The poor universe

Hunger is not the reason of poverty. Even the extreme poor don’t turn extra income into 100% extra calories. They buy better and/or more expensive calories. Too often Western NGO’s think the poor need more cheap grain. While they need better food. And medication, like anti-worm. Anti-worm treatment is one of the best ways to improve lives of people. But that’s not what we’re focusing on.

Moreover, other things are more important in the lives of the poor than food. Poor people often have little distraction, so they would look for things they can fight boredom with, like TV’s and mobile phones. We, in the West, often just don’t get this and keep coming up with wonderful plans to make the lives of poor people better. They usually resist to the plans we think up for them because they do not share our faith that those plans work as well as we claim.

So, leave them be? Or are there ways to help? Take health, number one priority for everyone. Although it may seem (and probably is) somewhat paternalistic, we need to make sure that people can afford medicines they need, but at the same time restrict access to medicines they don’t need (to avoid resistance to drugs). The basic idea is that no one is wise, patient or knowledgeable enough to be fully reprehensible for making the right decisions for his own health. (Don’t forget: we in the west are nudged into those right decisions on a daily basis: at school, in the supermarket etc).

Health insurance is another difficult issue – and not only in the US. Why aren’t the poor better insured? Insuring the poor is very hard, because they don’t see the point in insuring catastrophes (the insurer’s business case), since normal health problems, to which they are exposed on a almost daily basis, won’t be covered. The same goes for lending, almost impossible for the poor. Moneylenders step in this void. They are better in this job than banks, not in the least because they will have no problem breaking someone’s kneecap when in risk of defaulting. It is very hard to get out of this trap.

Moreover, the poor sometimes borrow money to be able to save, for a wedding for example. At very high rates. Of course, to us it would make more sense to save a little on a daily basis, to avoid these rates. But they don’t – because that small money is needed, for every day, often unexpected, expenditures.

A often used measure of progress is the extent to which a society is entrepreneurial. Indeed, even in the poorest countries we see small shops on every street corner. In fact, there are a billion people running their own business or farm. Most of them, however, do this because they have no other options. Too little cash to scale, too lowly educated to work in a government job. Of course, the little income they get out of these very small businesses, may help to survive. But let’s not kid ourselves: they don’t represent a mass exit from poverty.

Banarjee and Duflo s go to great lengths to position themselves on the middle ground of the development debate,¬†carefully between Easterly (demand driven school of thinking) and Sachs (the supply driven one). Clear and bold statements don’t fit this approach, so they end with five observations that may help to improve the lives of the poor:

  1. Poor often lack critical information and believe things that are not true (think HIV, immunizations etc.);
  2. The poor bear responsibility for too many aspects of their lives (e.g. poor people don’t have piped, chlorinated, water as richer people do);
  3. Some markets are not open/ affordable to the poor. An example being the negative interest rates they get on saving accounts, as well as unprofitable health insurance;
  4. Poor countries are not doomed to failure because they are poor. The three I’s have more to do with it: ignorance, ideology and inertia;
  5. Poor people are often victim of self-fulfilling prophecies, e.g.: nurses don’t turn up at work because nobody expects them there, children give up on school because teachers are demotivating.

Poor Economics – Abhijit V.Banerjee & Esther Duflo, 2012