Tuesday, May 22, 2012

How hope plays a large role in escaping poverty

The Economist
May 12
THE idea that an infusion of hope can make a big difference to the lives of wretchedly poor people sounds like something dreamed up by a well-meaning activist or a tub-thumping politician. Yet this was the central thrust of a lecture at Harvard University on May 3rd by Esther Duflo, an economist at the Massachusetts Institute of Technology known for her data-driven analysis of poverty. Ms Duflo argued that the effects of some anti-poverty programmes go beyond the direct impact of the resources they provide. These programmes also make it possible for the very poor to hope for more than mere survival.
She and her colleagues evaluated a programme in the Indian state of West Bengal, where Bandhan, an Indian 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, Bandhan 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. Bandhan 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.
The results were far more dramatic. Well after the financial help and hand-holding had stopped, the families of those who had been randomly chosen for the Bandhan 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).
So what could explain these outcomes? One clue came from the fact that recipients worked 28% more hours, mostly on activities not directly related to the assets they were given. 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; Bandhan injected a dose of optimism.
Ms Duflo is building on an old idea. Development economists have long surmised that some very poor people may remain trapped in poverty because even the largest investments they are able to make, whether eating a few more calories or working a bit harder on their minuscule businesses, are too small to make a big difference. So getting out of poverty seems to require a quantum leap—vastly more food, a modern machine, or an employee to mind the shop. As a result, they often forgo even the small incremental investments of which they are capable: a bit more fertiliser, some more schooling or a small amount of saving.
This hopelessness manifests itself in many ways. One is a sort of pathological conservatism, where people forgo even feasible things with potentially large benefits for fear of losing the little they already possess.

Read the rest here.

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