When You Earn $1.00 a day, $1.80 is Progress

Reading the Sunday NY Times on Cindy’s patio. The languid July heat makes for a mellow surroundings, as I read Daniel Gross’s engaging column about microlending in the third world. Instead of lobbying for more government foreign aid, we should invest in and support businesses that are self-sustaining and replicable.

The column entitled “Fighting Poverty with $2 a day Jobs,” posits that “the creation of low-wage factories, as well as the establishment of lending institutions that charge rates that many Americans would deem usurious, “is the key to making a real difference in poverty stricken nations. “As you increase the number of factories, demanding labor, wages will be driven up, and eventually such factories will not be sweatshops.” That’s a tough sell for philanthropy-minded westerners. But before the women who labor now for $1.80 a day in a Tanzanian bed net factory, most earned $1.00 a day as street vendors and domestic workers.

Gross makes a case as well for creating new banks to pressure interest rates down, as occurred in Bolivia. In 1992, Banco Sol began lending small amounts–today six regulated banks compete for this business, and the rates paid by poor Bolivians has fallen to 22%, from 80% in the 1980s.