This book is a treasure trove of information about global poverty. I came into the book with a host of naïve assumptions about why poverty exists and what can be done to stop it, but the authors referenced a plethora of research studies that obliterated my ill-conceived notions about poverty and provided me with a solid foundation of knowledge upon which I can build.
Prior to this book, I held a number of beliefs that I simply assumed were common sense. For example, I had assumed that if you offered free food to someone who is consuming barely enough calories to survive that the overall amount of calories they consume would increase. Apparently this is not the case-- if you give them free rice, they will take the money they used to spend on rice and instead spend it on more expensive, unhealthier food (or worse yet, something like tobacco). Thus, even if everyone in developed countries purchased food and gave it to the people in poorer nations this would not solve world hunger.
In chapter after chapter the authors bring up an issue faced by the world's poor, offer up the existing theories about the problem, point to research that sheds light on why the theories or current efforts fail to address the problem, and suggest solutions that we have reason to believe would work based on the findings of various research studies. The issues faced by the poor are wide-ranging and the authors do an excellent job trying to cover them all. Here are the main issues covered (a full chapter is devoted to each one):
1. Hunger (why poor people are not getting enough calories)
2. Health (why poor people don't try harder to get their kids de-wormed, vaccinated, etc.)
3. Family size (why poor people choose to have large families even though it is difficult to support more children)
4. Education (why poor people don't invest in all of their kids' education)
5. Risk/insurance (why poor people incur so much risk yet aren't insuring themselves against it)
6. Borrowing/microfinance (why microfinance isn't going to solve poverty and why borrowing is still an issue for some)
7. Saving (why poor people aren't saving)
8. Entrepreneurship (why poor people aren't all the great "entrepreneurs" that microfinance makes them out to be)
9. Politics/institutions/corruption (why poor people can see improvements in their lives even with corrupt institutions)
Each chapter begins with a difficult question which might seem to have an intuitive answer but does not; then the authors point to the results of research studies that shed light on the answer proceed to explain why the problem has not been solved if we know why it is occurring. For example, the chapter on saving begins with the following question: can poor people actually save money? Many people would immediately answer "of course not" simply based on the fact that the people we're talking about are poor. However, the authors provide convincing evidence that shows poor people are in fact capable of saving. This begs the question, if they can save, and it would be in their interest to do so (to provide a safety net for the enormous risk they face in their lives-- e.g., a family members becomes sick and can't work), then why don't they save? Are they simply lazy, short-sighted, and incompetent as we are told in the press? As you might imagine, the answer is not so simple (or condescending). Poor people don't save for a variety of reasons. First off, many of the world's poor don't have easy access to savings accounts. Banks are highly regulated and thus there is a significant cost involved in serving a client-- so why would a bank make an effort to cater to poor communities where they'll receive very little income from their customers to compensate for the costs they're incurring in offering banking services? Furthermore, it is easier for middle-class or wealthy people to save, not simply because they have more income but because the system makes it incredibly simple: for example, many people work for an employer that sets up a 401k plan for them and offers to match funds and deduct funds from your paycheck without you having to do anything. Most of the world's poor do not have such a simple option for saving-- they must exercise willpower week after week to overcome the temptation to spend (which we all have, poor or not), whereas the rest of us can just tell an employer once that we want to contribute to our 401k plan and that's the end of it. The authors even told stories of women who were taking out a loan at 24% interest and then saving the money in an account that only paid 4% interest. This seems incredibly foolish, so the authors inquired as to the women's motivations. It turns out they were doing this because this would force them to save-- having to repay the repay the loan would act as a disciplining mechanism. Essentially they were trying to force themselves to save because they didn't have a 401k account that would just automatically withdraw the money. They face the same temptations that we all do, they just don't have an easy means of overcoming them.
But the authors don't simply point out problems and throw up their hands in desperation-- they offer concrete solutions to each problem. Not all the solutions are equally convincing and the authors are the first to admit there is no "magic bullet" but they go a long way toward providing a framework for how we might think about solving global poverty in the next one hundred years. For example, in the chapter that deals with the enormous amount of risk the poor face (due to crop failures, health problems, etc.) they ask why the poor don't simply obtain insurance. The answer is complicated and has to do with moral hazard, adverse selection, and fraud, the combination of which has made it difficult for a "market" in microinsurance to develop in the same way we've had an innovation in microfinance. Thus, the authors suggest that governments step in and help create such a market by providing subsidies for insurance premiums. Before you throw up your hands and yell "that's socialism!" bear in mind that they cite previous instances of such subsidies and how they led to dramatic increases in the number of poor people who were insured.
There is no easy way to solve global poverty, as the world's poor face a number of problems that seem intractable. Yet when we examine each of these problems by looking at how the poor actually behave and how they respond to incentives, we can begin to develop a framework for how we might solve each of these problems and reach a point where poverty is a thing of the past. But before we can do anything to eradicate poverty, we need to understand why it exists, why it is self-perpetuating, and what can be done to stop it. This is the function of this book, and it excels on all fronts.
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