New Thinking On Fighting Global Poverty

We hear the case for radical change in how the world fights global poverty.

Shocking new numbers on the future population of the world just out from the United Nations.

The assumption for years has been that the global human population would level off at a bulging 9 billion in the middle of this century. Now, the UN says no, the global population will keep right on growing — past 10 billion.

China’s population down. The U.S., up. Some once-little countries like Yemen, exploding.

And then, Africa: tripling in population from a billion to 3.6 billion. How will we deal with that many poor? Must they be poor?

This hour On Point: a call for radical change on global poverty.

Guests:

Esther Duflo, professor of economics at MIT, where she is co-founder of the Poverty Action Lab. She was awarded the John Bates Clark Medal in 2010 for the best economist under forty. She was named one of the world’s 100 most influential people in 2011 by Time Magazine last month. She is co-author of the new book “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty.”

Abhijit Banerjee, co-author of “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty.” He is professor of economics at MIT where he is co-founder of the Poverty Action Lab.

More:

Excerpt of Poor Economics
By Abhijit V. Banerjee and Esther Duflo

From Chapter 5

THE FAMILY

For the sake of their models, economists often ignore the inconvenient fact that the family is not the same as just one person. We treat the family as one “unit,” assuming that the family makes decisions as if it were just one individual. The paterfamilias, the head of the dynasty, decides on behalf of his spouse and his children what the family consumes, who gets educated and for how long, who gets what kind of bequest, and so on. He may be altruistic, but he is clearly omnipotent. But as anybody who has been part of a family knows, this isn’t quite how families work. This simplification is misleading, and there are important policy consequences from ignoring the complicated dynamics within the family. We already saw, for example, that giving women access to a formal property title is important for fertility choices, not because it changes her view on how many children she wants but because it makes her views count more.

The realization that the simplest model was missing important aspects of how the family works led to a reassessment in the 1980s and 1990s: Family decisionmaking came to be seen as the result of a bargaining process among family members (or at least between the two parents). Both partners negotiate over what to buy, where to go on vacation, who should work how many hours, and how many children to have, but do so in a way that serves both of their interests as well as possible. In other words, even if they disagree on how the money should be spent, if one of them can be made happier without hurting the other one’s well-being, they would make sure it is done. This view of the family is usually referred to as the “efficient household” model. It recognizes that there is something special about the family—its members, after all, did not meet just yesterday and are presumably tied together for the long term. It should therefore be possible (and in their interest) to negotiate over all their decisions to make sure that they do as well as they can, as a family. For example, if the family runs a small enterprise (be it a farm or a small business), it should always try to make as much money from it as possible, and only afterward find a way to split up the gains among its members.

Christopher Udry tested this prediction in rural Burkina Faso, where each household member (the husband and the wife, or wives) works on a separate plot.41 In an efficient household, all inputs (family labor, fertilizer, and so forth) should be allocated to the various plots in a way that maximizes total family earnings. The data squarely rejected
this view: Instead, plots farmed by women were allocated systematically less fertilizer, less male labor, and less child labor than plots farmed by men. As a result, these households systematically produced less than they could have. Using a little bit of fertilizer on a plot increases its productivity a great deal, but increasing the amount beyond that initial level does not do very much—it is more effective to use a little bit of
fertilizer on all the plots than a lot of fertilizer on just one plot. But most of the fertilizer in the Burkina Faso households was used on the husband’s plot: By reallocating some of the fertilizer plus a bit of labor to the wives’ plots, the family could increase its production by 6 percent without spending an extra penny. Families were literally throwing money away because they could not agree on the best way to use the
resources they had.

The reason they were doing so also seems clear: Even though they are part of the same family, what the husband grows on his own plot seems to determine what he gets to consume, and likewise for his wife.42 In Côte d’Ivoire, women and men traditionally grow different crops. Men grow coffee and cocoa, whereas women grow bananas, vegetables, and other staples. Different crops are affected differently by the weather: A particular rainfall pattern may result in a good year for the male crops and a bad year for the female crops. In a study with Udry, Esther found that in good “male” years, more is spent on alcohol, tobacco, and personal luxury items for men (such as traditional items of clothing). In good “female” years, more resources are spent on little indulgences for women but also on food purchases for the household. What is particularly odd about these results is that spouses do not seem to be “insuring” each other. Knowing that they will be together for a long time, the husband could gift his wives some extra goodies in a good male year in return for some extras when the weather goes the other way. Informal insurance arrangements of this kind between households of the same ethnic group are not uncommon in Côte D’Ivoire,43 so why do they not operate within the family?

One finding in Côte d’Ivoire gives us a useful hint about why families are different. There is a third “player” in the family drama—the modest yam, nutritious and easy to store, a staple food in the area. Yams are typically a “male” crop. But as the French anthropologist Claude Meillassoux explains, it is not a crop that the husband can freely sell and spend.44Yams are meant for the basic sustenance of the household. They can be sold, but only to pay for school fees or medical care for the children, not to buy a new blouse or some tobacco. And indeed, when there is a good year for yams, the family does consume more yams, which is perhaps not surprising, but spending on food purchased
in the market and on education also increases. The yam makes sure that everyone in the family is properly fed and educated.

Thus, what makes the family special is not that its members are effective in negotiating with each other: Quite the contrary—they operate by observing simple, socially enforceable rules such as “Thou shalt not sell thy child’s yam to buy new Nikes” that safeguard their basic interests, without having to negotiate all the time. Other results also make more sense viewed in this light. We saw that when women make more money on their plots, the family eats more. This may be a product of another rule that Meillassoux describes: It is the woman who is in charge of feeding the family; her husband gives her a fixed amount of money for that, but then it is her job to figure out how to do it best. The family is bound together then, not in perfect harmony or by the ability to always divide up resources and responsibilities efficiently, but by a very incomplete, very coarse, and often very loose “contract” that defines the responsibilities of each member toward the other members. It is likely that the contract has to be socially enforced, because children cannot negotiate with parents, or wives with husbands, on an equal basis, but society gains from all members of the family having something like a fair share of resources. The incomplete nature of the contract probably reflects the difficulty of enforcing anything more sophisticated. There is no way for anyone to make sure that parents feed their children the right number of yams, but society may be able to sanction or show disapproval of parents who are seen selling yams to buy sneakers.

One problem with rules that rely on social norms for enforcement is that these norms change slowly, and therefore there is always the risk that the rules are entirely out of sync with reality, sometimes with tragic consequences. In Indonesia in 2008, we met a middle-aged couple at their house, a small white-and-green bamboo structure built on pillars. Right next to it stood another white-and-green house, much larger, airy, made of concrete. It belonged to their daughter, who worked as a maid in the Middle East. The couple was obviously very poor: The husband had a persistent cough and a headache that never seemed to go away, which made it hard for him to work. But he could not afford to see a doctor. Their younger child had dropped out of school after middle school because they could not afford his bus fare to the city. Suddenly, a four-year-old came into the room: She was visibly healthy, well fed, and dressed nicely in a pretty dress, with shoes that had little lights in them that went on and off as she ran around the room. It turned out that her grandparents were taking care of her while their daughter was away. Her mother sent money for the child, but nothing extra for the husband and wife. It seemed that they were the victims of some norm that had not yet shifted—married daughters were still not expected to take care of their parents, despite the obvious inequity it implied, but grandparents continued to feel obligated to take care of their granddaughters.

Despite the many obvious limitations of the family, society does not have another viable model for bringing up children, and though one day social pension programs and health insurance might free the elderly in today’s poor countries from relying on their children for oldage care, it is not entirely obvious that it would make them (or their children) happier. The right space for policy is not so much to replace the family as it is to complete its action and, sometimes, protect us from its abuses. Starting from the right understanding of how families function is crucial in being able to do so effectively.

From POOR ECONOMICS: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit V. Banerjee and Esther Duflo. Copyright © 2011. Reprinted by permission from PublicAffairs.