Tag: Economics

How to eradicate poverty from the world?

Nothing is more dreadfully painful than poverty, and gripping poverty robs a man of the lofty nobility of his descent”- Thiruvallur

On July 10th, 2020, a six-year-old girl fell into a stormwater drain in the Marathahalli area while playing with her friends. She is the daughter of Nityananda and Boni Koli. They are migrants from Assam, living in the nearby slum area. Her father works as a security guard and mother as a domestic worker. And there has been no update on this incident till now. Who is responsible for this tragic incident? This incident shows the ‘hazards of being poor’ as also mentioned by the authors of this book. The poor people’s lives inextricably linked to huge amounts of risks not only related to income/food but also related to health, political violence, crime, and different kinds of shocks like the recently declared lock down amid the covid-19 pandemic.

This book has always been part of my reading list but when both the authors of this book won the Nobel prize last year, I decided that I have to finish this book soon. The curiosity and the zeal to find solutions how to eradicate poverty and why they do whatever they do in their lives and why policies world over fail to bring about a substantial difference in their lives, has always intrigued me.

“Poverty leads to an intolerable waste of talent. Poverty is not just a lack of money; it is not having the capability to realize one’s full potential as a human being.”

Amartya Sen

I have always been moved by people’s lives. If I see people living in difficult circumstances, I always ask myself why life is so unfair for a few people and a bed of roses for some. And many times I felt like crying inside because I am helpless as if I can’t do anything about it. Why someone has to lose its dignity because of a lack of resources. This is inhuman. Poverty is itself so inhuman. It makes you miserable from inside and you don’t have the strength to face the world.

These are some of the pertinent questions asked by the authors in this book. Why is there still poverty in the world or India? Why well thought out policies of the government of India have been failing to eradicate poverty for a long time? Why does no one ask the poor about their choices, their priorities, and why they are making the choices what are they making? It is absolutely necessary to understand the reasons behind their choices/decisions in life to frame better policies for eradicating poverty?

It’s not that the world has not tried to eradicate poverty. However, there are different ideologies/views present in the world to solve the problem of poverty. Jeffrey Sachs in his book, “The End of Poverty” says that ‘foreign aid’ is the key. Even aid establishment institutions like the United Nations and the World Health Organization believe in spending money on aid. William Easterly, Dambisa Moyo & others are not in favor of providing aid as they both argue that aid does more harm than good. They believe that we should respect people’s freedom if they don’t want anything, there is no point in forcing it upon them. Darren Acemoglu & James A Robinson’s theory of institutions given in his famous book-“Why Nations Fail”, believes in a fundamental change of the institutions to bring about any positive change in the country. However, there is hardly any focus on understanding the choices of the people and why they do what they do.

Mostly we judge poor people about the choices they make in their lives. Why don’t they save enough for them for the difficult period? Why do they produce many kids if they can’t afford a better life for them? Why don’t they take benefits of the government schemes? Why poor people don’t want health insurance? Do the poor really have a choice to control their fertility decisions? Why children of the poor don’t learn anything despite going to schools? Why don’t they get enough nutrients?

The authors had made it clear that there is really no difference between the decision-making of the poor and other people because they are also normal human beings. They also have the same problems of temptations, lack of self-control, weak beliefs, procrastination, and the problem of ‘time inconsistency’. Through various surveys, interviews and other evidence, the authors have shown that somehow the whole system is designed or exists in a way that makes it really impossible for the poor to come out of the vicious circle of poverty. For instance, they don’t have access to formal banking institutions and if they have, they have to pay higher interest rates, they don’t have any fallback option in the condition of shocks like demonetization or the recent lockdown, poor children are not wanted in schools unless they show some exceptional capabilities and also forced to drop out, they don’t have faith in the public health system because of the combination of beliefs as well as psychological sunk cost effect. And because of all these things, the poor may become skeptical about supposed opportunities and the possibility of any radical change in their lives, and also since they suffer from low depression, they lack the capacity to make sound decisions. And the vicious circle continues.

However, it’s not all doomsday scenario as the authors have also provided ways that can be used to bring about substantial change in the lives of the people. The fundamental argument of the authors is that ‘it is not always necessary to fundamentally change the institutions to bring about any positive difference rather change can also happen at the margin.’ According to the authors, though they didn’t find any magic bullet, they certainly found out few ways to improve the lives of the poor:

  1. Poor lack of credible information. So there is a need for innovative, credible, and simple information campaigns to make people aware of various schemes and their benefits and also their rights.
  2. Use the default options and nudges to enforce positive behaviors as they don’t have enough time & resources to think about themselves to make decisions.
  3. There are reasons like moral hazards, adverse selection, and lack of self-control that prevent markets to exist for the poor.
  4. Policies are failed in poor countries because of three Is-Ideology, Inertia and Ignorance and there is a need to realize the fact that change can also happen at the margin.
  5. There is a need to change the expectations of people. There was evidence that when villagers in remote areas of Karnataka got to know that girls can get jobs if they are skilled in computers, they started sending their girls to school.

Not only this, micro-credit, better education for their children, good jobs, insurance against health & weather disasters, social safety-net and minimum income support can help the poor to get out of the trap. And these small initiatives will bring a little bit of hope and comfort in their lives which will give them strength and courage to think about their future. However, as even authors of this book agree that there is a lot more to know and understand regarding the lives of people. Despite that in only 273 pages, the authors have talked about all the basic problems that keep the poor in the vicious circle and what can be done and how we should not reduce all the problems to the same set of general principles. The time has come to listen the poor and the understand the logic of their choices.

Review of the book Breakout Nations by Ruchir Sharma

BreakoutNations_sharma

The economics has become the vehicle of growth, prosperity, and development of countries in the world in the era of globalization. In fact, the question here is why we are more worried about economic growth, economic development, and prosperity? What is the need to talk about emerging nations? Why should we care about “Breakout Nations”? And why will some countries be emerging as breakout nations, some will be frontier countries[i] and some will remain insignificant with respect to economic growth and development.

Ruchir Sharma, an investment banker and keen watcher of economic happenings around the world in this book takes us on a journey where he picks the countries who will be the next economic miracles of the world. Finding reasons, causes and set formulas for economic growth and subsequent economic development of the nations was a never-ending quest by the authors of various milieus because everyone wants to step up the ladder of the success of economic growth.

The author discusses his experiences and nuances of more than twenty countries in 280 pages of this book with stimulating details incorporating the flavor of colloquial language and examples. The most important argument of the author is that we need to understand and analyze the emerging markets as ‘individual nations’ and he is wary of the ‘idea of emerging nations as a group’. In this context, he is skeptical of the sustainability of the BRICS[ii] group because the countries have competing political interests and there are stark differences between these countries in terms of commodity importers (India and China) and commodity exporters (Russia and Brazil).

The author is more interested in studying the individual countries by traveling to those places and trying to understand, “whether the political regime gets the connection between good economics and good politics” than commenting as academicians without getting the feel of the ground reality. In the whole book, the author has come out with various “Rules of the Road” to recognize the potentiality of the real breakout nations.

The author also gives his insights regarding the great debate of the impact of the political system and institutions on the economic growth and development. In fact, his latest book, The Rise, and Fall of Nations: Ten Rules of Change in the Post-crisis world is a further development of the same idea where he tries to give ten rules which need to be considered to evaluate the rise and fall of the nations. He rubbishes the idea that political system or the institutions are responsible for growth and development of the economy and their subsequent achievement of prosperity and remaining poor. “It’s’ not the type of the system that matters, it is the stability of the system and, even more important, whether the leaders running it understand the basics of economic reform”, says Ruchir.

He compares the country of China which has surpassed all the growth expectation and emerged as the successful example of command-and-control capitalism with the economy of Vietnam, which is not growing despite being a command economy. As per the author, any particular system has an only fifty-fifty chance on its economic growth and successes. In this context, he criticizes the grand theories on the ground of their emphasis on one factor in terms of institutions, geography, or culture to explain the rise and fall of the nations. He also finds faults in their building of narratives with historical facts as well as giving long-term predictions about these countries as a foolish approach. In fact, the book “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” [iii]by the authors Acemoglu and Robinson provide a comprehensive analysis of various hypothesis for the rise and fall of nations. In this book, they argue that the “institutions”- political as well as economical act as deciding factor in the growth and development of any country. However, Sharma does not agree with this hypothesis and focuses more on the role of political leadership which is responsible for steering the economy towards growth and prosperity and also towards disaster if they don’t get the basics right.

In this book, Sharma starts with China, India, Brazil, Mexico, Russia, going to Eastern Europe, talking about Czech Republic, Poland, Hungary, coming to Turkey for which he is bullish, shifting towards South-East Asian countries, Indonesia, Malaysia, and turning towards the African continent with billion opportunities and finally talking about gold-medalist countries of South Korea and Taiwan. He also gives an interesting perspective that breakout nations can also emerge in the Western world in the USA, Germany, Spain, and Ireland.

The whole narrative of the author is based on his personal travel experiences to these countries and anecdotal evidence but if we compare in general the views given by the author are very much similar to the book “Why Nations Fail”. This book says that institutions matter but Sharma says, “No, Individual leaders who are at the helm matter”. There is a question: Who came first: Institutions or Individuals? Individuals are part of the institutions or they are the one who created, sustaining and influencing the system of institutions. Both the books talk about Mexico, Russia, North Korea countries in a negative perspective because of their institutions and leaders respectively. In all the countries discussed by the author, he names the different leaders of the respective countries to emphasize their role in the economic growth and development.

In fact, if we deeply introspect, institutions as well as the leaders who are the decision makers both responsible for the growth, development, prosperity as well as bringing doom and poverty for any nations of the world. It is very complex and humanly impossible to factor all the causes and reasons behind the rise and fall of nations. In fact, many things are at play at the same time. It is a full bucket of things which will turn the nations towards prosperity as well as poverty.

Regarding his criticism of the BRICS grouping, now there is enough evidence to refute his proposition. For instance, these countries have announced “New Development Bank”[iv] in 2012 and other institutions which are going to challenge the erstwhile Bretton Woods System[v]. BRICS grouping led by China and India will emerge as a formidable force[vi] in the world in recent years. Though the countries of the group have different potentials, they can also find common grounds to collaborate with each other in the coming future.

This book was written in 2011 when there was lot of chaos in the Middle East due to ‘Arab Spring’[vii], In India, the India Against Corruption[vii] movement led by Anna Hazare was going on in the wake of spate of scams in the UPA II government, emergence of Turkey as a successful Muslim model for growth etc. Similarly, there were various other developments in other parts of the world. These things have influenced the writer in creating his perspective.

The author paints a bleak picture of China because of its heavy debt, increasing labor costs, and overcapacity in the infrastructure sector. He is also not bullish about India. In the last seven years, many things have changed in India. The new government came into power at Centre and they brought various radical and forward-looking changes to create a conducive climate for growth and development. So, we can’t judge the country just by looking the few days experiences and few years performances.

It is very complex and unimaginable to predict various economic parameters for any country and especially for a diverse country like India with a subcontinental dimension and federal structure where the states are also acting dynamically to attract investment in the spirit of cooperative and competitive federalism. However, he looks Turkey under the leadership of Recep Tayyip Erdogan[ix] as a breakout nation and a role model for the Muslim countries in the Middle East. However, in just seven years, things have changed much in Turkey after the emergence of ISIS[x] and the last year coup[xi] in Turkey. In fact, author himself agrees that it is very difficult to forecast for the future growth in these complex societies and these days things are changing very fast, which cannot be ignored in the context of providing an explanation for the future economic growth in various countries of the world.

However, the author conveys the economic concepts, nuances, and intricacies of the investment and forecasting in a very easy-going story-line to make his points that the nations need to be studied and analyzed on an individual basis and there should not be any grand narratives and club different states into same groups. The book was interesting in terms of knowing smallest details of various countries in terms of high charges of hotel rooms in Brazil as compared to the USA etc. and how they can be related to their economic fundamentals and future growth story.

[i] https://en.wikipedia.org/wiki/Frontier_markets

[ii] https://en.wikipedia.org/wiki/BRICS

[iii] https://ritambharachaitanya.wordpress.com/2017/05/02/review-of-the-book-why-nations-fail/

[iv] http://www.ndb.int/

[v] https://www.thebalance.com/bretton-woods-system-and-1944-agreement-3306133

[vi] http://www.indrastra.com/2017/06/PAPER-The-Emerging-Role-of-BRICS-in-the-Changing-World-Order-003-06-2017-0054.html

[vii] https://www.sourcewatch.org/index.php/Arab_Spring

[vii] http://www.indiaagainstcorruption.info/

[ix] https://www.theguardian.com/world/recep-tayyip-erdogan

[x] https://www.nytimes.com/topic/organization/islamic-state

[xi] http://www.aljazeera.com/news/2016/12/turkey-failed-coup-attempt-161217032345594.html