Blog Post 5: A case for mobility

Poverty has been consistently elusive for most development economists, mostly because the causal factors have never been enumerated in their totality.  In addition, it may be possible that many of variables contributing to poverty have yet to be determined.  One argument is that a lack of income relative to others is a primary factor indicating “poverty.”  This however, may be a misnomer.  It seems as though a lack of income is a symptom of poverty and not a causing factor.

The reasoning behind this argument is that continually giving individuals a form of income without helping them to use that income productively, by generating more income or provide a greater standard of living for themselves and their family, essentially creates a vat into which an unlimited amount of productive resources can fall.  Grants that are given to buy, sell and or use drugs do not help the overall society or the individual given the funds.  Even if an increase in disposable personal income is realized, and is able to create larger markets, there is no guarantee that those considered impoverished have access to these markets and/or that such levels of spending are sustainable.

My problem with using strictly income for measuring standard of living, specifically national GDP, is as follows:

Take China for example, they have had a high growth rate in GDP over the past few years.  This is due to multiple reasons, one of which is the increased income of the citizens.  Now if we stopped here it is easy to see how our vision can be clouded by income; it is real, it is tangible, and it has a direct link. Stopping there however, only reveals a symptom of economic growth, not the cause. The cause, although there are many, is tied to China’s move toward more social mobility.  This is seen through a lessoning in restrictions regarding property rights and an individual’s ability to move from the country to an urban area.  By increasing social mobility, China has been able to better maximize the efficiency of their constituents , and thus increase GDP.

Taking this same analysis and applying it to Honduras, acknowledging that any changes that can be made will not be done on a national scale, we can see that by improving their income relative to others in the area we make their standard of living go up, but still only relatively.  By giving them the tools to become literate and further educated we give all of our clients the opportunity to mobilize between different social spheres, and thus become wealthy on a scale not previously realized.

8 Responses to “Blog Post 5: A case for mobility

  • russellscott
    14 years ago

    The only issue with this is the capabilities of La Ceiba. Is La Ceiba equipped to change the social environment of Honduras? Can a Microfinance institution use micro-loans to give people an education or to teach them to read?

    Our tools are money-related, so i would argue that it only makes sense to use money to combat problems with money.

  • This is a funny comment to me considering your own blog post dealt with macro economic structure, but I digress. I absolutely agree that with you on two accounts: (a) La Ceiba has no ability once so ever to change a social climate, and (b)that loans are money and therefore we should deal with our clients problems through a monetary fashion.

    Beginning with point a. I never meant to insinuate that La Ceiba should hold a revolution in Honduras in order to achieve more rights for our clients. The example of China was meant merely to demonstrate that while an increase in income, absent inflation, can lead to a great many benefits, there are social factors that can minimize said benefits.

    Second, I agree with you that we should use our monetary position to best help our clients, but in order to help them realize the maximum benefits of enhancing their income it is imperative that we do this in more ways then just hand out additional loans. By this I mean creating the infrastructure necessary for them to succeed (i.e. education, nutritional health, communication abilities, security, etc).

  • russellscott
    14 years ago

    So would being a charity be a more effective use of our money? Microfinance does not drive any individual to build a school, but as a charity we could certainly use our donations to go towards the construction of a school, hopsitals, police training, what have you.

  • Of course not, thats what organizations like SHH are for. To assume however that income alone (such as the loans funded by microfinance)can solve poverty is…in my opinion, false.

  • and lets not forget, La Ceiba does provide some charitable work. An example of this would be the classes offered for the Business Plan Competition. Many MFIs have similar classes based on the understanding that simply handing out loans to provide income can not create the impact that many are looking for.

  • russellscott
    14 years ago

    So why does La Ceiba exist? Nothing we are doing is going towards building schools, hospitals, or any of that stuff. Thats SHH’s department. Nor should, according to you, our loans go towards increasing income.

    What should La Ceiba DO? Microfinance CAN have a measurable impact if it is income driven, because income is a practical side effect. We can use those classes that BPC will be doing to generate clients for small business loans. Those businesses could grow, with our assistance, gain employees, who help the business grow. If Hondurans have jobs, and have a money, are you saying they are still in poverty? That by letting Hondurans in El Progresso have jobs and get disposable income, and perhaps the money to pay for their kids education, that our mission would still go un-accomplished?

    More importantly, are you saying thats something we SHOULDN’T do, because its not 100% of the definition of poverty?

  • La Ceiba SHOULD continue to provide loans to our clients and to future clients, but to say that income can reduce poverty WITHOUT schools, health care, etc. is false in my opinion. Thats great that you can measure income, give yourself a big pat on the back for that one, but the level at which you will be measuring income is determined by the institutions that exist within a community. You can measure the income of a homeless man standing on the corner of central park and determine that he makes enough money to eat when there is heavy traffic, but his lack of social mobility due to another cause (such as illiteracy) prevents him from ever leaving that street corner. his income, although possibly sufficient for survival, can never be compared to a CEO without change in education level, etc. La Ceiba DOES perform a specific task in providing loans to individuals, and in the future to businesses, but this ALONE CANNOT DEFINE or ERADICATE poverty.

    I am not trying to change the function of La Ceiba in any way, I am simply defining poverty as something not specific to income, because I believe that a lack of income is NOT the cause of poverty, but rather a symptom there of. Additionally, despite what you have been claiming, a change in income is not the only way to measure poverty as I have defined it. Many studies include infant mortality rates, teen pregnancy rates, levels of education, longevity of life, the list goes on. So while income might be the EASIEST measure, or practical according to yourself, it is hardly the only measure.

    Unless of course you are claiming that none of the measures listed above could possibly in any way be a cause/measure of poverty,in which case I urge you to rewrite the poverty score cards if that is in fact your belief.

  • I agree with Caitlin on this one. La Ceiba practically does not have many other options besides microloans, which, as Russell points out, have the simple outcome of increased income (hopefully). It’s not that we should change what we’re doing, or how we’re measuring it in the short-term. What we do need to do is conceptualize poverty in a broader sense, and realize that just (maybe) increasing income does not mean that we are completely solving the issue of poverty. We have to look farther down the impact chain to understand the true impacts of our actions.

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