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Opinion
Noah Smith

Management Consultants Might Be the Best Foreign Aid

Emerging-market companies that get help from advisers in developed nations tend to reap big gains.

There’s probably a better way.

There’s probably a better way.

Photographer: Arun Sankar/AFP/Getty Images

How do poor countries become rich, industrialized ones? Importing foreign know-how often is the key. Although every country invents its own unique technologies and practices, in the early stages of development most of the big, rapid gains can be had by simply adopting the insights that richer countries have already learned. A lot of that foreign know-how is technological -- modern sewing machines, steel mills, electronics blueprints and the like. But a lot involves the more prosaic techniques of how to manage a company.

Business managers in economic models are assumed to be rote, efficient creatures, focused on maximizing profits and minimizing costs. In the real world, though, the number of tough decisions managers have to make on a daily basis is dizzying -- whom to hire and fire, where to open and close facilities, how to organize chains of responsibility and authority, how to compensate employees, how to improve product quality, where to source inputs, whether to contract out or perform functions in-house and so on. Perhaps most important are choices about what to sell, where to sell it, how much to charge for it and how to make it. These decisions form a production chain of sorts -- mistakes in any one of these areas can lead to serious inefficiencies that gum up the entire machine.