A Third-World Lesson

MICROENTERPRISE, an idea borrowed from the third world, is giving some Americans a dramatically different point of view toward our own social policy.

Microenterprises are small, simple businesses owned and run mainly by poor people. Organizations like Shorebank in Chicago and the Good Faith Fund in Arkansas have successfully nurtured hundreds of new businesses run by poor people without training or prior business experience, many of them former welfare recipients.

Their example has led Bill Clinton to place microenterprise prominently on his social agenda. The Bush administration has also seized on it, in the form of the Small Business Administration's new micro-loan program. A new organization, the Association for Economic Opportunity, is helping to turn the efforts of more than 100 local microenterprise programs into a national movement.

Microenterprise is good social policy. It costs the government little or nothing. The enterprises provide income that sustains families and helps finance investment in education and business growth. At the same time, microenterprises develop the skills of their owners and workers. Most importantly, as they build a business, microentrepreneurs build pride in their own accomplishments. This sense of confidence can spread through their communities.

The idea of assisting microenterprises developed in the third world during the 1980s. Some dramatic successes there, notably the Grameen Bank's outreach to 1 million very poor women in Bangladesh, prompted United States organizations to take up the idea.

But like most borrowed notions, it had to be reshaped to fit the American context. This has not always been easy. America's social safety net discourages poor people from starting a business, both at a direct, practical level, and at a much deeper, almost philosophical level.

Welfare regulations generally prohibit people from accumulating assets while remaining eligible for benefits, even assets used only in a business. The simple equipment and inventory needed to start a catering or seamstress business often exceeds the asset limit. Potential microentrepreneurs must choose: your business or your benefits. That choice generally confronts them before their business is generating a reasonable income.

At the request of domestic microenterprise programs, several US congressmen have introduced legislation to amend these regulations. Microenterprise is becoming a small weapon in the battle over welfare reform.

At a much deeper and more important level, the concept of microenterprise challenges the very foundation of the social safety net. It reveals a fundamental difference in the way poverty is approached in the third world and in the US. While America has been trying to perfect and expand its social safety net, developing countries have to create strategies that work without one.

In developing countries, poor people find their own ways of coping with poverty. Starting a tiny enterprise is one of the most important ways - involving as much as one-third of the workforce in many countries - but it is not the only way. If there are no banks, people create savings and credit clubs. Such clubs - called tontines in West Africa, stokvels in South Africa, arisans in Indonesia - flourish on every continent. They help people build assets and protect themselves from risk.

If they cannot afford a mortgage, they build their own houses. In the famous Pueblos Nuevos in Peru, as in many other countries, people begin with minimal dwellings and continually invest in home improvement, provided the government assures them of a right to stay and provides basic utilities.

Similarly, transport systems run by and for the poor outcompete public transportation systems in offering convenient routes, frequency, and low price, while acting as a major employer and keeping profits in the communities.

Most important, poor people in developing countries rely on their families. Family members are the main source of care for children, the sick, and the aged. Families also provide financial resources for emergencies, education, and investment.

These coping strategies are healthy, constructive, and creative solutions, which flourish despite the absolute level of poverty found in the third world.

The developing-world approach to poverty recognizes that poor people themselves are the most effective and most readily available resource for combating poverty. The American model, based primarily on income redistribution, assumes that the greatest resource for combating poverty is the federal budget.

Microenterprise and the third-world approach to poverty offer a stunning challenge to the US. They tell us that we need to do a much better job of harnessing the energies of the poor. Not only are their energies a tremendous and underutilized resource, but an approach based on those energies is socially healthy.

The question facing us at this time is, can we develop social policies that release those energies without abandoning the basic protection offered to the genuinely needy by the social safety net?