POOR ECONOMICS
1. Think Again, Again
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・Every year, 9 million children die before their fifth birthday.
・A woman in sub-Saharan Africa has a one-in-thirty chance of dying while
giving birth-in the developed world, the chance is one in 5,600.
・There are at least twenty-five countries, most of them in sub-Saharan
Africa, where the average person is expected to live no more than fifty-
five years.
・In India alone, more than 50 million school-going children cannot read a
very simple text.
This is the kind of paragraph that might make you want to
shut this book, and, ideally, forget about this whole business
of world poverty: The problem seems too big, too
intractable. Our goal with this book is to persuade you not
to.
A recent experiment at the University of Pennsylvania illustrates well how
easily we can feel overwhelmed by the magnitude of the problem.
Researchers gave students 💲5 to fill out a short survey. They then showed
a flyer and asked them to make a donation to Save the Children, one of
the world’s leading charities.
There were two different flyers.
Some students were shown this:
→Food shortages in Malawi are affecting more than 3 million
children; In Zambia, severe rainfall deficits have resulted in a
42% drop in maize production from 2000. As a result, an
estimated 3 million Zambians face hunger; Four million
Angolans – one third of the population – have been forced to
flee their homes; More than 11 million people in Ethiopia need
immediate food assistance.
Other students were shown a flyer featuring
a picture of a young girl and these words:
→Rokia, a 7 – year – old girl from Mali, Africa is desperately poor and
faces a threat of severe hunger or even starvation. Her life will be
changed for the better as a result of your financial gift. With your
support, and the support of other caring sponsors, Save the Children
will work with Rokia’s family and other members of the community to
help feed her, provide her with education, as well as basic medical
care and hygiene education.
The first flyer raised an average of 💲1.16 from each student. The
second flyer, in which the plight of millions became the plight of one
raised 💲2.83. The students, it seems, were willing to take some
responsibility for helping Rokia, but when faced with the scale of the
global problem, they felt discouraged.
Some other students, also chosen at random, were shown the same
two flyers after being told that people are more likely to donate
money to an identifiable victim than when presented with general
information.
This book is an invitation to think again, again: to turn
away from the feeling that fight against poverty is too
overwhelming and to start to think of challenge as a set
of concrete problems that, once properly identified and
understood, can be solved one at a time.
Jeffrey Sachs, adviser to he United Nations, director of the Earth Institute at
Columbia University in New York City, and one such expert, has an answer
to all these questions: Poor countries are poor because they are hot,
infertile, malaria infested, often landlocked; this makes it hard for them to
be productive without an initial large investment to help them deal with
these endemic problems. But they cannot pay for the investments
precisely because they are poor – they are in what economics call a
“poverty trap.”
Both (William Easterly, who battles Sachs from New York
University and Dambia Moyo, an economist who previously
worked at Goldman Sachs and at the World Bank) argue that
aid does more bad than good: It prevents people from
searching for their own solutions, while corrupting and
undermining local institutions and creating a self- perpetuating
lobby of aid agencies.
There are in fact answers… it is just that they are not
kind of sweeping answers that Sachs and Easterly
favor. This book will not tell you whether aid is good
or bad, but it will say whether particular instances of
aid did some good or not.
But in truth, aid is only a very small part of the money that is spent on the
poor every year. Most programs targeted at the world’s poor are funded of
their country’s own resources. India, for example, receives essentially no aid.
In 2004 – 2005, it spent half a trillion rupees (💲31 billion USD PPP) just on
primary – education programs for the poor. Even in Africa, where foreign
aid has a much more important role, it represented only 5.7 percent of total
government budgets in 2003. More important, the endless debates about
the rights and wrongs of aid often obscure what really matters: not so much
where the money comes from, but where it goes.
To take an examples, according to the World Health
Organization (WHO), malaria caused almost 1 million deaths in
2008, mostly among African children. One thing we know is that
sleeping under insecticide-treated bed nets can help many of
these lives. Studies have shown that in areas where malaria
infection is common, sleeping under an insecticide-treated bed
net reduces the incidence of malaria by half.
For approximately 💲10, you can deliver an insecticide-treated net
to a family and teach the household how to use it.
Because malaria is contagious, if Mary sleeps under a bed net,
John is less likely to get malaria – if at least half the population sleeps
under a net, then even those who do not have much less risk of
getting infected.
Given the benefits both to the user and others in the neighborhood,
selling the nets at a discount or even given them away would seem
to be a good idea.
Easterly and Moyo object, arguing that people will not value
(and hence will not use) the nets if they get them for free.
The shift from broad general questions to much narrower ones
has another advantage.
Answering these questions, we get to understand what, if
anything, is special about the poor.
It is the body of knowledge that
grows out of each specific answer and the understanding that goes into
those answers that give us the best shot at, one day, ending poverty.
This book builds on that body of knowledge. A lot of the material that we
will talk about comes from RCTs conducted by us and others, but we also
make use of many other types of evidence.
The message of this book, however goes well beyond poverty traps.
As we will see, ideology, ignorance, and inertia – the three Is – on the
part of expert, the aid worker, or the local policy maker, often
explain why policies fail and why aid does not have the effect it
should.
We hope to persuade you that our patient, step-by-step approach
is not only a more effective way to fight poverty,
but also one that makes the world a more interesting place.
Thank you!!