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New Orleans needs 'development bank' and jobs to fuel economy

Even on the anniversary of Hurricane Katrina, political and civic leaders continue to wrangle over the most effective ways to revitalize New Orleans. But while recovery from nearly total economic disaster may be a new issue for American cities, it is not for urban centers in developing nations.

Alice H. Amsden, the Barton L. Weller Professor of Political Economy at MIT, has extensively examined issues of development from a global perspective -- issues that can be applied to the challenges facing the Gulf Coast states.

Amsden has written at length on problems of industrial transformation in East Africa, East Asia and East Europe. She is the author of "Asia's Next Giant: South Korea and Late Industrialization" (1989, Oxford University Press), which won the Best Book in Political Economy Prize in 1992 from the American Political Science Association, and she is currently working on a book entitled "A Gift From Heaven And Hell: The American Empire in the Developing World."

Below, Amsden shared her insights on how issues of global industrialization can be applied to the redevelopment of New Orleans.

Q: There are many calls for increasing humanitarian aid for the economic recovery of New Orleans and the Gulf. What are the pitfalls of providing such aid, given your knowledge of development in many areas of the globe?

A: Aid is a necessary condition for economic��development but not a sufficient one because most forms of aid don't create good jobs.��The driver behind booming development is employment creation, which requires capital investment.�� Helping someone pump water out of her house is commendable, but a dry house will not create an income flow.�� If a homeowner sets up a business in her house, it will earn crumbs unless she can invest in information, communications equipment, the latest process machinery, brand-name recognition and management know-how.�� Even self-employment in the modern sector requires more than aid.

Q. Some complain that New Orleans lacks an overall development plan. How important is an overall, government-directed plan for development in an area?

A: Very important. A "development bank" is one secret behind the success of many Asian industries, but New Orleans doesn't have one.�� The region has one state development agency compared with 11 in Texas and 24 in Massachusetts. Private entrepreneurs are worshipped in the United States, but in a crunch they cautiously stick to low-skilled, fast-buck investments like gambling, which the mayor of New Orleans now champions.�� New Orleans needs a role model for its redevelopment, and there are plenty in the South to follow.�� Huntsville, Alabama, is rooted in research and development, dating from the advent of the U.S. space program in the mid-1950s.�� Dallas/Fort Worth became a hub for military aircraft manufacture, and Houston became home to a space center.�� Why not New Orleans?�� It has a port, oil and a large chemical complex.�� It has a big Afro-American population, many of whom are in the military, risking their lives abroad. They deserve big federal projects at home.

Q. Many aid organizations seem wedded to the concept of "micro-loans" to help people set up their own businesses. Is this realistic? Is small-scale business a way for recovery?

A: Micro-enterprises are not a foundation for development. After American independence, Washington, D.C., became the political capital, New York became the financial capital, and Philadelphia (now chronically depressed) remained dependent on small handicraft workers. The little guy is loved by foundations like Rockefeller and Gates because it doesn't step on any toes, and is politically correct. Micro-loans must exist along side mega-loans or they will default.

Q. Should aid efforts be directed toward education at the primary and secondary levels or more toward job training for adults? Are there any ways to prevent "brain drain" in a region?

A: New Orleans needs a bigger middle class to make a louder noise outside Louisiana. More of those who leave secondary school have to be prepared for college, with jobs awaiting them; otherwise educated unemployment and brain drain will swell. Brain drain will reverse only when there is the lure of high-level, well-paying jobs.

Amsden's other books include "Beyond Late Development: Taiwan's Upgrading Policies," co-authored with Wan Wen Chu (2003, MIT Press); "The Rise of the Rest: Challenges to the West from Late-Industrializing Economies" (2001, Oxford Press); and "The Market Meets Its Match: Restructuring the Economies of Eastern Europe," co-authored with Jacek Kochanowicz and Lance Taylor (1994, Harvard University Press).

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