In Spring 2011, I took ECON 413W: The Challenge of World Poverty, taught by Professor Bee Roberts. I thoroughly enjoyed the course and learned significantly. For our final paper, we were asked to synthesize the information from the course into 5 areas and list our key takeaways. My goal in making this available is to share the knowledge I gained in this course and inspire the same passion I've experienced in others. Enjoy!

1) Poverty

I have always understood that there are poor people all around the world with less food, possessions and comfort than I. My parents trained me not to be wasteful at an early age by encouraging me to eat everything I put on my dinner plate. However, I never understood the lifestyle of these less privileged people. All I was exposed to were pictures of malnourished children asking for money. So my first key takeaway from this course was a greater understanding and appreciation for the attitudes and habits of poor people in developing countries.

From some of the early readings in the course, such as The Economic Lives of the Poor, by Banerjee and Duflo, I gained a lot of this insight. Their research revealed that 56-78% of spending for the poor is on food and consumption. It made sense that this much money was spent on food; however I was surprised to learn that this food was not always bought for the most calories per dollar, but rather the poor often valued taste and purchased sugary foods. In my mind, they should buy the most calories they can per dollar so that they will not go hungry and malnourished; however studies showed that they like to enjoy their food just as we do here in America. Additionally, the poor spend money on alcohol and tobacco, as well as festivals. In fact, sometimes they would skip meals in order to save money towards entertainment.

Sometimes people declare that the poor should do a better job of saving their money to invest in durable goods or in education and health, rather than immediate consumption. I would typically nod my head in agreement until I learned some of the reasons the poor do not save. One reason is a lack of credit markets in which the poor can place their money to earn interest or keep it safe. In fact, in some parts of the developing world, entities have opened that require the poor to pay money to save it in a safe location, and they do it! This is because they have nowhere else to store their money. There is constant threat that it could be stolen, that war could come sweeping through their town, and that family members or friends will relentlessly beg for it. These factors lead to a never-ending temptation to spend the money immediately, rather than save.

I also learned why micro-entrepreneurship is so common in the developing world. Quite frankly it is the only option for many people. There are minimal jobs in the formal sector and what is available is generally only for men. This is why women entrepreneurs rule the microfinance market. With huge unemployment ratios, the poor often work in spurts selling food or other goods at market stands, which is known as micro-entrepreneurship. When people hear about the poor earning $1 per day, it is not really a steady $1 salary per day for most, but rather $5 one day and $2 a couple days later. This constant uncertainty weighs as a heavy burden on the poor.

I also assumed that people in other countries are simply less happy than those in the states because of their lower quality of life. I was surprised to learn that studies suggest that people in the developing world are at a very similar level of happiness as us in the United States. This reveals that happiness is very relative and depends on how one compares himself/herself to their surrounding community.

2) Foreign Aid

My understanding of need in the developing world was that the poor simply needed more money for food, clothes, education, etc. and that if we donated more money then everything would be fair. I learned in this class that foreign aid is much more complex than massive monetary donations, and there are many issues inhibiting the effectiveness of foreign aid.

One problem of foreign aid stems from the corruption within the governing bodies of many poor nations. The issue is that foreign aid to these governments is often unrestricted, leaving the countries free to do with it as they please. This money is sliced and diced by intermediaries so that by the time it reaches the intended cause it is merely a portion of what it was initially. In Chad, for example, only 1% of a donation in the early 2000s meant for health clinics actually reached those clinics. Studies show that 11% of aid to Africa ends up supplying the military, accounting for 40% of Africa’s total military budget. Because of these results, many donors become discouraged and shy away from giving more. Also, the donated money rarely reach the extreme poor who need it the most, but is more typically allocated to middle-income countries.

Another major consideration is the type of aid given. Often times we see aid given in relief work after natural disasters such as those recently experienced in Japan and Haiti. While this aid may be perceived as important and may add some significant benefits, it hardly ever leads to economic growth. In some circumstances, it actually hurts the countries because it puts people out of jobs. In the instance of Haiti, the US brought in tons of medicine, clean water and food for the poor, all the while putting nurses, groceries and food vendors out of business. Free handouts are more attractive to the poor than goods that cost money, but they hurt the country economically. Aid that tends to see a more direct benefit is early impact aid, which is focused on countries that are beginning to show improvements, stability and growth. Floods of money at this point, spent on infrastructure, machinery, roads, land, buildings, etc. can significantly impact a developing country. Research shows that aid exhibits diminishing returns, so this early impact aid can be significantly helpful.

My other major takeaway regarding aid was the idea of performance based aid. Contrary to the traditional altruistic model of aid, people like Bill Gates, Warren Buffet, Jacqueline Novogratz and others are pursuing more of a business model where they invest in countries and areas of need that show effort and promise. Rather than throw money around aimlessly, they invest the money in markets and locations where they see potential for growth and societal change. This is commonly referred to as ex post conditionality or recently ‘cash on delivery’. If governments comply by injecting iodine into all their salt, for example, they would be rewarded with aid money if they can prove their efforts.

3) Microfinance

Before taking this course I understood microfinance to be Mohammad Yunus’ flawless brainchild that is consistently eliminating poverty worldwide. However, upon further study within this course I noticed that the microfinance industry is not squeaky clean across the board. Because of widespread illiteracy amongst adults in many developing countries, for-profit microfinance firms have monopolized many markets and profited at the expense of the poor. These firms do not utilize the training tactics of Grameen Bank, but rather award credit generously and charge usurious rates that the poor are often unable to pay. At the extreme is Compartamos, with hidden rates producing an effective interest rate over 100%.

The three main issues are a lack of transparency, absurdly high interest rates, and improper loan recovery practices. These microfinance firms often go unregulated and therefore enjoy gross profits and high salaries due to the lack of transparency. The microfinance industry currently has 5% of firms charging over 50% interest and a market average effective interest rate of 28%, which is 13% higher than the rate Yunus suggested as appropriate. In many instances, these rates are worse than the loan sharks. Also, anecdotal evidence suggests that MFIs are strict, scary and insulting during their loan recovery process. There are reports of suicides as well as MFIs taking land, animals and machines from families that are unable to repay. This is ridiculous considering the whole idea of microfinance in the first place is to help the poor that do not have collateral.

Despite a lot of recent criticism of the microfinance industry, there still remains a world of potential if some of this corruption can be rectified. MIT Poverty Labs conducted studies to assess the effectiveness of microfinance loans. After studying 52 slums in their sample and 52 slums not, MIT concluded that over 18 months there was no noticeable difference in average household income, but there was a shift in spending from alcohol and tobacco to durable goods. This suggests that microfinance may create a positive impact in the long term.

4) Food/Nutrition

I always recognized the importance of feeding the hungry a greater quantity so that they would not starve, but this class taught me that quality is equally important.

Nutrients such as iron, zinc, iodine and vitamin A are essential to the wellbeing of the poor. The greatest effect of these nutrients takes place in the first 1000 days of a child’s life. If a child does not get the proper nutrients, there is a great risk of blindness, organ failure, malnourishment and ultimately death. Sometimes these malnourished children make it through alive, but their growth is stunted and their brains never develop properly. Not only are nutrients a key ingredient, but they are very inexpensive as well. Commonly eaten foods like rice, beans and salt can be ‘biofortified’ to include these nutrients for minimal costs. In fact, many top PhD’s studying economic development list nutrients as the number one place they would invest their money in order to end world poverty.

Other cheap solutions to better health exist as well, including malaria nets, deworming, aids prevention, etc. Keeping the poor healthy is essential to economic development because without their health they cannot be productive students or laborers. Studies reveal that for every 1 year increase in the life expectancy of a nation, GDP increases by 4%. If some additional focus was given to supplying proper nutrients and medications, we could drastically increase the GDP of many developing countries.

5) Education

Before this class I never even considered that education was an issue in the developing world. It made sense to me that people were hungry and that would affect their learning, but I had no concept of the quality issues of absenteeism from students and teachers alike, as well as the lack of supply of qualified, interested teachers to train the children.

Public school systems in the developing world are often times free due to government funding; however they do not provide children with environments conducive to learning. Sometimes, the public schools will have over 80 children in a single classroom. These terrible learning environments reflect in the test scores of the students and the continuing rates of illiteracy and delayed learning.

Since the public school system is so unsuccessful, parents commonly pull students out of school to work for the family or they spend money to send their kids to private school. The opportunity cost for parents to put their kids in the public school is too great when they can be helping the family with food or by raising their younger siblings. Parents with money, though not much, send children to private schools, which represent as high as 70% of the schools in some of the slums. This costs merely 10 cents per day per child, which can turn into a sacrifice for the extremely poor, who do not have much money to start with. However, it appears that parents do recognize the benefits of a private education. Privately educated children consistently score higher than publicly educated children in math and language. Honestly, parents would not spend the money to send their kids to private school if they didn’t see the value in it.

Education is crucial to the overall economic development of a country. It trains citizens on proper nutrition and health practices, how to read and write, and many other basic skills that are necessary to grow an economy.


One Proposed Solution: Conditional Cash Transfer Programs

The ultimate thing that I learned from this course is that there is currently no single solution that can eradicate poverty around the world. However, there are tons of ideas that can alleviate poverty if planned and executed properly. My suggestion for the first step towards alleviating poverty is replication of the conditional cash transfer programs. Both the Bolsa Familia in Brazil and Oportunidades in Mexico are evidence that such programs can reduce extreme poverty effectively. By providing the extreme poor with cash stipends of approximately one-fifth of minimum wage, these programs increase school attendance, medical checkups and vaccinations, all of which are necessary to improve the quality of life for the poor.

Conditional cash transfer programs focus on the most essential aspect of economics: Incentives. By incentivizing the poor with minute allotments of cash, equal to no more than 0.5% of a country’s GDP, significant social change can ensue. These programs also reduce the improper distribution of funds, since they are focused on the extreme poor who need it the most. I think these programs can be replicated on an individual basis in other countries. The first countries to implement these programs in should be those that are already willing to comply with external assistance. While the change needs to be internal, external support will be necessary to properly implement the program.

While I see conditional cash transfer programs as the first step to alleviate poverty, I recognize that it needs to be supplemented by simultaneous efforts in other areas of need. Mass distribution of proper nutrients, improved healthcare, access to clean water and improved education systems are all examples of needs that require this simultaneous improvement. It is ultimately important that countries learn how to help themselves. While support, training and assistance from external countries will be necessary to replicate these programs successfully, local citizens and governments need to be trained to do the work themselves.

I first encountered the idea that happiness is relative when a fellow student suggested it during my World Poverty class this past semester. The general thought process is that acquiring more and more “stuff” through increases of wealth does not necessarily make an individual happier, but rather their amount of “stuff” or wealth relative to those they compare themselves with is what determines one’s happiness. In fact, the principle can be applied not just with money but also in other areas of life such as power, relationships, ability, personal security or whatever else people may compare themselves to others with (these can be inserted into any part of this blog where I reference possessions and wealth). In the last few years there have apparently been studies conducted that confirm the happiness is relative theory.

This theory seems to hold weight for people with much, people with little and all the people in between. During a breakout seminar at the Jubilee conference this past February, I heard a story about a CEO that complained because his private jet was not as luxurious as some other CEOs’ private jets. The key to an individual’s happiness lies in who they compare themselves to. If the first CEO were to routinely compare himself to the average citizen of the US, he would likely feel confident and very happy about his lifestyle. Instead, he compares himself to other CEOs and sees that his treasured possessions are not up to par, leading him to believe he needs a nicer jet to obtain happiness.

People usually compare themselves with those they interact with on a daily basis, be that people within their jobs, communities, country, etc. Generally speaking, the majority of people in the world could swing either way on this happiness pendulum. On the one hand, there is almost always someone doing something better than you or someone who owns more “toys” than the rest. When comparing oneself to the best, there is always room for someone to feel unhappy because they don’t have as much as those on the top. On the other hand, there is almost always someone doing something worse than you or someone who owns less “toys” than the rest. In fact, some people in the world don’t own hardly any “toys” and rather are fighting day to day for their survival. Though comparing to these people should not make one feel happy by nature (since the others may be suffering), it should create an appreciation for the blessings one does have in terms of possessions, wealth, etc.

The most typical comparison by a long shot is with those in one’s immediately surrounding life community. This is what I observed in Haiti. Though the majority of people I met in Haiti have so little in terms of possessions, especially compared to the life I know in the US, they seem to be as happy with their lives as anyone else that I have met. I will re-emphasize the point that I did not interact with anyone in utter suffering (disease, starvation, slavery, etc.), but the people I dealt with were genuinely happy people for the most part. I was surprised by this finding as I expected most people to be unhappy with their lack of “stuff” and their poor living standards, but these factors truly did not seem to affect their level of happiness.

Taking it one step further I would argue that true happiness that is satisfying and fulfilling comes from the intangibles much more so than the tangibles. For many people this is found in family, friendships and love relationships, although this can be extended to other areas of life as individuals prioritize and love different things. And even one step further, the very happiest people I meet are those with a real, genuine faith. I saw this in Haiti for sure. The Christian Haitians I met cried tears of joy while singing worship and displayed attitudes that communicated inner peace. Despite the poor physical circumstances in the world around them, many find their peace and purpose in Jesus. Though I would agree that the happiest people I know in the US are usually also those with strong faith, I believe that it is not as evident because the average person is more easily consumed by the possessions and “stuff” of the world.

Either way, my key takeaway was that just because someone lives in dire conditions does not mean that they are unhappy and vice versa. Happiness is relative and comes from a) comparing oneself to others and b) finding joy in the more meaningful aspects of life, notably faith.



“We tend to forget that happiness doesn't come as a result of getting something we don't have, but rather of recognizing and appreciating what we do have.”
           - Frederick Keonig