More reflections (and questions) from our talk w/ Lant Pritchett
By Irvin Sha
In my (very limited) exploration of the problem of poverty, one of the recurring themes I’ve run into (as seen in our reading on “The base of the pyramid”) is that there are substantive ways to help the poor via market-oriented solutions. The conceit here is that markets are an extraordinarily efficient mechanism for effecting change, and by aligning the market with the needs of the poor, we can utilize that efficiency for the betterment of the impoverished. Certainly, there are many reasons to question the validity of the “invisible hand,” independent of its application to the problem of poverty. But even if we put those thoughts aside, the question still remains of what exactly does a market-oriented solution look like? What services are being offered to the poor? What is in it for the profit-seeking businessmen (a wallet of many trillions of dollars, according to our reading)? How can they provide solutions to the poor without being perceived as profiting from their misfortune?
Another point of difficulty is cognitive in nature. As Dan Ariely points out in “Predictably irrational,” people act in very different ways depending on whether they are being motivated by “social norms” or “market norms.” Think about it: A friend asks you to help him/her move. If you actually like that friend, you’ll probably help out to
the best of your ability. But let’s say that he/she asks you to help for $20/hr. According to Professor Ariely’s research, a mental switch flips in your head. Instead of helping for social reasons, there is suddenly a consideration of cost and benefit, and your willingness and effort are affected accordingly. No longer is your help motivated by your friend’s best interest, it instead flips over to a transactional
consideration of the money being offered.
So, when people try and create market-oriented solutions with the dual purpose of helping the poor and also turning a profit, which of these mental norms will dominate? Is it possible for them to even coexist? I’m sure that there are plenty of solutions out there that somehow bridge this divide. But as of this moment, I have yet to hear of
them. Certainly, some sort of expansion of the financial system to the bottom of the pyramid will be helpful. But how? Hopefully this course will provide some answers.
