Why poverty action plans don't work

CAN we really banish poverty in Bangladesh by the year 2030? I do not question the loftiness of the goal of eradicating poverty or the sincerity of policy makers and the economists. However, what gives me reasons for concern is the lack of evidence on the efficacy of various anti-poverty programmes, and the limited amount of time left to meet the target, i.e., only fifteen years remaining. Complicating the scenario is the evidence from research that the mainstay of our economic programmes to eradicate poverty in the last two decades, viz., employment generation in the garments sector and microcredit expansion, may not deliver the goods for those who live in poverty.

According to Unicef data, at the end of 2011, 43% of our population lived below the international poverty line of US$1.25 per day, and some preliminary estimates point out that, at the end of the year 2014, 38% of Bangladesh's population is living at an income level below the poverty line. Where do we go from here? According to United Nations report "The Road to Dignity by 2030: Ending Poverty, Transforming All Lives and Protecting the Planet," all countries including Bangladesh would aim to end poverty in all its forms by 2030. The present regime has endorsed this goal, as evident from the statement delivered by the Finance Minister, A.M.A. Muhith, at Washington, DC in October 2014: "We have to move away from the focus on the bottom 40% that began in the early seventies of the last century to elimination of abject poverty by 2021 and poverty in its totality by 2030." Unfortunately, it is now increasingly being realised that we may fall much short of this target.

Let it be known that if we fail to eliminate poverty altogether, it is not for a lack of trying. Since Bangladesh's independence, we have embraced many programmes, some of which showed some initial promise: contraceptives, micro-lending, free education, rural electrification, Food for Work, etc.  Many of these programmes were moderate to highly successful in the short term, and made significant contribution to raising our GDP growth rate and per capita income. However, in spite of the claim laid by some of these programmes to the mantle of "poverty elimination," evidence on their impact on reduction of poverty remains unproven. 

Let us consider a typical scenario, highlighted recently by Kaushik Basu, the current Chief Economist of the World Bank. He writes: "Consider, for example, a government policy in which subsidies, funded with newly printed money, are handed out to residents of 1,000 villages. This will not necessarily be a boon for the economy as a whole. Injecting money might improve the living standards in the villages receiving the funds, but doing so may well drive up the cost of food throughout the country, causing residents of non-subsidised villages to fall into poverty." Basu here makes an oblique reference to the now-discredited "Millennium Villages" initiative of Geoffrey Sachs, who wrote in 2005: "We can banish extreme poverty in our generation ... (We)have enough financial resources on the planet to make sure, easily, that people aren't dying of their poverty."

Another factor is the wrong-minded search for the "silver bullet" to eliminate poverty.  It is safe to assert now that studies and scientific research make it abundantly clear that poverty elimination is a complex and trial-and-error process.  We tried the Grameen model of microcredit, but thirty years of experience shows that while credit does help, its role in eliminating extreme poverty is very limited. Studies in Bangladesh have frequently questioned its marginal effect on poverty. A group of economists working at MIT's Poverty Action Lab have attempted to isolate the impact of microcredit in six countries and their results indicate that "microcredit has failed to meet its expectations." Similarly, another school of thought feels that education and better health can ameliorate extreme poverty. Recently, many countries have hailed ICT as a tool of poverty eradication. 

Does the high rate of economic growth per se ensure elimination of poverty? Not quite. Economic growth is a necessary condition to create jobs, raise per capita income, and bring down the number of poor. But it is not a sufficient condition to eliminate poverty. It is not very difficult to see that you cannot banish poverty without a direct onslaught on this curse. The analogy one can use is from the medical science. If you suffer from chronic heartburn, you can take a palliative to suppress it and offer temporary relief. But to banish it one needs to find the cause: diet, habits, health, and physical activities. However, to suggest putting on weight or more exercise to cure heartburn might be counterproductive. Analogously, to suggest that bolstering economic growth will eliminate poverty is akin to chanting the old discredited slogan, "A rising tide raises all boats."

Finally, before we search for the next magical tool, it is imperative to ask before we dedicate resources into it: how do we know it works? The new mantra is that all potential and promising actions must be assessed for efficacy before they are mass-produced or "replicated."  Currently, many applied economists are redirecting their energy into a model popularised by the Poverty Lab which uses randomised control trials (RCT) to identify and isolate the poverty reduction effects of policy actions such as cash subsidies, food programmes, better teachers, or de-worming.  

What makes RCT so important?  We have a number of competing tools vying for our limited resources and RCT allows us to identify the most effective bundle that reinforce rather than negate each other as Kaushik Basu mentioned. Of the negative influences on poverty, natural hazards such as floods, cyclones, and drought have been found to create a poverty trap in three regions of Bangladesh: the north-west, the central northern region, and the southern coastal zones. Unless we treat extreme poverty with a holistic approach, Bangladesh in 2030 will still be one of the eleven countries with high numbers of people in poverty, high multi-hazard exposure, and inadequate capacity to minimise the impacts.

The writer, an economist, writes regularly on policy issues.