Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty 2012 – Abhijit Banerjee, Esther Duflo

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty 2012 – Abhijit Banerjee , Esther Duflo

This book is a riveting read on poverty –  assessing its causes, extent and impact.. The authors bring out deficiencies in prevalent poverty alleviation schemes.

The book is based on extensive survey of ‘extremely poor’ and ‘poor’  in18 countries . In Part I, the authors classify and analyse role of Food, Health, Education and Population  on the perpetuation or alleviation of poverty in any country In Part II, the authors analyse the roles that Fund managers, entrepreneurs, policies and politics play and their impact on  realities of poverty in any country.

The book raises important questions.Do the poor need a nudge or push to lift themselves out of abject poverty? If so, where and when ? Why are the poor unable to come out of their poverty levels? Is it the cost of getting started, or is it the difficulty in sustaining the effects once the effort started?   The book seeks to explain why many “magic bullets of yesterday ended up as today’s failed ideas”, and discusses areas of hope.  The authorsskillfully  examine the lives of poor people to see what impacts their status of poverty.

Aids and subsidies as important tools of poverty alleviation are greatly supported by advocates like Jeffry Sach, who believe in the existence of poverty trap. Several communities and governments have staunchly followed this theory and there are innumerable instances of short term and long-term subsidies. Advocates of anti-aid theory (led by economists like William Easterly and Dambisa Moyo  refute the effectiveness of subsidies, and maintain that anything that is given free is not valued and is likely to promote wasteful consumption. The anti-aid theorists also caution that if freebies are encouraged at a large scale, the vendors of such freebies may end up having no buyers should these become fiscal unsustainable and have to be stopped or scaled down.

According to the authors the issue is not whether aids and subsidies are good or bad. They express concern about the debate obscuring what really matters: the destination rather than the source; whether poverty is only about not having money, or if it includes rendering the poor incapable of realising their full potential.

 FOOD:

Tackling the most important need of life for all, food, the authors present both sides of the concept of food aids and food subsidies. Questions like, are food subsidies and aids solution to lift the poor from abject  poverty? Is there a poverty trap, that too,  nutrition-based? Do the poor people choose anything else over food? Do they need only cheap food grains as food policies claim?

The authors find  that food consumption among extremely poor is 36%-79% (rural) and 53%-74%(urban). They discovered that even the poorest of poor, given a chance, prefer tastier and more expensive food that is not necessarily  nutritious. Staples are already a primary part of budget even among the poorest and households getting subsidies for rice or wheat started consuming less of these and spent more on tastier food . The subsidies made them happier  and not healthier, contrary to the declared rationale of food subsidies intended to  make the poor healthier and more productive. With increase in money, merely the food choices and preferences changed.

The authors observe that consumption of food itself had declined over the years for everyone due  decline in heavy physical work Mechanised transport vehicles, farm implements, electric appliances, , motorised mills replacing physical pounding of grains, and cooking gas etc.   have all reduced physical labour in homes and fields. Moderate or light activity instead of heavy work has led to decreased preference to calorific staples. Preference of taste over nutrients by the poor could be also due to the fact that the effects of nutrition are not instantaneously visibleThe authors highlight  how poor people in the developing world spend large amounts on weddings, dowries, christenings, funerals etc. The need for anything that makes life less boring is a basic human need.

The authors wonder about the reality of ‘nutrient based poverty trap.’  They perceptively note that there is no steep jump in productivity or income once the poor start eating enough.  While hastening to clarify that they are not finding the theory of hunger-based poverty trap flawed, they state that the relevance of the same could have been larger in the past historically, and limited to some places and circumstances now.

The authors infer that most food policies are based on an archaic idea that the poor need only subsidies on cheap grains supplying calories rather than nutrients. Hence, giving more grains to the poor does little to increase their productivity or income; nor does it help to provide them money aids, as they are likely to spend it on more pleasurable consumables than on staples.

B: Health

Health, according to the authors, is one of the most frustrating areas in spite of being of primary importance. The book presents analysis of factors like clean drinking water, sanitation, doctor-accessibility, psychological satisfaction, desire for instantaneous cures, absenteeism and apathy in public health centres, and ignorance and lack of awareness among poor. They tend to completely ignore prevention of sickness. The authors found, that in countries where piped chlorinated water was not available and people were required to buy chlorine even at negligible cost, they chose not to spend on it.

Similarly, many parents were reluctant to immunize their infants when there was no current sickness, and they were incapable of foreseeing prevention of a future ailment. Even when they were provided with incentives for immunising their children, many dropped out before finishing the course. Even in villages where special camps were held, while the success rate of first shot was 77% of children, that of those who completed the course was an abysmal 6%-17% only.

The authors talk about reluctance of poor mothers in many countries to accept the simple and inexpensive oral rehydration therapy for diarrhoea against a belief that injectables, preferably of antibiotics, will give them better and immediate cure. They are also reluctant to trudge to public centres to find them locked or without a doctor, and prefer to approach private doctors, even unqualified ones.  This in effect automatically renders redundant the triage system that public centres provide, where the small village unit staff (even a compounder or a nurse) refers the patient to the next level unit only when the sickness is severe.

Interestingly the authors deduce that ‘unqualified’ private doctors were the worst and qualified private doctors were the best. They surmise that the public doctors come somewhere in the middle.

The authors also found during their survey that it was very common for doctors to under-diagnose and over-prescribe. Unnecessary administration of antibiotics and steroids, was commonly prevalent. The concept of sterilisation took a back seat, especially in the rural areas. The book mentions about a doctor infecting an entire village in Udaipur with Hepatitis-B by using an infected needle again and again.

The authors caution against the horrific risk of emergence of drug resistant bugs, and premature ageing due to over-prescription and consumption of steroids.

The authors blame the absenteeism, inefficiency and apathy in rural and urban public health centres for inept service. At the time of a one-year survey, checking randomly at working hours in 100 facilities in Udaipur, they found 56 % of the time the facilities closed due to the single nurse manning them being absent. They quote a World Bank survey on absenteeism in Bangladesh, Ecuador, India, Indonesia, Peru and Uganda placing the average as 35% (India had 43%). The book quotes a survey result of a 3-3-3 rule: The doctor spent 3 minutes with the patient, asked 3 questions, and prescribed 3 medicines. Worse, many times the doctor asked for a diagnosis from the patient, and prescribed medicines for such self-diagnosis!

The authors conclude that when factors like immunization, sanitation, and hygiene are concerned, poor people tend to procrastinate acting on these as the results are not visible immediately.  They opine that a combination of creating essential awareness, small incentives as nudges to adopt preventive healthcare can jump-start a positive feedback loop. They also recommend that after the nudge pushes the poor to adopt preventive care, its quality should be regulated. They say that another over-looked factor is of not only making essential medicines available to the poor, but also to make the non-essential ones not available.

C: Education:

The authors observe that contrary to general belief, schools, at least at primary level, are available in most countries. However, the rate of child absenteeism ranged from 14% to 50%. The authors caution against tenability of the implicit assumption that learning would follow enrolment . They refer to the World Absenteeism Survey conducted by the World Bank by sending surveyors unannounced to sample schools in Bangladesh, Ecuador, India, Indonesia, Peru and Uganda. They found that the teachers were absent from the class at the ratio of one out of five days. A survey conducted by Pratham, the largest NGO in India, volunteers visited 1000 children each in randomly selected districts, covering 7,00,000 children. A shocking discovery was that 35% of the children in the 7-14 age group could not read a simple paragraph and 60% could not read a simple story. Only 30% could do simple arithmetic. The authors wonder whether the schools were making the children unlearn their capabilities of helping in calculations in their parents’ shops and stores.

Elaborating the theories of why quality of education was low, the authors make an attempt at comparing the supply-demand concept. Terming the policy makers in most of these countries as ‘supply-wallahs’ they call the poor parents as ‘demand-wallahs’ who see the benefits of education as low. They also observe that just as technical education became more attractive after the Green Revolution in India, the rural areas saw a spurt in schools attendance by girls after the establishment of BPOs, opening up a new avenue for increased earnings. According to the authors, those who back up the demand-wallah theory insist that if businesses required educated labour, education will become more sought after.

The authors observe that at the core of the above theory, the assumption is that education is a form of investment. But the flaw in this assumption is that if parents do not value education for its sake, the risk of their taking out their wards and sending them to earn is more.

The authors observe that persuasive power of policies at time worked in randomized experiments like cash transfers as incentives (Mexico) in some countries. When the experiment was repeated in Malawi, it emerged out that the percentage of dropouts was maximum where there was no incentives, but was the same in two groups which received cash transfers conditionally (enrolment) or unconditionally. The authors deduce from this that parents need not be forced to send children to school, they actually needed help financially. The inference is that public-supply policies are needed as long as income disparities are there, as talented poor children may not be able to access education like even an untalented rich child, if left fully to market forces. They quote India’s Right to Education Act in 2009, which resulted in increasing the percentage of enrolment and reducing that of dropouts in the following years.

The authors say that while there are detractors to top-down education policies, their research showed that it worked in some countries like Indonesia (where the government went on a school construction spree) and Taiwan, where education was made compulsory as early as 1968.

An important argument in support of basic education is that people who read newspapers and billboards have a bigger opportunity of learning about policies and programmes that could be beneficial to them. The authors caution that the debate about supply vs demand misses the point that all top-down policies do not work as efficiently as they should, and that having them still helps in filling up a hiatus.

The authors surmise that several factors like absence of competitive pressure in poor regions, parents being ill-informed about what is best or what the schools provide, poor performance of government school teachers, all lead to education being not as effective as it should be for the poor. Expectations from education distort what parents demand, what both public and private schools deliver, and what the poor children actually achieve. All this ensues in a colossal waste, according to the authors. Added to the fact is that expectations often comprised of acquiring wealth, or getting government jobs which did not translate into reality except in a negligible percentage. An imaginary poverty trap is also created by parents, who tend to support educating boys or a smartest child, whom they perceive as capable of best returns.

The authors make an important observation that so long curriculum and teaching is designed to suit the elite, the poor children will not actually learn anything, as their parents are not equipped to monitor it. More often than not, schools are more interested in showing a perfect pass record at high school level.

They note that parental or familial pessimistic biases, tendency of teachers to focus on brighter children, elevated expectations with little faith, faster rates of enrolment not matching resources, poor incentives to teachers resulting in their seeking other professions, are maladies that afflict the education system.

The authors conclude that scaling down expectations, using core competencies and technology to complement absence of good teachers, and setting more proximate goals could help a stable and productive education for the poor.

D: Population:

It is an old argument since the time of Rev. Thomas Malthus in eighteenth century, that as resources of a country are generally fixed, any increase in population will make it only poorer. After the AIDS/HIV epidemic in Africa, Alwyn Young from LSE predicted that fertility rate will drop due to direct reasons of abstinence from unprotected sex, and indirect ones of women preferring jobs to babies.

The authors point out that the advent of technology made more unexpected types of resources available, and counties with large population actually grew faster. The authors argue that even in countries where fertility rates were higher, it cannot be proved that poverty was due to this. It was also seen that in most countries families started having less children when growth accelerated, probably because they were too engaged in work to take care of more children.

Debunking the theoryof poverty trap being created by inter-generational transmission of poverty, the authors found no evidence that children born in smaller families were more educated in  countries like India, Bangladesh, and China and concluded that the ‘quantity-quality’ relationship was absent. However, they say that having a smaller family benefits women enormously, as they have to abide by familial and societal expectations of producing more children/sons as investment for old age.

They infer that women do not have access to external factors, policies and projects reaching them at their homes and educating them about reduction in fertility rates. They found that where any suggestion of women even asking about family planning would be viewed with suspicion, they actually found it easier if, for instance some neighbours from the same religion have resorted to it.

They infer that even young girls among the poor, in most countries, are now able to make conscious decisions about their fertility. The authors make interesting observations that even entertainment media like television produced ‘telenovelas’ had an effect on Brazilian women who wanted to be less burdened like the characters in the soap operas!

Women having a title in the family property impacted fertility decisions too. Complex family dynamics played an indisputable role in the size of the family.

The authors make an interesting observation that where poor families had lesser children, their assets like jewellery, land, house increased, and they also became less dependent upon children when they grew old. This refutes the theory that children are financial investments for future. In most countries, daughters were not looked upon as assets, and in turn, they also did not feel bound to look after their old parents.  Girl babies were weaned from being breast fed earlier than boy babies, also because breast-feeding acted as a natural contraceptive and by stopping that the women could conceive again hoping to get a male-child.

Another interesting finding is that if a village is economically stronger, and if the possibility of a daughter marrying a rich man in the village increase, then the girls are better tended to in childhood; in poorer villages, the mortality rate gap was wider, as girl babies were neglected or ignored in infancy and early childhood.

The authors make an inference that contrary to popular belief, families did not know what was best for them and more often than not, poor families wasted their resources. As societal or government rules are long lasting and many times do not sync with reality, the poor become the victims of their own wrong decisions.

The authors opine that families were bound together by loose contracts that coarsely defined each member’s responsibilities towards the others and by best ability to utilise resources and suggest that policies should be made more effective and safeguard families, with inbuilt financial security for futures and no pressure to have many/male children.

PART II Role of Institutions

A: Risk mitigation mechanisms

The authors highlight that , the poor are liable for 100% risk when their tiny enterprises or jobs collapse  and no hedge fund manager carries such high risk. A drought can push out casual agricultural labourers out of work for months together. Poorer the country, greater is this risk. The poor also suffered greater separation from their children, who often migrated in search of unsustainable jobs.  Any man/Nature induced bad calamity hurts the poor more than the less poor. The poor diversify their activities, but in an inefficient manner. The authors suggest that working more to overcome financial risk is not always effective, as it simply increases competition among themselves and reduces wages.

The authors say that the poor form networking among relatives, friends and neighbours which acts as an informal insurance during difficulties. While this networking is useful, they are self-limiting during illness and death as those are very expensive. Insurance fails because of maladies of corrupt practices (e.g.: unnecessary tests by doctors), fraud (fake claims by insurer), government interventions only in large-scale disasters, and the reluctance of poor to invest today for a future calamity.

B: Lending

The authors note that lending to the poor is always is fraught with mistrust as the rate of default as well as cost of lending, like verifying, following, and covering the risk of default are high. Wherever formal institutions are mandatorily required to lend to the poor, the rates of write-offs being high, such loans are not economically motivated. Also, borrowers get stuck with lender monopoly, as any change is viewed with suspicion by new money lenders, who increase the interest further with fresh due diligence. Governments and banks many times are forced to write-off for reasons like ensuing elections, and not wanting bad publicity.

C: Savings: 

The authors note that it is not true that the poor do not make efforts to save. They also create a network of group to help them provide buffer in case of disaster. But ignorance about best yielding tools, not anticipating disasters, not exercising self-control over money if kept at home, and temptation to yield to immediate visceral needs affect their savings. The authors suggest a social safety net, health insurance, a secure job, better education for their children, that will make the goals nearer as possible solutions.

D: Entrepreneurship and Microcredit:

While many poor people are self-employed, they lack enough entrepreneurship to avail of credit that Microfinancing institutions offer. The authors observe that while MFIs have random success stories, they cannot pave the way for exit from poverty. The poor have tiny enterprises with tiny incomes, without staff or assets, and nothing to differentiate from hundreds of similar businesses around them, have no tangible goals, and are not motivated to borrow. Added to it, migrant poor are not considered indispensable, and do not manage to get attention in areas of education, healthcare or housing.

E: Policies and Politics:

The Authors observe that in most countries, there is a gap between intention and implementation. They note that all implementation starts with randomized control trials which dilute the policies, and that corruption and poverty are vicious circles. They suggest that if corruption perpetuates poverty trap, the only answer is to raise the living standards of the poor to mitigate its ill-effects.

The authors emphasise on the need to understand how the poor save (they do save consciously for what they perceive as their necessity, like, for a wedding, or for buying a gadget). As this is based on how much awareness they have, the information they can access, the education they can receive, our own perspective towards the poor has to take a different focus. They surmise that many times policies failed not due to bad intention or corruption, but merely due to wrong models being applied to wrong places or situations. Those failed due to imagining poverty traps where none existed, and missing where they did.

The authors highlight how the three ‘I’, ideology, ignorance and inertia on the part of the experts, aid workers and local policy makers can adversely affect the effect and efficient implementation of policies.

The authors point out that sympathy for a cause is greater if it is of a lesser magnitude, and lesser if it is of a greater magnitude. The authors further surmise that we are reluctant to contribute if we know that our contribution will be only a drop in the bucket; worse still, if we suspect that the bucket is leaky!

The authors suggest that accumulation of small changes one at a time will lead to a greater transformation than government induced comprehensive overhauls. They argue that good policies when implemented well will reduce low expectations, thus breaking the vicious cycle of several factors that impact perpetuation of poverty.

That all the aspects of poverty raised by Professors Abhijit Banerjee and Esther Duflo continue to remain relevant is highlighted by the  World Inequality Report 2022. WIR 2022 explains galloping growth and progress in many countries in the last couple of decades, along with simultaneous inequality of wealth-distribution. WIR 2022 also focusses on newer areas like global carbon inequality, redistributing wealth with a sustainable approach, and raises the question of taxation justice making WIR2022 an exce, which aspects were not intended to be covered in the book. The presllent complementary read though this  review is restricted to the 2011 vintage book. .

The book aims at inviting the readers to think again and again, and instead of looking at poverty as an overwhelming problem, “start thinking of concrete issues that should be identified, understood, and solved one at a time. The book does not take sides and present a most balanced view on all aspects related to poverty, offering views based on factual observations by the authors.

The reader is presented with survey-based data and findings to offer interesting insights into the dynamics of poverty. Highly recommended for all practitioners of public administration and policy makers.

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