Archive for December 2019
Book Summary - Poor Economics (Part I - Private Lives)
Poor Economics
A Radical Rethinking of the Way to Fight Global Poverty
By: Abhijit V. Banerjee & Esther Duflo
Chapter 1 - Think Again, Again.
The book starts with a jarring statement, "every year, 9 million children die before their fifth birthday." When confronted with this, how do we respond? The research says that when we make the problem personal, when we put a face and a name on it, people respond with greater generosity. The challenge is that when we face problems of poverty we often think at a macro-level, like Jeffrey Sachs who states, "Poor countries are poor because they are hot, infertile, malaria infested...[which] makes it hard for them to be productive without an initial large investment." On the other side of the spectrum, William Easterly in his book Dead Aid argues that aid does more bad than good: It prevents people from searching for their own solutions, while corrupting and undermining local institutions. When markets are free and the incentives are right, people can find ways to solve their own problems. Yet, as the authors of Poor Economics argue, these debates simply obscure what really matters, not so much where the money comes from, but where it goes. What evidence is there for what interventions are really working and why?
A key concept is that of a "poverty trap." Are the conditions such that individuals, communities and nations are "trapped" in poverty? To determine, the authors state that there will be a poverty trap when the scope for growing income or wealth at a very fast rate is limited for those who have too little to invest, but expands dramatically for those who can invest a bit more. On the other hand, if the potential for fast growth is high among the poor and then tapers off as one gets richer, there is no poverty trap.
PART 1 - PRIVATE LIVES
Chapter 2 - A Billion Hungry People?
For many in the West, poverty is almost synonymous with hunger. As a result, much of our aid and focus has been on ensuring that each person get enough calories each day. From a poverty trap perspective, the thinking is that if a person is not able to get enough calories, they can not work sufficiently and their income is diminished. Give them enough calories and you break the trap.
However, the evidence doesn't follow the logic. "Most people living with less that 99 cents a day do not seem to act as if they are starving." If they were, they would invest more of their income into buying more calories. The research shows that when these families receive extra money, food spending does not increase disproportionately; remarkably, it increases at similar levels with even the rich around the world. Moreover, the increase in spending isn't for more calories it is for better-tasting, more expensive, calories.
So, if we assume that people know what they are doing, and we should, it is fair to conclude that there is not a poverty trap resulting from lack of food. In fact, the authors state that in terms of food availability, "today we live in a world that is capable of feeding every person that lives on the planet" with at least 2,700 calories per day. Starvation exists not because of a lack of food but a distribution of food and how it is shared around the world.
The learning is that a) there are sufficient, cheap, calories for most all. b) more calories do not translate, generally, to higher earnings and c) that people place higher value on other things than food (e.g. things that make life less boring; festivals, t.v., sugar, etc.) Nutrition, is certainly an issue and getting "the right" calories, but not simply starvation in and of itself. This is where our focus should be, helping educate on healthy eating and providing more nutrient-rich, cheap, food options.
Chapter 3 - Low-Hanging Fruit for Better (Global) Health?
"Health is an area of great promise but also great frustration." Why do the poor not make more use of preventative technologies and options? Is it a lack of knowledge or a lack of access or lack of resources? Some of the answers are surprising.
Of those 9 million children each year who die before their fifth birthday many are due to preventable/treatable things, such as diarrhea. Breast-feeding is free, yet less than 40 percent of infants are breast fed exclusively for their first six months. Demand is low for malaria nets. Even though bleach and chlorine are cheap, few families use them. Yet, these tools are not used very much. Why?
The reality is that the poor actually spend a considerable amount on healthcare. The issue isn't how much is spent, but on what. Many countries offer free public health, yet these centers are often shunned or little used by the poor who choose more expensive options. What the research shows is that the attendants of free clinics are often sporadic (with high absentee rates) in their hours, making it hard to know if they will be available, make significant errors in diagnosis (also noted as being an issue for private clinics as well) and spend on average only a few minutes with patients. Perhaps people avoid public health simply because it doesn't work well.
But again, why not chose free/cheap preventative options? Could it be the psychology of "free" where things are judged to be of little value simply because they don't cost a lot? No, the evidence does not suggest this is the case.
Knowledge, beliefs and mindset do seem to play a strong factor, as well as, a concept of time. We are wired to trust what we see, believe and know. When you prescribe something and I feel better (whether I would have naturally or not), I believe your intervention was helpful. When you tell me to do something so that I won't get sick in the future, it is more difficult to believe because I don't have evidence that your truth "worked" - I may not have gotten sick anyway. The poor are not different from us in this regard, most of us have great intentions and think we'll make better choices in the future, the reality is when that future comes, we often aren't much different than we are today and other things seem more pressing or enjoyable.
The issue then becomes providing proper incentives to help people make healthy decisions (immunizations, etc.) that they might otherwise not make, while not being manipulative. What we know is that "nudges" towards health won't override our strongly held beliefs, but that can move us when our beliefs are soft or we need motivation. The key is finding and employing the right nudges in the right places to help move people towards health.
Chapter 4 - Top of the Class
Education. Why are children not attending school more and staying in school longer? Surely all parents understand that value of education? Are their simply not enough schools? Do poverty traps (sickness, need to work) prevent children from attending?
The data shows that schools are available. "In most countries, they are free, at least at the primary level. Most children are enrolled. And yet...child absentee rates vary between 14 and 50 percent." Much of this "probably" reflects children's unwillingness to be in school and parents inability/willingness to make them go.
The assumption is that if we could simply get children in schools learning would take place. Sadly, this is not quite the case. Teacher absentee rates are significant. When they are in school, they are not always in the classroom. One study found that "50 percent of teachers in Indian public schools are not in front of a class at the time they should be"
Similar to the issues with healthcare, we need to look at incentives. Mexico instituted a program called PROGRESA, a conditional cash transfer scheme for families if their children regularly attended school and the family sought preventative health care. The study concluded that it did "substantially" increase school enrollment, particularly at the secondary level. Another study found that the "conditions" weren't necessarily the driving force, it was the additional financial help these families needed.
Another program that had substantial impact is Pratham. Here, a set of volunteers from the community (often college students) hold evening classes in their neighborhoods with children. These volunteers are not compensated but do receive a weeks worth of training.
One fascinating characteristic is that many families see education as "a lottery ticket" vs. a safe investment. The thinking is to pick one child with the most "potential" and invest significantly in that child in the hopes that they will obtain a good job and support the parents as they age. This selection process also has a negative affect on the other children in the family not selected as they can believe they are not as smart and make less effort towards education.
Additionally, in many countries caste or socio-economic beliefs are a factor. Many cultures believe that poorer children have lower natural intellectual abilities and thus lower their expectations and investment in those children. Evidence is clear that this is not the case, yet many cultures persist in this and as a result we experience a huge waste of talent.
The solution? Believe each child is capable of learning basic skills and commit to helping each child master them. Leverage community volunteers to help children master those skills. Re-organize curriculum and classrooms to allow children to learn at their pace and stage (vs. age). Help educate parents on income gains from education and provide them more information on each child's progress. Leverage technology and use necessary incentives (nudges) to keep children in school and progressing.
Chapter 5 - Pak Sudarno's Big Family
Family size and planning. Debate has raged for decades on the issues of population growth and control; different countries have taken drastically different measures. In the mid 1970's India conducted over 8.6 million sterilizations. For much of human history "regions or countries that had more people" grew faster than the rest. Yet today, countries "with higher fertility rates are poorer" (though this doesn't tell us they are poorer because they are poor). The question for us is "are large families poorer because they are large? Are they less able to invest in the education and health of their children?
The data: no real evidence that children born in smaller families are really more educated. Yet this seems counter-intuitive. If families must spread their investment, why do we not see the impact? Perhaps the this is because the mother gives more of her "resources" (thinking, if it is a zero-sum game, mom becomes the bigger loser).
How do families in poverty make fertility decisions? How much control do women have in the decision-making process? Do they have access to modern contraception methods? What about teenage sex, education and abstinence?
Data: The poor do have access to contraceptives, but use them less than the rich. Studies in Kenya suggest that adolescents (there) are making calculated, if not fully informed, choices about whom to have sex with and under what conditions. ABC (Abstain, Be faithful, use a Condom) education did not show impact on pregnancy rates using RCT methods. One strategy that did have an impact was informing teenage girls that older men are more likely to be infected with HIV. In general, the findings suggest that if women get pregnant, it reflects someones active decision.
So what factors play into the decision? Culture? Idea of children as financial investments? For many parents, children are their economic future; an insurance policy. The idea is that children (or extended family) will take care of parents as they age (sadly this also impacts gender selection). Interestingly, when family sizes drop, savings rates tend to increase.
[The chapter then meanders a bit but concludes...] "The most effective population policy might therefore be to make it unncessary to have so many children (in particular, so many male children). Effective social safety nets...could lead to a substantial reduction in fertility and perhaps also less discrimination against girls."
