Professional Documents
Culture Documents
Poor Economics Abhijitnbanjerji
Poor Economics Abhijitnbanjerji
93
49
36
12
03
m
hi
ha
iT
Al
d
oo
as
M
b
lu
C
r's
de
“Generally, it is clear that things that make life less boring are a priority for the poor. This may be a
ea
television, or a little bit of something special to eat—or just a cup of sugary tea. Even Pak Solhin had
a television, although it was not working when we visited him. Festivals may be seen in this light as
R
well. Where televisions or radios are not available, it is easy to see why the poor often seek out the
in
wedding. In our eighteen-country data set, it is clear that the poor spend more on festivals when they
are less likely to have a radio or a television. In Udaipur, India, where almost no one has a television,
the extremely poor spend 14 percent of their budget on festivals (which includes both lay and
religious occasions). By contrast, in Nicaragua, where 58 percent of rural poor households have a
radio and 11 percent own a television, very few households report spending anything on festivals.33”
― Abhijit V. Banerjee, Poor Economics: A Radical Rethinking of the Way to Fight Global
Poverty
Key Ideas
1. What’s in it for me? Find out how the problem of
global poverty could be solved.
2. Economists seek general solutions to global
0
poverty, but these don’t deal with the problem
93
49
effectively.
36
12
3. Looking seriously at how poor people make
03
economic decisions is vital for eradicating poverty.
m
hi
4. Non-nutritious food – not hunger – is what
reinforces poverty ha
iT
Al
poor.
M
b
women.
in
Jo
0
small, local actions alongside big institutional
93
reforms.
49
36
11. The key message in this book
12
03
m
hi
ha
iT
Al
d
oo
as
M
b
lu
C
r's
de
ea
R
in
Jo
1
What’s in it for me? Find out how the problem of global
poverty could be solved.
The battle against global poverty has been fought by grandees
from many fields – from politicians and economists to famous
0
93
musicians and Hollywood actors. Yet, as we all know, the problem
49
remains.
36
12
And Poor Economics attempts to provide several answers to why.
03
As the authors argue, we are currently looking at the problem in
m
hi
the wrong way. We spend most of our time on general theories
ha
about poverty, neglecting the perspective of the poor themselves.
iT
Instead, we should be examining the complexity of their lives to
Al
get a clearer idea of which kinds of aid are effective and which are
d
oo
not. To that end, we should first seek to understand how and why
as
questions as: Why do poor people refuse to take medicine that will
ea
0
93
devastating problem.
49
36
One of the reasons might be that economists dealing with the
12
problem tend to look at it in the wrong way, focusing too much on
03
“big” economic questions like, “Do developing countries need
m
more or less help from outside in order to grow?”
hi
ha
Such general questions tend to generate ineffective debate.
iT
Al
One camp argues for more development aid to get these countries
d
Jeffrey Sachs claims that if rich countries would spend $195 billion
as
M
would be eradicated.
lu
C
0
or to other factors.
93
49
Furthermore, a single case isn’t enough to prove a theory’s
36
accuracy: data from over 100 countries suggests that those that had
12
received aid didn’t grow any more than those that didn’t.
03
Both of these arguments are manifestations of an economic
m
hi
reasoning that looks at the problem of poverty in the wrong way.
ha
And, in the end, such arguments will not help to solve it.
iT
Al
0
93
live on less than $1 a day (13 percent of the world’s population in
49
2005), economists seem to believe that the poor have no complex
36
economic decisions to make.
12
03
But that’s not true.
m
hi
Poor people are forced to be very rational when it comes to
ha
economic matters. Due to their lack of financial resources and
iT
awful living conditions, they have to reflect far more on economic
Al
0
93
Therefore, it is only by gaining a deeper appreciation and
49
understanding of the conditions under which poor people make
36
their decisions that we will begin to learn precisely what kind of
12
03
help is needed, and how to get them to make better decisions for
themselves.
m
hi
ha
iT
Al
d
oo
as
M
b
lu
C
r's
de
ea
R
in
Jo
4
Non-nutritious food – not hunger – is what reinforces poverty.
Most of us would associate poverty with hunger without thinking
twice. Yet the link between the two is not as obvious as it seems.
0
One popular view held by economists and politicians is that
93
49
hunger is one of the main reasons for poverty’s persistence. Indeed,
36
this seems reasonable since nobody can be productive if they’re
12
hungry.
03
But that view is wrong. Although many people suffer from hunger
m
hi
today, being hungry can’t be seen as a general cause for
contemporary poverty. ha
iT
Al
In fact, data from more than 18 countries shows that most poor
d
needed to.
b
lu
And even with the money they do spend on food, they often
C
0
93
nutritious food, it would help if governments and NGOs provided
49
nutritious food or food supplements, and created food rich in
36
essential nutrients. In India, e.g., they’ve introduced iron-fortified
12
salt.
03
It’s crucial that we leave behind the common belief that poor
m
hi
people just need cheaper food. Instead, we should focus our
ha
efforts on providing them with high-quality food they’ll enjoy.
iT
Al
d
oo
as
M
b
lu
C
r's
de
ea
R
in
Jo
5
A reliable and proactive healthcare system is necessary for
improving the health of the world’s poor.
Staying healthy is extremely important for poor people. Just one
sick family member can have a disastrous effect on the whole
0
93
family, as it can cause a drop in income and generate additional
49
costs.
36
12
The following three things are required to help raise health levels
03
in poor countries:
m
hi
First, better provision of medical help is needed. Although most
ha
developing countries have a public health system, poor people
iT
rarely use them. The reason is simple: the system doesn’t work.
Al
d
Indeed, many medical stations are often closed, and most medical
oo
center staff are unmotivated. One World Bank study showed that
as
M
more reliable health system were in place, people might not end up
in
Jo
0
93
care for their health, as medical facts don’t always motivate people
49
enough.
36
For example, while people know the importance of vaccinations,
12
03
they often don’t complete the treatment. Like most people, they
simply don’t care about things that don’t offer them an immediate
m
hi
benefit.
ha
iT
And so, the right incentives need to be found and employed. One
Al
medical support, the more we’ll know about how to change that
C
r's
behavior.
de
ea
R
in
Jo
6
Developing countries need better school systems that focus
on educating all children.
Another very important factor for overcoming poverty is
education.
0
93
49
In recent years, many developing countries have addressed this by
36
providing educational facilities for their children.
12
However, developing countries must ensure that children do not
03
just attend school but are actually educated. Although it’s a
m
hi
positive development that governments have provided all children
ha
with at least an elementary education, the fact that public school
iT
staff often don’t care about the success of their teaching is a
Al
problem.
d
oo
which shows that teachers in public schools are often absent. That
b
educated.
ea
R
0
93
believe it’s more rational to spend their entire education budget on
49
the most promising child than it is to support all of their children’s
36
education needs.
12
03
Their calculation is wrong: parents themselves need to learn that it
makes more sense give a greater number of their children a basic
m
hi
education than it does to have only one highly educated child.
ha
iT
Ensuring that more children are educated is a complex but crucial
Al
poverty effectively.
oo
as
M
b
lu
C
r's
de
ea
R
in
Jo
7
The key to population decrease is better social protection of
the poor and the empowerment of women.
Because of the strong connection between population growth and
poverty, many countries have attempted to regulate that growth.
0
93
As you might imagine, however, fighting population growth is a
49
complex issue.
36
12
For one, as long as there’s no social security system or strong
03
incentives to save money, having many children is a rational choice
m
for poor people.
hi
ha
This is because old people depend on their family to take care of
iT
them. So, the more children people have, the more likely they are
Al
0
93
Interviews with both men and women reveal that women usually
49
want less children than men do, suggesting that an empowered
36
woman would choose to have fewer.
12
03
A good example of the link between women’s empowerment and
m
population control can be found in Peru, where the government
hi
ha
gave land to former peasants. In the documents where the woman
iT
of a couple was also mentioned, that couple had fewer children
Al
comes from.
b
lu
C
r's
de
ea
R
in
Jo
8
Financial innovations, like microcredits, improve poor
people’s lives, but they’re not a long-term solution to poverty.
One popular, though controversial, instrument for helping the
poor is microcredits.
0
93
49
Microcredits are useful in supporting poor people and their
36
businesses in developing countries. Without them, poor people
12
would have to approach banks, which have little interest in giving
03
affordable credits to poor people (because of the small amounts
m
involved and the risk of not being paid back), or loan sharks, to
hi
ha
whom they’d have to pay very high interests.
iT
The introduction of microcredits in developing countries provides
Al
more productive.
C
r's
0
93
rate. Therefore, other financial instruments are needed for
49
businesses to be economically viable and grow.
36
Second, many small businesses get started only because there’s no
12
03
other alternative for poor people to make money. And, as there’s
not really a demand for those businesses, most don’t survive for
m
hi
long. For example, there’s no need for five small shops to sell the
same groceries on the same street. ha
iT
Al
Therefore, it’s crucial to point out that, in the end, good and
d
used to hide the fact that the problems are more complex.
C
r's
de
ea
R
in
Jo
9
Insurance against misfortune protects against poverty, so
governments should incentivize the poor’s coverage.
In contrast to most poor people around the world, those in rich
countries are lucky, as they’re insured against many risks (e.g.,
0
93
losing their job or sickness).
49
36
So if there were more affordable opportunities to get insurance in
12
developing countries, many poor people’s fears could be reduced.
03
For instance, poor people have to deal with a lot of insecurity in
m
hi
their lives. They’re often peasants and greatly depend on the
ha
weather and price fluctuations; or they have several jobs and will
iT
be hit hard if they lose just one of them.
Al
d
0
93
numerous: it’s expensive, poor people are skeptical of it or they
49
simply don’t think long term, like most people.
36
Therefore, the poor clearly need incentives to get themselves
12
03
proper coverage, so the governments have to step in to get the
market going. For example, when weather insurance was
m
hi
subsidized in Ghana, almost all poor people signed up.
ha
iT
Once the poor see that the insurance system works for them,
Al
0
93
that we must begin by focusing on major institutional changes.
49
36
One popular view held by economists and political scientists is that
12
we will not be able to fight poverty effectively as long as there are
03
unstable political regimes. For those experts, corruption is a huge
m
problem as it means, e.g., that corrupt officials often steal money
hi
ha
allocated to projects dedicated to fighting poverty.
iT
Therefore, these experts concentrate on the question of how we
Al
corruption).
Jo
For example, one 1996 study in Uganda showed that only very few
of the subsidies the government said it gave to schools were
actually received by them. The Ugandan people were outraged and
demanded reforms. Ultimately, the treasury reacted and, when the
study was repeated in 2001, on average 80% of the money
intended for the schools actually reached them.
In this case, all that was required to fight corruption was
information from economists and public protest.
0
93
Therefore, we must not think that we have to wait until big
49
institutional changes occur, as there are many simple, local
36
measures that can lead to the political improvements necessary to
12
03
combat poverty effectively.
m
hi
11 ha
iT
Al
Final Summary
d
oo
poverty.
Jo
Actionable advice:
Be skeptical about “big” solutions to poverty.
Keep in mind that measures against poverty will be only effective
if we understand the circumstances of poor people’s decisions.
One common, and general, misunderstanding is that the poor are
0
93
incapable of thinking rationally about money. This isn’t true at all:
49
they are just as rational as the rest of us. Remember that the next
36
time you want to help alleviate someone’s poverty.
12
03
Never forget how important education is.
m
hi
In the developed world, we often take our education for granted.
ha
We shouldn’t: it’s the most vital tool against poverty. Being
iT
educated – about economics, science (e.g., contraception),
Al