Here is what entraps families into vicious cycle of poverty

A man pulls a cart aka mokokoteni at the OTC roundabout, Nairobi loaded with market produce as two men seat enjoying the ride. FILE PHOTO | NMG

By GEORGE BODO
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Summary

• Scholars at the London School of Economics released a paper titled, Why Do People Stay Poor? that illustrated how lack of initial wealth transfer contributes, to a very large extent, in keeping people in poverty.
• They posited two views as to why people stay poor.
• First is the equal opportunity view, which emphasises that differences in individual traits such as talent or motivation make the poor choose low productivity jobs.
• Second is the poverty traps view- which states that access to opportunities depends on initial wealth and hence poor people have no choice but to work in low productivity jobs.

Why do poor people stay poor? This is a question that remains at the apex of development economics and policy, and has continued to draw a myriad of answers, some plausible while others downright ludicrous.

But researchers might have found the most plausible explanation.

Earlier this year, scholars at the London School of Economics released a paper titled, Why Do People Stay Poor? that illustrated how lack of initial wealth transfer contributes, to a very large extent, in keeping people in poverty.

They posited two views as to why people stay poor. First is the equal opportunity view, which emphasises that differences in individual traits such as talent or motivation make the poor choose low productivity jobs.

Second is the poverty traps view- which states that access to opportunities depends on initial wealth and hence poor people have no choice but to work in low productivity jobs.

They then tested the two views using the random allocation of an asset transfer programme, which targeted 23,000 households living in 1,309 villages in the 13 poorest districts in Northern Bangladesh.

It was quite an interesting study where beneficiaries were offered to choose from several asset bundles, all of which were valued at around $560 (in purchasing power parity) and could be used for income-generating activities.

Out of all eligible women, 91 percent chose an asset bundle containing a cow. In the end, the study rejected the null of equal opportunities and instead findings imply that large one-off transfers that enable people to take on more productive occupations can help alleviate persistent poverty.

Essentially, people stay poor not because of their talent or motivation, but because they live on minimum wages.

The findings came along with the discovery of a poverty threshold; such that households with a starting level of productive assets (or initial wealth) below that threshold are trapped in poverty.

On the other hand, households who are able to get past that threshold accumulate capital and approach the level of richer classes.

But most importantly, existence of a poverty threshold has important policy implications.

First of all, transfer programmes that bring a large share of households above the threshold will have large effects, while transfers that fall short of this might have small effects in the long-run.

This is exactly the argument that needs to take place in the ongoing ‘Hustler’ versus ‘Dynasty’ discourse.

While the hustlers are distributing wheelbarrows and mkokoteni (carts), can such a transfer be enough to bring beneficiaries above the poverty threshold? If not, such actions will have small effects in the long run (and will just remain pure political handouts).

But most importantly, it also puts to the sword the government’s own social interventions.

Under the government’s social assistance component of Social Protection, it currently runs four cash transfer programmes within the wider Kenya National Safety Net Programme (NSNP).

Without bringing the targeted beneficiaries above the poverty threshold, these transfers can’t eradicate poverty and only work to elevate consumption.

As the paper has shown, existence of a poverty threshold also alters how we think of development policies, in the sense that (i) the solution to the poverty problem will require a big push that enables the poor to take on more productive occupations; and (ii) poverty traps create mismatches between talent and jobs-which means that poverty traps entrenches under-employment (people are not able to make full use of their abilities).

I guess this argument then forms a compelling basis to parse politicians’ job creation agendas (as opposed to wheelbarrows and carts).

@GeorgeBodo