Understanding The 'Economics' Of The World's Poor

May 4, 2011

It's a commonly held belief that one of the biggest challenges faced by the world's poorest populations is hunger. But according to Massachusetts Institute of Technology economist Abhijit Banerjee, the economics of poverty are often much more nuanced.

Banerjee is co-author of the book Poor Economics, which addresses the pitfalls of current aid programs and advocates for a radical new approach to thinking about poverty.

"Many of our programs are designed as if it doesn't matter what the recipients think of what we, as the munificent donors, are about to bestow on them," Banerjee tells NPR's Steve Inskeep.

Motivated by the idea that the poor are starving, development policy often focuses on providing food, Banerjee says. But he argues that while nutrition is important, it's not necessarily a poor person's only priority.

"The evidence is that the poor don't act as if they're starving," he says. "They seem to be willing to trade off a little less food for an opportunity to buy a television."

And that trade-off means that, contrary to popular belief, the poor aren't necessarily going hungry.

"We are assuming that they're going hungry, because we think that somehow they're poor, so they must be eating too little," he says.

Banerjee's studies have shown that for the poor, improving their quality of life is just as important as improving their nutrition.

"When people get slightly richer, they are looking for pleasure as well as nutrition, even at the lowest levels of income," Banerjee explains. "If you give them some extra money, they don't go and buy more nutrition — they buy more tasty foods, like we would. They want to live a life; they don't want to just invest in their future."

Banerjee argues that food policy should work with human behavior, not against it. So if there is a real and established deficit of vitamins in the diets of the poor, you could strategically introduce more micronutrients through, for example, micronutrient-rich candy.

"Make it cheap, make it available in all schools," Banerjee says. "Children love candy, and they'll get lots of nutrients from it."

When it comes to the billions of dollars that the West spends in aid, Banerjee says we shouldn't worry about it going to waste. Instead, we should focus on increasing its impact and making it go further. Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.