The Psychology of Poverty.

 The Psychology of Poverty

“Insight on the Economics of a Poor ‘Baradari’”

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It has been 76 years since Pakistan was made independent. However, only on its geographical premises. We still lack independence in other political, economic, or judicial areas. As of right now, Pakistan has had yet another twist in its political and economic career.

However disastrous the situation seems; my eyes always witness the day-by-day increase in the lavish lifestyles of the elites, while the poor hope to survive yet another day. This has forced us to look in depth at what essentially is the issue and whether it can be tackled or not.

Inequality

It is indeed true that the world is wealthier than it used to be. We have more easy and abundant access to commodities that were deemed luxuries to our predecessors. Although the poor class may have been able to grow in absolute terms, what concerns economists is the relative measure or the persistent gap between the rich and the poor. 

Income Inequality

“One of the paradoxes of Pakistan's economy has been the persistence of widening income inequalities despite high growth rates...”. (Hussain, 1999) 

Furthermore, “…the ratio of the average income of the poorest 10% of the population to the richest 10% is 6.5 (in Pakistan). In other words, the average income for the richest (10%) is more than 16 times the average for the poorest (10%).” [1] (Burki, 2023)

The “Gini coefficient — a measure frequently used to indicate the extent of inequality — is the worst for Pakistan: 29.6 as against 32.4 for Bangladesh, 35.7 for India and 38 for the world as a whole.” (Burki, 2023)

Educational Inequality

Pakistan was able to inherit some of the finest educational institutes from its colonial predecessors, with institutes in cities such as Lahore known for their educational and literacy capabilities. However, Pakistan has been unable to replicate the system to one of its own. Public-led education in Pakistan, particularly at the primary level, has failed immensely and is falling behind international standards. This has led citizens to focus on private institutions that look relatively much more ambitious for their children's future. “In Pakistan, 80 percent of children in third grade could not read a first-grade level (English) paragraph”. (Tahir R. Andrabi, 2010) The 20 percent who were able to do so, were mostly the ones studying in private education institutes.

While the elites manage to get hold of private education for their children, primarily through money and secondly through patronage, the poor class is left isolated in disarray. This exacerbates the inequality gap, “In the Learning and Educational Achievement in Pakistan School (LEAPS) survey, by third grade, children in private schools were 1.5 years ahead in English and 2.5 years in Math relative to the children in public schools.” (Abhijit V. Banerjee, 2011)

Hence, children studying in private institutions (the majority coming from wealthy backgrounds) get a better chance of succeeding further in their careers (multiplier effect) while the ones who are forced to study in public education find themselves stuck in the poverty loop.

Health 

Similarly, private healthcare provides a quicker, more efficient health service than public healthcare institutions. Although it would make complete sense that rich households spend more on healthcare in absolute terms, complexity arises when we see the proportion of income spent on healthcare by the rich and the poor. “The average extremely poor household spends up to 6 percent of its monthly budget on health care in rural India, while 3 to 5 percent in Pakistan...” (Abhijit V. Banerjee, 2011) 

Insight on the Economics of a Poor ‘Baradari’

We have already examined a glimpse of inequality in Pakistan through a telescopic lens, however, to get a better understanding one must also look at it through a microscopic lens.

Keeping this thought process in mind, we went on to interview one of the heads of the Baradari (Clan), hailing from Islamabad, Pakistan. They have been living in the capital for three consecutive generations now, they have seen the city develop from a rugged land to one of the most beautiful capitals in the world. However, as much as their city has changed, their conditions seem to be as much of the same. 

Demographics

They belong to the assigned national constituency of NA-49 and UC-60 of the local body. Belonging to a prominent constituency of Islamabad, they hold a relatively stronger political position than their contemporaries.

Consisting of 220 approximate individuals, 70 children (under 18), females having a higher gender ratio in childbirth, 100 adult males, and 50 adult females.

Figure 1 [2]

Out of the 100 adult males, 60 are currently married while the other 40 percent are either single (aged males whose wives have passed away / young individuals yet to be married) or divorced. With 1-2 average children per marriage, the adult married male has the economic responsibility of 3-4 people. A few exceed the threshold, carrying the additional responsibility of their aged parents. [3] 

Financial Demographics

Out of the 100 adult males, only 30 are considered to have a permanent job, by this we refer to jobs that can pay employees every month and are less volatile. These are the individuals who are earning the highest amongst their contemporaries, occupations including part of a wedding band, or an assistant/driver of a considerably wealthy man.

Figure 2 [4]

Another 30% indulge in activities that provide a daily wage, they search for work daily and if lucky are assigned a few tasks and get paid for them. Average daily earnings range from PKR 1000 - 2000 ($3 - USD 7), having a greater potential monthly income, (given that they find work for a whole month). However, as their occupancy is more volatile if they don't find work often, they find themselves asking for help or begging. The remaining 40% of the adult males tend to stay idle, consisting mostly of elderly males who due to lack of mobility, strength, or health are inactive.

Figure 3 [5]

Why are they behind?

The financial and geographical demographics suggest a rather impoverished state of the concerned baradari, so what are the reasons? 

Education?

Education develops labor skills, making them more productive and increasing their marginal productivity. This automatically causes firms/individuals to pay them higher returns (wages).

The literacy rate for the concerned baradari is 1-2%. Although many children are admitted into primary school, very few tend to complete their education. When asked about the reasons for education negligence, they admitted they do not have the financial resources to provide their children with a good education. The ones they can afford, such as the government schools, aren’t trustworthy as they pay little to no interest in the child's future.

Secondly, and a more crucial reason identified is the state of ‘hopeless education’. The baradari admitted that they don't even consider education to be that important. “Education is a future investment, we live in today as for tomorrow, that's God’s concern.” [6] 

As education is a long-term investment, with its returns pouring in the long run, people who have less education fail to understand the benefits, hence igniting a loop of generational illiteracy. Therefore, as there is no willingness for children to go to the classroom, building and improving public-level education institutes would be of no benefit. Efforts made from top to bottom to increase education would be wasteful. 

Girlfriend for a Rainy Day?

Mushahid Hussain a former Member of the Senate of Pakistan summarised perfectly the International Monetary Fund (IMF) and Pakistan's relationship, calling it a ‘girlfriend for a rainy day’. Referring to situations where every time some sort of economic collapse is to happen rather than showing bravery we rush back to the IMF for monetary help. 

A quite similar relationship prevails between the concerned baradari and their elite counterparts. While questioning the head of the clan, one of our concerns was ‘What precautionary step do they take when an economic turbulence arises?’, i.e. severe sickness, wedding, or any sort of economic emergency. With pure calmness, he replied “We don't, we live in today. Everything we earn we tend to spend it today as for tomorrow that's God’s concern. If we would've saved, we could have owned commercial buildings.” [7]

Analysing their spending patterns, we realized, that although it is true that they do not save. However, not because they don’t want to, it's because they don't need to. Every time an economic urgency prevails, they seek the help of their rich employer, industrialist, or a landlord. Who if not every time, mostly sustains their plea in exchange for their political support. This brings power to the rich and money to the poor, an exchange maximizing both players' utility.

This is a disastrous economic model as it involves money changing hands without any work or productivity taking place moreover it leaves no incentive for them to work, improve, get an education, and prosper. 

So, What are The Solutions?

As mentioned, government spending on building schools and colleges would be of no use here, rather a strong initiative should be taken with proper long-term planning to provide a nudge, an incentive for children to go to the classrooms. While this is presumably hard, governments could start by incentivizing their parents, so they send their children to school. Parents acknowledging and supporting their children in their pursuit of educational excellence can have a tremendous effect on a child's productivity.  “… they (children) do better if they come from homes where they have a place to study, where there are reference books and newspapers, and where education is valued.” (Teachman, 1987)

Another solution presented is the demand-side argument where when the demand for skillful labour increases in the market (say due to a new manufacturing plant built or a new industry that is in operation), it would automatically incentivize people to get skills as they see a prospect and would be more likely force their children to go to school and get those skills as well. This is promising in rural areas, where a major production plant could help the neighbouring town out of poverty.

Furthermore, developing the skills of teachers and professors through workshops, which focuses on making the classroom more interactive, with having good relations with their parents would help decrease the absenteeism and dropout rates. An environment created for the student where he/she feels safe regardless of one's ethnicity, colour, and job occupancy of their parents, would more likely lead to prosperity rather than failure. An example of this has been illustrated by World Bank economists Karla Hoff and Priyanka Pandey in 2004 in a tremendously conducted experiment.

“They took 321 high‐caste and 321 low‐caste 11 to 12‐year‐old boys from scattered rural villages in India and set them the task of solving mazes. First, the boys did the puzzles without being aware of each other’s caste. Under this condition, the low‐caste boys did just as well with the mazes as the high‐caste boys, indeed slightly better.

Then, the experiment was repeated, but this time each boy was asked to confirm an announcement of his name, village, father’s and grandfather’s names, and caste. After this public announcement of caste, the boys did more mazes, and this time there was a large caste gap in how well they did – the performance of the low‐caste boys dropped significantly.” (Richard Wilkinson, 2010)

(Richard Wilkinson, 2010)

Lastly, IQ tests could be carried out at the primary level of students in public education institutes, with the ones obtaining the highest and matching the average of the private school children being rewarded with a coupon (rather than money) funded by the government, which allows them to study in the secondary level private institutes (e.g. Beaconhouse School System, Roots, Pak - Turk). This initiative has been long in play globally with intellectuals such as Miftah Ismail the Former Finance Minister of Pakistan advocating it in Pakistan as well. 

A coupon-led subsidy would help diminish the prevailing educational inequality gap, providing life-changing opportunities on merit systems to those in the poverty trap. It would also create a healthy competitive environment where students will strive to grab the opportunity, uplifting the literacy rate.

We should understand that the bottom-line problem is with students and their parents being in a state of ‘hopeless education’, policies should be designed and implemented to counter this ideology.

Easy Money and Micro Financing

Helping the ones in need is always a trait of the wisest. However, concerns arise about the type of help we are willing to offer. As mentioned, the baradari members seek help from their elite counterparts in an economic crisis, this allows them to have access to easy money, money circulating without any productivity. This disincentivizes one from working hard, developing skills, and thinking of long-term sustainability. The elites should put in slightly more effort, and rather than providing easy money, offer the ones in need an opportunity to help microfinance their small struggling businesses. An example of this could be seen in India, where microfinancing programs targeted fruit sellers who didn't have the money to buy their carts, so the company was able to provide loans to these individuals who were able to cut their rental costs on carts and generate immense profits. (Abhijit V. Banerjee, 2011) 

Planning a proper microfinance project requires much more effort and concentration. However, we should understand that if done correctly, this could have generational impacts on those stuck in the poverty loop.

Conclusion

Although solving macroeconomic objectives is the realm of government policies, the economic problems of individuals could be solved through families having a greater political and economic say in their respective societies. One needs to understand that while being given the option to do something for the betterment of the poor and to do something right for the betterment of the poor, one should always opt for the latter.

References

Abhijit V. Banerjee, E. D., 2011. Poor Economics. New York: Penguin Books.

Burki, S. J., 2023. Income inequality and poverty in Pakistan. 27 March.

Hussain, I., 1999. Pakistan; The Economy of an Elitist State. 2nd ed. Karachi: Oxford University Press.

Richard Wilkinson, K. P., 2010. The Spirit Level, why equality is better for everyone.. London: Penguin Books.

Tahir R. Andrabi, J. D. A. I. K., 2010. Education Policy in Pakistan: A Framework for Reform, Lahore: IGC Pakistan.

J. D. Teachman, ‘Family background, educational resources, and educational attainment’, American Sociological Review (1987) 52: 548–57.

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