India still has the world’s largest number of poor people in a single country. Of its nearly 1 billion inhabitants, an estimated 350-400 million are below the poverty line, 75 per cent of them in the rural areas.
More than 40 per cent of the population is illiterate, with women, tribal and scheduled castes particularly affected.
It would be incorrect to say that all poverty reduction programmes have failed. The growth of the middle class (which was virtually non-existent when India became a free nation in August 1947) indicates that economic prosperity has indeed been very impressive in India, but the DISTRIBUTION OF WEALTH has been very uneven.
The main causes of poverty are illiteracy, a population growth rate by far exceeding the economic growth rate for the better part of the past 50 years, protectionist policies pursued since 1947 to 1991 which prevented large amounts of foreign investment in the country.
- Poverty alleviation is expected to make better progress in the next 50 years than in the past, as a trickle-down effect of the growing middle class. Increasing stress on education, reservation of seats in government jobs and the increasing empowerment of women and the economically weaker sections of society, are also expected to contribute to the alleviation of poverty.
Eradication of poverty can only be a very long-term goal in India.
Ten-year-old Ravi Pradhan cycles a cartload of plastic bags for recycling in Calcutta on Sunday. Ravi contributes Rs 25 daily to his family’s income by supplying plastic to the recycling indusry. Thousands of such poor people, mostly children, earn their living from plastic goods recycling in Calcutta. — AFP
If you want to help Indian children, please don’t give to child beggars.
Of all of the advice I might give to individuals traveling to India – or most of the developing world – the most important one would be
Don’t give to beggars
I realize this sounds cruel and callous. It feels cruel and callous to me, even when I know it’s the best choice – especially when I’m sitting in an air-conditioned car in India, idling at a red light, and people who are clearly poor, clearly in need come to the window begging for a small handout. Just a few rupees, which, to an American or other Western traveler, is next to nothing. Change I probably wouldn’t bother to pickup off the ground if I saw it. Can you ignore such clear need without guilt creeping up on you?
I can’t. I feel guilty for my Western extravagance when I see the numerous beggars in India. Very guilty. But I still don’t give them any money. The reason is because I know – from a few simple economic principles – that giving to beggars is not a particularly noble deed. In fact, I’d say that giving to beggars in a poor, developing country – like India – is a bad act. It certainly doesn’t seem that way – and I don’t think givers give with bad intentions – but it’s still a problem. Let me explain…
Effective Giving – opportunity costs
When economists talk about any activity – related to money or not – we always discuss the opportunity cost of the action. The opportunity cost of an action is simply what you give up doing in order to do that action. If you spend ten minutes reading this post, that’s ten minutes that you can’t spend reading a book or another website. We live in a world constrained by scarcity – limited money, limited time, limited resources. And, of course, the amount of money you can give to charity is limited.
If you chose to give a rupee to a beggar, the opportunity cost of that act of charity is all the things you could have done with that rupee. The opportunity cost includes all of the other charitable giving you might have done with the coin – other individuals and organizations that might need the help that that rupee can bring.
I believe that everyone has a duty to help the less fortunate. But you should not just give – you should give effectively.
Giving effectively does not mean simply giving to the poorest beggars you happen to run into during a day of travel in a developing country. While I think the most effective use of your charity dollars is in giving to particular organizations (more on that in a bit), I understand the wish many people have to donate directly to individuals – but those individuals should not be the ones you see begging on the street.
Giving to Individuals – rent exhaustion and incentives
When I’ve asked friends and relatives why they give to beggars, I normally hear responses discussing guilt over seeing the poor, a desire to help a person (especially a child or mother) they saw in need, or a feeling that it was a small thing they could do that would mean much more to the needy person.
But in their desire to help out others, they fail to realize they’re doing exactly the opposite by giving to beggars.
First, consider the incentives giving to children beggars creates – particularly the charity that rich travelers in developing countries can (and often do) give. Leaving aside discussions of mafia gangs and the deliberate crippling of children (as I’m not 100% sure this occurs, and have no information on how common it might or might not be), if you give a significant amount of money to a begging child (say $1), you’ve just given his parents (or the group he works for) a strong incentive to keep him begging, rather than in school or, at least, learning some sort of trade.
Second, there is a strong problem of rent exhaustion in begging. Rent exhaustion (or rent seeking) is an economic concept regarding the way individuals or organizations will struggle with each other in order to get a “free lunch” – with the cost of the struggle eating away much of the gain from the “free lunch”. The classic example of this in the study of political economy comes from lobbies, where competing industries spend significant amounts of time and money in order to influence favorable legislature. It’s worth paying $3 million dollars in lobbying costs, after all, if it means you get a $3.2 million dollar contract.
The same problem occurs in begging activities. A person who could earn a dollar & a half a day in manual labor or a set of small businesses (as much of the urban poor does – see Banerjee & Duflo’s excellent and accessible paper “The Economic Lives of the Poor” for more information) might give up his work if he can earn two dollars a day begging from rich foreigners. Moreover, vicious fights – or extensive bribes – might be required to keep a prime begging spot (just as with lobbies & legislature), further eroding any “free lunch” a beggar receives from strangers.
So what are you to do, if you want to give to an individual, but shouldn’t give to a beggar?
Give to individuals who busy working and aren’t expecting anything from you. I first read of this idea in Tyler Cowen’s book, Discover Your Inner Economist (highly recommended), and the economic reasoning here is completely sound. As Banerjee & Duflo’s paper makes entirely too clear, the vast majority of the poor (those living on $2 or less per day) and the extremely poor (those living on less than $1 per day) work hard, often at multiple jobs while trying to send their children to school.
By giving in this manner – to people who clearly need help, but aren’t expecting it, you aren’t requiring the poor to spend costly time begging in order to get help. No perverse incentives (make more money begging if you keep your kids out of school) have been created, and, since the working poor have not spent any time in seeking alms, there has been no cost to them in terms of rent-seeking. If you want, you can see this strategy of giving as a reward to hard-workers, but, in reality, this is the most effective strategy to give help to individuals you meet without requiring any sacrifice from them.
However – and this a big however – giving to individuals is probably not the best way you can help the poor in a developing country. Poverty in the developing world is the result of structural problems – lack of human and physical capital, poor governance, poor institutions, etc – that your marginal contribution can’t hope to overcome. I understand the desire for a human connection in giving, but I think that’s best left for volunteer work in your own local community. If you wish to help the poor the BEST you can in a developing country you’re traveling through, wait until you’re home, then write a check to the best charity you can find. Check-writing is not as heart-warming as handing money or gifts to individuals you’ve met, true – but charity work should not be about you, the giver.
Give Well – measured & proven results
It’s likely that, if you donate to non-profit organizations, you’re doing it wrong. Or, at least, not as right as you could be (remember opportunity costs!). If there’s one thing my graduate course in development economics taught me, it’s that it is damn hard to effectively help the poor. Many of the programs we believe will do good – such as the Grameen Foundation’s Village Phone program or agriculture assistance – don’t actually achieve much when economists go back and try to track the results of intervention. Good-sounding development projects just don’t necessarily result in good outcomes.
It is critically important that charities’ programs and projects are evaluated carefully so that we can send money to programs that we know are providing effective help to those in need. Luckily for those of us who don’t have time to search out the charities that are tracking outcomes and proving their programs effective, there’s an organization out there that is already doing this work: GiveWell
GiveWell examines charities – you can submit your favorite charity if they haven’t evaluated it yet – and asks them the tough questions about how they’re measuring their projects’ impacts. Very few charities pass their inspection – but for the ones that do, you can be certain that your donation dollars will have a true impact on the poor. After examining their site in-depth, I remain extraordinarily impressed by their thoroughness and their commitment to looking for the most effective charities in the world
Perhaps the greatest acclaim I can give them is that all of my future donations will be going to GiveWell’s top-rated charities, such as the Stop TB Partnership and Pratham, a large, India-based organization that runs a wide variety of programs aiming to improve education for children in India. If you’re looking to help the poor as best you can in the future – effective giving that focuses on those in need, not you, as the giver – then, please, donate to one of GiveWell’s top charities as well.