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Credit Suisse's Neelkanth Mishra reviews Poor Economics

Why do the world’s poor make seemingly irrational decisions continuously? Such as: failing to immunise their children for free, even when they are aware of the advantages; not using cheap, safe chemicals on drinking water to reduce water-borne diseases; and refusing contraception — particularly teenage girls in Kenya — with older partners, despite the risks? 

The answers are simple. Because:  for the same reason going to the gym is so hard for most people — inertia; inconvenience — in some ways similar to if a doctor doesn’t use a hand sanitiser during rounds, despite being aware of its advantages; and some are trying to get pregnant so as to receive more support from the partner.

Poor Economics deftly weaves together such research from across the world on poverty alleviation and its various disciplines: hunger, education, health, family planning and so on; and paints a compelling picture of how many, if not most, of these seemingly most intractable problems are addressable.

If there was one takeaway from the book, it would be that a condescending approach to poverty and the poor generally fails. While much of the debate on poverty focuses on “the ultimate cause of poverty” or “does foreign aid have a role to play?”, the authors give convincing examples linking success to what problem is chosen, and how the programme is run. Even if their behaviour appears irrational initially, the poor make sensible decisions that best fit their environment. Programmes that acknowledge this have much higher chances of success.

There are also some remarkable facts the authors quote: that despite rapid economic growth, per capita calorie consumption has been falling steadily in India. Indians across the income spectrum are eating less and less. Interestingly, this happened between 1980 and 2005, when the (relative) price of food was going down. And yet, the percentage of people who consider they do not have enough food has dropped from 17% in 1983 to 2% in 2004, leading the authors to believe that maybe some people eat less because they are less hungry.

The authors carefully nuance this with saying a nutrition problem does exist, but it comes from lack of information, lack of micronutrients and the choices made by the poor in their sources of calories. Simply attempting to provide cheap calories may not adequately address the problem. This is a topical discussion given the ongoing debate on the Right to Food Act.

Development can come from surprising directions. One example is Brazil, where — as the reach of Rede Globo telenovellas spread — fertility rates started to drop as people woke up to a new idea of what was conventional. The authors believe up to one-third of the phenomenal increase in savings rates in China can be attributed to the reduction in fertility post the one-child policy: fewer children means less expenditure, but more important, the lack of children makes people save more for old age. Children in many societies are considered financial investments — they are expected to take care of their parents on retirement. 

In some ways, especially for those (like me) not abreast with current economic research, the book is also a revelation on how high quality data from Randomised Control Trials (RCT) can help frame effective policies. Sample this: much of the progress in medicine can be traced back to the start of RCTs in 19th-century America with respect to pharmaceuticals.

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