I attended a seminar today given by Michael Carter on ‘Poverty Traps and Social Protection’ that is available in full online. Carter suggests that, because of poverty traps, ‘needs based’ targeting may lead to higher levels of long-term poverty than a modestly regressive targeting of those vulnerable to falling into poverty that is based on critical asset thresholds subject to risk. If they do fall into poverty and a poverty trap arises there may be large irreversible costs. It may be preferable from some standpoints to stop 'at-risk' middle class families from falling into a state of poverty than it is to focus purely on assisting the current poor – particularly those with low skills - for whom aid might be ill-advised for triage reasons. There are tradeoffs between preventing poverty and preventing transfers into it. If programs are purely ‘needs based’ then more immediate poverty may be eliminated at the expense of greater long-term poverty as middle class people fall into poverty traps. Then, over time, this means that today’s poor will be worse off in the sense that dollars to relieve their poverty will need to be spread around more thinly.
Carter is seeking to implement this type of policy in northern Kenya. That surprised me for an argument that is entirely a priori. If I was a policy-maker I wouldn’t buy these specific policy prescriptions at all. Instead, maybe investing in the education of those at the bottom of the skill/wealth scale is an option that should at least be assessed. Presumably providing aid to people who are barely surviving has large social payoffs – don’t we get a kick out of seeing people being saved from starvation? In addition, capital market development that might enable poor but highly skilled people to realise their potential and generally devoting resources to simple institutional reform seems a good way to move.
I am sceptical of ‘poverty trap’ arguments generally – when I went to university as an undergraduate this was the way all developing countries were seen – they were ‘basket cases’ caught up in a poverty trap. Over the past 30 years this was seen to be wrong.
Maybe Carter is right but I found his arguments unconvincing.