Helping the poor? Provide safety ropes, not nets
We were at an international conference on poverty alleviation held in an East Asian country. The conference had been attended by experts and practitioners from all throughout the globe.
The discussion centred on how to help the poor to cross the poverty line in a sustainable manner.
“Poor people should be helped to start their own micro businesses to earn an income that would be sufficient to meet their basic requirements.
Then, they would cross the poverty line. But, after the support is withdrawn, if their income falls back to the previous level, then, there is no sustainability. So sustainability in poverty alleviation means that the poor people should be able to continue to stand on their own feet without the support from outside, earn an income sufficient to meet their basic requirements and experience a continuous increase in that income. That must be the aim of any poverty alleviation program,” the main speaker said. This was followed by an interesting question and answer session.
“Is there a short cut for poor people to cross the poverty line?” a representative from an NGO asked. “No short cut, if your goal is sustainability. Short cut methods will increase their income only temporarily. If a permanent increase is desired, they should be hardened by market practices. In our opinion, it takes about five to six years for a poor person to cross the poverty line, if he continues to produce for the market meeting market requirements” the speaker answered.“But, everybody cannot play in the market in the same way. Some succeed and some fail.
Those who succeed will cross the poverty line. But, what would happen to those who fail? They are the majority in a pure market environment,” a representative from a South Asian country, questioned. “True, for sustainable poverty alleviation, poor people should be successfully integrated to the market. The conditions of those who cannot join the market would get worse. So, we should have a safety net to protect them,” another representative interjected.
“What do you mean by a safety net?” a younger person, possibly a student, asked. “A safety net is a protection mechanism introduced to help poor people to maintain at least the existing consumption level, so that their position is not worsened. It could be done by a variety of measures. They could be given grants such as food or cash. It would be an income support for them to avoid falling further down the economic system,” the man, who suggested the safety net system, explained.
“There is a loophole in the safety net system,” the main speaker, intervened. “Since these grants are given freely to the poor people, they start to enjoy them and would wish to receive the free grants forever, without trying to do something productive on their own and cross the poverty line. So, it would breed a class of poor people who would remain poor forever by their own choice. It is like the festering wound in the beggar’s leg.
The more it is festering, the bigger the expected begging spoil. So, the beggar doesn’t want to have the wound healed. This is called the moral hazard problem. It also leads to another problem in economics now known as the immoral hazard problem.
When the politician or the policy maker sees the poor man, he would try to capitalise on it by suggesting more and more free grants for them, because the cost of the grants is not met by him. It is borne by tax payers who have no say about it. So the poverty perpetuates.”
Then the question came what should be done to help the poor permanently. The main speaker had the answer for that too.
“It is not the safety net that would help the poor. It is the safety rope that would help them. When you drop the rope from above, he has the choice of whether to remain poor or catch the rope and climb up to get out of poverty. The rope should have sufficient incentives and penalties to persuade him to catch it and move up,” he said. The audience wanted to know more about it. So, he continued.
“In today’s context, a poor man is not a person who hasn’t enough income to meet his basic requirements. A poor man is a person who cannot assess the risks he is facing properly and take measures to avoid them. So, a poor man should first be taught how to assess the risks and how to avoid them. One basic requirement for that is to develop thrift or the savings habits in him. Savings helps him to build a basic resource base for him and go through, as insurance, difficult periods like illnesses and natural disasters. It also teaches him of the difficulty of earning an income”
“That’s good. What’re the other features of safety ropes?” somebody in the audience asked. The main speaker continued. “He should be taught skills to do a business. It will help him to raise a loan from a bank, because he now becomes a bankable person. He should be told that any free support given to him would be only for a limited period. After that, he has to stand on his feet. By developing his skills and getting him to stand on his own, he would be capable of climbing the rope and get out of poverty”
“This is interesting. It appears Confucius knew about safety ropes long time ago. His famous statement to a man who begged a fish from him is a case in point. He told the poor man ‘I would not give a fish to you free of charge; but, I would teach you how to catch a fish.’ So ropes are better than nets,” somebody in the audience commented.