Poverty Alleviation: Is Economics Any Help? Lessons from the Grameen Bank Experience

Monsoons, floods, cyclones and tornadoes are natural disasters that, throughout history have consistently been linked to life and death in Bangladesh. Is there something wrong with Bangladesh? It appears to be a country existing only to shuttle from one disaster to the next. Yet, it would be incorrect to argue that Bangladesh is simply a victim at the mercy of the whims of nature. A cyclone at 235 kilometers per hour or a tidal surge of 12 to 18 feet in a country where people are wealthy enough to build stable homes, and governments resourceful enough to build protective systems and strong embankments, will not cause human misery on the magnitude seen in Bangladesh. It is poverty that pushes countless poor Bangladeshis to seek their livelihood in increasingly risky areas of the country. While natural disasters do wreak havoc among the poor in Bangladesh and many other developing nations all over the world, they do not cause poverty. Abject poverty is a creation of mankind, not of nature. The reason there is so much poverty in the world is that we have never correctly addressed it as an issue. The starting point for most economic theories was an investigation into the causes of the wealth of nations. Only supplementary theories were created to look at the poverty of nations. This led to the creation of concepts, institutions, legislation and political programs befitting those theories. In traditional economics literature, poverty on the micro-level was seen within this framework. It was perceived to be caused by the failure of an individual to find a job, either due to his or her lack of skills or education (what is commonly referred to as "human capital"), or due to a lack demand for labor. The way to increase the demand for labor was to apply macroeconomic measures that increased overall economic growth. In addition, improving access to basic education and vocational training was seen as a means of addressing the issue of deficient human capital. In this paper, I will argue that this approach to poverty reduction at the macro-level is inadequate. The primary causes of poverty are not lack of human capital or lack of demand for labor. Lack of demand for labor is only a symptom, not a cause, of poverty. Poverty is caused by our inadequate understanding of human capabilities and by our failure to create enabling theoretical frameworks, concepts, institutions and policies to support those capabilities. My main argument is that economics as we know it is not only unhelpful in getting the poor out of poverty; it may even be a hindrance. In this paper, I would like to explore those institutions that perpetuate poverty, share my experiences with an effective poverty alleviation institution, and present my thoughts on the future of poverty alleviation. Before addressing these points, however, I would like to provide a useful framework to define the concept of "the poor" more concretely DEFINING THE POOR The inability to reach the poorest of the poor is a problem that plagues most poverty alleviation programs. As Gresham's Law(1) reminds us, if the poor and non-poor are combined within a single program, the non-poor will always drive out the poor. To be effective, the delivery system must be designed and operated exclusively for the poor. That requires a strict definition of who the poor are--there is no room for conceptual vagueness. Quite frequently in the development literature, one will encounter the words "rural" and "poor" being used virtually interchangeably Another common practice is to speak about the "small" or "marginal" farmer, as if these were synonymous with "the poor. " In reality, "the poor" may or may not include small and marginal farmers. This is fundamentally dependent upon the economic make-up of a particular country. For example, in Bangladesh, half the population is landless, and poorer than the small and marginal farmers. The tendency of policymakers to identify a particular occupational group, such as farmers, artisans or small-scale producers, as representing the totality of the poor is equally misleading. …