When I was a graduate student at Monash University in Melbourne, I had many debates about the relative importance of choices and constraints with a senior scholar who became a co-author early in my academic career. In the standard framework of mainstream choice theory, people are considered to maximize satisfaction through the choices they make based on the set of opportunities (constraints) they face. This simple version of human decision-making dominates mainstream economics and leads to absurd conclusions, such as unemployment is a voluntary state, in which people choose leisure (good) rather than work (bad) to maximize Their happiness, because the income from work (a good one) is not enough to offset the uselessness caused by work on an hourly basis. This kind of thinking runs through the entire discipline. My former colleague kept saying that people make choices, and you can’t deny that. The discussion is about the incidence of poverty. My position is that it is trivial for people to make choices. We do this every day, but to understand complex phenomena such as poverty, it is best to focus on constraints. This focus may be more enlightening. A person can make choices, but if their opportunities are very limited, and any choice will put that person into poverty, then focusing on the perspective of “free” choice does not make much sense. Structuralists also agree with my emphasis here. Earlier this year (February 8, 2021), some related scholars from the Massachusetts Institute of Technology published a working paper—— Why people are always poor – The results are very enlightening.
Questions for review
The MIT paper juxtaposes “two broad views on why people stay poor”:
A difference that emphasizes fundamentals, such as ability, talent, or motivation. The other is the poverty trap view, which is the difference in opportunity stemming from differences in wealth.
Therefore, the first view looks at individual results in terms of individual abilities and choices, while the second view is about structural constraints on how much resources an individual can control, which in turn is driven by wealth.
The researchers used an interesting data set from Bangladesh to study whether poverty traps are more important than personal attribution characteristics in determining the incidence of poverty.
For 11 years, they have studied 23,000 households with extensive wealth in 1,309 villages.
These villages are located in the “poorest areas of Bangladesh”, and “2007, 2009, 2011, 2014, and 2018” tracked 6,000 households specifically.
Half of the sample was randomly assigned a “big asset transfer in 2007” (that is, becoming relatively wealthy).
In every village, some people “own land or livestock” and use it to hire other temporary workers. The income of the latter is much lower than the former.
Asset ownership ensures that a person is more productive than a casual worker or domestic helper.
The department allows researchers to check:
…There is an asset threshold level above which poor families engage in asset-dependent occupations and get rid of poverty. Below this level they are still trapped.
As far as the study design is concerned, this study is very interesting, it allows to distinguish this tricky distinction between individuals and the environment in a meaningful way, and to test its statistical significance.
Target Range (TUP) plan
To help them design the threshold, they used an innovative poverty alleviation program—— Braque – In Bangladesh.
BRAC is a non-profit organization established in Bangladesh by: Fazle Hassan Abed – 1972.
Its purpose is to reduce poverty in Bangladesh, especially poverty among women.
It is “the largest non-governmental development organization in the world” with more than 90,000 employees (70% are women).
It now operates in 11 countries.
Its first project is microfinance, which aims to help people create new opportunities for themselves.
The program- The Ultra Poverty (TUP) Program-Graduation Method – Launched by BRAC in 2002.
Their target is the extremely poor, initially defined as people who “although they spend at least 80% of their income on food, but still do not eat 80% of their energy needs”.
But when they ventured into other countries, they found that “the people considered extremely poor depend on local conditions” (source).
Approximately 17.5% of Bangladesh’s population is classified as extremely poor.
They face all the changes in extreme poverty-chronic hunger, malnutrition, disease, low energy, poor housing and sanitation, and greater vulnerability to natural disasters.
The plan aims to supplement traditional development assistance-“food aid, cash transfers, school feeding, public works programs”, combined with “appropriate labor policies, social insurance systems, and social sector policies in health, education, and nutrition”, For poorer countries.
The problem they found is that these projects “are often inadvertently out of reach for the poorest people facing the most severe resource constraints.”
I remember a few years ago, I worked in some remote Aboriginal settlements in the Northern Territory, designing interventions to increase self-reliance through stable employment.
In early meetings with territorial and federal government officials, the federal government (the current conservative government) repeatedly reiterated that any plan must take advantage of the private market.
This sentence is repeated endlessly as a declaration of faith.
I pointed out that there is no private market itself in these communities. The challenge is to make the government work better, rather than trying to propose stupid, supply-side incentives that will fail due to lack of opportunity.
The ideological conflict is profound, which is one of the reasons why these communities are still the poorest in the world.
When BRAC started to design their program, this was well recognized.
They realize that the extremely poor are:
To a large extent out of touch with the market…
This is a very important insight.
Therefore, the logic of intervention is not only to develop skills and provide employment opportunities, but also to establish an “asset base” (wealth) to ensure that individuals can permanently escape poverty.
The two-year plan provides individuals with assets (usually a cow or some poultry) and provides skills development in addition to food and income support and other benefits (health care, etc.).
The evidence so far (after 19 years of operation) is very positive.
A study conducted by researchers from the London School of Economics (Bandier, O. and colleagues) in 2013-“The Impact of the Super Poverty Program on the Community”-found that after 4 years of operation, there was one:
- Participants’ annual income increased by 38%
- 92% increase in time spent on more stable and efficient work
- Consumer spending increased by 8%
- 10 times savings
- Other economic and statistically significant impacts on asset ownership, food security, non-food per capita expenditure and well-being
Other studies at different time intervals have found similar results.
Current research results
The TUP program allows researchers to identify the above thresholds.
TUP “transferred a large amount of assets (cows) to the poorest women in these villages, and the value of the transfer enabled more than 3,000 households to move from the low mode to the lowest density point of asset allocation in the processing area.”
That is to push people on the threshold.
The study then tracked “how assets evolve after transfer,” which allowed them to “test the poverty trap.”
They distinguished the part of the sample that received various transfers (food, etc.) but did not obtain assets from the sample that received the same transfer but obtained dairy cows.
They want to find out if:
… Small differences in initial asset holdings can lead to different trajectories in assets, occupations, and welfare, depending on whether the household starts above or below the threshold.
Their results are instructive:
1. “The asset accumulation path of the beneficiaries who accept the transfer within 4 years after the treatment is consistent with the dynamics of the poverty trap.”
2. “Families that are processed have so low baseline assets that the transfer is not enough to get them out of an unstable and stable state and are more likely to fall back into poverty, while those who manage to exceed the threshold get out of poverty.”
3. After 11 years of research, “Over time, the two groups diverged-beneficiaries above the threshold began to accumulate assets (including land), shift to more productive occupations and increase consumption.”
This finding supports the argument for the poverty trap.
4. “Ordinary families fall into poverty: due to initial lack of assets, they cannot engage in productive occupations.”
5. “…Without credit restrictions, only 2% of households are most suitable for paid work, while 97% of households are completely dependent on this type of work at baseline. In contrast, only 1% of people are engaged in animal husbandry. And if they can get the same wealth of assets as the middle and upper classes, then 90% of people will do so. Overall, this means that 96% of households are forced to mismatch labor.”
This is an important result.
Poverty not only has a huge impact on individuals, but also wastes talents and enables people with fewer talents from affluent backgrounds to hold important positions of power and decision-making that they cannot effectively accomplish.
So we got a lot of underperforming politicians and other “leaders” because we did not sample extensively from the talent pool.
What does it mean?
Contrary to mainstream models that emphasize personal characteristics and their choices, the study found that:
The reason why most people are poor is not because they lack innate abilities, but because they are restricted by their inability to obtain more productive activities. In the long run, interventions that are not enough to get people above the threshold will not succeed in improving outcomes…
A vigorous promotion policy that allows most families to exceed the threshold can effectively lift them out of poverty forever.
Poverty is a lack of opportunity.
It is not personal characteristics that make a person poor, but their environment.
Focusing on personal choice when opportunities are so narrow is a waste of time.
In more advanced countries, the transfer of cows may not be relevant, but these principles still apply.
Individuals must have the opportunity to switch occupations to get rid of poverty and shift dependence on consumption.
It’s not about motivation, it’s about ensuring that there is work available.
The state must guarantee availability and ensure job safety, good pay (relative to the environment), and provide socially inclusive income.
Within this structure, a series of career development-skill development, etc. should be designed.
This also means that only providing income support (such as UBI) is not enough to reduce poverty.
The evidence from TUP is clear-“A small push will help increase consumption, but it will not lift people out of the poverty trap.”
This is one of my main criticisms of basic income guarantees. The level of these guarantees will not be inherently inflationary-they treat individuals as consumer units and cannot provide professional mobility.
So this man fell into poverty-allegedly creative!
in conclusion
Whether UBI wants it or not, poverty reduction requires plans to create jobs and allow one to take risks to manage their own lives.
Strengthening choice in such a slim chance situation should not be the guiding principle for poverty intervention.
On the contrary, empowering people through professional development and appropriate other support has proven to be a viable approach.
That’s enough for today!
(c) Copyright 2021 William Mitchell. all rights reserved.
