Poor Economics - Warwick

1 Table of ContentsTitle PageDedicationForewordChapter 1 - Think Again, AgainTRAPPED IN POVERTY?PART I - Private LivesChapter 2 - A Billion Hungry People?ARE THERE REALLY A BILLION HUNGRYPEOPLE?ARE THE poor REALLY EATING WELL,AND EATING ENOUGH?WHY DO THE poor EAT SO LITTLE?SO IS THERE REALLY A NUTRITION-BASEDPOVERTY TRAP?Chapter 3 - Low-Hanging Fruit for Better (Global)Health?THE HEALTH TRAPWHY AREN T THESE TECHNOLOGIES USEDMORE?UNDERSTANDING HEALTH-SEEKINGBEHAVIORTHE VIEW FROM OUR COUCHC hapter 4 - Top of the ClassSUPPLY-DEMAND WARSTHE CURSE OF EXPECTATIONSWHY SCHOOLS FAILREENGINEERING EDUCATIONC hapter 5 - Pak Sudarno s Big FamilyWHAT IS WRONG WITH LARGE FAMILIES?

2 DO THE poor CONTROL THEIR FERTILITYDECISIONS?CHILDREN AS FINANCIAL INSTRUMENTSTHE FAMILYPART II - InstitutionsChapter 6 - Barefoot Hedge-Fund ManagersTHE HAZARDS OF BEING POORTHE HEDGEWHERE ARE THE INSURANCE COMPANIESFOR THE poor ?Chapter 7 - The Men from Kabul and the Eunuchsof India: The (Not So) Simple ..LENDING TO THE POOR4/591 MICRO INSIGHTS FOR A MACRO PROGRAMDOES MICROCREDIT WORK?THE LIMITS OF MICROCREDITHOW CAN LARGER FIRMS BE FINANCED?Chapter 8 - Saving Brick by BrickWHY THE poor DON T SAVE MORETHE PSYCHOLOGY OF SAVINGSPOVERTY AND THE LOGIC OF SELF-CONTROLC hapter 9 - Reluctant EntrepreneursCAPITALISTS WITHOUT CAPITALTHE BUSINESSES OF THE POORGOOD JOBSC hapter 10 - Policies, PoliticsPOLITICAL ECONOMYCHANGES AT THE MARGINDECENTRALIZATION AND DEMOCRACY INPRACTICEAGAINST POLITICAL ECONOMYIn Place of a Sweeping ConclusionAcknowledgementsNotesIndexCopy right Page5/591 For our mothers,Nirmala Banerjee andViolaine ,with3feetby3feetmarkedoutontheground,ea chwithahumanpawn,asitwere, , ,shefeltvaguelydis-appointed.

3 Everywhereshelooked,therewasemptyspace trees,patchesofgrass, book? Where had all the people gone?Atsix, ,andtheycouldbeathimatanysport:Whenhewen tdowntoplaymarbleswiththem,themarbleswou ldalwaysendupinthepock-ets of their ragged shorts. He was shasbeenwithusforaslongastherehasbeenpov erty:Thepoorappear,insocialtheoryasmucha sinlit-erature,byturnslazyorenterprising ,nobleorthievish,angryorpassive, : Freemarketsforthepoor, Makehumanrightssubstantial, Dealwithconflictfirst, Givemoremoneytothepoorest, Foreignaidkillsdevelopment, ,buttheyrarelyhavemuchspaceforaveragepoo rwomenormen,withtheirhopesanddoubts,limi tationsandaspirations, ,itisusuallyasthedramatispersonaeofsomeu pliftinganecdoteortragicepisode,tobead-m iredorpitied,butnotasasourceofknowledge, notaspeopletobeconsultedaboutwhattheythi nkor want or ,theeconomicsofpovertygetsmis-takenforpo oreconomics:Becausethepoorpossessverylit tle, ,thismisunderstandingseverelyunderminest hefightagainstglobalpoverty.

4 Simpleproblems8 ,wehavetoabandonthehabitofreducingthepoo rtocartooncharactersandtakethetimetoreal lyun-derstandtheirlives, ,wehavetriedtodojust , ,spreadovermanyyears,onthegroundworkingw ithNGO(nongovernmentalorganization)activ istsandgovernmentbureaucrats, ,askingques-tions, ,moreoftenthannot, ,evenwhentheymadelittlesense;manystories wereshared with ,rememberingthesestoriesandanalyzingthed ata,wewerebothfascinatedandconfused,stru gglingtofitwhatwewerehearingand9/591seei ngintothesimplemodelsthat(oftenWesternor Western-trained) , ;itrepresentsourattempttoknittogetheraco herentstoryofhowpoorpeoplelive their , , ,theywouldneedtospendmore ,youhavetoimaginehavingtoliveinMiamiorMo destowith99centsperdayforal-mostallyoure verydayneeds(excludinghousing).

5 Itisnoteasy inIndia,forexample,theequivalent10/591am ountwouldbuyyoufifteensmallishbananas, ,aroundtheworld,in2005,865mil-lionpeople (13percentoftheworld spopulation) ;thepoorarenolessrationalthananyoneelse , think newspapers,television,andbooksallcostmon ey andsoyouoftenjustdon tknowcertainfactsthattherestoftheworldta kesasgiven,like,forexample, , tcoveralotofunpro-nounceablediseases?Itm eansgoingtovotewhenyourentireexperienceo fthepoliticalsystemisalotofpromises,notd elivered;andnothavingany-wheresafetokeep yourmoney,becausewhatthebankmanagercanma kefromyourlittlesavingswon t cover his cost of handling it. And so sfuturetakethatmuchmoreskill,willpower, ,thesmallcosts,thesmallbarriers,andthesm allmistakesthatmostofusdonot think twice about loom large in their ,butasenseofpossibilityandalittlebitofwe ll-targetedhelp(apieceofinformation,alit tlenudge) ,misplacedexpectations,thelackoffaithwhe reitisneeded, , ,itisclearthatnosingleleverwill solve every , , sfamilylives:whattheybuy;whattheydoabout theirchildren sschooling,theirownhealth,orthatoftheirc hildrenorparents;howmanychildrentheychoo setohave; :Cantheyborrow,save,insurethemselvesagai nsttheriskstheyface?

6 Whatdogovernmentsdoforthem,andwhendothey failthem?Throughout, ,andwhatispreventingthemfrombeingabletod othesethings?Isitmorethecostofgettingsta rted,orisiteasytogetstartedbuthardertoco ntinue?Whatmakesitcostly?Dopeoplesenseth enatureofthebenefits?Ifnot,whatmakes it hard for them to learn them?PoorEconomicsisultimatelyaboutwhatt helivesandchoicesofthepoortellusabouthow tofight13 ,forexample,whymicrofinanceisusefulwitho utbeingthemir-aclesomehopeditwouldbe;why thepooroftenendupwithhealthcarethatdoest hemmoreharmthangood;whychildrenofthepoor cangotoschoolyearafteryearandnotlearnany thing;whythepoordon :whytokensubsidiesmighthavemorethantoken effects;howtobettermarketin-surance;whyl essmaybemoreineducation.

7 ,itmakesclearwhyhopeisvitalandknowledgec ritical, talwaysasfaraway as it Again, AgainEveryyear, inthedevelopedworld,thechanceisonein5, ,mostoftheminsub-SaharanAfrica, ,morethan50millionschool-goingchildren cannot read a very simple ,ideally,forgetaboutthiswholebusinessofw orldpoverty:Theproblemseemstoobig, is to persuade you not $ ,oneoftheworld (randomlyselected)studentswereshown this:FoodshortagesinMalawiareaffectingmo rethan3millionchildren;InZambia,severera infalldeficitshaveresultedina42% ,anestimated3millionZambiansfacehun-ger; FourmillionAngolans onethirdofthepopulation havebeenforcedtofleetheirhomes;Morethan1 1millionpeopleinEthiopia need immediate food of a young girl and these words.

8 Rokia,a7-year-oldgirlfromMali,Africa, ,andthesup-portofothercaringsponsors,Sav etheChil-drenwillworkwithRokia sfamilyandothermembersofthecommunitytohe lpfeedher,provideherwitheducation,aswell asbasicmedical care and hygiene $ ,inwhichtheplightofmillionsbecametheplig htofone,raised$ ,itseems,werewillingtotakesomere-sponsib ilityforhelpingRokia,butwhenfacedwiththe scaleoftheglobalproblem, ,alsochosenatrandom, ,forZambia,Angola,andMali,gavemoreorless whatthatflyerhadraisedwithoutthewarning $ ,forRokia,afterthiswarninggaveonly$ , ,butnotmoregeneroustoeveryoneelse in , ,likethePennstudents,oursecondthoughtiso ftenthatthereisreallynopoint:Ourcontribu tion17/591wouldbeadropinthebucket, ,again:toturnawayfromthefeelingthatthefi ghtagainstpovertyistoooverwhelming,andto starttothinkofthechallengeasasetofconcre teproblemsthat,onceproperlyidentifiedand understood,canbe solved one at a , ,manyofthemostvocalexpertstendtobefixate donthe bigquestions :Whatistheultimatecauseofpoverty?

9 Howmuchfaithshouldweplaceinfreemarkets?I sdemocracygoodforthepoor?Doesforeignaidh avea role to play? And so ,advisertotheUnitedNations,dir-ectorofth eEarthInstituteatColumbiaUniversityinNew YorkCity,andonesuchexpert,hasanan-swerto allthesequestions:Poorcountriesarepoorbe causetheyarehot,infertile,malariainfeste d,of-tenlandlocked; theyareinwhateconomistscalla povertytrap. Untilsomethingisdoneabout18/591theseprob lems, ; ,TheEndofPoverty,4 Sachsarguesthatiftherichworldhadcommitte d$195billioninforeignaidperyearbetween20 05and2025, ,equallyvocal,whobe-lievethatallofSachs ,whobattlesSachsfromNewYorkUniversityatt heotherendofManhattan,hasbe-comeoneofthe mostinfluentialanti-aidpublicfig-ures,fo llowingthepublicationoftwobooks,TheElusi veQuestforGrowthandTheWhiteMan ,aneconomistwhoprevi-ouslyworkedatGoldma nSachsandattheWorldBank,hasjoinedhervoic etoEasterly swithherre-centbook, :Itpreventspeoplefromsearchingfortheirow nsolutions,whilecorruptingandundermining localinstitutionsandcreatinga19.

10 Whenmarketsarefreeandtheincentivesarerig ht, , , ,therearenosuch things as poverty , , ,forexample,receivedalotofaidmoneyinthey earsimmediatelyafterthegenocide, , (asSachssuggests),orasaposterchildforsel f-reliance(asMoyopresentsit)?Or both?20/591 BecauseindividualexampleslikeRwandacanno tbepinneddown, , ,butinfact, , ;wearejustspec-ulating on a grand ,whatarewesupposedtodo giveuponthepoor?Fortunately,wedon indeed,thiswholebookisintheformofanexten dedanswer , ,butwedohavesomethingtosayaboutwhetherde mo-cracycouldbemademoreeffectiveinruralI ndone-siabychangingthewayitisorganizedon theground and so ,itisnotclearthatansweringsomeofthesebig questions,likewhetherforeignaidworks, ,Paris,orWashington,DC,whoarepassionatea bouthelpingthepoor(andthoselesspassionat e,whoresentpay-ingforit).