• Thursday, July 25, 2024
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Poverty and the Nobel Prize laureates: What can Nigeria learn?

poverty

Poverty has served as a conundrum for policy makers and governments across the world for decades. According to the World Bank, extreme poverty is defined as a state of consuming less than $1.90 per day.

It is estimated that 8.6% of the world’s population live on less than $1.90per day.1 The Sub-Saharan Africa region is also severely affected by the poverty problem, as 40% of the region’s population consume below the international poverty line.

This year, three worthy economists – Esther Duflo, Abhijit Banerjee and Michael Kremer – were awarded the prestigious Nobel Prize award for their extensive work on poverty alleviation.

The unique choice of winners for this category extends beyond the fact that Esther Duflo is the youngest recipient of the award. It is also because the three economists have redefined the field of development economics.

They have successfully tackled the issue of poverty, which many economists hitherto believed to be an insurmountable challenge, by breaking it down into smaller and more precise sub-components touching on areas such as education and healthcare amongst others.

This led to the adoption of an experimental approach to poverty alleviation, which is commonly termed the randomized trial in the medical sciences.

The idea was to understand which policies work in the real world fight against poverty. By so doing, the economists expanded the scope of economics from merely a world of theoretical modelling to real world examples.

What the Nobel Prize winners teach us about poverty alleviation In their book, ‘Poor Economics: a radical rethinking of the way to fight global poverty’, the husband and wife duo – Abhijit Banerjee and Esther Duflo – highlight the importance of poor economics, which is simply an understanding of the economic existence of the poor.

Over the years, the economics of poverty has often revolved around social intervention programs. The Nobel Prize laureates instead chose to actually reach out to the poor not through issuing fancy policies from oval offices but by interacting with them and learning about the economic intricacies of their world.

The unconventional methods adopted offer two key takeaways for developing countries like Nigeria in the fight against poverty: #1: Impactful intervention is crucial

The first point of call for the economists was to question the typical top-down intervention, which many governments adopt to fight poverty.

They challenged the ‘give more money to the poor population’ principle, which several governments adopt in the fight against poverty.

Esther Duflo countered this principle by suggesting that the solution of poverty does not depend solely on the free flow of foreign aid to developing countries but the impact of these funds on their lives.

In the Primary School Deworming Project (PSDP), carried out by Michael Kremer and Edward Miguel, the researchers sought to solve the low school attendance in Kenya by simply carrying out a deworming exercise in 75 primary schools.

This inexpensive intervention resulted in a reduction in infection rate among schoolchildren, which led to increased school attendance. #2: Nudges are a key part of poverty alleviation

According to the economists, the poor population is often not in the best position to ‘do the right things’ despite being aware of what to do. The tendency to postpone costs and lack of information questions their judgment.

The Nobel Prize laureates believe that this is the role ‘nudges’ play in that they compel the poor to do the right thing at the right time. Invisible nudges are a common feature in advanced economies.

For instance, parents are forced to immunize their children as public schools will not admit them otherwise and health insurers often reward citizens for joining the gym and adopting a healthy lifestyle.

Michael Kremer displayed an understanding of the impact of nudges in developing countries when he provided a free supply of chlorine at local water sources in Kenya.

The rising epidemic of diarrhea diseases in rural Kenya was resulting in child malnutrition and fed the poverty cycle. The installation of chlorine dispensers increased usage by 53% as people were reminded to use the chlorine treatment when fetching water.

Poverty in the Nigerian context

Poverty in the Nigerian context Poverty in Nigeria has been on the rise over the last decade and in 2018, Nigeria overtook India to become the country with the highest poor population.

According to the World Bank, the poor population in Nigeria could increase by more than 30 million by 2030 and the country is at risk of housing 25% of the world’s extremely poor population.

Past governments have attempted to solve the poverty problem using social intervention programs such as the National Home-Grown School Feeding Program, the Conditional Cash Transfer Program, N-Power, and Trader Moni initiatives, amongst others.

However, these programs have failed to translate into equal distribution of economic prosperity to all Nigerians. Looking forward, the specifics of how President Buhari will lift 100 million Nigerians out of poverty in the next 10 years remains sketchy. Incorporating the lessons learnt into Nigeria’s poverty alleviation schemes

Lessons for Nigeria

The models adopted to solve the rising poverty rate in Nigeria vary significantly from the example set out by the Nobel Prize winners. Replicating the lessons learned from the Nobel Prize laureates will take some deliberate re-learning by policy makers on the efficient and effective ways of poverty alleviation.

The first lesson point for Nigeria lies in who handles lending to the poor and vulnerable within the society.

According to Duflo and Banerjee, microcredit schemes in developing countries are often driven by political reasons rather than economic need.

Instead, they propose that governments should not be in the business of subsidized lending as the loans have the potential to end up in the wrong hands.

Their solution was for Microfinance institutions to step up and fill the lending gap. They suggested a joint liability system for microfinance banks to help them reduce the risk of default.

The system, which has already been adopted by Bangladesh, involves the coming together of a group of borrowers to receive credit on a rotational basis and share the risks and responsibilities.

The second lesson point is the need to design nudges to fit the specific contexts of individual developing countries. Nigerian policy makers have partially incorporated the nudges model adopted by the laureates through the Home-Grown School Feeding Program.

The program, which was launched in 2016 and targeted especially towards the vulnerable, initially set out to feed over 24 million schoolchildren. Poor parents are indirectly nudged to send their children to school where they can enjoy a free meal.

However, with approximately 11 million children aged five to 14 years still out of school, there is a need for policy makers to do more.2 In November 2018, the FGN introduced the deworming exercise as a component of the school feeding programme.

This is proof that poor parents in Nigeria need more incentives to send their children to school. Going forward, other potential nudges that can be explored include free textbooks, free immunization amongst others. 2UNICEF. 2013.

Way Forward 

If left unaddressed, the increasing rate of poverty will keep both growth and development at a sub-optimal level in the medium to long term.

Nigeria’s success in fighting poverty will depend on the willingness and ability of policy makers to do things differently and block the loopholes in its existing poverty alleviation policies. The models adopted by the laureates provide a good starting point.

Bismarck Rewane