My Top 3 Economic Realisations Of Helping The Poor In Rural India
My previous article for the India arm of Rethinking Economics (REIN) explained bottom-up thinking at the Base of the Pyramid (BoP) in a particular example of Rural Spark about energy access in rural India. In this part, I will zoom further into the context of the rural poor of India, reflecting on a moral question everyone needs to ask themselves. This will be followed by the personal misconceptions and realisations I had about the BoP in the Indian villages. I aim to conclude with a case about how helping the poor is done best by understanding them.
Helping the poor: why?
A potentially controversial question, ‘we’, people from the richer and more ‘developed’ countries that are somehow involved in development work, should ask ourselves not less than once.
Do we help out of empathy or compassion? The ones we are aiming to help are very far away, not merely in terms of distance, but also in culture and affluence.
How can we actually understand how the people we are trying to help feel, let alone feel how they feel? To me, those two levels of ‘understanding’ and ‘feeling’ seem more attainable for Zen monks than for most ordinary people, or at least me.
Do we help because we are driven by a form of guilt: the need to give something back to a society, since we took so much already?
I see many formerly successful leaders in the West, fully committing themselves to sustainability and/or development issues at a later stage of their career. A good example is (my own) how the Dutch ex Prime Minister J.P. Balkenende singled out sustainability as the highest priority, or Bill Gates using his foundation to transfer massive amounts of funds to development programs.
Do we just want to feel good by helping others? Then we should actually be thankful to the people we are helping since thanks to them, we feel good!
“If you’re young, privileged, and interested in creating a life of meaning, of course you’d be attracted to solving problems that seem urgent and readily solvable” (development set)
I could go on rambling for a while, but I expect we, including myself, are to a certain extent guilty of reductive seduction of other people’s problems? This is the title of a blog by The Development Set that raises the question of why we don’t work on problems closer to our home, and why we think that we can simply solve problems somewhere far away.
In the article they state: “If you’re young, privileged, and interested in creating a life of meaning, of course you’d be attracted to solving problems that seem urgent and readily solvable”. It argues we should go abroad (far away), if, and only if, we want to help others because we;
“like to submerge ourselves into complexity”
“are open to face difficulties”
“want to listen”
I think I loosely meet these requirements, but nevertheless suffered from the said ‘reductive seduction of other people’s problems’. This simplistic view lead to misconceptions (or rather, realisations?) I was forced to face when I hit the ground reality of trying to understand the world of the Base of the Pyramid in the rural areas during my first few months in India.
1st Realisation — The Bottom of the Pyramid concept
Since C.K. Prahalad’s work on the Fortune at the Base of Pyramid (BoP), the BoP has almost become interchangeable for poverty. The BoP is defined as someone earning less than 2$ a day (120 rupees). The full income pyramid is given below.
With this in mind, I visited Bankey Bazar to have a look at its energy development. It is a block of 126 villages in the state of Bihar, India: one of the poorest states in the subcontinent. I expected to encounter some typical picture that I had in my mind about the people at the BoP.
Spending time in the villages, I saw people going about their business, owning shops, wearing decent clothes, using solar panels and large batteries.
Nevertheless the houses still did not seem very safe, running water was missing, and not everyone has access to electricity — signs of poverty to me. Later, the field expert shared with me that the people in Bankey Bazar must at least live on 4 dollars per day. Thus, I realised that it’s already quite hard to observe people presented in the BoP itself: they are hard to come by.
On another visit for energy research in Bengal, I observed people who owned large pieces of land, and jersey cows, the best and most expensive cows a farmer can have.
In the houses of the villagers, there were fans in every room, accompanied by several consumer goods: radios, televisions and what not.
A related visit to Gumla, in the state of Jharkhand, where people in the villages owned poultry farms, rice milling machines and had access to electricity via microgrids, seemed to be people well off the BoP definition as well.
The Peren district in the North-Eastern state Nagaland, on the other hand, the tribal villages with its affluent people and disposable income (evident from the houses and goods they owned) was a minor conundrum. Because it was striking that they could not spend it on energy, due to a missing electric infrastructure which might never come to be because of the harsh and remote terrains.
“The Bottom of the Pyramid is a too narrow concept to observe, discuss and understand poverty”
After all those aforementioned experiences, I was quite confused about the BoP. Next to the fact that it is hard to observe and access, maybe if I had done a rigorous ground survey like Mahalanobis* on income I would have found something.
But then I wonder what it really would tell me if I actually could measure the income very well. I am sure I have seen “poverty” but not according to that income definition. I think I have been holding onto this concept for too long without giving it a critical thought, and would prefer to talk about poverty in a more comprehensive way instead.
* Prasanta Chandra Mahalanobis was a famous Indian scientist and applied statistician that was responsible for its great income measurement methodologies and surveys in the 70’s. The work of Mahalanobis has been re-published and edited by famous development economists like Abhijit Banerjee, Pranab Bardhan, Rohini Somanathan and T.N. Srinivasan in “Poverty and Income Distribution in India” that was originally published in 1974.
2nd Realisation — Automation
The second realisation occurred back in Delhi. After one of my village visits, I looked around my home and realised how easy everything is.
When I open the water tap, or use a water purifier, the water is clean.
Also, I can easily warm it up.
With the push of a button, I can arrange transport and order food.
I can store money safely, and delegate my retirement plan to a bank.
When I visit a doctor, I can easily decide to trust the expertise due to a stringent qualification process of the doctor.
Note that many decisions are automatically made for me, I don’t have to think about them.
“There is a great lack of automation for people in poor conditions”
This is not the case for the less privileged. Rural villagers own a lot more than I thought, as outlined in the first realisation. However, there is definitely a huge lack of safe and automated embedded systems in the daily life of the villagers.
They need to boil water or use chlorine pills to render it safe for drinking, not mentioning the location of the water source. This might be a water pump in front of your house, but this might also be the only well outside the village.
Saving money for emergencies, like health expenses or using it on leisure consumption goods (e.g. alcohol, cigarettes) makes it harder to save since it is not locked up in a bank.
Visiting a doctor is troublesome; first you have to get there, which might be a long trip. And is it affordable to pay the doctor and the medicines, and more important, does the doctor have a trustworthy qualification?
People in poor conditions have to make a lot of decisions. Every day. All day long.
How would the lack of many automated systems affect your life?
3rd Realisation — Behaviour
People in rural areas are thus facing many decisions on a daily basis. This can lead to stress, which can lead to a wrong or a riskier decision, or procrastination, making no decision at all, or waiting too long (to see a doctor for example).
It is way easier not to think of each detail of your life and its uncertain outcomes. Imagine how much time, but especially, head space it requires to worry about each of your actions continuously?
“Decision making, risks, stress and mental health are important behavioural factors that can lead to a vicious circle in the lives of the villagers”
It will most likely impact mental health, affecting decision making by focusing on the short run and thus posing a risk to their lives in the long run. In this sense poor people are no different from people from “developed” nations: stress can and does affect behaviour and thus, decision making. However, the (non-automated) circumstances of less privileged people make them more prone to end up in a vicious circle.
Helping the poor: how?
Assessing poverty by looking at a certain income level is an easy-to-communicate, and widely adopted indicator for poverty. However, poverty is a more comprehensive concept, which says much more about the lives of the less privileged.
A good example comes from the Oxford Poverty and Human Development Initiative that looks at poverty in a multidimensional assessment whereby “hard” factors like health, nutrition, sanitation, energy, water and education, as well as “soft” factors like social & psychological measures are also taken into account.
A good way to help the poor is by implementing the hard factors in such a way that they become automated, like the example on energy access in the first blog of this series.
An efficient way of addressing the soft factors, which relate to the behaviour of people, would be first to accept and understand that psychology matters.
Secondly, one needs to figure out what small changes i.e. nudges can be made to help people steer in the right direction as stressed by Sendhil Mullainathan.
Using standard economic tools, where full rationality is assumed might not be sufficient here.
According to Herbert A. Simon people are not fully rational since they are constrained by their cognitive abilities, information available and time available to make the decision, which he called bounded rationality.
Another tool is thus needed to learn and understand decision making behaviour.
A good tool for example for realising this is via Randomised Controlled Trials (RCT). Leading development economists like Esther Duflo and Abhijit Banerjee are using this method in their Poverty Action Labs. An RCT makes it possible to observe the behaviour, and the difference in the expected behaviour.
“The key to help the poor is understanding their behavior”
The RCTs keep churning out insights that could barely be predicted. One experiment showed that handing out deworming pills at schools did not only improve health, but also increased school attendance. A result that would not be possible to observe by just donating money top-down for setting up schools.
RCTs have become a very successful approach since they incorporate ground reality and account for factors that might not have been included in standard economic models. RCTs are a bottom-up approach where the key factor lies in behaviour**. Subsequently, proposing the right nudges — a voluntary push in the right direction — can help improve lives by multiple folds.
** There is actually a new field of economics emerging called Behavioural Economics that aims to incorporate human factors in economic models.
Besides the positive news on understanding the poor better, a disadvantage of the RCTs is that they are local and specific, and might not be applicable at all in another context i.e. would it be possible to generalise human behaviour to other communities, societies and geographies?
The knowledge from the RCTs can definitely help the policy maker decide how to use the large sums of foreign aid she receives. It seems like a daunting task for this person since she needs to account for incorporating many context-specificities to know exactly how to spend the money on policies and programs that effectively tend to help the poor.
“We all have the same flaws in thinking about the future and decision making. The only difference is that the poor have to do this is in much more difficult circumstances.”
The best way to help the poor is to understand they are not different from the rich. We are talking about humans here. We all have the same flaws in thinking about the future and decision making. The only difference is that the poor have to do this is in much more difficult circumstances.
Note of Thanks
This article has been published first on Rethinking Economics India (REIN), the India arm of Rethinking Economics, as part of the blog series ‘Developing India: from the Bottom-Up’, which can be retrieved here. The following people have helped shaped this blog by their valuable criticism and had me re-think many of the aspects I initially wrote: Ramyaa Bommareddy, Supriya Krishnan Divya Jindal and Melissa Furtado. Special thanks goes to Shahzeb Yamin who joined and guided me during my field trips. Without his experience and knowledge, I would not have seen the ‘real’ rural India at all.
