We might be able to reduce poverty, but the action will remain
To free Bangladesh of beggary is a great and ambitious aim.
One that will never be achieved of course, but we will indeed be able to reduce the incidence massively. We might usefully specify here that we’ll never be able to get rid of all people begging, but we can indeed get rid of the need to beg.
It’s possible to make sure that no one has to ask for the kindness of strangers in order to eat, to live, but it’s never going to be possible to stop some, some small number, thinking that asking is going to be easier than going to work.
We can prove this easily enough. The basic welfare state in any of the rich countries provides a standard of living vastly above what any humans have historically had. Yet there are still those who will beg. They don’t need to, they don’t have to, but they do. We can remove the need, certainly, but perhaps not the action.
With our definition of success out of the way Dhaka Tribune recently reported upon plans to alleviate the poverty which makes beggary necessary to support life. One thing that immediately strikes the economists’ eye is that the plans encapsulate the one truly great insight from Grameen. Yes, we all know, various political arguments there.
But the underlying insight was indeed a great one. Truly poor people cannot borrow money as they’ve no assets to act as security for that loan. How can anyone be even reasonably sure of repayment with any form, at all, of that security?
The answer, the insight, being that all of us have social connections. We all have social capital that is, even if we might have absolutely no financial or fiscal capital. So, let us use that social capital as our security against our loans. It is this which led to Grameen insisting that people must form into groups.
Only one of the group may have a loan outstanding at any one time. This simple trick means that the other members of the group are going to bring that social pressure upon the borrower to repay.
Sure, some people will still drink a loan, some gamble it. Even those who attempt to build a business can fail -- chickens sometimes die instead of breeding or laying eggs. But we have found something that the poorest of the poor do still own, their human connections, and we have been able to turn that social capital into something that can back financial loans and capital.
These beggary projects are indeed to organise beggars into groups. We are thus employing that great insight -- good. After all, the truth is the truth, an insight is an insight, whatever the character or politics of the person who first noted it.
However, there’s another finding from elsewhere which we need to take more note of.
Yes, it’s entirely true that the absolutely poor do need access to financial capital. Micro-lending is a method of reducing said absolute poverty. But we’ve also found that micro-saving is an important part of the mix. In fact, looking at consumer preferences -- that is, observing what those absolutely poor people themselves want through their actions -- the ability to save safely is even more important than being able to borrow.
We found this out in the M-Pesa system which started in East Africa. Originally started just as a mild experiment, a method for people to pay their mobile phone bills, the runaway success of being able to send money as credit took the originators, Vodafone, by surprise. It has grown into an entire currency ecosystem. It’s by no means just a way to transfer money these days. It has become, in reality, an entire banking system.
The first observation to come from this is that the poor are indeed desperately underbanked. That’s much the same thing we learned from Grameen and microlending of course. Having banks with head offices and senior executives in suits and so on is lovely and large scale industry cannot survive without such a financial system. But what’s good for the richer among us is doubly so for the poorer. What the whole system of lending and saving allows is consumption-smoothing.
If you or I find ourselves a bit short of money this month then we might skip a utility bill to make it up next month, perhaps dine out a little less, move to a cheaper brand of whatever. The absolutely poor will, if they have less or no money as a result of some calamity, not eat this month. They need that ability to smooth income over time, so as to smooth consumption, even more than we do.
And such smoothing requires being able to save in the relative good times -- say at harvest when there is plenty of daily paid work to be had -- to cover the hungry weeks.
We can argue about whether the saving ability is more important than the borrowing. But our experience of the use to which people put M-Pesa and the various banking functions within it tells us that saving is considered more important by the poor themselves.
Not for pensions, not for the long term, but just to be able to move money, thus consumption, around in time a few weeks or months and to do so safely. In a manner where putting banknotes underneath the sleeping mat doesn’t manage because thieves and husbands thinking about a drink.
Thus that’s the other thing that we want to add into out anti-beggary campaign. We need the right scale, the right cost, and methods of being able to save. It might just be a few hundred taka that are put aside to cover the food bill if the work dries up, something which a banking system with head offices in Dhaka -- glass atriums and air conditioning and all -- is never going to efficiently provide.
But that’s what we see the poor want, they knowing best what they need. So, presumably, we should make sure they get it. A system which allows the poor to save is even more important than one which allows them to borrow to invest.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.