Understanding The 'Economics' Of The World's Poor

Originally published on July 14, 2011 8:21 pm

It's a commonly held belief that one of the biggest challenges faced by the world's poorest populations is hunger. But according to Massachusetts Institute of Technology economist Abhijit Banerjee, the economics of poverty are often much more nuanced.

Banerjee is co-author of the book Poor Economics, which addresses the pitfalls of current aid programs and advocates for a radical new approach to thinking about poverty.

"Many of our programs are designed as if it doesn't matter what the recipients think of what we, as the munificent donors, are about to bestow on them," Banerjee tells NPR's Steve Inskeep.

Motivated by the idea that the poor are starving, development policy often focuses on providing food, Banerjee says. But he argues that while nutrition is important, it's not necessarily a poor person's only priority.

"The evidence is that the poor don't act as if they're starving," he says. "They seem to be willing to trade off a little less food for an opportunity to buy a television."

And that trade-off means that, contrary to popular belief, the poor aren't necessarily going hungry.

"We are assuming that they're going hungry, because we think that somehow they're poor, so they must be eating too little," he says.

Banerjee's studies have shown that for the poor, improving their quality of life is just as important as improving their nutrition.

"When people get slightly richer, they are looking for pleasure as well as nutrition, even at the lowest levels of income," Banerjee explains. "If you give them some extra money, they don't go and buy more nutrition — they buy more tasty foods, like we would. They want to live a life; they don't want to just invest in their future."

Banerjee argues that food policy should work with human behavior, not against it. So if there is a real and established deficit of vitamins in the diets of the poor, you could strategically introduce more micronutrients through, for example, micronutrient-rich candy.

"Make it cheap, make it available in all schools," Banerjee says. "Children love candy, and they'll get lots of nutrients from it."

When it comes to the billions of dollars that the West spends in aid, Banerjee says we shouldn't worry about it going to waste. Instead, we should focus on increasing its impact and making it go further.

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STEVE INSKEEP, Host:

Co-author Abhijit Banerjee says many people donate to developing countries based on false ideas.

ABHIJIT BANERJEE: One that's very influential is the idea that the poor are starving, I think, and that the primary focus of development policy should be to provide them food. That's one that - numerous programs are motivated by that idea. And I think the evidence is that the poor don't act as if they're starving. They seem to be willing to trade off, you know, a little less food for an opportunity to buy a television or something.

INSKEEP: An opportunity to buy a television?

BANERJEE: Yup.

INSKEEP: People will go hungry to buy a television?

BANERJEE: I don't know that they go hungry. That's - I think we are assuming they're going hungry, because we think that somehow they're poor, so they must be eating too little. I'm not sure they are hungry. I think hunger is a social construct, so I'm not sure - you know, it might be that they are not eating as much as they should. But study after study after study finds that when you - when people get slightly richer, they are looking for pleasure, as well as nutrition, even at the lowest levels of income. You know, if you give them some extra money, they don't go and buy more nutrition. They buy more tasty foods, like we would. They want to live a life. They don't want to just invest in their future or something.

INSKEEP: So your view is that if a poor kid gets a nickel, or the equivalent of a nickel, even if he is not well-fed, he may go straight to the candy counter because that's something special.

BANERJEE: Yes.

INSKEEP: And so...

BANERJEE: And that's - so would I, probably.

(SOUNDBITE OF LAUGHTER)

BANERJEE: I think one thing that would be extremely useful to do is to think of ways to get poor people, and especially poor children, to get a lot more micronutrients.

INSKEEP: Micronutrients means what? That's vitamins, and so forth?

BANERJEE: Vitamins, iron, calcium, all kinds of things like that. And that's where the deficit is. The real, clear established deficit is there. You know, an example we often give is candy that has micronutrients in it, make that cheap, make it available in all schools. Children love candy. They'll get lots of nutrients from it.

INSKEEP: And so you want to just basically think in a little more nuanced way about human behavior and how to work with it rather than unconsciously working against it.

BANERJEE: Yes.

INSKEEP: Do you think that most of the billions of dollars that people in the West send to Africa or Asia are misspent?

BANERJEE: I have no idea, to be honest. But I'm less worried about money down the drain as such, but whether you could sharpen the effect, could you make it work just much better.

INSKEEP: Abhijit Banerjee is co-author of "Poor Economics," which he wrote with Esther Duflo. Both are economics professors at MIT. Transcript provided by NPR, Copyright NPR.