Why ‘Poor People’ stay Poor— What Economist Nobel laureates A. Banerjee and E. Duflo wrote
In the book ‘Poor Economics’, Abhijeet Banerjee and Esther Duflo have done a rigorous and extensive research to understand what keeps the poor in the poverty.
What could have stopped them to come out of the poverty trap? Is there enough support system for the Poor to gradually enhance their standard of living and become a middle class?
The most important reason is the incapability of the poor to break the vicious cycle of poverty that makes it almost impossible to come out from there. This is like being stuck in a quagmire squirming to come out from it somehow. However, the more you try, the more you get stuck deep into it.
The poverty trap keeps the poor people in the loop forever.
For example, a poor person can’t provide good education to his son because he can’t afford the fee. Eventually, his son remains uneducated or less educated. So he can’t get high-paying jobs in the future and get stuck in low-wage jobs in the end. Now the son won’t provide good education again to his child. A loop of poverty has been created.
They have given five reasons in the book to vividly describe why it happens:-
1. The Poor often lack critical pieces of information and generally tend not to believe in what they are not used to
Vaccines are highly effective to keep infections at bay. Poor, which has low education level, don’t realise the true potential of vaccines at the early stage. Later, they contract the infections more frequently than those who have got vaccines on time. They will face morbidity more which eventually reduces their overall productivity to earn some extra money.
Lower education provides them with a lack of information to make well-informed and rational decisions. The privileged class has all of the resources to get informed about what is good or bad for them. But it is hard for the Poor to break a ritual and tradition that their forefathers had been following all of a sudden. It’s human nature to get discomfort with any thought that demands the change. Naturally, it’s difficult if you have less confidence and knowledge.
2. The poor bear responsibility for too many aspects of their lives
The richer you are, the more the right decisions are made for you.
Poor lack basic amenities such as piped water, by default vaccination, close hospital centres. They have to think each time to take the right decision for themselves. Doing something a few days is okay; however, anything becomes mundane and boring when you’re forced to do it every day. Putting chlorine into the water can also be like this. Or to vaccinate their children, they need to go 20 to 30 kilometers by bus to near vaccinated centres. There may be a problem of procrastination as well.
Privileged people don’t need to think much about these things. Piped water is already chlorinated to be safe for drinking and vaccination centres are arm’s length away.
3. They are on the wrong side of the market
The Poor don’t get credit easily for either opening a business or upgrading the existing one. There is a rigorous and thorough process followed by banks and financial institutions for giving loans in the market. They want to make profits and decrease their risk of bad loans when the borrower doesn’t repay the loan.
Hard for them to get a small loan from formal financial institutions for lack of collateral, higher risk of default, or high Marginal cost of lending. All of them daunt them to give loans to the poor. Eventually, the poor resort to informal financial institutions such as moneylenders who take exorbitant interest rates.
Microcredit, stated in the book, is a way to support the poor in starting something on their own. For instance, lend downtrodden money so he can purchase a cart for selling small items.
4. Poor policies reinforce the poverty trap
The ubiquitous concept of three ‘I’s: Ignorance, Ideology, and Inertia. It’s trap which keeps a country backward and poor.
Those who make policies for the alleviation of the poor are usually bureaucrats who have ignorance regarding the local conditions. Their far-sighted plans get short due to a lack of vision and prior forethoughts.
They couldn’t realise what actually needed to be done to alleviate poverty among the poor.
5. Hope is everything
Poor people are less hopeful about the future. They can’t dream like the middle and rich classes. Instead of thinking about something a year or after, they have tension about tomorrow’s food. They don’t have a permanent source of income, so they are anxious about finding good work every time.
Not having much savings, they are prone to fall into a debt trap anytime and anywhere. One chronic illness and accident would dry up all their savings. And so are forced to lend money from moneylenders for an exorbitant price.
The poor need to break this poverty loop once and for all to come out of it. There is a colossal hurdle between poverty and dignified life that has to be broken by itself and sometimes with the help of outside help.
- Providing assistance or one-time help is also effective, though not all time.
- Microcredits are helpful for the poor.
- Social welfare benefits and nets keep them away from the trap.
- Infusing hope for a bright future will change everything from mindset to situation.
As Andy Roberts says in Shawshank Redemption -
Thanks for Reading!
Follow me for more content like this.
References:-
- Poor Economics by Abhijeet Banerjee and Esther Duflo
- Investopedia
