Combating Poverty

I was brought up right in the periphery of a mushrooming slum (everyone was later evicted from the land early 2000) and I believe I had a first-hand experience in understanding the dynamics surrounding poverty and could use the experience to offer possible explanations on why most efforts are yet to completely eliminate poverty and why some might reverse progress made so far. We shared same public schools and other social facilities with the extremely poor (by social facilities I mean slid down the same muddy hills, played same games and swam in same dangerous filthy waters). The saddest bit is that in my former congested class of around seventy pupils, only about ten of us made it past high school and about three of us past the university. Female members were the most affected with a majority starting families prematurely. This is despite serious efforts by donors at providing free lunch (diet that consisted of corn and vegetable cooking oil), water, electricity, books and sponsoring students to raise school attendance (long before the advent of free primary school education).

To begin with, I would like to expressly state that I don’t believe there is a single approach with which we can completely eliminate poverty but rather contend that fighting poverty requires a combination of approaches. For instance even if donors were to hand out money directly to poor families without educating them on good money management practices, the kind of inflation that would accompany such an effort would make the effect too temporary and maybe even aggravate the situation(by making them less willing to work hard, raising crime rate and sponsoring drug abusers/traffickers). Efforts to educate too could be hampered by lack of jobs in the economy; lack of jobs for the skilled labour would discourage unskilled labour to acquire the education they need to improve their human capital. It means, if you have a government that consistently mismanages the economy; poverty is almost guaranteed as a perpetual aspect of the economy. The poor due to possibly poverty induced desperation and low education levels may be unable to regulate the government. Philanthropists recognize this and people like George Soros sponsor whistle blowers who expose incidences of mismanagement and exploitation in governments and private entities. The government too no matter how willing, might be incapable of eliminating poverty on its own without external financial assistance (could be through grants, providing markets for goods, stable external and internal economic environment and very low interest loans).

Education

I recently attended university graduation party of an about twenty six year old girl who had managed to get a degree in education (specializing in geography). In recognizing her efforts we had hoped to inspire other children into following in her trail by providing a visual end result and showing that it is achievable (they too can excel in academics). It was a well-attended ceremony and the local area political leader was present. The ceremony was a big deal for the community because very few girls, if any, in the area have acquired full secondary school education let alone university education. Part of the reason why few girls in the area have taken education seriously is because no one in the community has proved as being distinctly better off in terms of living conditions because they were more educated, showing that there lacked incentives. In fact those who were married off early looked like they were better off than the slightly more educated who were still languishing in poverty some of whom have turned to prostitution. The worrying question about her was; would she be able to get a good job and advance far enough in the society for the rest of the community children to emulate her and to provide enough reason for the parents within the community to push their children into achieving higher education? This is why government support in job creation that rewards more those who are skilled than those are unskilled could be pivotal. Yet some local governments fail in creating reward for effort by discriminating and opting to employ based on relation and or even seeming to prefer those with low levels of education (diplomas rather than university education) thereby distorting the desirable incentives. The only comforting bit would be if the educated were to turn back to their community and enlighten them on what should be the appropriate long-term governance good for the community.

In the community I was brought up in, it was observable that most of those who attended high schools that had boarding facilities managed to complete high school education compared to those who attended day schools most of whom dropped out for a variety of reasons. I believe it still plays a role in poor communities. It is difficult to get all children into boarding facilities but as an alternative, there have been commendable efforts by people from outside these poor communities to mentor young people still within the vicious poverty cycle and even taking them away from the community into well-established universities for tuition on weekends and holidays. This is helping introduce the boarding school effect being promoted in certain poor states in the US. Children from poor families especially in slums are different from those in middle or high income families since they face distinct distractions/challenges. Some of those I watched drop out of school dropped out mostly because of influences from members of the communities and problems within families. For instance a former classmate had to drop out after the sole bread winner in his family, step-father, died alone in the house from cancer. If he had been taken away into a boarding facility, he would probably have not felt the need to quit education to provide for the mother and siblings. Others get affected by uneducated people they interact with who introduce them into drugs and have lacked mentors or the opportunity to have the proper incentives for working hard in education.

Some of these problems in education could be solved by continuously encouraging children from these communities to go through formal education, creating visible incentives, having people from outside the communities mentoring and interacting with them, providing support in terms of education and books. I do not think free education alone would be enough to raise skill levels in way that can attract investments that absorb skilled labor from these communities.

Misconception around community currencies in slum areas

I have nothing against innovations that seek to improve the welfare of a community but at the same time I believe that it is appropriate for these innovations to undergo high levels of criticism so that they do not end up creating bigger problems in the long-run. Personally, I had done studies around the subject and feel I could contribute to the debate around their viability.

Community currencies are simply an alternative means of exchange other than the main currency accepted in a sovereign that seeks to allow community members to utilize ‘idle resources’ through a system of credit extension. A grocery that could have wasted perishable goods such as vegetables, they argue, would be able to benefit by giving out the vegetables on credit to a person who runs a hotel (the grocery receives the alternative currency as a measure of the quantity exchanged), in turn the hotel instead of wasting away excess food could sell to the grocery thereby balancing out and smoothing cycles. It all seems perfect from there and is a well-intentioned scheme. Statistical data has shown that there has been increased level of profitability for businesses involved. The rise in profitability makes sense because members are able to consume more than they otherwise would have, member businesses also have guaranteed customer loyalty since they would tend to purchase from each other goods and services. But is it really beneficial in the long-run? I doubt.

From my understanding of slums and most poor clustered communities, they are net spenders (they consume more than they are able to generate from within the community). Most of the goods and services are either sourced from outside or involve components that have to be sourced from outside the community. This means that the system would be creating a wrong incentive, instead of encouraging saving for investments in opportunities some of which are outside the community; it encourages members to live beyond their means. The grocery spends more in buying foods from outside the community because it is able to generate more sales and it has to use the main currency to do that. Isn’t it in effect promoting certain members of the community into earning a lot more at the expense of pushing other members deeper into poverty? Wouldn’t it erode progress made within the community in learning how to manage personal finances? Wouldn’t it be better if instead alternative programmes that seek to create skills that generate revenue within the communities and marketing products from the community to outside markets were encouraged?

Having a community currency also means that it could close out the community from the rest of the economy. The currency is usually not accepted outside these communities. Users of the community currency would tend to use facilities within the community that accept the community currency. They would use medical facilities that are poorly equipped and attend schools with poor quality education within the community. Without interaction with other social classes, poor people interacting with only poor people, it might create less incentive to work harder in order to escape poverty thereby enhancing the vicious poverty cycles rather than eliminating them. Members may also be unwilling to venture out, invest and relocate to areas with better jobs, of the community outside where community currency would not be acceptable.

On a broader perspective, these communities are still part of the economy and are even worse affected by downturns in the economy. Central bank monetary policy tools that seek to control certain aspects such inflation could be hampered since even if they tighten money supply, these communities would be able to sustain demand through the alternative currency meaning that during episodes of high inflation, rates may have to be raised higher than they would ordinarily have. This is besides other factors such as the community currency use reaching a point where it creates enough incentive for fraudulent individuals to start creating counterfeit currencies.

The subject of community currencies which was introduced in the country for experimental purposes needs to be extensively debated and abolished if seen not to be beneficial to the economy just as some developed countries have banned crypto-currencies.

Conclusion

There is no magic bullet for fighting poverty. It needs combined effort from donors and community members both within and outside affected areas as well as a supportive government. It is important that efforts aimed at alleviating poverty be carefully weighed so that the fight continues to be progressive rather than regressive.

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