When we come across the title 'Developing Nation', the first picture that crops up in our head is that of a bullock cart driven by pale-looking vendors wearing torn chappals walking in kuchcha pakka roads. Gone are the days when such nations are anything but this. Technological advancements, global exposure, immense growth has changed the outlook of such countries. Despite their achievements and impressive growth rate, especially in the last 25 years, the benefits have marginally reached the poor. Today, the gap between the rich and the poor is wider than ever. According to a recent study, approximately 1.4 billion people live in extreme poverty and reside in developing countries (IFAD 2011).
The poor in a developing nation don't enjoy standard sanitation facilities, piped clean water, or electricity. Even a fixed iron roof for them is a luxury. Lack of information, the right to a dignified living, health insurance, and proper education is a distant dream for them. Their daily fight for survival involves a struggle to arrange two square meals in a day. This book talks about the millions, rather billions of people who live under 0.99 cents a day.
Poor Economics is co-authored by two radical MIT economists Abhijit Banerjee and Esther Duflo. The 350 plus pages book has won the 'Financial Times Business Book of the Year award. It puts forth the rationale behind the choices made by people living on less than $2 a day. It is a highly informative, enjoyable work, including years of research across 18 developing nations. It covers countries like India, Morocco, Kenya, Bangladesh and Indonesia, amongst several others. This book comprises two significant parts addressing chapter by chapter 8 topics: hunger; health; education; population; risk; lending and borrowing; saving, and entrepreneurship. It is a sheer blend of curiosity and substantial evidence of real people. The appeal of this book lies in the thorough, sincere effort by the authors to understand the life of the poor using J-PAL's randomised evaluations strategy. With the help of case studies and anecdotes from their work in collaboration with different NGO's and individuals living in poverty, they provide insights into the eradication and upliftment of people from their misery.
Additionally, the book mentions a website that provides interactive maps, as well as a list of NGO's. One of the remarkable features of the book is the vivid examples of real people fighting poverty, making it easy for us to relate to their way of tackling everyday hassles, i.e. battling poverty. Each model provides intuitive results explaining the radical thought of thinking small but adequate.
Often, the economics of poverty gets mistaken for poor economics: Because the poor possess very little, we assume nothing is interesting about their economic existence. The book opens with the ever going debate regarding Aid. Sachs believes that developing countries need significant investment to kickstart them out of poverty. He believes that some countries are poor just out of bad luck, i.e. topographical and geographical factors, while others are in much worse situations where foreign Aid can be the only solution. In his best-selling 2005 book, The End of Poverty, Sachs argues that if the rich world had committed $195 billion in foreign Aid per year between 2005 and 2025, poverty could end by the end of this period. In comparison, Easterly believes that Aid does more bad than good. Since corruption and bottlenecks lie in a developing nation, they believe Aid often falls into the wrong hands and never reaches the place of concern. Moreover, Aid distorts how the poor function, inhibiting them from finding solutions to their problems. The fact is one should help the needy whenever they can, but they should know how to help.
The first chapter, 'Think Again, Again', begins with the ideology of ordinary people. They often see poverty as a problem beyond anybody's reach. Nevertheless, when the same situation narrows down to a particular individual or a family, the ordinary person finds it easier to identify and reach a conclusion. This chapter nudges us to think again and to think harder. It stresses the point of a specific problem-centric solution. The example of providing bed nets to families in Kenya infested with mosquito-borne diseases brings about the benefits of RCT's. The method studies the behaviour patterns of different groups who get bed nets for free, others at a subsidised rate, while some at total price. By looking at their behaviour pattern, one can come to the effective distribution system of bed nets. The bigger picture says that if one knows how the poor would behave in different situations, providing for them would become more accessible. Despite facilities like subsidised or free bed nets, free polio drops or subsidised fertilisers, the poor often don't utilise them because of poverty. Their daily hassles make it very difficult for them to predict the future and act accordingly in the present. It urges us to understand the several minute vital factors that create the trap. This chapter, as well as the book, enhances the benefits of RCT's in understanding how can poor people be helped effectively by studying their behaviour patterns in differing situations.
The problem of hunger and malnutrition are often associated with poor people. The biggest problem and most cited issue are that poor people never really have enough to eat. Many government programmes provide food grains at subsidised rates, free meals at workforce and schools, several ration shops. But where does the money go? In developing nations, infrastructural bottlenecks, mismanagement of logistics results in immense food loss due to wastage and rat infestation. The designated food never really reaches the poor. Despite government inadequacies and structural fallacies, the results are contrary to expectations even when food is available at cheaper rates. These people prioritise food, but they also have other things to take care of and often don't eat enough.
Moreover, when food is provided to them at cheaper rates, instead of increasing their food intake, the further rise in their purchasing power goes in buying tastier food items. Their inability to adequately feed themselves rob them of essential nutrients stunting their growth and hampering their strength, eventually leaving them too weak to work. There begins the story of the vicious poverty cycle. They never have enough to eat, be it young girls, women, mothers, the elderly or the sick. As the authors say, for the poor, things like a television set, a ceremony, or having tastier food are more important than filling their stomach with much-needed nutrients simply not just because of social pressure but the basic human need for a pleasant life.
The case of Udaipur brings to light another startling insight. It is a beautiful city in India, known for its magnificent lakes and ethnic diversified culture. Here, many children die before their fifth birthday; a vast majority of them are diarrhoea. The government has set up many facilities and camps where they provide free ORS packets to mothers. Yet, surprisingly, the mothers are often reluctant to visit them and spend more by going to a private quack. As the authors correctly can gauge, the mere setting of the camps is not enough. Lack of access to such centres, unawareness of the disease, absenteeism of the nurses from the government squad is the reasons for the poor people's lack of faith in the government. Not just in the case of ORS, but several other instances like bed nets or putting bleach to purify their water system. Lack of proper health insurance, poor functioning of the government and high lending rates have trapped the poor in a health trap. The problem lies in their belief system wherein the poor believe in expensive cures rather than cheap prevention.
Education and the academic system has often gardened criticism. While some believe that providing free schooling and schemes like mid-day meals or money as an incentive increases the enrolment rates of children, others would refuse to accept. Some believe that government doesn't know how to intervene and that mere increases in the enrolment rates make no difference. But why are these steps not prompting the poor to send their kids to school? Is it because of their lack of faith in government schooling( teacher absenteeism is high), their failure to understand the benefits of education or both? Can education help the poor? Poor Economics helps us know that every poor parent would dream of educating his child so that one day he can get a job and leave this rut behind to create his own life out of poverty. What stops them? Often schools are far away from their homes, and they don't have enough resources to educate all of their children because the opportunity cost is too high. They believe that after a few years, the children would drop outcome what may so instead, it is much more profitable for them if the children helped them in the field. The poor often don't realise the returns to education because the present consumption is much higher than future benefits. They also highlight a tendency to over-invest in one child due to a mistaken belief that minor education isn't helpful. The book also brings to our notice how opening a factory or mill nearby incentivises poor parents to educate their kids. Backing this view is the example of PROGRESA, where the family got cash transfers for sending their child to school, which is another program that highlighted the benefits of incentives to the parents to send their children to school.
The untimely death of the bread earner, accidents, thefts, lousy harvest and many other such shocks are the risks that adversely affect the poor. They have meagre incomes, scanty savings and possess very little. With no formal savings and no insurance, the poor are the worst hit, and it becomes impossible for them to recover, leaving them stuck in the endless poverty trap spiral. Many developing countries have come up with feasible insurance policies for the poor wherein they have to pay very low premiums and sometimes nothing at all. Yet when the time comes, the seekers of insurance are nowhere to be found. The problem lies in the face of the way the insurance company builds its policy. They often cover only major illnesses and mainly require the victim to be hospitalised. The insurance bearer won't be entitled to a cashless treatment unless they fulfil specific criteria. The poor don't have any option but to depend on the moneylenders who lend at abnormal interest rates, which accumulate until it becomes an unavoidable debt.
It is relatively easy for a middle-class family to apply for a home loan in Mumbai than for a poor person living in the outskirts of Kolhapur. The poor have very little to begin with, and even less to save. Due to a lack of savings, poor people fail to mitigate risk and survive during a shock. There is no incentive to cater to such small savings accounts for big banks to maximise their profit. While others earn interest on their savings, poor people have to pay hefty amounts to save and withdraw at the time of their need. Lack of formal saving options leaves them to resort to other saving techniques. Due to a shortage of saving options, their money often gets used up in other activities. Though the emergence of self-help groups and an initiative called ROSCA( a group of members who pool their savings every month and one of the members is entitled to the entire saving collection) has improved the way the poor can save, the impact is still minimal.
We often hear that poor people are incredibly debt-ridden. If the banks and other formal sectors are not willing to lend them, who does? The moneylenders or what we call the loan sharks. They charge exorbitant interest rates since it is challenging to procure the loan back from the poor, leaving the poor with an even higher repayment amount. But with microcredit, the poor can borrow at much lesser rates and are not subjected to any physical torture provided they are punctual in their repayments. Microcredit systems, especially by groups like SKS, Spandana were made famous as the next best solution to finance the needy. Though they have been successful, the impact is rather dismal or nothing extraordinary. Why do the poor not want easy credit? While this can be the solution, this doesn't solve their problems since repayments happen weekly, many borrowers who need a longer horizon to repay aren't eligible. Those eligible are entitled to a minimal amount of loan, and hence it is not suitable for medium businesses. Moreover, many poor people don't like to commit as they are unsure when they might need the money. Also, they don't know the people who work in these groups, leaving them with the most comfortable option of the moneylender. It has helped many of them to become self-employed and start their business. But because of their rigid structure, it paradoxically restricts the very same business's growth. For example, for a farmer who needs fertiliser, when he has the money, there is no fertiliser available, and when it is available, there is no money. Timely fertiliser would have resulted in a good harvest and further increased investments and, maybe in future, enough to push him out of the trap. Thus the poor do get enough to remain working but not enough to expand their business. Limited credit, rigid repayment regime, few opportunities, and lack of options always force the poor to move to and fro in this poverty trap.
The book is an easy read that has made a great attempt to transform our thinking. It advocates that big changes are not necessarily the results of big levers. It explains the poverty trap concept, and it indeed is prevalent in many sectors. With the help of RCT's, it demonstrates that poverty is not a macro phenomenon; instead, it is the amalgamation of several micro sectors interlinked to each other. It helps us identify the three I's, namely Ideology, Ignorance and Inertia, indicating the underlying complexities of poor people's rationale behind the choice making. They rightfully point out the need for change in the way the system deals with poverty. According to Banerjee and Duflo, the answer lies not in thinking big instead in wondering small.
Even though RCT's have been a breakthrough in the way we look at poverty, there are vital aspects the book fails to address. In certain areas, the credibility of RCT's is advocated more than the advocacy of underlying change. Many of the RCT's could have been predicted in advance and required basic common sense. Also, the evaluation of the trial can cause the treatment and control groups to alter their behaviour during the study, thus biasing the results and affecting the robustness of the methodology. Moreover, the results from RCT's can't be generalised since they are context and region-specific. For example, what might work for Mexico might not work for Latin America. One common critique is that they fail to factor in the dynamics of each country is different and how hard it is to alter the policy that has been in the system for decades. They believe that Aid can be effective if one knows when and where to channel it, but they do not provide a neat solution for all aid and development problems. As one approaches the end of the book, the idea remains vague and not entirely directed. Apart from particular conclusions, what works and what doesn't to lift people out of poverty is unclear. It does emphasise the drawbacks of existing policies but fails to give concrete solutions whether the newer approach would fit the current regime of political working of a society. Reading the book felt like a great dinner without a fulfilling dessert because it lacks a concrete summary.
Concluding, the book has established one fact loud and clear that there is no one single solution to poverty. It sums up the book with the help of five points for us to take as a giveaway. Firstly, Information gap - Poor people are often unaware of the benefits of immunising children or how much fertiliser to use. They barely know how easily they can contract sexually transmitted diseases, amongst others. This information gap arises because of a lack of proper education and the correct form of education. Secondly, Increased responsibility- the Poor often bear added responsibility. How Marx had quoted in his book The communist manifesto that the government is nothing but representative of the elite, and rightly so, most of the decisions made favour the rich. Be it proper sanitation or a system of piped clean water, or access to better education. Everything is much easier for the rich. The poor don't have any formal way of saving because they have so little to keep that instead of earning interest on their savings, they have to pay charges to be eligible to hold.
Thirdly, Absence of markets- Many markets like health insurance and electronic money transfer are underdeveloped. Next is, Corrupted political system - inefficiency in the foundation of institutions, i.e. improper functioning of the political system. The poor never get the money assigned for them because it often falls into the wrong hands. There is a significant flaw in the design of politics of developing nations, i.e. the three I's. Need for institutional reform. Finally, the Vicious cycle of expectations- The reality is often far away from what they expect. A person's capability often turns out to be his self pro- claimed fallacies. It suggests how not one solution is the key to the biggest threat to humankind today. The way the poor think and act are not very different from the way we do. Still, the difference lies in the resources at their disposal. Lifting their status from mere caricatures to actual people with grave problems and accepting them as rational individuals is the first step towards the change the authors vocalise aptly in Poor Economics. After all, the art lies not in thinking big instead in wondering small.
