A close reading of the World Bank's World Development Report 2015 shows that it works on the assumption that human beings generally think automatically, socially, and with mental models, and that future development policy, poverty alleviation, and even policy design need to be modified taking this into account. Poverty is a "cognitive tax" suffered because people are incapable of taking advantage of the opportunities that are open to them. The assumption that development experts improving the behaviour of the poor will reduce poverty, however, fails to confront the growing problem of unsustainable inequalities.
M A Oommen (
maoommen09@gmail.com) is Emeritus Professor, Institute of Social Sciences, Thiruvananthapuram.
An earlier version of this text was presented at the National Seminar on World Development Report 2015, organised by Kerala Economic Association, at Thiruvananthapuram, in August 2015.
This is a short critique of World Bank’s World Development Report 2015, which advances “a new set of development approaches” to contain poverty. Established in 1944, the World Bank, originally called the International Bank for Reconstruction and Development (IBRD) and with a limited mandate to reconstruct the war-torn countries of the world, has evolved into a major global development and lending agency with 188 countries as its members. Not based on the democratic principle of “one country, one vote,” but on the economic strength of member countries, the bank’s president invariably has been an American. No wonder the United States (US) has come to wield a decisive role in the evolution and working of the institution. Today, it has become the most powerful and influential development policy think tank in the world, besides a repertoire of economists and domain experts whose number is well over 12,000. The overarching mission of the World Bank Group carved in stone at its Washington DC headquarters is “our dream is a world free of poverty.” For the world’s poor, estimated to be over one billion by the bank (living on $1.25 per capita per day), this could mean a bastion of hope and a deliverer of justice.
From 1978 onwards, the World Bank has been publishing the annual World Development Reports (WDR), each year focusing on a particular theme. The bank’s development philosophy, approach, and policy are exemplified in these reports. Although only a few (for example, WDR 1980, 1990, 2000–01, 2004, 2006) focus directly on poverty, most reports address the issue of poverty in some way or the other. In this note I try to critique WDR 2015 titled Mind, Society and Behaviour, which apparently is based on several field visits and “laboratory” experiments. A close reading of the report shows that it works on the assumption that human beings generally think automatically, socially and with mental models, and that future development policy, poverty alleviation and even the policy design process itself need to be modified taking this into account. I shall first outline the organising frame and explain the concept of poverty, followed by a critical evaluation of the development policy implications on the basis of that.
Organising Framework
WDR 2015 maintains that traditionally the analytical foundations of public policy have emanated from standard economic theory, which is based on the behavioural assumption that people use information in an unbiased way and make rational choices. Although for long irrefutably challenged,1 this self-interest interpretation of rationality has continued to be the dominant feature of mainstream economic theorising for ages. The free market ideology on which the World Bank has built its theoretical and policy foundations has been rooted in self-interest rationality. However, WDR 2015, ostensibly based on micro-level evidence from across the behavioural and social sciences, asserts that “an economics based on a more realistic understanding of human beings is being reinvented” (p 5). This new economics is increasingly becoming fashionable with the academic community in recent years. For the bank, it is very important as it provides a new “set of tools and strategies for promoting development and combating poverty” (p 3). Of course, based on the prolific research in behavioural economics, in recent years the report comes out with certain “systematic regularities that can be of first-order importance for health, child development, productivity, resource allocations and the process of policy design itself” (p 29). How these items have a bearing on poverty reduction is explained in various chapters of the report.
On the basis of “hundreds of empirical papers on human decision-making,”2 the report identifies three principles (discussed in three separate chapters) that provide “new approaches to understanding behaviour and designing and implementing development policy” (p 3). One, thinking automatically and not deliberately, which generates complex patterns of ideas that influence our decision-making. Two, thinking socially, in contrast to the assumption of standard economic models where individuals are characterised as selfish wealth maximisers. Three, thinking with mental models, based on social norms, identities and so on, some of which lead to intergenerational transmission of poverty. The report argues at length with anecdotes and micro-evidence from different countries that thinking automatically, thinking socially, and thinking with mental models “are of first-order importance for development policy, poverty alleviation and the policy design process itself” (p 25). Of course, this is in sharp contrast to the self-interest-based rational choices of mainstream economics. Evidently, the bank has undergone a change in its developmental assumptions and approaches. But the real foundational issue is whether visible changes have happened in its conceptualisation and policy choices relating to poverty.
Poverty as a Cognitive Tax
The report devotes a full chapter to poverty. It sums up the nature and causes of poverty thus,
Poverty is not simply a shortfall of money. The constant, day-to-day hard choices associated with poverty in effect ‘tax’ an individual’s band-width or mental resources. This cognitive tax in turn can lead to economic decisions that perpetuate poverty (p 81).
Poverty is called a tax because it is difficult for the poor “to think deliberatively” and therefore have a mental model, which “can dull the capacity to imagine a better life” and make them incapable of taking advantage of the opportunities that are open before them. In short, poverty is a behavioural distortion and poor alone have to be blamed for their plight. But then it is clearly illogical for the report to shy away from suggestions that would reduce inequalities in the attainments of the poor compared to their richer counterparts. To quote the report: “Children in poor families can differ dramatically from children in richer families in their cognitive and non-cognitive abilities resulting in enormous loss of human potential for themselves and society” (p 98). Obviously, the remedy is to take steps to reduce, if not abolish, the gaps in the non-cognitive disabilities and desperate conditions of these children through appropriate action plans.
The report is replete with anecdotal evidence from countries far and wide, including rural India, to illustrate the behavioural deficits of the poor. An Indian farmer may borrow at an exorbitant interest rate, may not send his children to school, may not buy mosquito nets to protect them from malaria, and show many other behavioural distortions. But imagine a rural India with excellent primary and secondary schools, accessible primary health centres that provide preventive and curative healthcare at affordable prices, regular income for the farmers and rural artisans (for example, through remunerative prices for their products), rural labour with regular employment, drinking water within easy reach, and so on. Indeed, much of the behavioural distortions mentioned could then disappear. It might be of interest if some behavioural economists do some control experiments comparing the case of an Indian farmer who is worried about running out of kerosene in the night or patching his leaky roof to protect the family from the impending rain, with that of his rich neighbour who is worried about sending his son to the best school in the capital. Can behavioural stories be abstracted from social realities?
Making assertions, and putting up a theoretical and empirical scaffolding on poverty to show it is a cognitive tax is a cruel joke. This is particularly so because the behaviour of the rich is not an issue in this report. While it is suggested that “social norms and comparisons can be used to reduce energy consumption,” the existing development paradigm is based on a multiplication of wants and accelerated consumerism, which lead to resource overuse and greenhouse gas production. This is not mentioned, let alone interrogated. The affluence of the rich and abject poverty cannot be separated. The poor in developing countries have not been imported from Mars or the moon to be scorned by the affluent—they are very much a part of the Homo sapiens on this planet.
Poverty and the Bank’s ‘Dog Fooding’
The WDR proudly claims that “World Bank staff members are highly trained experts in poverty” (p 19). Setting aside for a moment that this assertion assumes poverty to be a clinical problem,3 which experts can easily correct and cure, it is commendable on the part of the bank to examine how it administered the behavioural biases and misadventures of its own development staff. Testing the quality of your food on your dog or “dog fooding” is a practice in the technology industry where employees themselves use a product to experience it and find out its flaws. The bank administrated a randomised survey among 1,850 of its development professionals to examine the quality of their judgment and decision-making, and, more specifically, to find out the biases and mistakes that can arise from “thinking automatically, thinking socially and using mental models.” The whole of Part 3 of WDR 2015 is devoted to the findings of this and to drive home the need to redesign and readapt interventions towards reducing poverty in the world.
The WDR acknowledges that the bank’s professionals and the poor live in different moral universes and that the former are susceptible to a host of cognitive biases that affect poverty alleviation efforts. It is also admitted that development professionals interpret data subjectively and come to wrong policy choices. Also, development is characterised as a “complex, messy, conflict-ridden process” (p 181). But this evaluation of development perceives only its phenomenal form and does not relate to any normative goal. Development ideally is human ascent materially, socially, and culturally, and the progressive social inclusion of those who get marginalised in the dynamics of development, on their own terms. To be sure, poverty is not a clinical problem, an individual tragedy, or a behavioural distortion, as the bank argues. Poverty arises because of structural injustice in initial endowment of land and other assets, lack of exchange entitlements to participate in the market, the government’s failure to provide equality of opportunities to access healthcare, education, employment, and so on. In other words, poverty is integrally related to the development paradigm you choose and is the outcome of the process of development itself. Justice and fairness must inform public decision-making and action, and the World Bank, which swears by the development goal of poverty alleviation, surely cannot be an exception. As John Rawls rightly put it,
Justice is the first virtue of social institutions, as truth is of systems of thought. A theory however elegant and economical must be rejected or revised if it is untrue; likewise laws and institutions no matter how efficient and well-arranged must be reformed or abolished if they are unjust (1971: 3).
Skirting around Inequality
Although not surprisingly, the WDR 2015 does not make any reference, even obliquely, to the need for structural reforms in asset holdings, the entitlement of all to participate in the market, and building the capabilities of the poor so that they have the freedom to choose and so on. Reducing inequality by levelling up the multiple deprivations the poor suffer is important for reducing poverty. The assumption that poverty can be reduced by development experts improving the behaviour of the poor, however, “highly trained” the experts may be, fails to confront the question of inequality. True, in a totalitarian system, inequality is not an issue. But in a democracy, where the principle of one person one vote holds, every individual, rich or poor, counts equally. A system where only the dollar vote or money power counts is a plutocracy. The fundamental basis of democracy is equality of social, political, and economic opportunity, which is closely related to income, wealth and access to basic public goods such as education, health, social security and the like. Without equality of opportunity and easy social and occupational mobility, poverty can never be contained.
Therefore, if democracy were to be made meaningful, all types of inequality have to be progressively reduced to ensure equality of opportunity and social mobility. The caste system becomes unacceptable and intolerable because it rationalises inequality and hierarchy using the religious reasoning put out by those who wielded power and knowledge in the traditional past. Here the argument of WDR 2015 that social norms carry forward intergenerational poverty is certainly valid. The caste system by its own logic overrules equality of opportunity. Unfortunately, mainstream economics has also built a somewhat similar internal logic to rule out considerations of equality of opportunity and policy choices to fight inequality.4 Before empirically and theoretically challenging it, Simon Kuznet’s bell-shaped curve affirming the trends in growth and inequality dominated economic thinking. Even before that, the Pareto principle optimality held sway and you find it invoked in several United Nations (UN) publications even today. In the Pareto optimality regime, one cannot put out the fire in Rome because the fiddling Nero’s welfare cannot be disturbed. Piketty (2014) shows how the rate of growth in profits, dividends, rents and such surpluses (see the emergence of patrimonial capitalism since 1970) is greater than the rate of growth in the world, which is heading towards unsustainable inequalities. Basu ably sums up this epistemological tragedy,5 “The extent of poverty in today’s world is unacceptable. The reason that the world does not erupt in dissent is because a huge amount of intellectual effort goes into making it appear acceptable” (2010: 158).
Suggested Solutions
What are the solutions suggested to solve poverty by the bank? Given the high cognitive disabilities of the poor and based on field and laboratory experiments undertaken in countries as diverse as US, India, Kenya, Ecuador and so on, the report recommends three measures to improve the plight of the poor.
(1) Simplify procedures in anti-poverty efforts (for example, in filing applications for help); (2) Target assistance on the basis of bandwidth (for example, Indian sugarcane farmers who get their income only at the time of harvest cannot take a decision about sending their children to school and may be helped by proper targeting); and (3) Continue existing anti-poverty strategies that aim to reduce income volatility and improve infrastructure.
These are inane recommendations—a typical case of a mountain of theoretical and empirical evidence delivering a mouse. They only help to keep the poor where they are, rather than helping them to break the vicious cycle of poverty through appropriate redistributive strategies, public provisioning of education, healthcare, social security and so on.
To conclude, the WDR 2015 is probably better documented and padded up with citations compared to many of the bank’s earlier reports that ventured to contain poverty. True, it endeavours to question the orthodoxy of economics. Poverty, however, is not a behavioural distortion that can be clinically cured by development professionals. It is a societal problem that needs political remedies with an empathetic vision. The growing problem of unsustainable inequalities has to be addressed in any effort to solve poverty.
Notes
1 A recent and refreshing critique of free-market rationality and invisible hand is given by Kaushik Basu, a Senior Vice President of the World Bank, in his book Beyond Invisible Hand, with the subtitle Ground Work for a New Economics.What two medical doctors who spent 50 person years of research on how equality is important for human progress and survival concluded is quoted below to give a taste of the views of non-economists on the issue.
“The efficiency of the market economy seems to prove that greed and avarice are, as economic theory assumes, the overriding human motivations. Even the burden of crime appears to spring from the difficulty of stopping people breaking the rules to satisfy selfish desires. Signs of a caring, sharing human nature seem thin on the ground” (Wilkinson and Pickett 2010: 199).
2 Needless to say, good research depends not on quantity but on the methodological rigour, quality of reasoning, and the type of evidence deployed.
3 It is instructive to recall WDR 1990 on Poverty where the concept is exemplified by the case of “three poor families”—one a subsistence farmer household in Ghana, a poor urban household in Peru and a landless labour household in Bangladesh. The worst form of poverty is illustrated by a young household in Guinea, which “fell into destitution and eventually disintegrated” after the father contracted river blindness. This type of “clinical” poverty is irrelevant to South Asia, Africa and Latin America where it is a mass phenomenon and a part of the so-called development process.
4 That WDR 2006 was an exception may be acknowledged (World Bank 2006).
5 It will not be wide of the mark to note also that Joseph Stiglitz, a former Chief Economist of World Bank, demonstrates that generally government policies and political institutions far from countering inequality trends often enhance them unmindful of the impact of inequality on societies such as higher crime, health hazards, mental illness, lower educational achievements, poor social cohesion, and the like. These symptoms are also expressions of poverty (Stiglitz 2012).
References
Basu, Kaushik (2010): Beyond the Invisible Hand: Groundwork for a New Economics, Princeton University Press.
Kuznets, Simon (1955): “Economic Growth and Income Inequality,” American Economic Review, 45(1), pp 1–28.
Piketty, Thomas (2014): Capital in the Twenty-First Century, Translated by Arthur Goldhammer, Harvard University Press.
Rawls, John (1971): A Theory of Justice, Oxford: Clarendon Press.
Stiglitz, Joseph E (2012): The Price of Inequality, London: Allen Lane.
Wilkinson, Richard and Kate Pickett (2010): The Spirit Level: Why More Equal Societies Almost Always Do Better,London: Penguin.
World Bank (1980): Poverty and Human Development, World Bank Publications.
(1990): Poverty, World Bank Publications.
(2000–01): Attacking Poverty, World Bank Publications.
(2004): Making Services Work for Poor People, World Bank Publications.
(2006): Equity and Development, World Bank Publications.
(2015): Mind, Society and Behaviour, World Bank Publications.
