Thoughts on Poor Economics(1)
I merely wanted to jot down my thoughts as I read this book. Then I ended up with 16 pages!
Introduction
Although my elder brother Isaac gifted me this book about three years ago, I did not tremendously appreciate it until its authors won the Nobel Prize last year. Then my curiosity was triggered. Reading it, I basically wanted to find out: is there now a solution to global poverty? If so, what is it, and what part can I play? The answers were of particular interest to me because I now know that I would like to devote my life to lifting people out of poverty and having seen different models, I wanted to know what works and how it can be replicated instead of trying everything from the ground up. It’s also because I now look back on my student days in community development work at SIFE/Enactus with some regret. I see what could be done better now.
It is a thought-provoking book in all ramifications. It was my introduction to the economics of people who bear the burden of poverty, the global search for what actually works, the complexity and richness of poor people, and their valid opinions on what works and doesn’t for them. I like how the book addresses thematic issues, considers different and sometimes differing data, opinions, perspectives and hypotheses and finally rounds up the discussion with practical recommendations.
However, the book was quite Indio-centric and in broader scenarios, Oriento-centric. I am not sure how accurate some of the findings and generalizations on poor people would be to sub-Saharan Africa.
Generally though, you can see evidence of what works in some places and why it does. You can make inferences and deductions or develop smarter ways to find out what would work in your locale.
Design for the people
In development work, I now see that it is useless to design solutions without first thoroughly understanding the people you’re designing for. You cannot sit in some lab and make policies. You must understand what makes the poor tick, what their dreams and aspirations are, what their problems are, and which subset they belong to; because there is no single, universal solution to poverty. Even within one village, there are nuanced approaches to the same problem.
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I had long been a proponent of not giving aid but helping the poor to organically build businesses as the sure way to lift them out of poverty. This was further strengthened when I saw the work that Acumen Fund was doing and how that seemed like true empowerment instead of merely giving handouts. I practised these principles right from my days in SIFE (now Enactus) where we designed poverty alleviation projects for women, prison inmates and ex-convicts. I wish I had read Poor Economics at that time. Now I see why many of our firebrand ideas for empowering the target audience did not work.
Entrepreneurship is not enough
In 2009 for example, even though my team had brought the representative of a microfinance bank offering low-interest loans to women after a 2-day workshop where we taught several handcraft, none of the women (I think they were about 16 in total) eventually took the offer. To us, it seemed like a no-brainer: get unemployed women to learn new skills, then provide funding for them to monetize these skills and start earning.
Now I see that we did not get to know these women well enough before we designed the project. We simply designed what we thought was best for them and merely invited them to partake of the goodies we had set out. How naive we were. We should have spent time getting to know these women and their economics. Only then could we have designed something that would have actually worked. I still see this pattern evident in development efforts across the country running ‘empowerment’ projects.
Now I understand why those women rejected our efforts. I see how entrepreneurship is too hard for poor people. For their businesses to scale, they need both investments in finance and education and for the tides to favour them. If not, even though the microcredit we offered them could increase the scale and size of their business, it would not be enough to lift them out of poverty. Poor people know this and it dampens their enthusiasm and makes them unwilling to acquire further knowledge.
This is the paradox of the poor and their businesses: They are energetic and resourceful and manage to make a lot out of very little. But most of this energy is spent on businesses that are too small and utterly undifferentiated from the many others around them. As a result, their operators have no chance to earn a reasonable living.
Perhaps the many businesses of the poor are less a testimony to their entrepreneurial spirit than a symptom of the dramatic failure of the economies in which they live to provide them with something better.
Solutions? We need jobs
It’s an easy conclusion to make then that entrepreneurship is forcefully undertaken when there are no jobs. I see ready case studies among friends and family members (some with advanced degrees) who turned to fashion design and confectionery making as a response to joblessness. Although they might be entrepreneurs, these people run their businesses because they have no other option. Their gross returns are largely very low.
We need jobs. Would a pro-rural industrial investment policy that attracts industries to rural communities help? This would stem urbanization and slum development in places like Lagos while attracting amenities and stable jobs to rural areas. Stable jobs lead to higher investments in education and nutrition fueling the virtuous cycle that leads people out of poverty.
