Everything you think you know about poverty is wrong
Darren Boyd, ANU College of Asia & the Pacific
Before Lant Pritchett even took the podium at the Wheatley International Affairs Conference in Sundance, Utah, observers might have sensed that the former World Bank economist and Harvard professor wasn’t going to give a conventional speech on global poverty. A pair of blazing yellow socks signalled to the crowd that Pritchett is a man who marches to the beat of his own drum.
Over the course of the next 40 minutes, he made the case to a crowd of international development academics and students from around the country that everything they knew about poverty was wrong.
Pritchett joined the World Bank in 1988 after completing a Ph.D. in development economics at MIT. Development economics is the branch of economics that focuses on how to improve the economic and political institutions in Third World countries. Pritchett quickly became notorious for challenging truisms about poverty and international development.
“Before you get into a discussion about development, there are some things you need to know," he said at the conference.The things Pritchett thinks people should know about poverty are as unexpected, and interesting, as his yellow socks.
Rich people in poor countries are poor
When we think of rich people in poor countries, we tend to imagine billionaires living in opulent palaces, Pritchett said. In fact, the number of truly wealthy people in poor countries is statistically insignificant. “The truth is, rich people in developing countries are much poorer than the poor in rich countries,” said Pritchett.
While comparing wealth across borders is not easy, one method is to look at food spending. Historically, there has been a consistent negative correlation between a person’s wealth and the percent of their income spent on food. In other words, if you must spend almost all of your money on food, you probably aren’t doing that well.
The bottom 10 percent of Americans spend about 17 percent of their income on food, according to Pritchett. By contrast, the top 10 percent in India spend almost 40 percent of their income on food, Pritchett said. Even poor Americans haven’t spent this much on food since the 19th century — before the widespread adoption of cars, electricity and indoor plumbing.
People are poor because of where they live, not because of who they are
The typical unskilled laborer in Haiti makes about 80 cents an hour. If that same person moves to the United States, studies show they will earn about $8.50 an hour. So why are Haitians poor? It is not because they are lazy or uneducated, Pritchett said. Haitians are poor because they live in a society that cannot make productive use of their labor.
Pritchett outlined four aspects of society that are different in developed countries. These well-off countries have a productive economy, a government that is responsive to the citizens, a capable bureaucracy, and the rule of law. Digging wells in Haiti might provide a bit of relief to that country's poor, but it isn’t going to change any of these four things, Pritchett said. In fact, many kinds of humanitarian aid may short-circuit the development, he said. Until a country develops institutions that make productive work possible, its people will remain poor, he added.
Education and technology aren’t the answer
One common belief among people working in international development is that a poor country can be changed by improving its education system, but Pritchett’s research suggests otherwise. The problem in poor countries is that they cannot make effective use of their people’s skills, Pritchett said, so giving them more skills does lead to development. Counter-intuitively, his research has shown that countries whose education system improves actually grow slower on average. He suggests that one reason for this may be that putting more educated people into a corrupt bureaucracy may result in more sophisticated corruption.
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