Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

Tuesday, February 06, 2007

Poverty, Education and Relocation

Posted by Simon Halliday | Tuesday, February 06, 2007 | Category: |

Of late, I have become more and more aware of how many people are misguided about how poverty works. I don’t mean this in the arbitrary sense of choosing poverty lines and such (re: relative vs. absolute poverty measures), but rather a nuanced understanding of what poverty is, what it does, and how we can respond to it. Much of what I write here will come from the recent book Poverty Traps edited by Bowles, Durlauf and Hoff (2006). It is all based on freely available academic theory on poverty.

Ok – so poverty traps, i.e. factors which influence the perpetuation and robustness of poverty-centred equilibria, are induced or determined by three major factors:

1) thresholds

2) institutions

3) memberships theory

Each of these constitute individual reasons why poverty traps may exist and in combination they constitute a dramatic challenge to any policy maker wishing to engage with and challenge poverty.

Before we go any further, what is poverty and what is a poverty trap? Poverty can be thought about in many ways – it can be thought of purely in income terms (i.e. the amount of money to which an individual in a household has access), or it can be thought of in capabilities (a la Sen) the result of which is that poverty can be viewed as the inability to act in a certain manner, such as obtaining food, attaining an education, provide material goods for one’s family and so forth. Poverty traps therefore are factors that reinforce these situations, factors that sustain situations in which individuals begin poor and remain poor in perpetuity.

Onto thresholds. The basic idea here is that in order for an individual, a group of individuals (local small groups, or economy-wide groups) to move out of poverty they may need some basic threshold of capital in order to move from one state, or a poverty-reinforcing equilibrium to another rich-reinforcing (or possibly just a median income reinforcing) equilibrium. There are similar applications to educational attainment – individuals and groups need to reach a certain average level of educational attainment before the mean level of income, or the mean capability to provide for oneself and one’s family is taken beyond a certain point of poverty.

In terms of institutions there are several institutions factors that can affect whether an individual or an economy as a whole moves out of poverty. What are these institutions? These institutions are anything from patterns of behaviour that are effective for an individual (but not socially optimal) in a given environment, to norms of kin-altruism and kin-favouring, to hysteresis effects resulting from economic policy as far back as 17th century that have resulted in given institutional outcomes now.

Lastly, there are neighbourhood, or memberships, effects. To me these are the most interesting as they tie into the social network theory with which I worked on my master’s dissertation. The basic intuition here is that ‘neighbourhoods’ constitute given groups from something exogenous such as an individual’s race (notwithstanding the social anthropological view of the constructedness of race), to characteristics that are economically determined such as education and the area in which one lives (I hesitate to use the word suburb because it is difficult to classify some of the areas in which people live as ‘suburbs’, i.e. a township is probably not a suburb in the classical denotative definition thereof). Peer groups are the larger groups of which an individual is a member. The characteristics of such groups can pre-determine inter-generational transfers of factors that determine welfare outcomes: an individual’s race, their education, the area in which they live are often correlates of their welfare outcomes, from some as basic as life expectancy (or QUALYs - quality adjusted life years) to income. In Economics we try to capture these effects, but we have difficulty identifying whether a ‘suburb’ is actually a decently identified variable (the long and short of it is that there could be self-selection into/out of specific groups which leave us with selection bias, but let’s not go there). Role model effects can also be prevalent. These persist when there is literally a lack of role models within a community. In terms of education the basic intuition is that if there are no role models within a community of individuals that have used educational opportunities to modify their labour market aspirations (i.e. get a better job and more money from higher education) then the average educational aspirations and attainment of the average individual will remain low. As a consequence the labour market participation, or the average income (or wage received) by individuals in a community will be low and the cycle will be self-perpetuating because individuals will only see low income opportunities. Thus peer and role model effects can result in poverty traps.

This last characteristic is the main reason why I am supportive of policies that promote either or both of

a) Urban/Inner City Government Boarding Schools

b) Subsidised (and randomized) relocation of families to wealthier areas.

Regardless of the individual freedoms upon which we may infringe in the process (i.e. of a parent to claim that they have a right to determine their child’s schooling and so forth), it could be argued that removing a child from an environment of poverty where there are poor, or negative peer and role model effects and relocating them to urban boarding schooling with ‘good’ role models could constitute a viable solution to this. How? Use well-paid teachers and other providers of educational services with good educational backgrounds.

It is most important however that if introduced this program should be a randomized one (in as significant a way as possible). The implementation of such randomization would be nightmarish, but in the ideal world it would be possible (even if it is randomized at a cluster level that would be better than no randomization). In terms of the relocation project, there would be similar problems (e.g. with housing in SA if some families suddenly got randomly allocated to Rondebosch and Fourways instead of re-developed Nyanga and Soweto many would probably cry wolf and say it’s unfair, when in actuality it would be a random selection process and thus entirely fair (depending of course on whether you believe such randomization to be a fair process at all – which then comes down to your arguments about equality)). However, I believe that the rewards to these individuals could be massive – the large relocation and subsidization could quite possibly create far greater impacts than marginal and smaller interventions at a lower level. The ethics of this is admittedly complex, but I would argue that if government could come up with a randomized project that could begin to assess the impacts of such reallocations in SA then we could begin to see long run impacts down the line. There would also definitely have to be additional interventions for those others however who are not moved – simply relocating some does not mean that housing projects cannot continue, nor additionally that credit market interventions and other such should be pursued. Controls for these would simply have to be added into later research (somehow – again an issue, but this is possibly where ethics trumps rigorous econometrics).

I know this warrants more thought and definitely requires greater analysis, but I sincerely believe that several of the topics discussed above could be decent solutions to many problems. Contained in the above is also the discussion of whether education should be segregated, whether there should be emphasis on behavioural education processes (i.e. stimulating the behaviour of students in order to facilitate learning re: some new projects in the US that are focusing on just this – they go from the mundanity of slouching being disallowed during class, to ensuring that all students look at the teacher/facilitator/educator while they are teaching). Anyway, so much to write and research, so little time.

Currently have 2 comments:

  1. (1) What makes you think that role model effects exist at all? A first step might be to compare the educational and wealth outcomes of black/coloured kids who go to model C/private schools and live in poor neighbourhoods with their neighbours' kids who go to ghetto schools. i know at Westerford, there were about 2-4 kids in each grade who lived in Langa or Gugulethu, and several coloured kids who did not live in majority-white neighbourhoods, e.g. Rylands, Athlone, etc.

    (2) I think this is a really bad idea, because it assumes that simply planting township residents in the 'burbs will make them happy, successful yuppies.

    Secondly, the random character of the relocations completely undermines your claim that it would shift poor communities out of poverty traps. On the contrary, I would put money on it decreasing the effort and resources allocated to legitimate activities and increase the proportion of time/effort spent on influence/corrupt the relevant government officials.

    Thirdly, I think this proposal entails some nonnegligible welfare losses to the people living in the rich areas in which you propose to deposit the lucky winners of your lottery. Call me a racist if you like, but here is my loosely-concieved theory about crime:
    - The relocated families, retaining their connections to their old community and being quite isolated from their new neighbours, will very likely be visited frequently by all sorts of people from their old 'hood, not least because the relocated family has now 'made it' and everyone will want to check it out.
    - Given the high prevalence of crime in poor areas, we should assume that the proportion of (potential) criminals in the visiting population.
    - The opportunities for successful criminal behaviour (esp. theft, hijacking) are plentiful in the suburbs.
    - So we should see a sharp increase in (at least property) crime in the affected suburbs.

    I will readily admit that the prospect of my neighbourhood being suddenly spattered with people imported from the townships does leave me somewhat fearful. Before you yank out the 'racist' charge, consider that my fear is not motivated by pure prejudice: crime IS higher in the townships; people DO disregard laws that entail civic consideration (e.g. leaving rusted car bodies, or animals in the middle of the stree); and people DO take better care of public spaces and facilities in the suburbs than in the townships (I assume you've seen how school fields or vacant lots look there - they are used as landfills.) So yes, I am a paranoid suburbanite perhaps, but I think I have reason to be so.

  2. 1) In terms of international evidence w.r.t role model effects I can only claim that they {should} exist here in theory. I don't have any empirical backup (yet). However, those kids who end up at Westerford/Rondebosch/etc now have access to role models that they wouldn't have done previously. It would be interesting to do matching of some sort with them and others. Although I am still not entirely sure of how we'd process it.

    2) The randomization would be for evaluative purposes (I assume you've read the Duflo and Duflo&Udry papers on this?). In order for us to be able to ascertain whether there has been any increase in welfare level. or benefits at all then we would have to have some kind of randomization process. Most likely though there would have to be an application process, which already creates self-selection. Then there could be possible pair-matching with successful applicants and applicants still in the pipeline on observables and we might be able to understand whether anything worked.

    I think that any person when faced with the prospect of relocation of township-based families would probably get a bit hectic about it (especially conservative DA-voting whites). They would make claims about their 'property value', the crime level and so forth. However, I never made the claim that this would be a singular intervention. To facilitate this there would have to be massive community buy-in (I hate that term) and also participation and credible commitment (somehow) by new residents to uphold specific ways of living. Again, there are going to be implementation issues, but hey when aren't there going to be implementation issues. As an academic I have to try to create a first best world with specific assumptions and do as much as I can to ensure that, in implementation, the first best world gets achieved as closely as possible.