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Lant Pritchett on Poverty, Economic Growth and Charity

I’ve never read anything by Lant Pritchett that wasn’t interesting, and this brief blog article is no exception.

It’s a good reminder that “broad based economic growth” is the only way we can hope to move most people in the world above any kind of humane (i.e. non “extreme”) poverty line.

Here’s a snippet:

[Bossuroy, T., Goldstein, M., Karimou, B. et al., Tackling psychosocial and capital constraints to alleviate poverty demonstrate that a program of psychosocial interventions] clearly [and cost effectively] 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 from below the extreme poverty line to just above the extreme poverty line ($1.90/day).

However the extreme poverty line is more or less a completely arbitrary number and many other poverty lines are as completely defensible as “the” 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 [demonstrated in the paper].

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, to $8.87.

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.

Lant Pritchett – Development work versus charity work

So… what does this mean for your charity?

I'd love to hear your thoughts and recommended resources...