What Can Be Done About Poverty?

Developing countries need to do more to encourage small-scale businesses in order to create jobs, income and opportunities for the poor, a United Nations report said Monday.

The report by the U.N. Commission on Private Sector and Development said promoting access to bank loans, encouraging job skills and training, and setting up simpler, fairer rules and regulations can all help small-scale business flourish.

"Make no mistake," said Paul Martin, Canada's prime minister and co-chairman of the commission. "This is a new pillar of development - unleashing local private enterprise, supported by strong, indigenous, democratic institutions."

Nearly 4 billion people around the world earn less than US$1,500 a year, the commission said. Those poor are consumers who often pay exorbitant prices for substandard goods.

In one section of Bombay, for example, slum dwellers pay 10 times more for medicine and more than three times more for water than people in a middle class section of the Indian city, the report said.

The private sector can provide a wider choice for consumer goods and services often at a lower cost, it said.

The commission, however, said that "disabling business environments" too often trap private entrepreneurs: officials soliciting bribes, governments unfairly favoring certain individuals, capricious regulations for opening or shutting down a business or cumbersome taxes.

For example, the commission said, property rights to land - often the largest asset for the poor - are not enforced and getting legal title to a piece of land is often too difficult. That makes it hard to use the land as collateral for a loan.

According to the World Bank, the cost of starting a business in Angola is US$5,531 - about eight times more than that country's per capita income. In New Zealand, the cost is about US$28 - about 1 percent of per capita income, the commission said.

More could be done, for example, to get the poor to use land as collateral for loans, the report said, or to promote "micro-loans"- loans that can be just a few hundred dollars and have relatively easy repayment terms.

On-the-job training for educated professionals can help stem the "brain drain" of trained workers fleeing poor countries for wealthier countries and higher incomes, the report said.

Nearly 300,00 professional workers from Africa now work in Europe and North America, according to International Organization of Migration, reducing human capital and domestic tax rates and shrinking the middle class in their home countries.

As well, large, multinational corporations should be encouraged to work with small-scale business for outsource work or to be suppliers of goods and services, the commission said.

The onus lies on developing countries, the commission said. To encourage small business development, they must have encouraging rules and policies.

"Developing countries must have the right policies to develop if they want to develop," said Ernesto Zedillo, Mexico's former president and the commission's other co-chairman.

"This is a new U.N. today," said Mark Malloch Brown, head of the U.N. Development Program, " a U.N. which... celebrates the private sector and the power of markets and consumers."

By Mike Eckel