December 2, 2016

Graduating from Destitution

This post originally appeared on The Economist.

THE poor do not just lack money. They are also often short of basic know-how, the support of functioning institutions and faith in their own abilities. As a result, note Abhijit Banerjee and Esther Duflo of the Massachusetts Institute of Technology in their book, “Poor Economics”, published in 2004, it takes “that much more skill, willpower and commitment” for the poor to get ahead. No wonder escaping extreme poverty—usually defined as living on less than $1.25 a day—is so hard.

Even the most successful schemes to lift (and keep) people out of dire poverty seem to work only for some people, in some places, some of the time. For example, microcredit works best for the relatively enterprising, who are rarely the very poorest. Similarly, cash transfers linked to school attendance are useful, but require a working education system. What succeeds in one country may fail elsewhere, thanks to different conditions and cultural norms. And the poorest are often the hardest to help.

This dispiriting picture makes a new paper* by Mr Banerjee, Ms Duflo and several others all the more striking. It claims to have identified an anti-poverty strategy that works consistently, based on a seven-year, six-country study of more than 10,000 poor households. The secret, the economists argue, is to hand out assets, followed by several months of cash transfers, followed by as much as two years of training and encouragement. That formula seems to have made a lasting difference to the lives of the very poorest in countries as different as Ghana, Pakistan and Peru.

BRAC, a big Bangladeshi NGO that originally came up with this approach to tackle abject poverty, calls it a “graduation
programme”. Given the many problems of the poor, the logic runs, it is useless to apply a sticking plaster to one while leaving the others to fester. For example, various NGOs, including Heifer International, Oxfam and World Vision, give cows, goats or chickens to poor people in developing countries, to enable them to earn an income selling milk or eggs. But what if the recipients are so hungry that they end up eating their putative meal ticket?

BRAC’s idea was to give those in the graduation programme not just chickens but also training on how to keep them, temporary income support to help them to resist the inevitable temptation to eat them, and repeated visits from programme workers to reinforce the training and bolster participants’ confidence. The economists studied schemes along these lines run by local NGOs in Ethiopia, Ghana, Honduras, India, Pakistan and Peru. The programmes all targeted the very poor: as many as 73% of participants in India and 66% in Ethiopia lived on less than $1.25 a day.

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