harsh realities of development challenges require unconventional avenues for financing. Notably, as economist warn of a development financing gap of 1.6 trillion until 2030 ¹. One intriguing prospect within this exploration is: mainstream economics. For those who have demonized capitalism, this is incomprehensible heresy. This exploration demands a balanced evaluation of mainstream economy’s capitalism, it’s merits and drawbacks. Nevertheless, despite the contentious history of capitalism, industries were built leading to innovations that have enhanced human development. As financing developmental challenges has become a concern , it begs the question: Could capitalism serve as a viable means to finance critical areas such as food security, health, or education? For those who have demonized mainstream economics, this is incomprehensible heresy.

Needless to say, there are invaluable lessons to be gleaned from capitalism.

Development finance: Efficiency gains

Efficiency gains are fundamental in mainstream economics, prioritizing principles of cost efficiency and output maximization, which lead to remarkable industry growth and innovation. To an extent, the achievement of such success is intricately tied to the use of key systems and technologies. Take the mining industry as a prime example, where a commitment to cost efficiency drives the deployment of advanced technologies and streamlined processes throughout the entire operational-from exploration to blasting. By integrating technology-based mining methods and mechanizing production lines, companies boost productivity and minimize waste.

Although the development financiers may not have the same resources (tech, quantitative data and technologies) at its disposal, efficiency based planning is still practical. Adopting efficiency based planning in development interventions may require additional technical skills, it is a worthwhile endeavour. Interventions can be targeted and, thereby leading the way to maximize outcomes. This approach not only aligns with the ethos of mainstream economics-which some revile, but allows development financing to unlock sustainable financing opportunities.

Stewardship in Development Financing

Principles of stewardship and financial management are the backbone of any business operation. Stewardship refers to the careful and responsible management of resources, and leaders are often called to higher standard of performance through evoking fiduciary duty. Business thrive when leaders act as stewards, considering the long-term implications of their decisions. This lesson emphasizes the importance of responsible leadership, urging organizations to prioritize ethical conduct, transparency, and the overall organizational well-being.

Consider, for instance, the common scenario in development finance, where philanthropic funds are channeled through intermediaries like NGOs. Unfortunately, some NGOs lack rigor, and funders may not consistently measure outcomes or quantify Social Return on Investment (SROI). Notably, SROI is a useful tool used to quantify the rate of return and overall impact of interventions. In development finance, the lack of financial and outcome measurement can hinder progress in current and future development initiatives.

In development finance, demonstrating fiduciary responsibility is a tool to build trust among investors, donors, and other stakeholders. When these parties have confidence in the proper management and allocation of funds, they are more likely to contribute and support developmental projects. Furthermore, it also fiduciary responsibility promotes careful financial planning and management, ensuring that resources are used efficiently and sustainably. This approach contributes to the long-term viability and success of development projects, fostering enduring positive impacts on communities.

Incentivizing Entrepreneurship for Development

The competitive nature of mainstream economy incentivizes individuals and businesses towards creative solutions. This is achieved by exploiting individual initiative and risk-taking behaviors, encouraging a proactive approach to pursuing opportunities. In this manner, entrepreneurs often identify gaps or opportunities in the market and leverage their innovative ideas to create new products or services. For instance, visionary entrepreneurs like Steve Jobs, co-founder of Apple, played a transformative role by introducing groundbreaking products such as the iPhone and iPad. Other visionary entrepreneurs also experiment on business models that serves the ‘bottom of the pyramid’. These inventions not only revolutionized the technology landscape but also influenced consumer behavior and expectations.

The competitive nature of the mainstream economy in the technology sector encourages entrepreneurs to constantly seek creative solutions, driving advancements, and contributing to the industry’s continuous evolution.

Similarly, in development finance, entrepreneurial behaviour and innovation can be incentivized by rewarding organizations that proactively respond to local needs. These entities can take various forms, including private companies, trusts, venture firms, and community-based organizations (CBOs) – see excerpt on Social Economy: From Needs to Opportunities. Additionally, social franchising models can be effective tools to incentivize and cultivate entrepreneurship. Ultimately, for entrepreneurship and innovation to yield the most value in development initiatives, a multi-modal approach is essential.

While we must be critical of mainstream economy’s imperfections, we should equally embrace lessons. After all, there is no perfect economic system.

The present development challenges are entrenched and pervasive, demanding innovative solutions and collaborative contributions from diverse stakeholders. As we grapple with a substantial funding gap, the proverbial caution of ‘throwing the baby out with the bathwater’ becomes relevant when considering the potential resource for development within the mainstream economy.

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