The middle class is crucial to Haiti’s post-earthquake recovery and economic development. While microcredit assistance is fine, the real potential for growth and job creation lies in helping small and medium-sized businesses and members of the liberal professions (doctors, lawyers, engineers, pharmacists, teachers, and university professors) to resume their economic activities. This in turn will help the economy grow and put people back to work.1
- Coverage: SSRC Abe Fellows Report on the Fukushima Earthquake and Tsunami
- Book: Disaster and the Politics of Intervention, Andrew Lakoff, ed.
- Book Series: The Privatization of Risk
- Web Forum: Haiti, Now and Next
- Web Forum: Understanding Katrina: Perspectives from The Social Sciences
- Research Hub: Hurricane Katrina
- Lecture: “From Common Humanity to Humanitarian Obligation,” Craig Calhoun
Book: The Measure of America, 2010-2011: Mapping Risks and Resilience. SSRC/NYU Press
Yet the middle class has always been ignored in Haiti according to one leading political figure who spoke with me off the record. The issue is further complicated by sociological overtones since for many Haitians the urban “middle class” recalls the efforts of François Duvalier to break the stranglehold that the “mulatto” elite had always held on the Haitian economy by creating a group of black small businessmen and professionals, many of whose descendants today occupy classic middle class occupations.2
Still, during a research trip to Haiti in May 2010, everyone I met with emphasized the importance of structuring economic assistance and aid programs so that they address the specific needs of the middle class, which have been largely overlooked in the emergency phase of the post-quake relief efforts.
Access to Credit and Rebuilding the Asset Base
The biggest single challenge to the Haitian middle class is the recapitalization of their enterprises. Most lost whatever assets they had (buildings, vehicles, equipment, inventory, housing), and very few had insurance. For example, according to the head of Haiti’s Association Professionnelle des Banques, only 5% of the destroyed houses in Haiti were insured; of the one million or so homeless, 250,000 people have lost the houses that they owned after pouring their life’s savings into building them room by room. Similarly, business assets were rarely covered by insurance. How then can the middle class get access to the capital that would allow them to rebuild? This is the question. The resources are there; the renowned Peruvian economist Hernando de Soto found that: “In Haiti, untitled rural and urban real estate holdings are together worth some 5.2 billion dollars.”3 This underscores the importance of creating a cadastre that would establish land title once and for all in Haiti; no longer should property limits be determined by de Soto’s famous “barking dogs” who keep out all intruders.
Nor is liquidity the problem. My interviews with bankers revealed that bank deposits in Haiti have grown by 20% since the January 12 earthquake. If anything, there is an excess of liquidity: money is in the system; the problem is the high level of risk associated with lending in the current context. What is hurting the banks is the fall in demand for credit because most businesses, small and large, have stopped operating. This has shrunk bank loan portfolios, making bad loans a bigger piece of a smaller loan pie. This in turn inhibits the banks from making new loans since their risk “profile” looks worse than it was before.
Yet according to the Association pour le Soutien aux Micros Entrepreneurs (ASME), in a study it completed after the earthquake, small and medium enterprises (SMEs) do not have access to the type of credit they now need. For example, the length of loans is very short, between three and twelve months. But the earthquake destroyed intangible business assets, such as supply and distribution chains, broker channels, good will, and reputations, that will take time to recreate or restore, so the SMEs need a new type of financing on a much longer term.
- 1. See Nancy Birdsall, “The (Indispensable) Middle Class in Developing Countries; or, The Rich and the Rest, Not the Poor and the Rest,” Working Paper 207 (Washington, DC: Center for Global Development, March 2010), who makes the point that growth driven by and benefiting the middle class is likely to be sustainable and lead to better governance and lower corruption due to the middle class’s self-interest in stable political and economic institutions, the rule of law, and recognition of private property rights. This will all redound to the benefit of the truly poor as well. [↩]
- 2. Under President Boyer’s Code Rural, and for decades after, rural Haitians needed an official “pass” to come into the cities. Cities were reserved for the elites. [↩]
- 3. Hernando de Soto, The Mystery of Capital: Why Capital Triumphs in the West and Fails Everywhere Else (London: Bantam Press, 2000), 27. Hernando de Soto’s study of Haiti identified the untapped capital potential of the middle class; reconstituting and leveraging that capital will be crucial to recovery and development. Matthew Miller, “The Poor Man’s Capitalist: Hernando de Soto,” New York Times, July 1, 2001. [↩]