Don't Give Philanthropy to States; Loan it to Entrepreneurs

So suggests David Wolman in the October Wired. His reasons:

The Tata Group, India's version of Acme and maker of the supercheap Nano automobile, recently introduced a $22 water purifier that works without electricity or running water. (Every few months it needs a new $6 filter.) A big-hearted, philanthropic, and important effort? You bet—cue the somber stats about preventable waterborne diseases. But check out the size of the market for a product like that: Some 900 million people worldwide lack access to clean water, 200 million of them in India alone. Tata is saving lives and making a killing.

That's why, at next year's G-whatever meeting in France, world leaders would do well to rip up those big checks to tin-pot autocrats and channel the cash to startup companies instead. Help those companies make cheap, useful products to sell to the world's poor, who will use them to become less poor, and everybody wins….

Another example: Forty percent of humanity gets by on less than $2 a day, and most of those people are rural farmers. Efficient drip irrigation systems could triple or quadruple their yields while reducing their costs, but manufacturers haven't bothered making drip systems for tiny farms. In 2004, a company called Global Easy Water Product began selling a setup that can be used for small plots. The price: $32.50 per quarter acre. In just two years as a for-profit venture, it has sold more than 250,000 units in India.

"Conventional development economics was always about increasing per capita income to a certain level before people become consumers," says Vijay Govindarajan, a professor at Dartmouth's Tuck School of Business. The new view flips that logic on its head: Providing access to modern technologies by creating supercheap products may, in fact, be the best way to improve economic well-being. For entrepreneurs, the race is on to tap that massive population of penny-wielding consumers-in-waiting….

Tim Harford wrote on the development dilemma for Reason magazine's May 2009 issue.