Five key lessons in the fight against poverty

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty

I finally got around to reading Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. The book brings to light some of the complexities of poor people’s lives by exploring the difficult decisions they face, which are often about things we take for granted, like access to enough food and clean water, or vaccinations. Further complicating matters, these decisions are often made in an environment of no information, misinformation, and without any margin for error.

The richer you are, the more “right” decisions are made for you. The poor have no piped water, and therefore do not benefit from the chlorine that the city government puts into the water supply. If they want clean drinking water, they have to purify it themselves. They cannot afford ready-made fortified breakfast cereals and therefore have to make sure that they and their children get enough nutrients. They have no automatic way to save, such as a retirement plan or contribution to Social Security, so they have to find a way to make sure that they save. These decisions are difficult for everyone because they require some thinking now or some other small cost today, and the benefits are usually reaped in the distant future. As such, procrastination very easily gets in the way. For the poor, this is compounded by the fact that their lives are already much more demanding than ours …

Five key lessons in the fight against poverty

Although we have no magic bullets to eradicate poverty, no one-shot cure-all, we do know a number of things about how to improve the lives of the poor. In particular, five key lessons emerge.

First, the poor often lack critical pieces of information and believe things that are not true. They are unsure about the benefits of immunising children; they think there is little value in what is learned during the first few years of education; they don’t know which is the easiest way to get infected with HIV. When their firmly held beliefs turn out to be incorrect, they end up making the wrong decision, sometimes with drastic consequences. Even when they know that they don’t know, the resulting uncertainty can be damaging.

Second, the poor bear responsibility for too many aspects of their lives. The richer you are, the more the “right” decisions are made for you. …

Third, there are good reasons some markets are missing for the poor, or that the poor face unfavourable prices in them. The poor get a negative interest rate from their savings accounts (if they are lucky enough to have an account) and pay exorbitant rates on their loans (if they can get one) because handling even a small quantity of money entails a fixed cost.

Fourth, poor countries are not doomed to failure because they are poor, or because they have had an unfortunate history. It is true that things often do not work in these countries: programmes intended to help the poor end up in the wrong hands, teachers teach desultorily or not at all, roads weakened by theft of materials collapse under the weight of overburdened trucks, and so forth. But many of these failures have less to do with some grand conspiracy of the elites to maintain their hold on the economy and more to do with some avoidable flaw in the design of policies, and the ubiquitous three is: ignorance, ideology and inertia.

Finally, expectations about what people are able or unable to do all too often end up turning into self-fulfilling prophecies. Children give up on school when their teachers (and sometimes their parents) signal to them that they are not smart enough to master the curriculum; fruit sellers don’t make the effort to repay their debt because they expect that they will fall back into debt very quickly; nurses stop coming to work because nobody expects them to be there; politicians whom no one expects to perform have no incentive to try improving people’s lives. Changing expectations is not easy, but it is not impossible.

Despite these lessons, we are far from knowing everything.

The book is, in a sense, just an invitation to look more closely. If we resist the kind of lazy, formulaic thinking that reduces every problem to the same set of general principles; if we listen to poor people themselves and force ourselves to understand the logic of their choices; if we accept the possibility of error and subject every idea, including the most apparently commonsensical ones, to rigorous empirical testing, then we will be able not only to construct a toolbox of effective policies but also to better understand why the poor live the way they do. Armed with this patient understanding, we can identify the poverty traps where they really are and know which tools we need to give the poor to help them get out of them.

Still curious? Bill Gates recommends an excellent companion book: Getting Better: Why Global Development is Succeeding. Also, the Gates foundation just released their 2013 report.