Poor Economics

Just finished a book called Poor Economics. It was a pretty lengthy read but a book that goes to great detail to say that helping the world's 2 billion people who live on less than $2 a day raise their standard of living is a complex and difficult proposition.

For all of the supposed gains made in helping the world's poor- whether it be the Gates' foundation and their efforts in medical care or the success stories that microfinance operations have made in making small loans to entrepreneuers who seek a better life than what $2 a day can provide, there are still many efforts that need to be made.

The book's scope was to see which strategies work and which are overrated. It does a nice of job of identifying the various biases of the left (more governmental aid and involvement) and the right (less aid and more free market presence) while saying that both sides have some things that work but neither side has the complete answer. It argues that the world's poorest folks are the victims of some bad luck- corrupt governments, poor education, and disastrous climate and weather events- but that they also don't have the normal safety nets that those in richer countries do have- safety nets such as savings accounts (the cost of such an account prevents many of the poorest people from opening one) and insurance (some efforts have been made, but there's lots of kinks to be worked out).

The authors write "we are often inclined to see the world of the poor as a land of missed opportunities and to wonder why they don’t put these purchases on hold and invest in what would really make their lives better. The poor, on the other hand, may well be more skeptical about the supposed opportunities and the possibility of any radical change in their lives. They often behave as if they think that any change that is significant enough to be worth sacrificing for will simply take too long. This could explain why they focus on the here and now, on living their lives as pleasantly as possible, celebrating when occasion demands it (38)".

To back up the claim, the authors follow a young entreprenuer who wants to open a sewing company, but has to buy the equipment in order to do so. The authors reveal that if she saves 10-20% of her profits, it would still take over 20 years before she could buy the equipment. Some might say, well, she just needs to keep working at it. True, but if a crisis comes along- an illness, a famine, a death- the savings gets eaten up and the purchase of the equipment is delayed even further. And when one is making $2 or less a day, there's not much extra to go around.