A Theory of “Poor Economics”

A Theory of "Poor Economics"

SSIR Opinion & Analysis

In a Stanford Social Innovation Review post last year, I wrote that the observations in the book Poor Economics needed a theory to explain them. In the book, Abhijit Banerjee and Esther Duflo had laid bare the gaps in our understanding of poverty, and I suggested that more work was needed to grasp poverty in more complex terms. In particular, I highlighted Banerjee and Duflo's recognition that the poor may have a reduced awareness of the future. Since writing that post, I have been working on a theory to explain these observations, and I now have something worthy of sharing.



One key insight I had was that a population's transition out of poverty is a process with both objective and subjective dimensions. The objective dimension captures the structures (institutions, policies, incentive systems, etc.) that must be established. This is where the bulk of development effort is now focused. The subjective dimension, on the other hand, captures changes that must occur in the minds of people to make these structures self-sustaining. This dimension is often ignored, either because it is difficult to measure or because researchers are uncomfortable ostensibly making value judgments about the attitudes and beliefs of the poor.
To account for this subjective dimension in the theory, I decided to use psychologist Jane Loevinger's model of the eight stages through which an individual's "ego"—that is, what he or she means when saying the word "I"—develops through life. Loevinger's model overlaps significantly with models devised by psychologists Erik Erikson, Abraham Maslow, and others. Here's a primer of the eight stages, in order of sequence, excerpted from Measuring Ego Development by Hy and Loevinger:

• Impulsive: "… a creature of physical needs and impulses, dependent on others for control. There is little sense of causation. Rules are poorly understood."
• Self-protective: "They are creatures of more or less opportunistic hedonism; they lack long-term goals and ideals. They want immediate gratification and, if they can, will exploit others for their ends."
• Conformist: "Rules are accepted just because they are the rules. … There is a right way and a wrong way, and it is the same for everybody all the time, or at least for broad classes of people described in demographic terms."
• Self-aware: "The person has become aware that not everyone, including his or her own self, conforms perfectly all the time to the characteristics that stereotypes seem to demand."
• Conscientious: "… recognition of multiple possibilities in situations leads to a sense of choice; decisions are made for reasons. The person strives for goals, tries to live up to ideals, and to improve the self."
• Individualistic: "There is a greater tolerance for individual differences. … Another new element is a concept of people as having and being different in different roles."
• Autonomous: "… recognition of other people's need for autonomy … a deepened respect for other people and their need to find their own way and even make their own mistakes."
• Integrated: Since few people reach this stage, Loevinger relied on Maslow's description of the "self-actualizing person" at the top of his widely recognized hierarchy of needs.

Ego development through these stages is not simply a function of biological age. Rather, the highest stage reached will vary from person to person. For a population, the proportion of people in each stage is referred to as the population's "ego demographics"—an important social indicator, since the predominant stages will tend to shape the culture of the group. Since adverse environments such as poverty, violence, and disease can inhibit ego development, the ego demographics of populations living under these conditions will be skewed toward the earlier stages, as has been shown empirically. This likely explains why the "cultures" of many poor communities are often described as impulsive, dependent, hedonistic, and/or unruly—all terms associated with the first two stages.
With this vocabulary, we can start to explain some of the observations in Poor Economics. It would seem that the poor are those who a) lack access to effective structures, b) have been constrained by adverse environments to earlier ego stages, or c) both. Current thinking on poverty as a "trap" or as a deficiency of "access" or "inclusion" is probably adequate for addressing the needs of the first group. The other two groups, however, need more. They are likely the people Banerjee and Duflo had in mind when they wrote that the poor lack "the idea that there is a future" (p. 229). At the first two ego stages, there is minimal capacity for thinking about the future, and pre-rational decision-making predominates. Banerjee and Duflo have documented what this looks like in practice. With the theory described above, we can augment our efforts to create structures that eradicate poverty with a better understanding of how to prompt the individual and cultural transformation required to make those structures self-sustaining.

Sent with Reeder

 (verzonden vanaf tablet)