Poor Economics: Rethinking Poverty & the Ways to End it

by Abhijit V. Banerjee

Just over half of the private “doctors” have a medical college degree (this includes unconventional degrees like BAMS [Bachelor of Ayurvedic Medical Science] and BUMS [Bachelor of Unani Medical Science]), and one-third have no college education whatsoever. When we look at the people who “help the doctor,” most of whom also see patients, the picture becomes even bleaker: Two-thirds have no formal qualification in medicine at all.

unqualified doctors like these are referred to as “Bengali doctors,” because one of the earliest medical colleges in India was in Bengal and doctors from Bengal fanned across northern India looking for places to practice medicine. That tradition has continued—people continue to show up in a village with little more than a stethoscope and a bag of standard medications and set up as Bengali doctors, irrespective of whether they are from Bengal or not. We interviewed one who explained how he became a doctor: “I graduated from high school and couldn’t find a job, which is when I decided to set up as a doctor.” He very graciously showed us his high school diploma. His qualifications were in geography, psychology, and Sanskrit, the ancient Indian language. Bengali doctors are not only a rural phenomenon. In the slums of Delhi, a study found that only 34 percent of the “doctors” had a formal medical degree.

The unqualified private doctors were by far the worst, particularly those who worked in poor neighborhoods. The best were the qualified private doctors. The public doctors were somewhere in the middle. There was also a clear pattern in the errors: Doctors tended to underdiagnose and overmedicate. In our health survey in Udaipur, we found that a patient was given a shot in 66 percent of the visits to a private facility and a drip in 12 percent of the visits. A test is performed in only 3 percent of the visits.

doctors in Udaipur talk about a particular doctor who infected an entire village with Hepatitis B by reusing the same unsterilized needle.

The misuse of antibiotics increases the likelihood of the emergence of drug-resistant strains of bacteria.26 This is particularly true if, as many of these doctors are wont to do to save their patients money, the advised course is shorter than the standard regimen. Across the developing world, we are seeing a rise in antibiotic resistance. Similarly, incorrect dosage and poor patient compliance explain the emergence, in several African countries, of strains of malaria parasites that are resistant to mainstream medications, which has the makings of a public health disaster.27 In the case of steroids, the damage from overuse is even more insidious. Any researchers of age forty or older who have surveyed the poor in countries like India can recall an occasion when they were surprised to discover that someone they thought was much older than they were was in fact significantly younger. Premature aging can result from many causes, but steroid use is definitely one of them—and it is not just that affected individuals look older, they also die sooner. Yet because the immediate effect of the medicine is to make the patient feel rapidly better and she is not told what might happen later, she goes home happy.

Why do the poor sometimes reject inexpensive effective sanitation—the cheap and easy way to dramatically improve people’s health—in favor of spending a lot of money on t...

a lot of the cheap gains are in prevention, and prevention has traditionally been the area where the government is the main player. The trouble is that governments have a way of making easy things much less easy than they should be. The high absenteeism rates and low motivation among government health providers are certainly two reasons we don’t see more preventive care being delivered.

In 2002–2003, the World Bank conducted a World Absenteeism Survey in Bangladesh, Ecuador, India, Indonesia, Peru, and Uganda and found that the average absentee rate of health workers (doctors and nurses) was 35 percent (it was 43 percent in India).28 In Udaipur, we found that these absences are also unpredictable, which makes it even harder for the poor to rely on these facilities. Private facilities offer the assurance that the doctor will be there. If he isn’t, he won’t get paid, whereas the absent government employee on a salary will.

the 3-3-3 rule: The median interaction lasts three minutes; the provider asks three questions and occasionally performs some examinations. The patient is then provided with three medicines (providers usually dispense medicine directly rather than writing prescriptions). Referrals are rare (fewer than 7 percent of the time); patients are given instructions only about half the time and only about one-third of doctors offer any guidance regarding follow-up. As if this is not bad enough, things are much worse in the public sector than in the private sector. Public providers spend about two minutes per patient on average. They ask fewer questions, and in most cases don’t touch the patient at all. Mostly, they just ask the patient for a diagnosis and then treat the patient’s self-diagnosis. Similar findings were discovered in several countries.

delinquency

Overall, from the 6 percent in a set of control villages, full immunization rates increased to 17 percent in the camp villages. But even with high-quality, privately provided free immunization services, available right at the parents’ doorsteps, eight out of ten children remained without full immunization.

Plain vanilla economic rationality dictates that the cost, once paid or “sunk,” should not have any effect on usage, but there are many who claim that as is often the case, economic rationality gets it wrong. In fact, there is a “psychological sunk cost” effect—people are more likely to make use of something they have paid a lot for. In addition, people may judge quality by price: Things may be judged to be valueless precisely because they are cheap.

On the other hand, if people are subject to a sunk-cost effect, for example, these subsidies can backfire—usage will be low because the price is so low. In The White Man’s Burden,31 William Easterly seems to suggest that this is what is going on. He points to examples of subsidized bed nets being used as wedding veils. Others talk about toilets being used as flowerpots or, more graphically, condoms being used as balloons. However, there are now a number of careful experiments that suggest that such anecdotes are oversold. Several studies that have tested whether people use things less because they got them for free found no evidence of such behavior. Recall Cohen and Dupas’s TAMTAM experiments, which found that people are much more likely to buy bed nets when they are very cheap or free. Do these subsidized bed nets actually get used? To figure this out, a few weeks after the initial experiment, TAMTAM sent field officers to the homes of people who had purchased nets at the various subsidized prices. They found that between 60 percent and 70 percent of women who had acquired a net were indeed using it. In another experiment, over time usage went up to about 90 percent. Furthermore, they found no difference in usage rates among those who had paid for them and those who had not. The same kinds of results, which rule out the possibility that subsidies are to blame for low usage, have now been found in other settings. But if subsidies are not the cause, what is?

The two regions also have very different views about how to treat fevers. Every Maharashtrian mother knows that rice aids in a fast recovery. In Bengal, on the other hand, rice is forbidden:

What assures us is a belief in the way drugs get certified by the Food and Drug Administration (FDA) or its equivalent. We feel that an antibiotic would not be on the market if it had not gone through some kind of trial and, sometimes wrongly, given the financial incentives to manipulate medical trials, we trust the FDA to make sure the studies are reliable and the antibiotic is safe and effective.

Whenever this trust erodes for some reason in rich countries, we witness backlashes against conventionally accepted best practices. Despite the continuous reassurance by high-powered medical panels that vaccines are safe, there are a number of people in the United States and the United Kingdom, for example, who refuse to immunize their children against measles because of a supposed link with autism. The number of measles cases is growing in the United States, even as it is declining everywhere else.

the poor in many countries seem to have the theory that it is important that medicine be delivered directly to the blood—this is why they want injectables. To reject this (plausible) theory, you have to know something about the way the body absorbs nutrients through the digestive tract and something about why proper sterilization of needles requires high temperatures. In other words, you need at least high school biology.

it is not natural to attribute causal force to inaction: If a person with the flu goes to the doctor, and the doctor does nothing, and the patient then feels better, the patient will correctly infer that it was not the doctor who was responsible for the cure. And rather than thanking the doctor for his forbearance, the patient will be tempted to think that it was lucky that everything worked out this time but that a different doctor should be seen for future problems. This creates a natural tendency to overmedicate in a private, unregulated market. This is compounded by the fact that, in many cases, the prescriber and the provider are the same person, either because people turn to their pharmacists for medical advice, or because private doctors also stock and sell medicine.

In the United States, depression and back pains are two conditions that are both poorly understood and debilitating. This is why Americans are constantly going between psychiatrists and spiritual healers, or yoga classes and chiropractors. Since both conditions come and go, sufferers go through cycles of hope and disappointment, each time wanting to believe for a moment at least that the new cure must be working.

They were a roaring success. The immunization rate in the village where the camps were set up increased sevenfold, to 38 percent. In all neighboring villages, within about 6 miles, it was also much higher. Seva Mandir discovered that offering the dal, paradoxically, actually lowered the cost per immunization by increasing efficiency, because the nurse, whose time was already paid for, was kept busy.35

the 2-pounds-of-dal experiments demonstrate is that in Udaipur at least, the poor might appear to believe in all kinds of things, but there is not much conviction behind many of those beliefs. They do not fear the evil eye so much that they would pass up the dal. This must mean that they actually know they are in no position to have a strong basis to evaluate the costs and benefits of vaccines.

Both the right wing and the left wing seem to assume that action follows intention: that if people were convinced of the value of immunization, children would be immunized. This is not always true, and the implications are far-reaching.

Our natural inclination is to postpone small costs, so that they are borne not by our today self but by our tomorrow self instead.

The 2 pounds of dal works because it is something that the mother receives today, which compensates her for the cost she bears for getting her child immunized (the couple of hours spent bringing her child to the camp or the low fever that the shot sometimes causes).

Fines or incentives can push individuals to take some action that they themselves consider desirable but perpetually postpone taking. More generally, time inconsistency is a strong argument for making it as easy as possible for people to do the “right” thing, while, perhaps, leaving them the freedom to opt out. In their best-selling book Nudge: Improving Decisions About Health, Wealth, and Happiness, Richard Thaler and Cass Sunstein, an economist and a law scholar from the University of Chicago, recommend a number of interventions to do just this.38 An important idea is that of default option: The government (or a well-meaning NGO) should make the option that it thinks is the best for most people the default choice, so that people will need to actively move away from it if they want to.

Nudge

Michael Kremer and his colleagues came up with one method: a (free) chlorine dispenser, called “one turn,” installed next to the village well, where everybody goes to get water, which delivers the right quantity of chlorine at one turn of a knob. This makes the chlorination of water as easy as possible, and because that leads many people to add chlorine every time they collect water, this is the cheapest way to prevent diarrhea among all the interventions for which there is evidence from randomized trials.

Our real advantage comes from the many things that we take as given. We live in houses where clean water gets piped in—we do not need to remember to add Chlorin to the water supply every morning. The sewage goes away on its own—we do not actually know how. We can (mostly) trust our doctors to do the best they can and can trust the public health system to figure out what we should and should not do. We have no choice but to get our children immunized—public schools will not take them if they aren’t—and even if we somehow manage to fail to do it, our children will probably be safe because everyone else is immunized. Our health insurers reward us for joining the gym, because they are concerned that we will not do it otherwise. And perhaps most important, most of us do not have to worry where our next meal will come from. In other words, we rarely need to draw upon our limited endowment of self-control and decisiveness, while the poor are constantly being required to do so.

We should recognize that no one is wise, patient, or knowledgeable enough to be fully responsible for making the right decisions for his or her own health. For the same reason that those who live in rich countries live a life surrounded by invisible nudges, the primary goal of health-care policy in poor countries should be to make it as easy as possible for the poor to obtain preventive care, while at the same time regulating the quality of treatment that people can get.

All this sounds paternalistic, and in a way, it certainly is. But then it is easy, too easy, to sermonize about the dangers of paternalism and the need to take responsibility for our own lives, from the comfort of our couch in our safe and sanitary home. Aren’t we, those who live in the rich world, the constant beneficiaries of a paternalism now so thoroughly embedded into the system that we hardly notice it?

This does not absolve us of the responsibility of educating people about public health. We do owe everyone, the poor included, as clear an explanation as possible of why immunization is important and why they have to complete their course of antibiotics. But we should recognize—indeed assume—that information alone will not do the trick. This is just how things are, for the poor, as for us.

“purveyor

UN’s Millennium Development Goals (MDG), the eight goals that the world’s nations agreed in 2000 to reach by 2015. The second and third MDGs are, respectively, to “ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling” and to “eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015.”

Somewhat bizarrely, the issue of learning is not very prominently positioned in international declarations: The Millennium Development Goals do not specify that children should learn anything in school, just that they should complete a basic cycle of education.

In 2002 and 2003, the World Absenteeism Survey, led by the World Bank, sent unannounced surveyors to a nationally representative sample of schools in six countries. Their basic conclusion was that teachers in Bangladesh, Ecuador, India, Indonesia, Peru, and Uganda miss one day of work out of five on average, and the ratio is even higher in India and Uganda. Moreover, the evidence from India suggests that even when teachers are in school and are supposed to be in class, they are often found drinking tea, reading the newspaper, or talking to a colleague. Overall, 50 percent of teachers in Indian public schools are not in front of a class at a time they should be.5 How are the children supposed to learn?

Pratham was founded in 1994 by Madhav Chavan, a U.S.-educated chemical engineer with an unflappable belief that all children should, and can, learn to read and read to learn. He has taken Pratham from a small Mumbai-based UNICEF-sponsored charity to one of the largest NGOs in India, perhaps in the world: Pratham’s programs reach close to 34.5 million children all over India and are now venturing into the rest of the world.

Pratham formed volunteer teams in all 600 Indian districts. These teams tested more than 1,000 children in randomly chosen villages in every district—700,000 children overall—and came up with a report card. One of the leading lights of the ruling Congress-led government, Montek Singh Ahluwalia, launched the report, but what he read could not have made him happy. Close to 35 percent of children in the seven-to-fourteen age group could not read a simple paragraph (first-grade level) and almost 60 percent of children could not read a simple story (second-grade level). Only 30 percent could do second-grade mathematics (basic division).6 The math results are particularly stunning—all over the Third World, little boys and girls who help their parents in their family stall or store do much more complicated calculations all the time, without the help of pen and paper. Are schools actually making them unlearn?

These days in India, in an annual ritual in January, ASER results are released. Newspapers express dismay at the poor scores, academics talk about the statistics in panel discussions, and very little changes.

the quality of education is low because parents do not care enough about it, and they don’t because they know that the actual benefits (what economists call the “returns” to education) are low. When the benefits of education become high enough, enrollment will go up, without the state having to push it. People will send their children to private schools that will be set up for them, or if that is too expensive, they will demand that local governments set up schools.

They also weighed more, suggesting that parents were taking better care of them: They had discovered that educating girls had economic value, and were happy to invest.10

At the core of the demand wallahs’ view is the idea that education is just another form of investment: People invest in education, as they invest in anything else, to make more money—in the form of increased earnings in the future. The obvious problem with thinking of education as an investment is that parents do the investing and children get the benefits, sometimes much later. And though many children do, in effect, “repay” parents for the investment by taking care of them in old age, many others do so only reluctantly, or they simply “default,” abandoning their parents along the way.

we have certainly come across parents who rue the day when their children became rich enough to move out to their own house, leaving them to their lonely elderly lives.

This rationale explains why most rich countries simply give parents no choice: Children have to be sent to school until a certain age, unless parents can prove they are educating them at home.

where state capacity is more limited and compulsory education cannot be enforced. In such cases, the government must make it financially worthwhile for parents to send their children to school. This is the idea behind the new tool of choice in education policy: the conditional cash transfer.

linking the receipt of welfare payments to investment in human capital (health and education), he could ensure that the money spent today could contribute to eradicating poverty, not only in the short term but in the long term as well, by fostering a healthy and well-educated generation. This inspired the design of PROGRESA, a transfer program “with strings attached.” PROGRESA was the first conditional cash transfer (CCT) program: It offered money to poor families, but only if their children regularly attended school and the family sought preventive health care. They got more money if the children were in secondary school than in primary school and if it was a girl who went to school rather than a boy.

The effects were large (after a year, dropout was 11 percent in the control group, and only 6 percent among those who benefited from the transfer), but they were the same for those who received the conditional transfer and for those who got the unconditional one, suggesting that parents did not need to be forced to send their children to school, they needed to be helped financially.12

Putting together the effect on education and on wages, she concluded that every extra year of primary school due to the new school raised wages by about 8 percent. This estimate of the returns to education is very similar to what is commonly found in the United States.

Another classic top-down program is compulsory schooling. In 1968, Taiwan instituted a law that made it mandatory for all children to complete nine years of schooling (the previous law only required six years of school attendance). This law had a significant positive effect on the schooling of both boys and girls, as well as on their employment prospects, especially for girls.16 The benefits of education are not only monetary: The Taiwan program had a large effect on child mortality.17 In Malawi, girls who did not drop out because of the cash transfer were also less likely to become pregnant. The same results were found in Kenya.18 There is now a significant body of rigorous evidence testifying to the far-reaching effects of education. Moreover, this research also concludes that every little bit of education helps. People who are comfortable with reading are more likely to read newspapers and bulletin boards and to find out when there is a government program available for them. People who go on to secondary education are more likely to get a formal-sector job, but even those who don’t are able to run their businesses better.

India’s Right to Education Act, which was recently passed with strong support across the political spectrum (including the left, which, the world over, has traditionally opposed the role of the market), is a version of what is called voucher privatization—the government gives citizens “vouchers” to pay private-school fees.

One study19 found that an excellent predictor of the supply of private schools in a Pakistani village is whether a secondary girl’s school had been set up in the area a generation earlier. Educated girls, looking for an opportunity to make some money without having to leave the village, were increasingly entering the education business as teachers.

parents see an S-shape where there really isn’t one. This belief in the S-shape means that unless parents are unwilling to treat their children differently from one another, it makes sense for them to put all their educational eggs in the basket of the child they perceive to be the most promising, making sure that she gets enough education, rather than spreading the investment evenly across all their children.