Black Gold: Oil's Influence on the World Economy

Last Thursday, consumers worldwide felt their pocketbooks pinch as the price of crude oil surged to ninety-six dollars per barrel. This number falls just shy of the inflation-adjusted 1979 record of $100.28 per barrel, but economists predict that oil prices will rise well above this level by the end of the year. While industry leaders blame the latest price spike on tensions between Turkey and Iraq, long term price escalation can be attributed to the increase in global demand for a diminishing supply of oil. In light of the recent media attention devoted to oil-related events in the economy, I decided to search the blogosphere for scholarly and expert analysis of the current crisis. The first blog I found, Energy Filter, is written by a Financial Times editor, Ed Crooks. In his post “Total Chief Skeptical about Future Oil Supplies,” Crooks writes about the 2007 Oil and Money Conference and describes the debate over the accuracy of market predictions. The second blog I discovered, The Streetwise Professor, explores current events in the world economy and is written by a finance professor at the University of Houston. His post, “Talk about Timing”, examines the Chinese government’s reaction to rising oil prices. After reading both posts, I offered my own analysis of the topic and a reproduction of my comments can be found below:

“Total Chief Skeptical about Future Oil Supplies”:

As a finance student and oil consumer, I find your economic analysis of the current oil situation insightful and provocative. After reading this post and learning about the debate regarding oil output and prices, I am not surprised that the experts participating in the Oil and Money conference are hesitant to predict the future cost of crude oil. As you imply when you write “predicting oil prices is a mug’s game,” the forecasts tend to be incorrect due to the volatility of the market. Despite my lack of confidence in price estimations, I still find that certain market predictions are critical in determining the oil industry’s future, which leads me to disagree with your point about production factors. You write that above-ground factors such as “the lack of capacity in the industry to develop resources sufficiently quickly” are more important than the below-ground factors such as the geology of the oil reserves. While a short term analysis of the current oil crisis would merit such a conclusion, the below ground factors you describe as unimportant will ultimately have a greater long term impact on consumers and the economy. Currently, scientists estimate the depletion of the world’s oil supply using the Hubbert Peak for World Oil (which is the basis of the Peak Oil theory you mention in your previous post), and studies based on this theory indicate that complete depletion will occur shortly after 2050. Regardless of whether the supply will completely diminish as fast as predicted, how will “above ground factors” be important when there is little oil left to process?

“Talk About Timing”:

After extensively researching the effect of rising oil prices on the economy, I appreciate your intelligent and clear analysis of the current Chinese oil crisis. Although almost every national economy is suffering from crude oil costs of nearly one hundred dollars per barrel, developing countries seem to have the hardest time adjusting to the price increases. From your post, it is obvious that China is no exception to the rule—only after severe shortages and civil unrest has the government finally agreed to establish price controls. While this is a step in the right direction, the effect of these policies is still unknown and you point out that “depending on how China adjusts these policy instruments, the raising of the price ceilings could ease some pressure on the demand for oil.” However, even if the measures prove to be immediately successful, I am concerned that subsidies and price controls will not effectively reduce the Chinese economy’s long term dependence on crude oil. Today, scientists predict that the world’s oil supply will be depleted by 2050 and this has major implications for developing nations that rely heavily on oil to spur their rapid economic growth. In the future, do you expect emergent economies, such as China, to suffer major setbacks in the absence of oil, or can investment in alternative fuel sources feasibly generate similar financial growth?

A Little Goes a Long Way: How Microfinance Effects Women in Poverty

In 1976, a twenty-seven dollar loan radically changed the lives of forty-two impoverished women in the village of Jobra, Bangladesh. The financier, Dr. Muhammad Yunus, an economics professor at a nearby university, was astonished to find that his meager investment enabled the women to avoid the usurious loans offered by greedy moneylenders and buy enough supplies of bamboo to make and profitably sell stools in their marketplace. Encouraged by the results of this economic experiment, Yunus formed the first microfinance institution, Grameen Bank, based on the idea that the poor could use credit to lift themselves out of poverty. Over the years, the bank has lent more than $900 million in the form of small loans to seven million people and its success is undeniable: 98.4% of loans have been repaid and 64% of borrowers have left the poverty bracket. In 2006, Yunus received the Nobel Peace Price (see photo at right) for his efforts, which have motivated, to date, over 3,000 economic and political institutions worldwide to experiment with microfinance. This trend has even expanded into mainstream investment channels with last week's lauch of MicroPlace, an eBay sponsored website that pairs everyday investors with impoverished individuals. While microfinance is surely not the only viable poverty solution, its use of simple financing principles has helped citizens of developing countries, especially poor women, to take control of their own economic and social situations.

Historically, women in most nations have been excluded from the market economy and forced to work in the home, while cash income was generated by their husbands. Although these gender roles have significantly changed in developed countries during the last century with the expansion of women’s rights and economic power, poorer, less educated nations have not similarly advanced. Of the 1.8 billion people living in extreme poverty, seventy percent are unemployed women who have little hope of finding good work in their male-dominated societies. However, microfinance organizations have begun to attract these jobless women by offering loans that fund self-employment endeavors—currently, 84% of borrowers are women hoping to find financial success in some little market niche. Although the lack of education and the size of the loans often inhibit entrepreneurs from pursuing fancy schemes, home-based businesses and street vending have flourished in informal economies, enabling women to save and invest small amounts of money. For example, Auxiliadora Soza (pictured below), a single mother from Diriamba, Nicaragua, with the help of microfinance organization FUNDESER, was able to start her own cheese stand ten years ago in the local market with a $250 loan. Since then, she has taken out and fully repaid ten different loans and has grown her inventory to include other food items and makeup. With the money earned and saved, she has financed her five children’s educations and today, the two eldest are professionals while the other three are college students.

Soza’s accomplishments are not uncommon in the world of microfinancing. For many women it would have been near impossible to start profitable businesses or educate their children without loans provided by different organizations. However, as much as women are dependent on microfinance institutions for money, the success and longevity of such programs are direct results of women’s responsible financial management. Statistically, women are more likely to save and repay their loans on time than men, and according to Mary Ellen Iskederian, head of the nonprofit organization, Women’s World Banking, “women tend to invest in three things: health, their children’s education, and their home while men, on the other hand, put more back into the business.” Business reinvestment is an intelligent economic decision, but the factors that really work to end the cycle of poverty on a micro level are changes in the home. A greater disposable income increases the ability to purchase more expensive food items such as meat and milk, ensuring better nutrition and longer life expectancies. And, educated children are more likely to enter the professional workforce and make a steady income. The Global Campaign for Education reports that “just one year of schooling increases a woman’s future earning potential by 10 to 20%.” If the profits made from the short-term loans are wisely reinvested in the home, they can provide years of valuable, long-term returns.

Despite its recent success and popularity, not all economic experts are convinced that microfinance is the key to effective poverty eradication. Critics point out its inability to foster broad development, as it focuses on improving community, rather than national, economies. Michael Strong, founder and CEO of pro-entrepreneurial organization FLOW, says that microfinance represents a great effort in improving living standards, but “is often promoted at the expense of multinational and corporate investment” that are needed to expand developing nations’ economies. Studies conducted by the World Bank further indicate that microfinance is not a panacea solution to poverty and that infrastructure development of better roads and bridges is a more effective long-term investment. All these are valid counterarguments, yet they ironically focus too much on the big picture. Of course, world poverty is far too complex of a social problem to merit one solution, but the appeal of microfinance lies in its ability to reach out on an individual level and actually change lives. Each story of personal success echoes this concept and substantiates the use of microfinance in developing nations. And, whether economists admit it or not, providing poor women with access to capital, savings and education, are truly macro results.

History Repeats Itself: Why Slavery Still Exists in Today's World

In 1807 the transatlantic slave trade was abolished, terminating the forcible shipment of millions of Africans to the United States and Caribbean to work on sugar and cotton plantations. Now, two hundred years later, many regard slavery as an institution of the past, a product of a bygone era of unspeakable injustice and racism. True, long gone are the days of legal enslavement and masters of southern mansions; however slavery has managed to escape the confines of history and still shockingly exists today in the form of human trafficking. Essentially, trafficking occurs when men, women or children are illegally transported to other countries often upon the promise of a job or better life, and coerced into labor or sexual exploitation. From Uzbeks sold as compulsory laborers in Russia to Nepalese women and girls forced into a life of prostitution in India, modern-day slavery is present internationally (see map at left) and has been reported in over 100 countries. While human trafficking has undoubtedly developed into a complex, global issue with major political and social implications, it is predominantly instigated by economic problems in developing countries that create a steady supply of potential victims.

In terms of supply, poverty is often referred to as the major contributing or push factor that leads victims to accept the fraudulent offers from traffickers or sell family members into slavery for meager amounts of money. While both are unthinkable options, the underprivileged rarely have much choice in the matter. In rapidly developing nations such as India “seventy-seven percent of Indians—about 836 million people—live on less than fifty cents per day,” which is well under the extreme poverty limit of one dollar per day set by the World Bank. Furthermore, according to the International Labor Organization (ILO), this situation is caused by low wages rather than unemployment. The ILO maintains that the most common misconception about poverty is that the poor do not work and cites regional rates of unemployment as evidence. South Asia, for example, is one of the poorest areas in world, yet its unemployment rate is only 4.8 percent while in comparison,the United States' is 5.1 percent. Clearly, employment in developing countries is not the problem—compensation is. The prospect of a well-paying job in another country is enough to lead the naïve straight into the trafficking trap.

Moreover, in these poor countries, the poverty situation is often aggravated by wars, natural disasters or civil unrest which inflates the supply of economically vulnerable people. The U.S. Department of State’s Trafficking in Persons Report describes dramatic increases in rape, sexual abuse, kidnapping and trafficking in the countries devastated by the 2004 Indian Ocean tsunami. In the aftermath of the disaster, “thousands of orphaned children were vulnerable to exploitation by criminal elements seeking profit from their misery.” A similar effect is presently occurring in war-torn Darfur where thousands of women and children, in hopes of escaping the violent conflict, have found themselves victims of horrendous trafficking by virtually all armed groups involved in the Sudanese civil war. The Lord’s Resistance Army, one of the rebel organizations, is “estimated to have abducted over 16,000 children,” and forced them to work as servants, cooks and even soldiers (see photo at right) in the neighboring countries of Uganda and the Democratic Republic of the Congo. Evidently, these kinds of political and environmental calamities that plague developing nations have increased the number of impoverished people and facilitated human trafficking.

However, the aforementioned supply factors that cause poverty are not the only economic instigators in the trafficking issue. As any elementary course in economics would teach, a market for a good is created from supply and demand for the product, and is perpetuated if the product is profitable. The market for human slaves is no exception to the rule. The criminals who run the trafficking rings would not be involved in the business if there was no demand for the products they offer and no profit potential, but clearly this is not the case. Demand for cheap labor and prostitution remain high in developed nations such as the U.S. and the E.U., where labor costs are a company’s greatest expense and paying for sex is outlawed. To meet these needs, 600,000 to 800,000 people are annually trafficked across national borders creating a lucrative $32 billion dollar black-market industry. Still, trafficking could not exist without the supply push factors from developing nations. If the economic situations in these countries were desirable, fewer people would be baited by the false promise of a better life or job elsewhere and the industry would dwindle without a pool of victims. In order to reach the point where trafficking is no longer a threat, world leaders and organizations must work with struggling nations to create better domestic job markets, ensure higher wages and educate citizens about the dangers of trafficking. These endeavors will not only work to eliminate the supply, but will help to finally create the slave-free world that was envisioned in the early 1800s.

The Chinese Export Crisis: Consumer Demand for Cheap Imports Backfires

Barbie Dolls, Polly Pockets and Hot Wheels will probably not be filling up children’s stockings this holiday season. Last month, Mattel, international toy company and producer of the aforementioned playthings, was forced to recall millions of toys manufactured in China that contained lead paint and hazardously small magnets that children could swallow (see picture at right). This announcement came at an inopportune time for Mattel, which consequently released a dismal third quarter forecast, and more so for Chinese manufacturers who have been chastised all year for their faulty, unsafe products. From toxic shrimp to contaminated toothpaste, one scandal after another has besieged China’s export-based economy, leaving American consumers both worried and incensed. In fact, a Reuter’s poll, released September 19th, reported that “around 78 percent of Americans worry about the safety of Chinese imports, and a quarter have stopped buying food from China.” While these fears are well founded, most customers are too occupied with blaming the U.S. and Chinese corporations to realize that, ironically, consumer demand for inexpensive products is a significant part of the problem.

The development of outsourcing to meet demand for cheap goods, has greatly contributed to the import issue. By employing inexpensive overseas labor, large corporations such as Mattel, General Motors and Safeway have been able to reduce overhead costs and pass off these savings to their customers in the form of cheaper items. In fact, according to the latest U.S. Bureau of Labor Statistics report, the average Chinese wage is $0.57 per hour—or $104 per month—which is about three percent of the average U.S. manufacturing worker's wage. While these figures may be good for U.S. companies’ bottom lines, the blatant disparity illustrates China’s alarming lack of enforced labor laws. Chinese employers have hardly any repercussions if employees are mistreated or underpaid and sadly, more often than not, U.S. companies choose to overlook this fact in the pursuit of profits. Peter Morici, a former chief economist at the U.S. International Trade Commission, claims that China’s "tilted trade balance" with the U.S. has allowed Chinese manufacturers to act undisciplined. “Beijing,” he says, is "letting manufacturers do whatever they want without regulation to the point that it borders on atrocities." The absense of accountability allows Chinese businesses, which are strapped for cash, to cut the corners in their manufacturing processes in order to fulfill the demands of their U.S. employers. Often, this ultimately results in a shipment of faulty, unsafe goods.

Furthermore, once these imports land on American soil, entities like the United States Food and Drug Administration (FDA) are responsible for inspecting the items. This, however, has become nearly impossible due to the sheer number of products entering the country. Currently, the U.S. trade deficit is absurdly high at $59.2 billion dollars (see graph at left), but this figure is solely the difference between imports and exports. The actual amount of goods and services coming into the country is close to $2 trillion per year. Thus, it comes as no surprise that the FDA or the U.S. Consumer Product Safety Commission can only regulate two percent of all imported products, and it is unlikely that this figure will increase anytime soon—hundreds of new agencies would have to be formed requiring unrealistic amounts of personnel to complete the inspections. Consequently, deficient goods often pass through the substandard checkpoints, make their way onto store shelves, and ultimately land in the hands of unassuming shoppers. It often takes a tragedy to remind consumers that the cheap goods they regularly purchase are sub-par.

Of course not all inexpensive imports are of poor quality and consumer demand is not the only reason that inferior products exist—the manufacturers that produce the goods make the ultimate decision of what materials to use and should be held legally accountable if something goes awry. However, demand dictates supply in all capitalistic economic situations. If low prices are requested, companies will surely comply. For years, American consumers have enjoyed falling prices for goods made in China thanks to relentless cost-cutting by retailers such as Wal-Mart and Target. Often times, the majority of these products are acceptable and can even be considered beneficial to the economy because low prices increase individuals' disposable income. However, buyers must be aware that the cheap goods they appreciate are hardly ever produced without paying the price elsewhere. Perhaps a seven-dollar Barbie seems like a steal initially, but when it comes at the cost of human rights in China or the compromise of child safety, is the bargain really worth it?

Climate Change Policy: World Leaders Discuss the Future of Global Warming

Global Warming is on everyone’s radar these days. Scientists throughout the world continuously warn that human activity is adding an alarming amount of pollution to the earth’s atmosphere causing catastrophic shifts in weather patterns. Photographs prove the steady melting of the Alps (see picture at left) and polar icecaps while studies are released daily, citing findings such as: “The average number of Category 4 and Category 5 hurricanes worldwide has nearly doubled over the past 35 years.” Clearly, global warming can no longer be disputed. It is happening at a frightening rate and has finally captured the population’s attention.

In light of these growing concerns, world leaders have met extensively over the past year to discuss what can be done on political and economic levels. Last week’s United Nation and United States talks focused on creating a new climate change agreement to replace the soon-to-expire 1997 Kyoto Protocol. The United State’s participation represents a significant change in the Bush Administration’s stance on global warming. Historically, President Bush has been skeptical over the seriousness of climate change however, during the September 28 meeting, he finally admitted that it is imperative that nations reduce their pollution levels. Still, Bush and the UN disagree over the methods that should be used to reach this goal. UN leaders maintain that mandatory binding emissions targets will be most effective while the Bush Administration insists that a voluntary-based approach, in which individual countries set their own goals and use new technology to achieve them, would be better. Although the administration has finally demonstrated its willingness to negotiate about climate change, the disaggregated approach it suggests will be ineffective in the long run.

Bush’s proposed national plan recommends the use of “aspirational goals” rather than binding measures to reduce global greenhouse emissions. He suggests a framework that allows, “each nation [to] decide for itself the right mix of tools…to achieve results that are measurable and environmentally effective”, yet this proposition is extremely unspecific. Although the U.S. may be able to create its own effective national solution, there is no guarantee that other countries, without concrete guidelines, will act in a way that is most supportive of a global effort. Bush’s lackluster proposal frustrated critics such as Mogens Peter Carl, the EU’s director general for the environment, who have been advocating the need for “specific targets for emissions reductions, rather than broad goals.” If the past is any indicator of the future, all should heed Carl’s advice. Since the mid 1990s, international leaders have instated broad goals under the Kyoto Treaty in the hopes of reducing climate change, but these have been largely ineffective. Most industrialized countries’ levels of emissions remain unacceptably high and trends indicate that they will continue to rise unless something drastic is done (see graph at right). The UN’s strategy will potentially fill this need by holding states legally accountable to a set of global standards and penalizing those who don’t adhere.

Furthermore, Bush’s national approach is inadequate because it fails to address the time constraints of the issue. If countries are obligated to create and implement their own climate change goals, this could take years of extra planning. According to many global warming experts, however, time is a resource we don’t have. “There is no more time for longwinded talks about unenforceable long-term goals,” said David Doniger, climate policy director for the Natural Resources Defense Council. “We need to get a serious commitment to cut emissions now.” In support of Doniger’s claims, the Intergovernmental Panel on Climate Change released a report earlier this year indicating that global warming effects will happen faster than we expected: “Hundreds of millions of Africans and tens of millions of Latin Americans who now have water will be short of it in less than 20 years. By 2050, more than one billion people in Asia could face water shortages.” These disappointing statistics prove the need for an immediate plan. Fortunately, the UN’s proposal calls for the creation of one set of standard global rules which can be implemented far more quickly than almost two hundred national programs.

Despite the aforementioned shortcomings of the U.S. plan, Bush does wisely point out the need for an economy that is receptive to new, environmentally-safe technology. If both sectors don’t work together, reducing fossil fuel emissions will be near impossible. However, Bush wants to tackle this on a national rather than global level, and allow countries to individually decide how to implement technology into their economy. While this level of freedom may be manageable for rich states, many poor or developing nations don’t have the stable economy or infrastructure needed to support such an endeavor. It is hard to imagine Ghana or Ecuador investing in global warming technology while simultaneously trying to battle poverty, hunger and corruption. However, under the UN proposal, poorer nations won’t be given the same strict targets that will be allocated to the developed world. Ban Ki-Moon, UN secretary-general, said during the UN meeting that these nations should be given, “incentives to act without sacrificing economic growth or poverty reduction.”
Although this may leave some developed countries disgruntled about having to cover the costs for those who can’t fund environmental action alone, the time has come to stop pointing fingers at one another a recognize the severity of climate change. Perhaps a global binding agreement will initially put strain on the developed nations’ economies but when it comes to the perpetuation of the planet, money should be no issue. And, ironically, if we do nothing to prevent global warming, the economic damage caused by climate change disasters will far outweigh the economic strain created by stricter emission laws. Maybe investing billions of dollars in prevention technology seems excessive now, but when another hurricane like Katrina hits, causing $200 billion in damages(see photo at left) and taking over 1,300 lives, that initial sum will surely seem insignificant.

Monopoly is Not Just a Game: Governments Take Serious Action with Antitrust Legislation

Everyone envies the player who buys both Boardwalk and Park Place, owns every railroad company, and purchases hoards of obnoxious plastic houses because, inevitably, all will land on that double-hotel property and pay a pretty penny to a very smug, unremorseful owner. Clearly, Monopoly is a cutthroat game and it only yields one winner—it is definitely no "candyland". In fact, the board game, an American favorite, provides an accurate reflection of the kind of business monopolies that ruin competitive markets. Luckily, in real life such unfair actions don’t go unnoticed and governments interfere with money-hungry corporations in order to protect the economy. Dating back to the dissolution of the Standard Oil Company trust in the early 1900’s in the United States, antitrust laws such as the Sherman Act of 1890 have helped eliminate the threat of cartels and monopolies worldwide and are still used today.

In the past week international organizations made two influential antitrust decisions that will have major implications for the global economy. The first is the completion of the final draft of antitrust law in China and the latter is the European Union court’s ruling against the software corporation Microsoft. In the advent of these events I decided to explore the blogoshpere to discover what other scholars and professionals have to say about the matter. The first blog I found, Center for International Finance and Development, is the University of Iowa’s College of Law blog that covers current events in global finance. The post I analyzed, “China Passes Anti-Monopoly Law”, comments on the new Chinese laws and speculates about their future impact on international business and investment. The other blog I discovered, The Crucible and Column, focuses on modern industrialism issues. In the article “EU to Microsoft: You’re Too Good”, author and market manager Kendall Justiniano criticizes the EU’s recent legal decision. After reading these articles I commented on each, offering my own analysis of the situation and posing scholarly questions. Below this introduction, my comments and the links to these blogs can be found.

Comment:

While I commend China for taking action against monopolies and supporting a competitive market, your article encouraged me to also explore the negative impact that China’s new antitrust laws will have on international trade and investing. You stated that “some foreign investors worry the government may use the new law as a basis for protectionism,” and I find myself fearing this same result. China’s history of isolationism does not help to abate these fears either—their disregard for foreign interaction started with the closure of its borders in the 1500s under the Qing Dynasty and continued into the 20th century during Mao Zedong’s communist regime. Perhaps the examples of isolationism I just described are not exactly protectionist policies, but their underlying premise is the same: China does not seem to favor or welcome foreign involvement. Furthermore, these new antitrust laws which are comprised of “vague” legislation may allow the Chinese government to arbitrarily prohibit “unpopular foreign investment” and this could be detrimental to many international businesses. On a different note, you also report that the new policies “will eventually do away with government monopolies”. However in Article 7, the law provides that certain state-owned industries will be “protected by the state”. If this law stands, how do you foresee the abolishment of these government monopolies and what timeline do you predict for this event?

Comment:

After reading your article and researching antitrust laws over the past week, I too have concluded that the allegations and final ruling against Microsoft are unreasonable and have major implications for the business world. Although I fully support antitrust legislation when it effectively curbs monopolies, I see it as an impediment to market growth when it is excessively applied. If Microsoft was successfully sued for providing (or “bundling” in the words of the opponents) their customers with a media player option in their operating system, then corporations worldwide need to take note. Apparently the promotion of one’s product over that of the competition’s is now grounds for suing. Apple iTunes will have to be compatible with all MP3 players, Gillette razors will have to hold every brand of blades, and the list goes on. Instead of promoting fair market conditions, these kinds of rulings will only prohibit capitalism. In your article you suggest that the only solution to this problem is “laissez faire” economics because “monopolies which hurt the consumer cannot exist for long in a free economy where proper rights are enforced.” Although I agree that laissez faire is a logical answer, I’m curious how you propose countries to successfully enforce these “proper rights” in the absence of anti-trust legislation. Is there a more effective solution on the horizon?

Out of the Darkness, into the Light: Africa's Quest for Illumination and Progress

Viewed from space, the image of the earth illuminated at night is truly astounding. Twinkling lights scattered across the globe cluster in brilliant patches in the Americas, Europe and Asia while the remainder of the unlit lands shirk in the shadows. It is a striking contrast that, at first glance, may be attributed to population variations throughout the earth—the densely populated areas appear to produce tremendous amounts of light while the uninhabited regions remain dim and starkly bare. While this theory can generally be considered true, one blatant exception remains.

The African continent, home to nearly one billion people, shows almost no electric activity when compared to other similarly inhabited areas. As one of the most populated regions in the world, Africa should be a beacon of light, yet is as dark as the all-but empty Siberia and Antarctica. The visible lack of electricity gives testament to Africa’s severe poverty and technological deficiencies; currently, only the wealthy areas of South Africa, Egypt and Morocco show any sign of civilization. However, this grim situation has recently caught the attention of the international community and Sub-Saharan Africa is on the brink of a major and deeply needed change.

The World Bank, a global organization that provides financial and technical assistance to developing countries, has partnered with the International Finance Corporation (IFC) to launch a revolutionary program that will provide modern lighting to 250 million people in Sub-Saharan Africa. The initiative, aptly titled Lighting Africa, will enlist the help of businesses, universities, governments and organizations worldwide to develop market conditions for the “supply and distribution of new, non-fossil fuel lighting products” throughout rural and urban Africa. Although the project seems very ambitious, it is definitely manageable. Enabled with a well-organized, realistic and collaborative plan the international community will effectively guide Africa not only out of darkness, but poverty as well.

The cooperative nature of the Lighting Africa initiative will be a major contributor to its success. Partnership amongst various African governments, global businesses, and Non-Government Organizations (NGOs) will ensure that both innovation and regulation are given equal attention. The entire project is based on a competition that will award grants to organizations that submit the best proposals for the design and delivery of the low cost, environmentally-friendly lighting. Since the contest’s commencement on September 4, 2007, more than 350 companies, from African-based small businesses to multinationals such as Philips, have expressed interest in participating. The project’s success depends heavily on the intellectual contributions from these private sector participants. Furthermore, the competition encourages efficiency and cost effectiveness, two characteristics that bureaucratic organizations and slow-responsive governments often lack when addressing problems. Nevertheless, government and NGO involvement will definitely play a vital role in this large-scale project. The Lighting Africa initiative will be a lengthy process with the final stages of completion set for 2030. Although this twenty-three year time frame is realistic, it is also daunting and will require firm leaders to enforce deadlines and maintain focus. This leadership role will be allocated to governments and organizations that will help regulate, assist and motivate the participants. These actions, coupled with those of the private sector, will help to ensure the completion and success of the initiative.

Perhaps the most important characteristic of the program, however, is the role of the free market in the process. Recent debate over the ineffectiveness of simple monetary aid provides insight on how the World Bank’s campaign may provide the best solution to eliminate poverty. In a book published in 2006 titled The White Man’s Burden, New York University economics professor William Easterly argues that development aid cannot work because it is unable to replicate the complex market mechanisms that make countries rich. Another supporter of this argument, Gurcharan Das, former head of the multinational sector of Proctor and Gamble, also claims that economic growth can only be achieved through the free market when competition and enterprise are allowed to flourish.

Of course there are opponents who argue that more aid, not less is actually needed. Jeffrey Sachs, an economist involved with the United Nation’s Millennium Goals argues in his book, The End of Poverty, that the amount of developmental aid that actually reaches the poor is too small to make a difference. The average per capita amount of aid given in 2002 was only $12—hardly enough to buy anything. While Sachs makes a valid point by suggesting that more charity be given to the poor, he avoids addressing the real issue: in order to escape perpetual poverty and reliance on others, African states will need to learn to support themselves.

So how can African nations get the training they need to become economically independent? The answer can be found in the Lighting Africa program that gives African governments and businesses the opportunity to experiment with the lighting market. Surprisingly, even the “energy poor in Africa” spend about $17 billion a year on expensive, inefficient lighting sources such as kerosene. For these consumers there is a need for more affordable and safe lighting materials, indicating the presence of a largely untapped market for modern lighting products.

In addition to simply servicing customers, the new market created through the Lighting Africa program will boost local commerce and investment, create jobs and improve the overall quality of life. Productivity levels will rise with the advent of longer workdays, health services will improve with better lighting, students will be able to study longer and safety and security will be enhanced. If the World Bank’s Lighting Africa initiative proceeds as planned—focused on bolstering the free market—Africa may soon be taking an independent step out of the darkness and into economic stability.