✴︎ now this

In 5 words or less- Comprehensive and far-reaching.

This is not a new book. Poor Economics was published in 2011, but I only got my hands on it this year, and I’m so glad I did. Written by two of the co-founders (and economists at MIT) of the Jameel Abdul Lateef Poverty Action Lab (J-PAL), this book is a fascinating insight into the financial lives (or lack thereof) of the poorer sections of the world, and how they cope with financial and social challenges that more affluent people don’t even think about sometimes. 

Covering a large range of discussions, any one of which can be subjects of books themselves, debated on for days at length, the authors have managed to tease out the most important ideas on the economic principles followed by the poor. Apart from discussing the issues faced by the poor, Bannerjee and Duflo examine the challenges faced by policymakers, and people who want to help by giving aid, but have not been able to do so effectively. The authors use real life examples from India, Africa and Latin America to get their points across- the main ones being the difficulty in providing incentives and channels for the poor to make the ‘right’ decisions, to think of problems in a concrete sense rather than using abstractions to work with the scale of the problem, and their own learnings in the challenge to end poverty.

They provide some hope of improving the functions of current institutions, which are currently seen as limiting policies for the poor, as well as examples of innovations that have taken place within the purview of said institutions to help the poor get access to basic financial facilities.

“If the rules make such a difference, then it becomes very important who gets to make them.”

Two ideas in the book specially stand out for me, maybe because they are new, or maybe because they are new just to me.

The first, is the notion (even though a less politically correct, but truer word would be reality) of the poor being responsible for too many aspects of their lives. In many cases, the poor are responsible for ensuring even simple amenities like clean water and sufficient nutrients- not a given for them in practice, never mind what policy is instituted. Things like iodised salt, or not having to chlorinate our water supply on a daily basis are things you and I can just take for granted, because we are ‘rich’ enough to have access to water provided by the city we live in, or ‘rich’ enough to afford a savings account in a bank. Add to this, the fact that they are more likely to be working as daily manual labour, and don’t have the time or agency to make long term decisions. If we can make some of these decisions easier for them, their lives would be significantly improved.

“But then it is easy, too easy, to sermonize about the dangers of paternalism and the need to take responsibility for our own lives, from the comfort of our couch in our safe and sanitary home. Aren’t we, those who live in the rich world, the constant beneficiaries of a paternalism now so thoroughly embedded into the system that we hardly notice it?”

The second, are the reasons the authors give for government corruption and neglect. The authors list three cases which exacerbate the problem- when the government tries to get people to do things whose value they don’t appreciate (as in the case of wearing helmets while riding motorcycles), when what people are getting is worth a lot more that what they have to pay for it (subsidised healthcare), and when bureaucrats are underpaid, overworked, and not monitored sufficiently. Succinctly put, and so very effective!

Here’s the thing, you don’t need to reinvent the wheel to end poverty. Large effects can be achieved with small changes at the margin, but to make those small changes, there is no one size fits all model. We have to understand the rationality of the individual who is actually in the situation, and be willing to experiment and adjust, rather than simply implementing changes and expecting them to stick. The poor themselves lack critical pieces of information, which informs and affect their decision-making, which might not seem rational to you and me, but is perfectly rational to them.

“the poor are no less rational than anyone else—quite the contrary. Precisely because they have so little, we often find them putting much careful thought into their choices:They have to be sophisticated economists just to survive.”

Finally, it is important to remember that the poor cannot be doomed to failure, definitely not by the people who have the power to make changes to their lives. Poverty is not, and should not be permanent, and large part of the problem is the perception of the poor themselves. They might well be given to self-fulfilling prophecies, especially when it comes to the future. Expectations need to be changed, and while that is not easy, it is certainly not impossible. You can’t blame the poor for not wanting education, or vaccines, when they don’t actually know or see the benefits of either. You cannot continue supplying something if there simply isn’t any demand for it. This is where incentives, and information sharing comes into the picture, and these are much better ways to look at poverty than to simply attempt to ‘tackle poverty’ and give up because the problem is too large.