A review of Portfolios of the Poor: How the World’s Poor Live on $2 a Day, by Daryl Collins, Jonathan Morduch, Stuart Rutherford, Orlanda Ruthven
@@@@ (4 out of 5)
This book makes a major contribution to our understanding of global poverty.
Portfolios of the Poor reports the findings of a series of detailed, year-long studies of the day-to-day financial practices of some 250 families in India, Bangladesh, and South Africa, including both city-dwellers and villagers. The authors conducted monthly, face-to-face interviews with each family, focusing on money management and recording every penny spent, earned, or borrowed in “diaries” that formed the principal source for their observations. In the process, they made discoveries that will surely be surprising to some readers:
- The poor rarely live from hand to mouth. “[N]o matter where we looked, we found that most of the households, even those living on less than one dollar a day per person, rarely consume every penny of income as soon as it is earned. They seek, instead, to ‘manage’ their money by saving when they can and borrowing when they need to.”
- Lack of money is just one of the financial characteristics of poverty. It’s equally important that poor people’s income is both unpredictable and irregular. Crops come in two or three times a year, yielding whatever the weather may permit and the market may bear; between-times a family may have no cash income at all. A son might get a job for a day but not again for a week or a month. Illness or injury may interrupt a family’s income. And so forth.
- Rather than helpless victims of their poverty, the authors found, the poor are remarkably sophisticated about the financial circumstances of their lives. “We came to see that money management is, for the poor, a fundamental and well-understood part of everyday life.”
- Microlending is just one of the financial services needed by the poor to lift themselves out of poverty. “[W]e saw that at almost every turn poor households are frustrated by the poor quality — above all the low reliability — of the instruments that they use to manage their meager incomes. This made us realize that if poor households enjoyed assured access to a handful of better financial tools, their chances of improving their lives would surely be much higher.”
- Most observers regard money-lenders as simply a scourge of the poor, as they are so very often. However, given the dearth of mainstream money-management alternatives, there are many circumstances in which it’s logical for poor people to turn to money-lenders for short-term cash loans. “One of the lessons from the diaries is that interest paid on very short-duration loans is more sensibly understood as a fee than as annualized interest.”
Scholars, activists, and policymakers alike have quarreled over the question of global poverty and what to do about it for more than half a century. More often than not, the disputes they air in official policy debates, in the news media, and in scholarly journals are grounded in statistics developed by the United Nations and the World Bank — figures that usually represent worldwide averages. Therein lies much of the trouble.
The most widely accepted benchmark for world poverty today is $2 a day per person, as determined by the World Bank. However, you have to dig deeply before you can understand what the World Bank and the United Nations actually mean by “$2 a day.” They’re not referring to those two one-dollar bills you may have crumpled up in your pocket or purse. To correct for economic differences from one country to another, they use the concept of Purchasing Power Parity (PPP).
In theory, PPP takes into consideration the sharp differences in how much $2 will buy in any given country as compared to the global norm. But in practice the experts have widely differing views on what method should be used to calculate PPP and, in effect, what is the global norm. As if that isn’t bad enough, the most commonly used techniques to calculate PPP are based on each country’s economy-wide standard of living. In other words, the definition of poverty might depend in part on the price of big-screen TV sets and BMWs or their equivalent. In hopes of correcting that problem, scholars have been writing papers for several years about “poverty-based PPP,” excluding anything but goods and services commonly demanded by people living at subsistence level, but none of the approaches they’ve proposed has yet been officially adopted.
The whole question of PPP, then, is so confusing — and so confused — that the authors of Portfolios of the Poor have rejected the concept. They base all their calculations simply on the prevailing exchange rates between local currencies and the U. S. dollar. To which I say, amen.
The four co-authors of this book are an intriguing bunch. Two are men and two women. (Daryl Collins, the lead author, is female.) All four are products of elite universities: Oxford, Cambridge, Harvard, and the London School of Economics, though only one, Jonathan Morduch, is currently an academic. Morduch teaches development economics at NYU’s Wagner School of Public Policy in New York; he is an expert in microfinance. Daryl Collins, Stuart Rutherford, and Orlanda Ruthven are all development practitioners with practical field experience — Collins with a Boston-based global consultancy, Rutherford with a microfinance institution he founded in Bangladesh, and Ruthven with DFID, the UK equivalent of USAID.
Narrowing global inequities: a reading list
Lately I’ve been working with Paul Polak on a book about how to end global poverty. (Berrett-Koehler will publish the book in 2013.) Paul’s previous book, Out of Poverty, was published six years ago, and this new work – provisionally titled The Business Solution to Poverty – represents the evolution of his thinking, six more years of work with poor people in developing countries, and the reading and relevant field experience I’ve had over the years.
As I’ve dug more deeply into the subject of global poverty, it has become increasingly clear to me that truly understanding how today’s glaring inequities have come about requires extensive knowledge in a wide array of topics, from Third World history to social psychology, development economics to the history of business and international trade.
Well, I confess I’m no expert in any of those fields. I’ve read widely in some, superficially in others, and I’m learning a lot.
My reading has emphasized economic history, the economics of poverty, colonialism, Third World development, social enterprise, and the ongoing debate about the impact of “foreign aid” (more properly, overseas development assistance). Along the way, I’ve reviewed in this blog many of the books I’ve read.
In previous posts, I’ve offered up reading lists on some of these subjects individually. Here, I’m sharing a compiled list. These are the books I’ve actually read. Where I reviewed a book, you’ll find boldfacing and underlining that signifies a link to my review. The books are listed alphabetically by the author’s last name.
Banerjee, Abhijit, and Esther Duflo, Poor Economics A Radical Rethinking of the Way to Fight Global Poverty. PublicAffairs, 2011. (review to come)
Bornstein, David, How to Change the World: Social Entrepreneurs and the Power of New Ideas. Oxford University Press, 2007.
——, The Price of a Dream: The Story of the Grameen Bank. Oxford University Press, 2005.
——, and Susan Davis, Social Entrepreneurship: What Everyone Needs to Know. Oxford University Press, 2010.
Clark, Gregory, A Farewell to Alms: A Brief Economic History of the World. Princeton University Press, 2007.
Cohen, Ben, and Mal Warwick, Values-Driven Business: How to Change the World, Make Money, and Have Fun. Berrett-Koehler Publishers, 2006.
Collier, Paul, The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It. Oxford University Press, 2007.
Collins, Daryl, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven, Portfolios of the Poor: How the World’s Poor Live on $2 a Day. Princeton University Press, 2009.
Crutchfield, Leslie R., and Heather McLeod Grant, Forces for Good: The Six Practices of High-Impact Nonprofits, 2nd Edition. Jossey-Bass Publishers, 2012.
Diamond, Jared, Collapse: How Societies Choose to Fail or Succeed. Viking Press, 2005.
Easterly, William, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good. Penguin Press, 2006.
Elkington, John, and Pamela Hartigan, The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World.Harvard Business Review Press, 2008.
Govindarajan, Vijay, and Chris Trimble, Reverse Innovation: Create Far From Home, Win Everywhere. Harvard Business Review Press, 2012.
Guha, Ramachandra, India After Gandhi: The History of the World’s Largest Democracy. HarperCollins Publishers, 2007.
Hochschild, Adam, King Leopold’s Ghost: A Story of Greed, Terror, and Heroism in Colonial Africa. Houghton Mifflin Company, 1998.
Kamkwamba, William, and Bryan Mealer, The Boy Who Harnessed the Wind: Creating Currents of Electricity and Hope. HarperCollins Publishers, 2009.
Kidder, Tracy, Mountains Beyond Mountains: The Quest of Dr. Paul Farmer, a Man Who Would Cure the World. Random House,2003.
Kristof, Nicholas D., and Sheryl WuDunn, Half the Sky: Turning Oppression Into Opportunity for Women Worldwide. Knopf, 2009.
Light, Paul Charles, The Search for Social Entrepreneurship. Brookings Institution Press, 2008.
Lynch, Kevin, and Julius Walls, Jr., Mission, Inc.: The Practitioner’s Guide to Social Enterprise. Berrett-Koehler Publishers, 2008.
Mehta, Pavithra, and Suchitra Shenoy, Infinite Vision: How Aravind Became the World’s Greatest Business Case for Compassion. Berrett-Koehler Publishers, 2011.
Moyo, Dambisa, Dead Aid: Why Aid is Not Working and How There Is a Better Way for Africa. Farrar, Straus and Giroux, 2009.
Polak, Paul, Out of Poverty: What Works When Traditional Approaches Fail. Berrett-Koehler Publishers, 2006.
Prahalad, C. K., The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. Pearson Prentice Hall, 2004.
Sachs, Jeffrey D., The End of Poverty: Economic Possibilities for Our Time. Penguin Press, 2005.
Schwartz, Beverly, Rippling: How Social Entrepreneurs Spread Innovation Throughout the World. Jossey-Bass Publishers,2012.
Sullivan, Nicholas P., You Can Hear Me Now: How Microloans and Cell Phones Are Connecting the World’s Poor to the Global Economy. Jossey-Bass Publishers, 2007.
Wrong, Michaela, It’s Our Turn to Eat: The Story of a Kenyan Whistle-Blower. HarperCollins Publishers, 2006.
Filed under Commentaries, FAQs & Commentaries
Tagged as Aravind, current-events, David Bornstein, economic development, economic history, economy, foreign aid, global poverty, India, Jeffrey Sachs, Nicholas Kristof, Paul Polak, politics, poverty, social enterprise, Third World development, Tracy Kidder, William Easterly