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

Abstract

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 next. Yet, it would be incorrect to argue that Bangladesh is simply a victim at mercy of 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 misery on magnitude seen in Bangladesh. It is poverty that pushes countless Bangladeshis to seek their livelihood in increasingly risky areas of country. While natural disasters do wreak havoc among in Bangladesh and many other developing nations all over world, they do not cause poverty. Abject poverty is a creation of mankind, not of nature. The reason there is so much poverty in world is that we have never correctly addressed it as an issue. The starting point for most economic theories was an investigation into causes of wealth of nations. Only supplementary theories were created to look at poverty of nations. This led to creation of concepts, institutions, legislation and political programs befitting those theories. In traditional economics literature, poverty on micro-level was seen within this framework. It was perceived to be caused by 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 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 issue of deficient capital. In this paper, I will argue that this approach to poverty reduction at macro-level is inadequate. The primary causes of poverty are not lack of 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 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 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 future of poverty alleviation. Before addressing these points, however, I would like to provide a useful framework to define concept of the more concretely DEFINING THE POOR The inability to reach poorest of is a problem that plagues most poverty alleviation programs. As Gresham's Law(1) reminds us, if and non-poor are combined within a single program, non-poor will always drive out To be effective, delivery system must be designed and operated exclusively for That requires a strict definition of who are--there is no room for conceptual vagueness. Quite frequently in development literature, one will encounter words rural and poor being used virtually interchangeably Another common practice is to speak about or farmer, as if these were synonymous with the poor. In reality, the may or may not include small and marginal farmers. This is fundamentally dependent upon economic make-up of a particular country. For example, in Bangladesh, half population is landless, and poorer than small and marginal farmers. The tendency of policymakers to identify a particular occupational group, such as farmers, artisans or small-scale producers, as representing totality of is equally misleading. …