Lant Pritchett makes the case that extended periods of economic growth and cross-border labour migration trumps any kind of targeted development intervention in reducing poverty.
Two thoughts
1. I am inclined to agree that getting people out of poverty is best done by the dynamics of economic growth than by targeted interventions. I struggle to find one example of a targeted development intervention that can be applied as a de-risked instrument to lift people out of poverty.
When thinking about poverty elimination, the international development community has tended to view it in terms of interventions that can act directly to increase the incomes of the poor. Unfortunately, there are no such silver bullets to do that in any reasonable scale. Sustainable increase in incomes require active support from the eco-system in which the poor person lives and works. Call it whatever you like - markets, institutions, state etc - it cannot be denied that such support systems are weak, unstable, and not mature enough to support the human and physical capital formation required to realise high incomes. In fact, aid agencies should spend more effort and resources supporting the development of such "invisible" infrastructures including foremost state capacity.
When thinking about poverty elimination, the international development community has tended to view it in terms of interventions that can act directly to increase the incomes of the poor. Unfortunately, there are no such silver bullets to do that in any reasonable scale. Sustainable increase in incomes require active support from the eco-system in which the poor person lives and works. Call it whatever you like - markets, institutions, state etc - it cannot be denied that such support systems are weak, unstable, and not mature enough to support the human and physical capital formation required to realise high incomes. In fact, aid agencies should spend more effort and resources supporting the development of such "invisible" infrastructures including foremost state capacity.
The vast majority of self-employment schemes like providing cattle or small grocery stores or sewing machines are mostly poverty alleviation efforts. The so-called Graduation programs, cash transfers etc are also just the same. The best that can be said about all these are that they take people to the starting line in being able to meaningfully engage with opportunities that are likely to come their way. But in countries where those opportunities themselves, like productive formal sector jobs, are limited, there is only so much to be had with this privilege.
2. Two more appropriate areas for targeted interventions would be poverty alleviation and preventing people at the margins from falling back into poverty.
Poverty alleviation interventions of the kind discussed above are well known. This leaves us with preventing fall-back into poverty.
Take the arguably three biggest sources of reversal to poverty - catastrophic medical illness, natural disasters, and larger credit defaults. Governments could underwrite these risks for all but those well-off (market solutions are already available for the middle class and above) through health insurance, disaster relief and rehabilitation, and some form of credit insurance against certain risks. Some form of means tested social safety nets would be required. Notwithstanding the challenge of implementing, and that too in scale, such safety nets, this presents a distinct area of engagement.
There is scope for innovation, especially with financial instruments which are supported with public subsidy. I have blogged earlier (see this, this, and this) about how the extant debates about financial inclusion is entrapped in the quest for expanding access to existing financial instruments (which service people like you and me) without realising that the poor may actually need very different sets of financial instruments. Bar micro-finance, the landscape is barren and littered with quackery.
Fintech offers opportunities to offer multi-tier accounts and other solutions which address human cognitive failures. Or, what would it take to have credit insurance for loans given to farmers and micro-entrepreneurs?
Take the arguably three biggest sources of reversal to poverty - catastrophic medical illness, natural disasters, and larger credit defaults. Governments could underwrite these risks for all but those well-off (market solutions are already available for the middle class and above) through health insurance, disaster relief and rehabilitation, and some form of credit insurance against certain risks. Some form of means tested social safety nets would be required. Notwithstanding the challenge of implementing, and that too in scale, such safety nets, this presents a distinct area of engagement.
There is scope for innovation, especially with financial instruments which are supported with public subsidy. I have blogged earlier (see this, this, and this) about how the extant debates about financial inclusion is entrapped in the quest for expanding access to existing financial instruments (which service people like you and me) without realising that the poor may actually need very different sets of financial instruments. Bar micro-finance, the landscape is barren and littered with quackery.
Fintech offers opportunities to offer multi-tier accounts and other solutions which address human cognitive failures. Or, what would it take to have credit insurance for loans given to farmers and micro-entrepreneurs?
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