Development work versus charity work

A really excellent academic paper often clarifies issues far beyond the particular point the paper makes. A recent paper in Nature magazine evaluates the impact of different components of anti-poverty programs. The paper shows that adding a “psycho-social” component to an anti-poverty program in Niger is enormously cost-effective, as it had similar impacts as adding a cash grant but was much less expensive. The paper, with 11 co-authors, is an exceptionally solid contribution.

And, what the paper indirectly illustrates so well is the difference between doing research about development and research about charity work. The development question is: “How can the people living in Niger come to have broad based prosperity and high levels of wellbeing?” The charity question is: “If some agency (perhaps of a government) is going to devote a modest amount of resources to targeted programs that attempt to mitigate the worst consequences of a country’s low level of development, what is the most cost-effective design of such programs?”

The paper is titled: “Tackling psychosocial and capital constraints to alleviate poverty” but does not start with the question: “What could lead to prosperity in Niger?” or even “What could lead to substantial reductions in poverty (at various poverty lines) in Niger?” Rather it starts with questions of program design: “How could a particular, already existing, targeted cash grant anti-poverty program in Niger be more (cost) effective at producing gains for its beneficiaries?” That is a great question but also a question that is a vanishingly small component of the first two questions.

Let me start with a graph I made from findings from the paper of the 18 month impact of different program designs (in addition to the cash grant received by the control group) on consumption per equivalent adult (Extended Data Table 1). This illustrates the basic finding of the paper which is that adding the psycho-social elements to the program alone (without a cash grant) raised household consumption from $1.70 a day per equivalent adult to $1.88 a day per equivalent adult (they also show impacts on a wide array of other indicators). Since, as they show in Extended Data Table 9, the psychosocial components were inexpensive this meant they had an astronomical benefit/cost ratio.

I am now going to show those exact results framed with three additional pieces of information.

(And these consumption numbers are not exactly comparable because, while all are PPP, they are not deflated to the same year and there are differences between “per equivalent adult” and per person.” But this as this is a blog, not a paper, and for the magnitude of what I am illustrating these differences are almost certainly de minimis).

First, this program clearly raised the consumption of poor households in a poor country, but how much did the program reduce headcount poverty? Well, that completely depends on the poverty line that one uses. The World Bank, for instance, now reports three different poverty lines, which one could call “extreme poverty” ($1.90 per day per person), “poverty” ($3.20 per day per person) and, at a higher line, something called, perhaps, “global poverty” ($5.5 per day per person).

The program, by having a better design, raised the consumption of the beneficiaries by 25 cents per day, pushing the average of control group from below the extreme poverty line to just above the extreme poverty line ($1.90/day) for full treatment group. However the extreme poverty line is more or less a completely arbitrary number and many other poverty lines are as completely defensible as this poverty line (including poverty lines much higher than $5.50/day). At the $5.50 line the control group is $3.80 below the poverty line and an increase of 25 cents a day eliminates only 6.6 percent of the gap to be out of poverty.

Of course the obvious response is that, at Niger’s level of per capita income and hence available resources it is impossible to fund any program that could raise consumption by that much. But that is exactly my point. My point is that there is the question: “What could Niger do to reduce poverty over the medium to long run?” and then there is the question: “What can pragmatically done with the available resources with the best designed targeted anti-poverty programs?” The former question is far and away the most interesting and the answer to the latter question, with respect to any reasonable and humane poverty level is: “not much.”

A different variant is to compare the gains in per person consumption of the “full program” treatment group to the gains for the median household from extended episodes of rapid growth. Again we see the terrific and cost-effective gain from $1.70/day to $1.90/day. In the 25 years from 1993 to 2018 the consumption of the median household in Vietnam went from about the level of those in the study in Niger, $1.87, in 1993 to $8.87 in 2018. This increase of $7/day is 28 times larger than the gain from the full program. Economic growth in Vietnam essentially eliminated extreme poverty, drastically reduced poverty, and even global poverty ($5.5/day) was well less than half the population in 2018.

The rural population of China went from having median consumption only about half that of the Niger study ($.90/day) in 1981 to $6.52 in 2016. Similar, though not as dramatic, gains were seen between 1984 and 2019 in rural Indonesia but still dwarf the programmatic impacts.

Again, I anticipate the response of “why not do both?” Of course, I am all for that. I am all for the funding of cost-effective targeted anti-poverty programs. But while it is optimal to do both, we development economists should keep in mind that sustained economic growth is empirically necessary and empirically sufficient for reducing poverty (at any poverty line) whereas targeted anti-poverty programs, while desirable, are neither necessary nor sufficient. Advocates of poverty programs say things like “growth is not enough” or that poverty programs are “equally important” as economic growth but these claims are just obviously false.

(This is well illustrated by the graph from Pritchett 2020 showing the very, very strong association of poverty headcount, at three poverty lines, and the median income/consumption of the country/year of the poverty estimate. At the “full program” consumption of $1.95/day the annual consumption would be $711 and countries with that level of median consumption all have $5.5/day poverty above 85 percent of the population.)

The third comparison is to cross-national differences in consumption of the median household. Development was always about the “developing” countries reaching the same levels as the “developed” and so one might ask, “how far along the spectrum of development does the program move households?” The additional 25 cents a day takes the targeted household about 17 percent of way to the median level in a poor country like Bangladesh, only about 2 percent of the way to the median for a country like Brazil and an inconsequentially small fraction of the way to the level of a typical (median) person in a rich country like Denmark. Even the best targeted programs are a just a tiny slice of development.

The paper shows that adding “psychosocial” elements–“life skills training” or “community sensitization on aspirations and social norms”–to anti-poverty programs might be cost-effective addition to anti-poverty programs and have a high rate of return. But that is not how, in fact, poverty has been substantially reduced in any country, ever. The massive reductions in poverty that we have seen both historically in the rich countries and more recently in the developing world has been through raising the productivity of the place so that individuals can use their resources to generate higher levels of income.

Moreover, it makes my very, very nervous the paper can and will be used (wrongly) to claim “since psychosocial interventions reduce poverty, it must be poverty was caused by a lack of psychosocial skills.” People in Niger are poor primarily because of the very limited choices they have not primarily because of the choices they make.

I am praising this paper. It is an excellent RCT impact evaluation that reveals interesting things about the design of targeted anti-poverty programs. But since it is such an excellent paper it reveals the deep and inherent limitations of this line of research. Better design of targeted anti-poverty programs is not an anti-poverty strategy, it is, at best, just one useful tactic.

Among the national governments–and populations–of the countries I have lived and worked in, the question about poverty and anti-poverty programs is just one question–and frankly, not their most important question. Their question to me is usually more of the type “How can my country come to have the levels of productivity, material prosperity, and wellbeing that countries like yours enjoy?” That, to my mind, is the development question.