Monday, June 30, 2014

Trapped in scarcity

This post appeared in Dutch on the Oikocredit Netherlands website.

The book Scarcity by Sendhil Mullainathan and Eldar Shafir had been on my to-do list for months. I kept postponing reading it. Even though it seemed important, it wasn’t high on my list of priorities. I had deadlines: finishing a paper, preparing a presentation or... finishing my next blog post.

I wanted to read the book because it talks about the psychology of poverty. I have been fortunate enough never to have lived in poverty, and it is therefore hard for me to imagine how it must be. That’s why I travel to developing countries, do research and read books about development issues. After a busy period, I finally had time to read Scarcity last week. And? It turns out that my busy existence and a life in poverty are not as different as I thought.

Mullainathan and Shafir show that people who are poor, busy or on a diet, all deal with the same problem: scarcity. Scarcity of money, time or calories. Scarcity requires our full attention and distracts us from other important aspects of our lives: a poor mother is late for work, a busy manager forgets his daughter’s birthday, a student on a diet cannot focus on her exam.

People living with scarcity cannot think about much else. That has serious consequences: their cognitive skills suffer. A study among farmers in India shows that their IQ score is ten points higher after harvest – when there is plenty of money – than before harvest – when they are penniless. People also start behaving differently as a result of scarcity: they find it hard to resist temptations, snap at people around them and forget appointments.

I can definitely recognise these symptoms: in a busy period I sometimes forget everything around me. But I differ from a poor person in one crucial way: for me there is a way out. In the worst case I am late for a deadline or have to cancel a meeting. I can choose not to be busy, but someone who is poor is trapped.

‘Poverty traps’ have been an important topic in development economics for decades. Why can’t people escape poverty? Many explanations have been offered: poor people are not intelligent enough, live to close to the equator or live in countries with messed up political systems. Mullainathan and Shafir offer an interesting contribution to this discussion: scarcity creates a vicious circle and pulls poor people further into poverty.

As opposed to many other explanations, this explanation gives hope: poor people are not poor because of who they are, but because of their circumstances. Scarcity creates behaviour that makes poor people even poorer. A mother is fired because she cannot focus on her job, she gets a fine for being late on her electricity bill or she forgets to fill out a form that could get her child into a scholarship programme. Simple changes can make her life easier: early reminders for paying bills, insurance against financial shocks or assistance with filling out complicated forms.

What about me? What can I do to make my busy life easier? I’ll think about that later, I have a deadline to make...

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