Friday, May 18, 2012

In Fighting Poverty Providing Hope May Be Almost as Good as Providing Money

Economics is Complicated – But Not Completely So

In addition to the hundreds of billions spent world wide over the decades to alleviate poverty, there has also been tens of billions spent trying to understand the problem and research the causes and methods for alleviate poverty.  No doubt this is a complex issue, but it also turns out that like so many things, simple and inexpensive solutions exist.

For example providing people with access to clean water in developing nations has a huge impact on health.  Mosquito netting, one of the most least expensive items ever invented for disease prevention can reduce malaria infections by a large amount.  Providing rural families in low income nations with access to cell phones, and the communications activities that go with them makes a large difference in their income. 

Now it turns out that researchers have found that providing economic opportunity itself is a powerful motivator for people living in poverty and trying to escape it.  For example, here is an experiment tried in an impoverished part of Asia.

She and her colleagues evaluated a programme in the Indian state of West Bengal, where BRAC, a Bangladeshi microfinance institution, worked with people who lived in extreme penury. They were reckoned to be unable to handle the demands of repaying a loan. Instead, BRAC gave each of them a small productive asset—a cow, a couple of goats or some chickens. It also provided a small stipend to reduce the temptation to eat or sell the asset immediately, as well as weekly training sessions to teach them how to tend to animals and manage their households. BRAC hoped that there would be a small increase in income from selling the products of the farm animals provided, and that people would become more adept at managing their own finances.

And the results were good, very good, and in fact exceeded expectations.

Well after the financial help and hand-holding had stopped, the families of those who had been randomly chosen for the BRAC programme were eating 15% more, earning 20% more each month and skipping fewer meals than people in a comparison group. They were also saving a lot. The effects were so large and persistent that they could not be attributed to the direct effects of the grants: people could not have sold enough milk, eggs or meat to explain the income gains. Nor were they simply selling the assets (although some did).

As to the ‘why’ of why this happened, here is the conclusion

Ms Duflo and her co-authors also found that the beneficiaries’ mental health improved dramatically: the programme had cut the rate of depression sharply. She argues that it provided these extremely poor people with the mental space to think about more than just scraping by. As well as finding more work in existing activities, like agricultural labour, they also started exploring new lines of work. Ms Duflo reckons that an absence of hope had helped keep these people in penury; BRAC injected a dose of optimism.

Note that we are dealing with an intensive program here.  The people were not just given something, they were supported and trained and educated in how to use the assets they were provided.  Throwing money at a problem without the support structure is just that, throwing money at a problem.

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