Making and Un-Making Poverty Anirudh Krishna Copenhagen, May 5, 2008

1. Making and Un-Making Poverty Anirudh Krishna Copenhagen, May 5, 2008 [Ak: insert picture]

2. Research Questions • ORIGINS: How do people come to be poor? • REMOVAL: How – for what reasons – do people escape? • Basis Vectors…

3. Few answers available • Stocks measured (rarely flows) • Handful of panel studies in developing countries • Rarely probe WHY questions • Methods gaps…critical

4. Grassroots Investigations in 400 diverse communities of INDIA KENYA PERU UGANDA NORTH CAROLINA, USA Poverty Dynamics tracked for > 35,000 households

5. STAGES OF PROGRESS METHODOLOGY Seven Steps Step 1. Getting together a representative community group Step 2. Discussing the objectives of the exercise Step 3. Defining “poverty” collectively in terms of Stages of Progress

6. Stages of Progress (Rajasthan)

7. Initial stages before the poverty cutoff:

8. STAGES OF PROGRESS METHOD Step 4. Define “X years ago” in terms of a well known signifying event Step 5. List all households. Ascertain stage for each household at present time and in earlier period Step 6. Categorize all present-day households: A. Poor 25 years ago and poor now (Remained poor) B. Poor then and not poor now (Escaped poverty) C. Not poor then but poor now (Became poor) D. Not poor then and now (Remained non-poor)

9. STAGES OF PROGRESS METHOD • Step 7. For a random sample (25-40%) of households in each category, investigate reasons for change or stability • I. Community inquiry: Comparative perspective Probing • II. Household inquiry: • To verify what the community has said • and to go deeper into reasons • Training is critical

10. Stages-of-Progress Methodology • Robust local understandings: similar within contexts • Relatively long time-horizons • Triangulating recall data • Close correspondence with “objective” data • Identification of reasons

11. The Good News

12. The Entire News

13. Not a “rising tide” but a bathtub of poverty • Falling into poverty: NOT isolated, marginal or temporary • Large numbers – one-third – of poor people not born poor

14. Bathtub result: not methodology-dependent

15. Signs of Rising VulnerabilityUganda: Central and Western Region

16. Increased Vulnerability in North Carolina(13 rural communities)

17. Increased Vulnerability in Kenya(Countrywide:71 rural and urban communities)

18. Lessons learned (1) • Poverty is constantly being created, even as some of it is removed • Descents could be becoming more frequent generally But hardly anything is being done to PREVENT descents

19. GENERAL REASONS FOR DESCENT • Falling into poverty is slow and cumulative. Multiple contributing reasons. • BAD HEALTH AND HIGH HEALTH CARE EXPENSES: primary reason (59% in Rajasthan; 73% in W. Kenya; 88% in Gujarat; 77% in Uganda; 75% in Andhra; 67% in Peru; 41% in North Carolina) Other location-specific reasons: • Social and customary expenses; high-interest debt; crop disease, land exhaustion, drought; job loss Not significant in any region: Laziness, Alcoholism

20. The critical significance of Health • Increasing out-of-pocket costs and “catastrophic” health expenses (Xu et al. 2003; Sen, Iyer and George 2002). • “Medical poverty trap” (Whitehead, Dahlgren and Evans 2001 ) • Average long-term income loss of 17 percent (Yao 2005) • More than half of all personal bankruptcies in America (Himmelstein et al. 2005) • Poor people pay more (Fabricant et al. 1999, Farmer 1999) • Macro Evidence (EQUITAP 2005; Milly 1999; Scruggs and Allan 2006)

21. GENERAL REASONS FOR ESCAPE Escape also usually occurs over a period of time. People work upon strategies that take them upward. Diversification of Income Sources: Agriculture and Informal Sector (70% Rajasthan, 73% W. Kenya, 79% Uganda, 71% Andhra, 69% Peru, 70% Gujarat) OTHER REASONS (much less frequent) Jobs – in Government and Private Sector Not very significant: Government assistance programs

22. AGRICULTURE: A pathway to prosperity? Average land held by poor households: Uganda - 1.48 acres Gujarat - 1.13 acres Peru - 1.39 acres Kenya - 1.67 acres Prospects are equally limited in the informal sector

23. Lessons learned (2) • Escape and Descent in parallel • Asymmetric Reasons • Consequences for Economic Policy: • Separate policies : (1) promote escapes, • (2) prevent descents • Consequence for Political Analysis: • Subgroups better than “The Poor”

24. Distinct subgroups (separate needs and experiences):(range) Persistent Poor 2 - 31% Newly Poor 8 - 25% Recently Escaped 6 - 29% Never Poor National statistics do not collect these data

25. HYPOTHESISBecause different reasons affect their lives and influence their strategies, different subgroups of poor people have substantially different demands from the state

26. Empirical Test • 1,032 households in 36 communities (Andhra Pradesh, India) • Poverty status assessed: 1997 and 2004 • Classified within 4 subgroups • Asked to rank their major demands from the state

27. Major demands by subgroups (% within each subgroup)

28. Lessons learned (3) “The Poor”: merely a figure of speech Not a valid category for political analysis Because Ins and Outs regularly refresh the composition of poverty

29. www.pubpol.duke.edu/krishna

30. Stage – and assets (recorded 7 years ago)

31. Also worrisome: Very limited upward mobility

32. And in Karnataka...

33. Similarly Low Glass Ceiling in other Countries… • UGANDA (40 communities) – 1 Doctor, 1 Bank Manager, 14 “businessmen” • PERU (20 communities) – 1 Civil Engineer, I Agricultural Engineer, 2 Nurse Practitioners, several “merchants” Available pathways (agriculture and the informal sector)  limited upward mobility

34. Example of NC “Stages of Progress” • 1. Food • 2. Shelter • 3. Transportation • Clothing • ---------------------------------------(extreme poverty) • 5. Phone • 6. Television • 7. Car • Entertainment • -------------------------------------------------(poverty) • Savings • 10. Buy Home • 11. Saving for Kids’ Education

35. NC Findings (2) • Primary Factors in Escaping Poverty: • Employment • Family • Budgeting • Primary Factors of Falling Into Poverty: • Health Care • Job Loss • Family

36. Five years or more school education (% in 20 Rajasthan villages)

37. Five years or more school education (% in 20 Karnataka villages)

38. STUDY: SOFTWARE ENGINEERS IN BANGALORE • 150 newly recruited software engineers selected at random from three different firms • Invited by e-mail to take part in a Web-based survey • Remarkable response rate (73 percent)

39. Results: THREE SIGNIFICANT GAPS • Rural Gap: 7-11% from rural areas • Wealth Gap: 15% lower middle class; none “poor” • Generational Education Gap – most significant – College graduate fathers and high school graduate mothers

40. Limits to Upward Mobility • Parents’ education sets apart new entrants • Small sliver of Indians 18-30 years old have equally educated parents (no more than 4-7%) • Why should parents’ education matter so much?

41. Career aspirations of youth (14-22 yrs) attending school n=1,456