Is There a Solution to Extreme Poverty?

Over the years different approaches have been developed in dealing with poverty in the Third World. Two basic development strategies have been developed to combat poverty. The first is the economic growth strategy, increase people’s standard of living through industrialization. Second is basic-needs strategy, which focuses on meeting the short term needs of people. Both methods have been attempted in fighting poverty. The economic growth strategy has been successfully employed in Asia with China being a recent example. The basic-needs strategy had been used throughout Africa with limited success. Hampered by civil and guerilla wars along with the death of millions by AIDS and malaria Africa seems unable to take the first basic step forward.

Jeffrey Sachs sets forth a basic-needs strategy in “Can Extreme Poverty be Eliminated?” Working with his colleagues at the U.N. Millenium Project a goal of halving extreme poverty by 2015 (compared to 1990) has been set. Sachs states that this can be accomplished if affluent nations would increase assistance to $160 billion per year. In comparing Africa to Asia, Sachs brings out the notable lack of flood plains in Africa compared to Asia but also the heavy burden Africa suffers because of tropical diseases. How should the money be spent? About one-half would be used for health and education. The majority of the remaining would be for infrastructure improvements within these nations. An example of the Millenium Project is the village of Sauri, Kenya. Over a five year period $2.75 million will be invested in this village. It is one of eleven that has been established (Rich 2007). The goal is to pour money into the village and see what happens. The infrastructure and agricultural sectors have benefited. Some of the critics point to the use of the money to support “clanism” and corruption including the reselling of supplies, by villagers, to neighboring communities (Rich 2007).

In “The Politics of Hunger” Paul Collier discusses the need to encourage large high-productivity farms to grow crops thus creating employment and a way to feed people. Using Brazil as a model he brings out how large “technologically sophisticated agricultural companies have demonstrated how successfully food can be mass-produced (Collier 2008).” Thus following the Brazilian model Africa would begin using mass produced cash crops to feed itself. Collier focuses upon three areas that Western nations must change to better combat hunger. The first is slaying the romantic populist delusion of peasant agricultural. The peasant farmer is ill prepared to cope with modern methods of a global economy. The second is war against genetically modified foods. Crops that could grow easier in the drier African climates are banned because Europe has banned the crops. The third is the subsidies of ethanol. This one act would help lower the price of food by lowering demand for the crops. (Collier 2008)

In “The Micromagic of Microcredit” we are introduced to an idea that was first developed by Nobel Laureates Muhammad Yunus, "for their efforts to create economic and social development from below.” (Nobel 2006) They have accomplished this through the use of microcredits. Microcredits are small loans given to people building their small business, enabling them to grow and increasing the savings of these people. In some areas these loans allow the borrowers to avoid the moneylenders who charge 200% interest. It also compliments Goal 3 of the U.N. Millenium Project which is to “promote gender equality and empower women” with almost 76 percent of microcredit customers being women. Private groups such as Kiva Loans and the Gates Foundation use this technique with more private groups coming online.

Each of these methods has a place in the fight against extreme poverty. All three of these methods understand that it is more than a food when it comes to poverty. Each talks about the need for creating jobs to put people to work. The objectives of the U.N. are more comprehensive in dealing with not only poverty but other issues that these poor nations feel, such as, disease, child mortality, education and environmental sustainability. The U.N. also talks about the need to empower women as does the concept of microcredit. Sachs is stressing the idea of pouring billions of dollars into the project and hope it sticks while Collier is pushing the free market as the means of achieving the goal. The use of microcredit, which empowers women, shows a steady trend of moving families out of poverty. (Nobel 2006)

In many ways these methods could be a complimentary to each other. Mass producing farms could be created in some of these nations. This would allow the production of food for many more people. It would require workers to tend the farms creating employment but whether enough to achieve low unemployment is in doubt. Mass farming versus the Millenium village is the difference between allowing the free market to function or spending billions of dollars on a program that, as has happened in the past, is here today but gone tomorrow as the next new idea comes along. These methods are also prone to corrupt governments that require a monitoring program to ensure the aid is going to correct sources. As have been shown in the past there is nothing to prevent the nationalization of the large farms causing concern with some nations. The U.N. method also seems to carry forward the romantic idea of the peasant farmer when major food production maybe needed.

The U.N and the large farms require that infrastructure improvements be made from roads and irrigation to mobile phones and disease prevention (Sachs 2006) The bright spot for the U.N. program is the adaption of the program to local needs where as large farms can only be used in geographies that would allow it. Collier also stresses the need to abandon the war on science and allow genetically modified foods that could grow in drier climates.

There are three economic perspectives that need to be viewed from these methods. The first is the Liberal Economics Perspective. This method stresses the need for privately designed methods to fight poverty. The ideas behind Collier would fit within this perspective; Private farming would be allowed to mass produce within the framework of large farms, this would create jobs and increased yield to the levels that modern technology could allow.

The Dependency Perspective says that the poor are depended upon others for aid. The continuous United Nations programs, such as the Millenium Project is an example of outside aid being used to help develop the area. The problem arises that when the aid stops will the positive effects continue or begin reversing.

Another view is the Participatory Development Perspective where locals are involved in the decision making process of how to improve their lives and what technology should be used. Microcredit fits within this framework by providing needed capital to local entrepreneurs which places the decision making at the local level where needs are known. (Kelleher 2006)

In looking over the various methods proposed to fight poverty the first question that needs to be asked is “what is causing the poverty?” For the way to fight poverty caused by war will be treated differently than if there is a lack of infrastructure; In war you are dealing with a refugee issue, while building an irrigation system may help a village achieve the ability to grow food in drought stricken areas. Another area mention by Sachs is the oversight and monitoring of aid due to past experience with corrupt governments. For areas that suffer extreme poverty the basic-needs strategy is needed. The goal is for people to achieve a minimum subsistence before moving into the economic growth strategy mode. After World War II the basic-needs strategy was used in Asia with great success. It provided a basic subsistence until the economic growth model could be allowed to work. In looking at the U.N Millenium Project I see a lack of follow up when the aid ends. The project consists of 11 villages in Africa that has received over the years with limited success. What is prevent these villages to revert back to destitution when the U.N. advisors and money leave.

Collier advocates large farming projects in these areas. As much as I like this idea I fear the corruption of these governments which could lead to nationalization and abandonment of these farms. I would begin this type of program if possible in those nations whose geography makes it possible. In looking at the different alternatives I find microcredit the most welcoming to use. Outside of education it has made the empowering of women a real possibility. It has allowed women to start or expand a business to better provide for her family and future.

Attempting to fight poverty is never an easy thing for the causes vary. It is never enough to just feed these people but also to bring in an education and jobs; for long term success there are three areas that look promising. The first is the growing trend in microcredit. As Grameen Bank has shown in Bangladesh by giving women the ability the move upward the whole family will benefit. (Nobel 2006) The other two areas involve private giving and migrant workers who send money back home. According to Holly Yeager migrant workers, in 2006; send back home $332 billion and private charity giving reached $34.8 billion. (Yeager)

Kelleher, Ann and Klein, Laura. Global Perspectives, A Handbook for Understanding Global Issues, 2006, Pearson Education

Sachs, Jeffrey D. 2005. “Can Extreme Poverty be Eliminated?” Scientific American, Sept 2005. p. 56-61

Collier, Paul. 2008. “The Politics of Hunger”. Foreign Affairs. November/December 2008

Boudreaux, Karol and Cowen, Tyler. 2008. “The Micromagic of Microcredit.” The Wilson Quarterly, Winter 2008

Rich, Sam. 2007. “Africa’s Village of Dreams” The Wilson Quarterly. Sept 2007

Yeager, Holly. 2008. “ The New Face of Global Giving” The Wilson Quarterly, Summer 2008

Yunus, Muhammad. http://nobelprize.org/nobel_prizes/peace/laureates/2006/index.html

Peace Jam Slam

The goal of Peace Jam is to program that encourages youth to “find their own path to peace.” As part of the program the youth make commitments for peace. This involves four areas of commitment. All of these areas involve a commitment to character development and the goal of building peace both within yourself and with those people in your life. The first is Peace Within, character focus approach to positive youth development. The second is to become a Peacemaker, the process of effective conflict resolution both locally and globally. The third is Justice, using the examples of Nobel Peace prize winners to show the youth how it can be done. And fourth was Civic Dialogue, learning the ability to listen to others viewpoints and reason together.

My role in Peace Jam Slam was a youth mentor. My function was as a facilitator whose role was to encourage the teenagers to discuss the topics they had been learning in school or church and help them communicate with each other. Peace Jam Slam was designed to break the day up from the opening ceremony to workshops and family groups. The night before I had planned some activities to get a discussion going but as I was walking out for the opening ceremony I was assigned to a new family group. So I basically went along with what the other mentor had planned. The activities involved getting the youth to discuss topics such as violence and see the diverse backgrounds they each come from.

The whole concept of Peace Jam is built upon the Global Call to Action on first an interpersonal level, then community level, national and finally world level. The Global Call to Action was developed by twelve Nobel Peace Laureates (including the Dalai Lama, Jody Williams and Desmond Tutu) who discussed the issues and came up with ten areas they felt needed immediate action. In many ways there exists a similarity to the U.N. Millenium Project. The difference is that The Global Call to Action works at a local level. As Tip O’Neil said, “All politics is local” so is the way to end extreme poverty, breaking the cycle of violence, halting the spread of global disease and empowering women.

Muhammad Yunus - Banker to the Poor

Awarded the Nobel Peace prize in 2006 along with Grameen Bank "for their efforts to create economic and social development from below" (Nobel). Beginning in the 1970’s Yunus began making personal loans to destitute basketweavers in Bangladesh. In 1983 he founded Gremeen Bank believing that credit is a fundamental human rights with the purpose of “help[ing] poor people escape from poverty by providing loans on terms suitable to them and by teaching them a few sound financial principles so they could help themselves.” (Nobel)

Born in 1940 in the seaport city of Chittagong, Bangladesh Yunus graduated from Vanderbilt University in 1969 with a PhD in Economics. He developed what has become known as micro-lending or microcredit. Fighting poverty through the use of microcredit has been Yunus’ goal. As he describes poverty, “Poverty is the absence of all human rights. The frustrations, hostility and anger generated by abject poverty cannot sustain peace in any society. For building stable peace we must find ways to provide opportunities for people to live decent lives.” (Nobel)

Grameen Bank has made 7 million loans to poor people in Bangladesh, 97% of which are women; As Yunus stated in his Nobel Lecture, “We focused on women because we found giving loans to women always brought more benefits to the family.” (Nobel)

The strategy used by microfinance is the economic growth model and Grameen Bank has shown that it offers the opportunity for people to move above the poverty line.

As Yunus said at his Nobel Lecture, "In a cumulative way the bank has given out loans totaling about US $6.0 billion. The repayment rate is 99%. Grameen Bank routinely makes profit. Financially, it is self-reliant and has not taken donor money since 1995. Deposits and own resources of Grameen Bank today amount to 143 per cent of all outstanding loans. According to Grameen Bank's internal survey, 58 per cent of our borrowers have crossed the poverty line."

Today the world is looking for ways to combat extreme poverty. Grameen Bank and Muhammed Yunus has shown a long term solution that offers opportunities to permanently raise people above the poverty line without becoming dependent upon outside aide. Groups like Kiva Loans have followed the example of Professor Yunus and has begun replacing the moneylenders.

Business Tax

Client Letter

Dear Mr. & Mrs. Johnson

Thank you again for requesting my advice concerning the tax treatment for your deferred exchange with Paul. I do have some bad news for you. You are required to recognize a gain on the exchange of your property.
In reaching this conclusion, I consulted the relevant Internal Revenue Code and related Judicial Rulings. The facts as I understand them are as follows:
You made an agreement between yourselves and Paul to engage in a 1031 Deferred Exchange. On July 1 you transferred title to a parcel of land with an adjusted basis of $20,000 and fair market value of $75,000 to Paul. The agreement required Paul to purchase and transfer title to you of a like-kind property within 180 days of July 1. On August 1, two parcels of land were identified that was acceptable to you, one near Dallas and another near Houston. Negotiations were begun by Paul with the owner of the Dallas property but no deal could be reached so he began negotiations with the Houston property owner. On January 1 Paul purchased the property and immediately transferred title to you.
Even though a good faith attempt was made to meet the required 180 day replacement period the IRS Code only allows 180 days from the original transfer of title for a like-kind exchange to occur. The reasoning behind this is to prevent an open transaction, with long term exchange periods, from occurring. After 180 days the exchange falls under Section 1001 requiring the recognition of a gain or loss on the exchange of property. Therefore you are required to recognize the gain on the exchange. My research did uncover a similar case to yours in that a “good faith attempt” was made to complete the exchange within the required time period but the court ruled that it did not meet the required replacement period (Knight v. Commissioner, 75 TCM 1992).
Please contact me if you have any further questions.

Memo to File

Client: Fran & Bob Johnson
Subject: Research Problem 19
For: Business Taxation
Research by: Paul Fisher
Date: November 10, 2008

Facts

Fran and Bob Johnson engaged in a 1031 deferred exchange with Paul on July 1 by transferring a parcel of land with an adjusted basis of $20,000 and a fair market value of $75,000. On August 1 two like-kind properties were identified, one near Dallas and the other near Houston, both were acceptable to the Johnson’s. Paul began negotiations with the Dallas property owner but was not able to reach a deal so it fell through. Negotiations began with the Houston property owner but it did not close until January 1. Paul immediately transferred title to the Johnson’s.

Issues

1. Did the like-kind exchange take place within the Identification and Replacement Period?
2. What are the tax consequences for the Johnson’s?

Conclusions

1. The identification period of 45 days was met. The replacement period was not met by the Johnson’s. The statutory period for like-kind exchanges are 180 days from the date of the Johnson’s transferred the property relinquished.
2. Because the 180 day replacement period was not met the property is considered unlike-kind and subject to IRC Section 1001 requiring that you recognize the entire amount of your gain on the exchange of your property.

Discussion of Reasoning and Authorities

1. Section 1031 deals with Exchange of Property held for Productive use or Investment. Section 1031 allows the like-kind exchange of property without the recognition of a gain or loss. Section 1031(a)(3) requires the identification period of replacement property be on or before 45 days from date the “taxpayer transfers the property relinquished in the exchange.” The replacement period is 180 days from the time time taxpayer transfers the property relinquished or “the due date (determined with regard to extension) for the transferor’s return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs.” Which ever is earlier, thus the 180 days applies.
In David A. and Marilyn P. Knight v. Commissioner (75 TCM 1992) the court ruled that even though a good faith attempt was made to exchange the property within the 180 day replacement period it does not entitle them to avoid the application of the plain language of IRC Sec. 1031.
2. Section 1031 provides for the “non-recognition of such gain or loss on ‘the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.’” Because the replacement period of 180 days has not been met IRC Sec. 1001 requires recognition of the entire amount of gain or loss on the exchange of property.