Poor Economics: Will the poor become poorer?

Danbisa Moyo, an economist who has worked at Goldman Sachs and the World Bank, argues that aid has led to the idea of stopping people from finding their own solutions, corrupting local institutions and weakening their role, leading some to disparate. For poor countries, it is best to honor the simple principle that, with free markets and appropriate incentives, people can find their own solutions and avoid accepting handouts from foreigners or their own governments.

This general theory is that the poor do not seem to be in a much more difficult situation because of the hardships caused by disease or disasters and as long as the market supply and demand are large enough and the economic system is free enough, people only need to take the first step of unemployment – finding employment and will be able to get out of poverty.

The 1994 genocide in Rwanda, which killed nearly a million people, and the state system was on the verge of collapse. In the years after the riots, Rwanda received substantial contributions from Belgium and Germany, and in 1995 alone received $710.9 million in official development assistance from donors, including $378.1 million in bilateral aid, $373.2 million in multilateral aid, and a gradual increase in agriculture, industry, and services. Rwanda will become the 54th member country in 2019. In 2001-2012, Rwanda’s economy grew at an average annual rate of 8.2 percent.

As the national economy developed, the President began to formulate policies to avoid receiving aid as much as possible.

Examples such as Rwanda are not conclusive. We are also not sure whether the countries receiving aid will develop faster than other countries. These are just guesses.

Abitgit Banerjee and Esther Deflo, winners of the 2019 Nobel Prize in economics, surveyed a family trapped in a “poverty trap” in a small village in Bandung, Indonesia.

Parker’s parents didn’t leave any land for Parker because they had too many children, and Parker had to make a living as a temporary farm worker. But because of rising costs such as fertilizer, Parker was fired and he was left unemployed for a long time. Young people who are in this situation, they can usually switch to work as a construction worker, but Parker explains that he can’t do most of the physical work and high-skilled jobs, he also lacks experience, for him in his forties, it’s too late to relearn new skills, and no one will hire him.

To survive, Parker’s wife traveled to Jakarta, 229 kilometers away, and work as a maid, but she still didn’t earn enough to support her three children. The eldest son did well and had to drop out to work as an apprentice on a construction site, and two younger children were sent to live with their grandparents. Parker, on the other hand, relies on 4kg of relief food a week from the government, and fish caught on the lakeshore.

Before the week Abitgit talked to him, he ate only two meals a day for four days, and the rest of the day he ate only one meal a day. Parker argues that his poverty is due to food shortages and that land-owning farmers directly fire workers without lowering wages because lower wages will make them eat less and make them less productive in the fields. Obviously, Parker was willing to find work, but because of hunger, his entire body was weak, his mood became more and more depressed, and his will was gradually weakened, and he no longer thought about how to solve his own problems.

This was the case when Abitgit met Parker: hungry, with only a little energy to catch fish in the river.

The poor earn too little making them not able to do important jobs, and those who eat enough can do any hard work. This creates a “poverty trap”: the poor are getting poorer, the richer getting richer, the stronger they get, and the richer they get.

If the poor are richer, they can buy more food. Once the body’s metabolism is satisfied, human power increases productivity to meet needs other than life, and they can get out of the “poverty trap”.

But that’s not what Abitgit notice.

When the poor can buy more food, they don’t focus on putting all their input into getting more energy; Instead, they’ll choose to buy something that tastes better and costs more.

In two poor areas of China, Robert Jensen and Nolan Miller found something incredible: they randomly selected poor families, subsidized them for large staple spending, and when rice and wheat were cheaper, those subsidized households bought less and shrimp and meat consumption increased. For those who receive subsidies, although their purchasing power increases, their own energy absorption has not increased, and may even be reduced.

This shows once again that, at least for these very poor urban families, they are not prioritizing on getting more energy but getting food that tastes better.

In the lives of the poor, Abitgit believes that they do not believe that the “perfect plan” has any effect and that there is something more important in their lives than food.

Ocha Mbak, a villager in a remote mountain village in Morocco, Abitgit visited his home and asked Ocha what he would do if he had more money, which he said he would use to buy more food: Abitgit then asked what he would buy if he has more money, and he said he would buy more better food. Abitgit was sorry for it because in the house where Ocha lived, he noticed a television set, parabolic antenna, and a DVD player. Abitgit also asked if the food is not enough for the family, why buy these things? “Oh, tv is more important than food!” he replied with a smile.

After Abitgit had been in the village for a while, they soon understood why Ocha thought so. There are no theatres, no concert halls, and there is no work to do in the village where Ocha lives. Ocha and his two neighbors do only about 100 days of farm and construction work a year, and in addition to caring for livestock, they wait for the money to work, which gives them a lot of free time to watch TV. All three men lived in small houses, had no water or adequate sanitation, and were desperately looking for work for their children’s education. However, they all have televisions, parabolic antennas, and DVD players in their homes, as well as mobile phones.

The poor’s first choice is to make their lives a little less boring; a little special food, a TV set, a cup of sugary tea. It’s easy to understand why poor people often spend big money on holidays or funerals, even if their children drop out of school as a result.

Abitgit argues that the poor’s behavior often reflects the idea that any change that is worth making takes a long time; They only focus on the present and try to make their days happy.