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 Mandated Empowerment 
 Handing Antipoverty Policy Back to the Poor?
 A 
BHIJIT
V. B
 ANERJEE AND
E
STHER
D
UFLO
Department of Economics and Abdul Latif Jameel Poverty Action Lab, MassachusettsInstitute of Technology, Cambridge, Massachusetts, USA
The current trend in antipoverty policy emphasizes mandated empowerment: the poor are beinghanded the responsibility for making things better for themselves, largely without being askedwhether this is what they want. Beneficiary control is now being built into public service delivery,whilemicrocreditandsmallbusinesspromotionareseenasbetterwaystohelpthepoor.Theclearpresumptionisthatthepoorarebothableandhappytoexercisethesenewpowers.Thisessayusestwoexamplestoraisequestionsaboutthesestrategies.Thefirstexampleisaboutentrepreneurshipamong the poor. Using data from a number of countries, we argue that there is no evidence thatthe median poor entrepreneur is trying his best to expand his existing businesses, even if we takeinto account the many constraints he faces. While many poor people own businesses, this seemsto be more a survival strategy than something they want to do. The second example comes froman evaluation of a program in India that aims to involve poor rural parents in improving localpublic schools. The data suggest that despite being informed that they now have both the right tointervene in the school and access to funds for that purpose, and despite being made aware of howlittle the children were learning, parents opt to not get involved. Both examples raise concernsabout committing ourselves entirely to antipoverty strategies that rely on the poor doing a lot of the work.
 Key words:
empowerment; antipoverty policy; microcredit; local control
Introduction
 As a purely abstract, normative proposition, it ishardtoarguewiththeviewthatthepooroughttohavegreater control over their lives and that social policymust help; as the popular expression goes, the poorhelp themselves. In practice, it is not always clear whatthis means—part of the problem is that you cannotreally have a lot of control when you are living on lessthan $2 a day, and that is not about to change. Inthe policy conversations in today’s developing world,nobody is talking about offering the poor the right toquality health care when needed, or the ability to sendtheirtalentedchildtoareallygoodschool,letalonethecapitaltosetuptheworld-classfactoryoftheirdreams,ifitwerethattheywoulddaretodreamofsomethingsodistant. No government in the developing world thinksthat these are things that they can afford, and indeed,they may be right, given the size of the problem andthe limits on their ability to mobilize resources.What is on offer, typically, are things of very differ-ent order: some fairly rudimentary health insurance
 Address for correspondence: Abhijit V. Banerjee, 50 Memorial Drive,E52-252d, Cambridge, MA 02142.banerjee@mit.edu
that might cover you for a simple surgical procedureor a heart attack, some microcredit or microsavings,attempts to improve the public education and health-caresystems,orconditionalincomesupportprograms.The Indian government’s universal health scheme, forexample, announced in the 2003–2004 union budget,offered each family below the povertyline a policy thatwould cover them (in return for a subsidized premiumof $11 per year) for a maximum of Rs. 30,000 ($600in 2003) per year for the entire family and a cap of Rs. 15,000 ($300) per illness. Rs. 15,000 is a significantamount of money in Indian terms (the daily unskilledwage was around Rs. 60 a day in 2003), and medi-cal costs are low by global standards, but the cost of open-heart surgery at Narayana Hrudayalaya, India’sbest-known example of social entrepreneurship in thehealth sector, at its published rate for financially con-strained patients, is Rs. 65,000. The insurance can, atbest, bring them a small part of the way there.Thenthereismicrocredit:Afterresistingtheideaformany years, governments across the developing world(and beyond) have now decided to make it a centraltool in their fight against poverty. The Indonesian gov-ernment’s Small Farmers Development Program, theNational Program for Financing Micro EntrepreneurslaunchedbytheMexicanFederalgovernmentofFelipe
 Ann. N.Y. Acad. Sci. 1136: 333–341 (2008).
C
2008 New York Academy of Sciences.doi: 10.1196/annals.1425.019
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Annals of the New York Academy of Sciences
Calderonin2006,andtheSelfHelpGroupspromotedby the government of India, are a few of the hundredsof governmental, semigovernmental, and private pro-grams that are now offering tiny (ranging from lessthan $100 to $1000 or so) uncollateralized loans toindigent would-be entrepreneurs. This is by no meansfree money. You have to pay interest (which can be ashigh as 5% per month) and there is often an obliga-tion to attend weekly meetings. And repayment is, of course, a must if you want to continue in the program.Nevertheless, the terms are typically much less harshthan what the market offers comparably poor peo-ple, who are often excluded entirely from all formalcredit markets, and the idea is that this will stimulateentrepreneurship among the poor.The Education for All (
Sarva Shiksha Abhiyan
 ) pro-gram launched in India in 2001 in many ways typifiesthe trend in public services these days. There is a sig-nificant inflow of resources—in total, around Rs. 100billion a year for the entire country. This looks like alot of money, but there are almost a million primaryandupperprimaryschoolsinIndia,andmanyofthemneed teachers, but teachers are relatively expensive. Inplace of teachers, the government offers the schools tohire
shiksha karmi 
s, who are local teachers who are sig-nificantly less qualified than the civil-service teachers,but also much cheaper. Importantly, the responsibilityfor applying for the money to hire these teachers, aswellasthedecisiontokeepthemon,wasinthehandsof the Village Education Committee (VEC), constitutedmainly of parents from the school. More generally,the new rules transferred considerable monitoring andother powers into the hands of the parents, as well assome discretionary resources.The recent education reform programs in Kenyawent a step further. To accommodate the increase inenrollment resulting from Kenya’s introduction of freeandcompulsoryprimaryeducationin2003,aprogramfundedbytheWorldBankprovidedschoolcommitteeswith the funds to hire local teachers on a short-termcontract basis. They were also entrusted with monitor-ing these teachers and deciding whether they shouldbe renewed on the job. Similarly, when Madagascarrecently eliminated school fees for primary education,agovernmentdecreecreated“primaryschoolboards,”consisting mainly of parents, and devolved to them thetask of managing the newly launched capitation grants(
caisse ecole 
 ), that are supposed to replace the fundingthey used to raise from the parents.Conditional cash transfer programs, having madetheir reputation in Mexico, are now spreading acrossthe globe (Indonesia has just launched one). In theseprograms,thefinancialassistancethatfamiliesgetfromthe state depends on their compliance with certainnorms: children have to be immunized and sent toschool, for example. PROGRESA, a federal govern-ment program aimed at “breaking the intergenera-tional transmission of poverty” in Mexico, launchedin 1997, made cash transfers to eligible household—stipends for upper-primary and secondary school stu-dents, subsidies for school supplies, and a cash transferfornutrition,averaging22%ofaverageincomeamongparticipating households—conditional on the familybehaving in a certain way. Children had to be immu-nized and to attend school at least 85% of the timefor the family to eligible; high fertility was discouragedby delaying grants until children reached the age of seven and capping the family entitlement; additionalstipends were offered to those families where childrenstayedoninschoolbeyondtheprimaryyearsandthesestipends increased with years of schooling; and fami-lies that sent their daughters to secondary school wererewarded with larger grants. The program reached2.6 million families (40% of rural families) with an an-nual budget of approximately $777 million, 0.2% of GDP. India has taken a more traditional approach: theNational Rural Employment Guarantee Act, 2005, of-fers every family a right to100 days of manual laboron public projects every year at a set wage. The idea isthat those and only those who need the money badlyenough will want take up the offer.What all of these recent social programs have incommon is the idea that the poor need to do theirbit to help themselves. They need to buy the healthinsurance policy and pay the premium, which is onlymildly subsidized,
a 
instead of getting an unconditionalguarantee from the state that their major health ex-penses will be taken care of (as they would be underthe British National Health Service or Medicaid inthe United States, or indeed under the national healthsystem mooted in India’s sixth plan document [1972]).Theyneedtomakesurethattheymakeenoughmoneyto keep financing their microloans and show up in theweekly meetings to make the payments. They needto involve themselves in the running of their children’sschools—hireandfireteachersandkeeptrackofwhat-ever is going wrong. Moreover, to be eligible to con-tinue to receive social assistance, they need to makesure that their recalcitrant teenagers show up in schoolregularly.The presumption clearly is that poor are able andindeed happy to do all this (and more), given the right
a 
The family would end up paying about $11 a year while the govern-ment spends $2.
 
Banerjee & Duflo: Mandated Empowerment 
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environment and a little bit of help. John Hatch,founder of the Latin American microcredit institutionFINCA, took this view to its logical conclusion whenhe said, “Give poor communities the opportunity, andthen get out of the way!”Yet, other than the negative evidence of the failureof many top-down programs that do not involve thebeneficiaries enough (do we really even know that thisis the reason why they failed?), what reason do we havetobelievethatthisattempttoshifttheburdenontothepoor will work better? How do we know that the poorare really raring to go, as so many of the supportersof the current policy bias would have us believe? Howcan we be sure, to quote the World Bank this time,“If the stakes are high enough, communities tackle theproblem,” unless that is what defines “high enough”?
1
The point of this essay is to try to take a stab atanswering this set of questions, using some data thatcome out of our recent work. What we have to say isnowhere near definitive, but the question seems im-portant enough that it is worth trying. The two ex-amples we have—promoting entrepreneurship amongthe poor and public school reform—are, conveniently, very different. The first has everything to do with pri- vate profit maximization; the second is almost entirelyabout promoting the public good. Both demand ac-tivism, but of very different kinds.
Promoting Entrepreneurshipamong the Poor
The description by Dr. Yunus, the remarkablefounder of the famous Grameen Bank, of the pooras “natural entrepreneurs” must be one of the mostpowerfulimagesintheworldofpolicytoday.Incombi-nationwithbusinessguruC.K.Prahalad’sexhortationto businessmen to focus more on what he calls the bot-tomofthepyramid(inpartbecausehebelievesthatthe very poor are “resilient and creative entrepreneurs”)and Peruvian social critic Hernando de Soto’s claimthat the poor stay that way because so much of theircapital is “dead capital” (that is, capital that cannot bepledged against a loan), it is helping to secure a spacewithin the overall antipoverty policy discourse wherebig business and high finance feel comfortable gettinginvolved.Thetraditionalstrategiesofpublicactionarebeing supplemented by private actions, often by cor-porate leaders (Pierre Omidyar of ebay, for example),directed at helping the poor realize their potential asentrepreneurs. Microcredit is one important piece of this new policy package, as are business training andmarket creation.In what sense are the poor natural entrepreneurs?To answer this question (and many other questionsabout the poor), we looked at data about the income-earning strategies of the poor from household sur- veys conducted in 13 countries from three continents:Cote d’Ivoire, Guatemala, India, Indonesia, Mexico,Nicaragua, Pakistan, Panama, Papua New Guinea,Peru,SouthAfrica,Tanzania,andTimorLeste.Thesesurveys mainly come from the Living Standard Mea-surement Surveys conducted by the World Bank andthe“FamilyLifeSurveys”conductedbytheRandCor-poration as well as two surveys that we conducted inIndia with our collaborators. The first was carried outin 2002 and 2003 in 100 hamlets of Udaipur districtin the state of Rajasthan.
2
The second survey covered2000 households in slums of Hyderabad, the capitalof the state of Andhra Pradesh and one of the boomtowns of post-liberalization India.From each of these surveys we identified the ex-tremely poor as those living in households where theconsumption per capita is less than $1.08 per personper day, as well as the merely “poor,” defined as thosewho live on less than $2.16 a day in purchasing powerparity(PPP)termsat1993prices.Inkeepingwithwhatis now an established convention, we call these the $1and $2 dollar poverty lines, respectively.What is clear from these data is that all over theworld a substantial fraction of the poor act as en-trepreneurs in the sense of raising the capital, car-rying out the investment, and being the full residualclaimants for the earnings. In Peru, 69% of the house-holds who live under $2 a day in urban areas operate anonagricultural business. In Indonesia, Pakistan, andNicaragua, the numbers are between 47% and 52%. A large fraction of the rural poor operate a farm: ex-cept in Mexico and South Africa, between 25% and98% of the households who earn less than $1 a dayreport being self-employed in agriculture.
b
Moreover,many of the rural poor—from 7% in Udaipur upto 36% in Panama—also operate a nonagriculturalbusiness.Should we therefore assume that the poor are en-trepreneurial,inthesensethattheyhaveaspecialincli-nationforseekingoutbusinessopportunities?Onewayto look at this question is to compare them with themiddle classes. In one study, we compared the poorwith two other groups from the same 13 countries:
b
ThelowlevelofagricultureamongtheextremelypoorinSouthAfricais easily explained. Under the apartheid regime, the black population,which contains almost all of the extremely poor people, was not allowed toown land outside the “homelands,” and most of the land in the homelandswas not worth cultivating.
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