Effective Reconstruction is Building Markets and Cultivating Entrepreneurship

$9 billion in Haiti. $10.4 billion in Afghanistan. $16.3 billion in Iraq.

The need for effective reconstruction efforts around the world continues to grow and financial support for it has never been greater. So why is reform languishing? An insightful report from NPR’s This American Life on Haiti’s road to recovery tries to make sense of this quandary as national elections in the country approach this year. With “unprecedented amounts” of money pledged to Haitian relief since March alone, in addition to the active work of some 10,000 aid groups and NGOs, the country’s development has stalled, if not regressed. Haiti’s case is all too common. The challenge is getting past simply the best of intentions and actually embarking on a policy that helps Haitians help themselves.

Like most developing countries, what Haiti lacks is a legal, social, and intellectual culture that allows economic growth and entrepreneurialism to thrive and aid groups should focus more time and energy on expanding a reform plan with these precepts at its forefront. Indeed, entrepreneurialism is a mindset, a way of thinking, but it’s also a powerful skill and enabling individuals to employ it properly can help alleviate a culture of poverty that is plaguing numerous developing nations today in their reconstruction efforts.

Carl Schramm, president and CEO of the Kauffman Foundation and co-author, with William J. Baumol and Robert E. Litan, of the book Good Capitalism, Bad Capitalism, explained in a recent article for Foreign Affairs that just supporting democracy around the world is no longer sufficient—the economic policies necessary to sustain it must also be taught. Schramm notes that economic growth achieved through an entrepreneurial-driven policy is “critical to establishing social stability, which is the ultimate objective of the counterinsurgency campaigns and disaster-relief” that are a part of most reconstruction efforts. Research shows that a healthy middle class based on a thriving entrepreneurial society is essential to maintaining democratic stability.

Haiti is no unique circumstance. Peruvian economist Hernando de Soto, who heads the Institute for Liberty and Democracy (ILD) in Lima, Peru notes that developing nations are filled with plenty of promising entrepreneurs but opportunities are stymied because they work in the informal market given that legal rules hinder their access to the formal economy. In the early 1970s, when de Soto started his work, it took a Peruvian 200 days of full-time work, and expensive fees and bribes, just to start a business legally. De Soto estimates that if the world’s poor could just be given clear title to their land, they would gain access to $9.3 trillion in capital, to borrow against or sell.

Haiti’s situation is no different than Iraq’s or Afghanistan’s or any other country on the road to recovery. Effective and sustainable reconstruction is largely determined by the commitment and capacities of local populations, including civil society and grassroots groups that are at the front lines of recovery. Building the reconstruction process around local groups gives credibility to the development effort and introduces a sense of accountability, as reformers eventually become responsible for successes and failures.

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