Poverty: Challenges and Solutions
Anti-Poverty Technology:
Jeffrey Sachs, The End of Poverty
Banerjee/Duflo, Poor Economics
https://hecourse.engineering.osu.edu
Lecture 20.1
Jeffrey Sachs:
•
Professor of economics at
Columbia University
•
Director of Columbia’s Earth
Institute
•
Past Director of the U.N.
Millennium Project work on the
Millennium Development Goals
(advisor), Millennium Villages
Project (joint EI/UN)
•
Book: “The Age of Sustainable
Development” (Coursera)
H
e
r
e
,
b
o
o
k
:
“
T
h
e
E
n
d
o
f
P
o
v
e
r
t
y
”
W
h
y
a
r
e
c
o
u
n
t
r
i
e
s
p
o
o
r
?
P
o
v
e
r
t
y
t
r
a
p
:
E
x
t
r
e
m
e
p
o
v
e
r
t
y
m
a
k
e
s
i
t
i
m
p
o
s
s
i
b
l
e
t
o
g
e
t
o
u
t
o
f
p
o
v
e
r
t
y
(
l
a
c
k
o
f
i
n
f
r
a
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t
r
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e
,
c
a
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t
s
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e
,
l
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k
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f
h
u
m
a
n
/
n
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m
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e
p
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v
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r
t
y
)
.
Need outside help to break the trap!
P
h
y
s
i
c
a
l
g
e
o
g
r
a
p
h
y
:
1.
Natural resources (fertile soil, water,
ports)
2.
Landlocked—high cost transport
3.
Tropics promote diseases
But, all these issues can be overcome
G
o
v
e
r
n
m
e
n
t
f
i
s
c
a
l
t
r
a
p
:
1.
Can’t provide infrastructure, healthcare,
education, etc. to get economic growth
2.
Cannot raise enough taxes
3.
May be “inept, corrupt, or incapacitated”
and hence unable to collect taxes
4.
Carrying a large debt load that they need
to “service”
G
o
v
e
r
n
a
n
c
e
f
a
i
l
u
r
e
s
:
1.
Oriented toward development?
2.
Invest in the right projects
3.
Set the right environment for private
investments, not demand bribes and side
payments
4.
Maintain peace and safety, and protect
private property.
5.
Without, “state failure” can occur (e.g., via
wars, revolution, coups, and anarchy)
C
u
l
t
u
r
a
l
b
a
r
r
i
e
r
s
:
1.
Cultural or religious norms may obstruct
women (hurt half population).
2.
Denying women education: lack of
economic productivity for their family,
increased family size and child-rearing
responsibilities
3.
Similar barriers are sometimes set up for
religious or ethnic minorities
G
e
o
p
o
l
i
t
i
c
s
:
1.
Trade barriers
erected (by rich and
powerful countries) that impede a poor
country’s development.
2.
Economic sanctions
are used against
poor countries, ones supposedly aimed at
an authoritarian leader, but which mainly
adversely affect the population.
L
a
c
k
o
f
t
e
c
h
n
o
l
o
g
i
c
a
l
i
n
n
o
v
a
t
i
o
n
:
•
Poor country, innovation:
How do innovators recover
investment in research and development? Sales?
•
Rich country, innovation:
Sales, increases size of
market, which encourages more innovation. 98% of
patents in rich countries
•
O
p
p
o
r
t
u
n
i
t
i
e
s
:
1.
Diffusion/importation of technology (e.g., cell
phones and computers)
but
will technologies
designed for the ecological conditions in rich
countries be reliable in tropical, arid, or
mountainous regions where the poor live?
2.
Foreign investors bring technology/methods that
“spill over”
D
e
m
o
g
r
a
p
h
i
c
t
r
a
p
:
•
½ world at “replacement” fertility rate
•
Country GDP increases
➞
Total fertility rate decreases
Poor country fertility rate: ≥ 5
➞
Population doubles
each generation.
•
Large family size
➞
less invested in each child’s
nutrition, health, and education
•
Impoverished children
➟
impoverished adults, who in
turn have many children.
•
Stresses farm size, natural resources
➞
promote
poverty.
•
Need to have enough boys that will survive to support
parents in old age.
C
o
u
n
t
r
i
e
s
w
h
o
b
r
o
k
e
t
h
e
s
e
t
r
a
p
s
:
U
s
e
d
f
o
o
d
p
r
o
d
u
c
t
i
v
i
t
y
A
g
r
i
c
u
l
t
u
r
a
l
:
1.
Fertilizers, fallows, green manures and
cover crops, small-scale irrigation, and
better seeds
➞
increase yields and end
chronic hunger.
2.
Storage facilities would help farmers get
better market prices.
B
i
g
5
D
e
v
e
l
o
p
m
e
n
t
I
n
t
e
r
v
e
n
t
i
o
n
s
B
a
s
i
c
h
e
a
l
t
h
:
1.
A staffed village clinic (e.g., for every five
thousand people) that would also provide
bed nets, medicines, HIV/AIDS medicines
(e.g., low-cost Bactrim to treat AIDS-
induced infections and antiretroviral
therapy for late stage AIDS)
2.
Reproductive health services.
E
d
u
c
a
t
i
o
n
:
1.
Meals for children at school, vocational
training (e.g., for farming), computer
literacy, infrastructure maintenance (e.g.,
electrical wiring, generator use, water
harvesting, and borewells), carpentry, etc.
2.
Training in hygiene, HIV/AIDS, malaria
control, computer and mobile phone use,
and others are important.
P
o
w
e
r
,
t
r
a
n
s
p
o
r
t
,
a
n
d
c
o
m
m
u
n
i
c
a
t
i
o
n
s
:
1.
E
l
e
c
t
r
i
c
i
t
y
v
i
a
a
p
o
w
e
r
l
i
n
e
t
o
t
h
e
g
r
i
d
,
o
r
v
i
a
o
f
f
-
g
r
i
d
m
e
t
h
o
d
s
(
d
i
e
s
e
l
g
e
n
e
r
a
t
o
r
s
,
b
i
c
y
c
l
e
s
,
s
o
l
a
r
,
e
t
c
.
)
,
a
r
e
n
e
e
d
e
d
t
o
p
o
w
e
r
l
i
g
h
t
s
(
t
o
w
o
r
k
o
r
s
t
u
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y
a
f
t
e
r
d
a
r
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)
,
p
e
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h
a
p
s
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p
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f
o
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a
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s
c
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l
,
w
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p
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,
p
o
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m
i
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,
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,
c
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t
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u
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,
c
h
a
r
g
i
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g
o
f
b
a
t
t
e
r
i
e
s
,
e
t
c
.
2.
A
v
i
l
l
a
g
e
t
r
u
c
k
w
o
u
l
d
b
e
u
s
e
f
u
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f
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l
i
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r
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g
o
o
d
s
t
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v
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a
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e
,
t
a
k
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g
g
o
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d
s
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m
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t
,
o
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i
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c
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o
f
e
m
e
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e
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c
y
d
e
l
i
v
e
r
p
e
o
p
l
e
t
o
a
d
i
s
t
a
n
t
h
o
s
p
i
t
a
l
.
3.
H
a
v
i
n
g
a
t
l
e
a
s
t
o
n
e
c
e
l
l
p
h
o
n
e
n
e
a
r
b
y
(
i
f
i
t
c
a
n
g
e
t
a
s
i
g
n
a
l
)
i
s
u
s
e
f
u
l
f
o
r
e
m
e
r
g
e
n
c
i
e
s
,
m
a
r
k
e
t
i
n
f
o
r
m
a
t
i
o
n
(
s
o
t
h
e
y
c
a
n
s
e
l
l
t
h
e
i
r
g
o
o
d
s
a
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t
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e
b
e
s
t
p
r
i
c
e
)
,
a
n
d
t
o
c
o
n
n
e
c
t
t
h
e
m
w
i
t
h
t
h
e
o
u
t
s
i
d
e
w
o
r
l
d
.
W
a
t
e
r
a
n
d
s
a
n
i
t
a
t
i
o
n
:
1.
Sufficient supply of clean water affects health
and significantly reduces the toil for women and
children to find and carry water.
2.
Springs, borewells, and rainwater harvesting
can all be useful, as could a pipe to a nearby
large-scale storage tank.
3.
Proper sanitation is important so that at least
the immediate environment is not polluted so
that health problems arise (of course concerns
for the larger surrounding environment are
important too).
•
S
a
c
h
s
’
c
o
s
t
a
n
a
l
y
s
i
s
:
$
7
0
/
p
e
r
s
o
n
i
s
t
h
e
c
o
s
t
o
f
a
p
p
l
y
i
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g
a
l
l
t
h
e
s
e
s
t
r
a
t
e
g
i
e
s
.
•
To break traps, need such sizable
investment from rich countries/donors (so
do not just keep pouring money into
ending suffering)
Abhijit Banerjee,
Esther Duflo,
Professors of economics,
MIT
15 years of work with
people living on
< $0.99/day PPP
Book: Poor Economics
•
Highlight problems of:
I
d
e
o
l
o
g
y
,
I
g
n
o
r
a
n
c
e
,
a
n
d
I
n
e
r
t
i
a
H
u
n
g
e
r
:
•
Poor do not spend extra pennies on food
•
Extra money
➯
proportion on food does
not increase
•
Concentrate resources on high-calorie +
micro-nutrient rich food (which they might
not understand)? No.
•
Extra funds
➯
better-tasting + more
expensive calories (e.g., they may buy
rice or wheat rather than
millet
)
•
Enough food: Only 2% of world say they
do not have enough food
•
Nutrition-based traps only sometimes
•
Hunger is not a “big part of the story of
the persistence of poverty.”
But, are the poor eating well?
W
i
d
e
-
s
p
r
e
a
d
m
a
l
n
o
u
r
i
s
h
m
e
n
t
i
n
u
n
d
e
r
d
e
v
e
l
o
p
e
d
c
o
u
n
t
r
i
e
s
(
a
b
o
u
t
o
n
e
i
n
f
i
v
e
c
h
i
l
d
r
e
n
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d
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r
t
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a
g
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o
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e
v
e
r
e
m
a
l
n
o
u
r
i
s
h
m
e
n
t
)
➯
•
Stunted growth
•
Low weight
•
Deficits in cognitive functioning (e.g., low
IQ), and smarter people earn more money
Some evidence: Better nourishment
➯
higher productivity, but...
•
Employer may not pay more (piece-rate)
•
Self-employed worker earns more
Most not held back by food, but problems
with malnourishment
➯
need to improve for
children and pregnant mothers
•
Spend significant money on: weddings,
dowries, and christenings (likely to save
face) & entertainment (boredom problem)
•
They think carefully about these (often not
believing improvements will happen—
“learn not to have hope”), but strong basic
need for a pleasant life
H
e
a
l
t
h
Health-based traps exist
Health
➟
work
➟
income
➟
education
➟
baby health
•
Eliminating malaria – a good investment
•
Also, clean water, sanitation
•
But, demand for bed nets (even
subsidized) not large
•
Do poor care about health? Yes...
¼ poor report “worried, tense, or anxious” in
last month, most often due to their health or
that of relative
Spend a lot on healthcare,
but expensive
cures rather than inexpensive prevention
(familiar? Often poorly administered)
Poorly trained health-providers: “under-
diagnose and overmedicate”, high
absenteeism
Do little things, can’t afford big ones
Need education about value of prevention
(e.g. immunization), fight against
superstitions
Should immunizations be forced by law?
Contrast this with lives of rich in the
developed world...
1.
L
i
v
e
i
n
a
h
o
u
s
e
w
i
t
h
p
i
p
e
d
-
i
n
c
l
e
a
n
w
a
t
e
r
(
n
o
n
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e
d
t
o
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m
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m
b
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t
o
p
u
r
i
f
y
w
a
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e
r
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v
e
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d
a
y
)
,
a
n
d
s
e
w
a
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t
h
a
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s
a
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a
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m
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t
,
i
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c
l
u
d
i
n
g
t
h
e
w
a
t
e
r
s
u
p
p
l
y
.
2.
D
o
n
o
t
w
o
r
r
y
a
b
o
u
t
w
h
e
r
e
t
h
e
i
r
n
e
x
t
m
e
a
l
i
s
c
o
m
i
n
g
f
r
o
m
.
3.
H
a
v
e
a
c
c
e
s
s
t
o
w
e
l
l
-
t
r
a
i
n
e
d
d
o
c
t
o
r
s
,
o
t
h
e
r
h
e
a
l
t
h
c
a
r
e
p
r
o
v
i
d
e
r
s
,
a
n
d
a
p
u
b
l
i
c
h
e
a
l
t
h
s
y
s
t
e
m
a
l
l
o
f
w
h
i
c
h
c
a
n
m
o
s
t
o
f
t
e
n
b
e
t
r
u
s
t
e
d
.
4.
H
a
v
e
r
e
q
u
i
r
e
d
i
m
m
u
n
i
z
a
t
i
o
n
(
e
.
g
.
,
b
y
p
u
b
l
i
c
s
c
h
o
o
l
s
)
a
n
d
i
f
y
o
u
f
a
i
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t
o
g
e
t
i
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y
o
u
a
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l
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g
o
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t
o
b
e
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m
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e
r
p
e
o
p
l
e
h
a
v
e
g
o
t
t
e
n
i
t
.
5.
H
a
v
e
h
e
a
l
t
h
i
n
s
u
r
e
r
s
t
h
a
t
r
e
w
a
r
d
u
s
f
o
r
j
o
i
n
i
n
g
t
h
e
g
y
m
o
r
f
o
r
e
a
t
i
n
g
n
u
t
r
i
t
i
o
u
s
f
o
o
d
.
•
Country’s higher fertility rates
➟
poorer;
but poorer due to high fertility?
•
Family size
create
poverty for a family
(invest less in nutrition, education, and
healthcare for each child)? Not clear
Family Issues
•
Pregnancy (health problems), marriage,
lead women to get less education
•
Contraception: Supply vs demand
argument
•
Women pay most of cost of having babies
•
Men want more kids than women
•
Mother-in-law + community drive family
size
C
h
i
l
d
r
e
n
a
g
o
o
d
e
c
o
n
o
m
i
c
i
n
v
e
s
t
m
e
n
t
?
1.
Insurance policy (to take care of parents in
their old age)
2.
Savings product (to later garner their
income)
3.
Lottery tickets (not being sure who will
succeed well enough to help); big family
➯
one will pay off (risk problems with one)
4.
Sons pay off, daughters cost (dowry&leave)
•
Children are ways to save
➯
when fertility
drops, savings go up
➯
do not see for
smaller families increases in investment in
children (health/education)
•
Higher value on boys
➯
sex-selective
issues & how girls are treated
•
Have kids till get boy
➯
girls in larger
families (where boy was desired)
•
Sometimes, girls not breast-fed as long to
avoid contraceptive effect (try try for boy)
R
i
s
k
s
a
n
d
P
o
v
e
r
t
y
•
Risk a key part of lives of poor.
•
Bad luck hurts the poor more
•
Risk causes worry, stress, and depression
➯
harder to focus, impair cognition,
impair decision-making ability, less
productive.
•
Create employment via farms (weather
dependence), small businesses, day-jobs/
indeterminate length
•
Bad luck
➯
work more? But, if problem
wide-spread wages go down
•
“Diversified portfolio” approach:
•
Many occupations
•
More children
•
Conservative in operations (not invest in a
new seed or fertilizer).
•
Become someone’s share-tenant
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High interest (money-lenders)
➟
opportunities for microfinance companies
•
Micro-loans can help lift someone out of
poverty.
•
Poor generally pay higher interest than
the rich for loans (20-40% per year)
•
Some companies have charged high
rates
•
Not strong evidence of sucess
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•
Slowly build a house.
•
Without credit and insurance, shouldn’t
the poor save as much as they can to
avoid risk (e.g., a bad farming year or
health problems)? Can’t save what don’t
have!
•
Even saving a little still makes sense.
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:
•
“Savings clubs”
•
Deposit money with moneylenders
•
Hide money for emergencies.
•
Cell phones facilitate deposits
•
Savings behavior
➟
try to protect assets
from themselves. Use loans to save?
Desperation
➟
immediate spending
Hope, optimism, long-term goals
➟
improve
saving and has many positive effects
P
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•
Poor natural-born entrepreneurs? No.
•
Poor have fresh ideas, initiatives,
resilience, but...
•
Their businesses are tiny
➟
loans may
not lead to a significant impact on their
welfare. But, high “marginal return”
•
Highly competitive, no profits for
investment
•
A way to “buy a job” (economy fails them)
J
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b
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f
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t
h
e
P
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r
•
Want a government job
•
Employment in a “sweatshop” can provide
stable employment
•
Evidence of the positive influence of
employment in sweatshops on women
workers in that their children are less
stunted in growth.
1.
The poor need better information
2.
The poor are burdened with responsibility for
too many aspects of their lives
3.
Markets are missing or unfavorable to the poor
4.
Poverty and history do not doom a poor country
to stay poor: many problems there are due to
“the three I’s, ideology, ignorance, and inertia.”
5.
Expectations about what the poor are able or
unable to do end up being “self-fulfilling
prophecies”
.
Five Lessons for Helping the Poor
Exploring the complexities of poverty through the lens of anti-poverty technology, this content discusses the root causes of poverty, such as the poverty trap, physical geography limitations, government fiscal traps, governance failures, and cultural barriers. Highlighting the need for external assistance to break the poverty cycle, it underscores the importance of addressing infrastructure, healthcare, education, governance, and cultural norms to uplift impoverished nations.
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Anti-Poverty Technology: Jeffrey Sachs, The End of Poverty Banerjee/Duflo, Poor Economics https://hecourse.engineering.osu.edu Lecture 20.1
Jeffrey Sachs: Professor of economics at Columbia University Director of Columbia s Earth Institute Past Director of the U.N. Millennium Project work on the Millennium Development Goals (advisor), Millennium Villages Project (joint EI/UN) Book: The Age of Sustainable Development (Coursera) Here, book: The End of Poverty 2
Why are countries poor? Poverty trap: Extreme poverty makes it impossible to get out of poverty (lack of infrastructure, can t save, lack of human/natural capital, local conditions promote health problems which promote poverty). Need outside help to break the trap! 3
Physical geography: 1. Natural resources (fertile soil, water, ports) 2. Landlocked high cost transport 3. Tropics promote diseases But, all these issues can be overcome 4
Government fiscal trap: 1. Can t provide infrastructure, healthcare, education, etc. to get economic growth 2. Cannot raise enough taxes 3. May be inept, corrupt, or incapacitated and hence unable to collect taxes 4. Carrying a large debt load that they need to service 5
Governance failures: 1. Oriented toward development? 2. Invest in the right projects 3. Set the right environment for private investments, not demand bribes and side payments 4. Maintain peace and safety, and protect private property. 5. Without, state failure can occur (e.g., via wars, revolution, coups, and anarchy) 6
Cultural barriers: 1. Cultural or religious norms may obstruct women (hurt half population). 2. Denying women education: lack of economic productivity for their family, increased family size and child-rearing responsibilities 3. Similar barriers are sometimes set up for religious or ethnic minorities 7
Geopolitics: 1. Trade barriers erected (by rich and powerful countries) that impede a poor country s development. 2. Economic sanctions are used against poor countries, ones supposedly aimed at an authoritarian leader, but which mainly adversely affect the population. 8
Lack of technological innovation: Poor country, innovation: How do innovators recover investment in research and development? Sales? Rich country, innovation: Sales, increases size of market, which encourages more innovation. 98% of patents in rich countries Opportunities: 1. Diffusion/importation of technology (e.g., cell phones and computers) but will technologies designed for the ecological conditions in rich countries be reliable in tropical, arid, or mountainous regions where the poor live? 2. Foreign investors bring technology/methods that spill over 9
Demographic trap: world at replacement fertility rate Country GDP increases Total fertility rate decreases Poor country fertility rate: 5 Population doubles each generation. Large family size less invested in each child s nutrition, health, and education Impoverished children impoverished adults, who in turn have many children. Stresses farm size, natural resources promote poverty. Need to have enough boys that will survive to support parents in old age. Countries who broke these traps: Used food productivity 10
Big 5 Development Interventions Agricultural: 1. Fertilizers, fallows, green manures and cover crops, small-scale irrigation, and better seeds increase yields and end chronic hunger. 2. Storage facilities would help farmers get better market prices. 11
Basic health: 1. A staffed village clinic (e.g., for every five thousand people) that would also provide bed nets, medicines, HIV/AIDS medicines (e.g., low-cost Bactrim to treat AIDS- induced infections and antiretroviral therapy for late stage AIDS) 2. Reproductive health services. 12
Education: 1. Meals for children at school, vocational training (e.g., for farming), computer literacy, infrastructure maintenance (e.g., electrical wiring, generator use, water harvesting, and borewells), carpentry, etc. 2. Training in hygiene, HIV/AIDS, malaria control, computer and mobile phone use, and others are important. 13
Power, transport, and communications: 1. Electricity via a power line to the grid, or via off-grid methods (diesel generators, bicycles, solar, etc.), are needed to power lights (to work or study after dark), perhaps a computer for a village school, water pumps, power for milling grain, refrigeration, construction, charging of batteries, etc. 2. A village truck would be useful for delivering goods to the village, taking goods to market, or in case of emergency deliver people to a distant hospital. 3. Having at least one cell phone nearby (if it can get a signal) is useful for emergencies, market information (so they can sell their goods at the best price), and to connect them with the outside world. 14
Water and sanitation: 1. Sufficient supply of clean water affects health and significantly reduces the toil for women and children to find and carry water. 2. Springs, borewells, and rainwater harvesting can all be useful, as could a pipe to a nearby large-scale storage tank. 3. Proper sanitation is important so that at least the immediate environment is not polluted so that health problems arise (of course concerns for the larger surrounding environment are important too). 15
Sachs cost analysis: $70/person is the cost of applying all these strategies. To break traps, need such sizable investment from rich countries/donors (so do not just keep pouring money into ending suffering) 16
Abhijit Banerjee, Esther Duflo, Professors of economics, MIT 15 years of work with people living on < $0.99/day PPP Book: Poor Economics 17
Highlight problems of: Ideology, Ignorance, and Inertia 18
Hunger: Poor do not spend extra pennies on food Extra money proportion on food does not increase Concentrate resources on high-calorie + micro-nutrient rich food (which they might not understand)? No. Extra funds better-tasting + more expensive calories (e.g., they may buy rice or wheat rather than millet) 19
Enough food: Only 2% of world say they do not have enough food Nutrition-based traps only sometimes Hunger is not a big part of the story of the persistence of poverty. 20
But, are the poor eating well? Wide-spread malnourishment in underdeveloped countries (about one in five children under the age of three has severe malnourishment) Stunted growth Low weight Deficits in cognitive functioning (e.g., low IQ), and smarter people earn more money 21
Some evidence: Better nourishment higher productivity, but... Employer may not pay more (piece-rate) Self-employed worker earns more Most not held back by food, but problems with malnourishment need to improve for children and pregnant mothers 22
Spend significant money on: weddings, dowries, and christenings (likely to save face) & entertainment (boredom problem) They think carefully about these (often not believing improvements will happen learn not to have hope ), but strong basic need for a pleasant life 23
Health Health-based traps exist Health work income education baby health Eliminating malaria a good investment Also, clean water, sanitation But, demand for bed nets (even subsidized) not large Do poor care about health? Yes... 24
poor report worried, tense, or anxious in last month, most often due to their health or that of relative Spend a lot on healthcare, but expensive cures rather than inexpensive prevention (familiar? Often poorly administered) Poorly trained health-providers: under- diagnose and overmedicate , high absenteeism Do little things, can t afford big ones 25
Need education about value of prevention (e.g. immunization), fight against superstitions Should immunizations be forced by law? Contrast this with lives of rich in the developed world... 26
1. Live in a house with piped-in clean water (no need to remember to purify water every day), and sewage that goes away without a thought and does not pollute the immediate environment, including the water supply. 2. Do not worry about where their next meal is coming from. 3. Have access to well-trained doctors, other healthcare providers, and a public health system all of which can most often be trusted. 4. Have required immunization (e.g., by public schools) and if you fail to get it you are likely going to be alright since most other people have gotten it. 5. Have health insurers that reward us for joining the gym or for eating nutritious food. 27
Family Issues Country s higher fertility rates poorer; but poorer due to high fertility? Family size create poverty for a family (invest less in nutrition, education, and healthcare for each child)? Not clear 28
Pregnancy (health problems), marriage, lead women to get less education Contraception: Supply vs demand argument Women pay most of cost of having babies Men want more kids than women Mother-in-law + community drive family size 29
Children a good economic investment? 1. Insurance policy (to take care of parents in their old age) 2. Savings product (to later garner their income) 3. Lottery tickets (not being sure who will succeed well enough to help); big family one will pay off (risk problems with one) 4. Sons pay off, daughters cost (dowry&leave) 30
Children are ways to save when fertility drops, savings go up do not see for smaller families increases in investment in children (health/education) Higher value on boys sex-selective issues & how girls are treated Have kids till get boy girls in larger families (where boy was desired) Sometimes, girls not breast-fed as long to avoid contraceptive effect (try try for boy) 31
Risks and Poverty Risk a key part of lives of poor. Bad luck hurts the poor more Risk causes worry, stress, and depression harder to focus, impair cognition, impair decision-making ability, less productive. Create employment via farms (weather dependence), small businesses, day-jobs/ indeterminate length 32
Bad luck work more? But, if problem wide-spread wages go down Diversified portfolio approach: Many occupations More children Conservative in operations (not invest in a new seed or fertilizer). Become someone s share-tenant 33
Rely on social connections to elicit cooperation of other poor people in their community (i.e., everybody helps everybody else out). 34
Loans to the Poor High interest (money-lenders) opportunities for microfinance companies Micro-loans can help lift someone out of poverty. Poor generally pay higher interest than the rich for loans (20-40% per year) Some companies have charged high rates Not strong evidence of sucess 35
How The Poor Save Slowly build a house. Without credit and insurance, shouldn t the poor save as much as they can to avoid risk (e.g., a bad farming year or health problems)? Can t save what don t have! Even saving a little still makes sense. 36
Ingenuity in managing their finances: Savings clubs Deposit money with moneylenders Hide money for emergencies. Cell phones facilitate deposits Savings behavior try to protect assets from themselves. Use loans to save? Desperation immediate spending Hope, optimism, long-term goals improve saving and has many positive effects 37
Poor Entrepreneurs Poor natural-born entrepreneurs? No. Poor have fresh ideas, initiatives, resilience, but... Their businesses are tiny loans may not lead to a significant impact on their welfare. But, high marginal return Highly competitive, no profits for investment A way to buy a job (economy fails them) 38
Jobs for the Poor Want a government job Employment in a sweatshop can provide stable employment Evidence of the positive influence of employment in sweatshops on women workers in that their children are less stunted in growth. 39
Five Lessons for Helping the Poor 1. The poor need better information 2. The poor are burdened with responsibility for too many aspects of their lives 3. Markets are missing or unfavorable to the poor 4. Poverty and history do not doom a poor country to stay poor: many problems there are due to the three I s, ideology, ignorance, and inertia. 5. Expectations about what the poor are able or unable to do end up being self-fulfilling prophecies . 40
