Capabilities on the Move: Mobility and Aspirations

September 10-13, 2015

The Gifford Center co-sponsored several sessions of the Human Development and Capability Association conference at Georgetown University September 10-13, 2015. Migration is integral to development, not just a result of underdevelopment, and financial and social remittances can contribute to faster development, but migration is not the solution for underdevelopment.

Economist James Heckman, a pioneer in applying economic theory to the analysis of an individual’s human capital or skills, noted that the capabilities approach of human development was very similar to the economic analysis of individual decisions to acquire and to be rewarded for skills in the labor market. Heckman focused on the dynamics of skills formation, emphasizing that mothering and mentoring are key to ensuring that children become successful students and workers.

Heckman emphasized that an individual’s skills or capabilities are multidimensional, including test scores as well as soft skills such as the ability to get along with others, being reliable, and working in teams. Poverty in adults, according to Heckman, often arises from poor parenting: if parents do not help their children to learn, the gaps between children apparent at the age of three, when testing is first reasonably reliable, persist into adulthood.

At age three, children in families that receive means-tested assistance know an average of 500 words, versus 1,100 in non-welfare families. Poor parents are often under stress, and they transfer this stress to young children with more negative admonitions and less positive reinforcement.

The result are virtuous and vicious circles that increase inequalities. Children in middle-class families with good parents develop skills that create positive feed back loops, and their self-confidence spurs learning and positive social interactions. Children in welfare families may doubt their ability to learn and interact, and cope via aggression or withdrawal.

Heckman’s urges early intervention to overcome poor parenting. Most parents want the best for their children, but with over 70 percent of Black children in the US born out of wedlock, many mothers do not know how to be effective parents. At the Perry pre-school west of Detroit, a long-term intervention in a school where all students receive free meals has teachers visiting student homes at least once a week. This intervention did not increase test scores, but did lead to better nutrition and health and less crime when participants got older.

Heckman’s advice is simple: governments should engage in “pre-distribution” rather than redistribution, that is, spend more to intervene early in the lives of children at risk and less on transferring money from richer to poorer adults. When governments must choose between competing goods, such as spending to enhance human capital versus infrastructure, the emphasis should be on education. Kerala, once one of India’s poorest states, became one of the richest by focusing on investments in human rather than physical capital.

How can development institutions such as the World Bank promote early intervention programs that reduce rather than increase inequality? The World Bank in 2013 announced two goals: (1) eliminate extreme poverty by 2030, defined as living on less than $1.25 a day (2005 prices) or $1 day a in 1996 and (2) achieve widely shared prosperity, defined as economic growth that improves the lives of the bottom 40 percent of the income distribution.

The World Bank seeks policies that achieve both economic growth and shared prosperity goals. Most policies that speed economic growth also benefit people in the bottom 40 percent of the income distribution, that is, a rising tide generally lifts all boats but, unlike on water, some people rise higher than others in a growing economy. One exception is China, where average incomes rose by 6.7 percent a year between 1990 and 2007, but the average incomes of the poorest 40 percent fell by 1.7 percent a year over this period.

The obverse is also true, that is, policies that slow economic growth rarely help the bottom 40 percent. For example, Venezuela’s subsidies probably slow long-run economic growth, so that the benefits to the bottom 40 percent are short lived.

There are many examples of governments pursuing policies that enrich selected cronies and slow economic growth. Ex-President Ben Ali’s family in Tunisia had monopolies in three sectors critical to export-led economic growth, telecoms, banking, and transport. The high prices charged for these essential services deterred export-led growth and left many youth and adults jobless. The West African currency, the CFA, was kept overvalued for decades, slowing export-led growth while allowing the elite to import luxury cars and other goods cheaply.

Over 70 percent of the world’s poor rely on agriculture for most of their income. Raising the incomes of farmers requires helping some to move to cities to earn more and raising the productivity of those who stay on the farm. Few governments have effective internal migration assistance programs, and many programs aimed at increasing productivity in agriculture widen inequality. For example, Tanzania distributed vouchers to help farmers to buy fertilizer, but 60 percent of the discount vouchers went to relatives of elected officials.

There are many examples of slogans that wind up hurting the poor. Some argue that water is a human right, so that people should not pay for drinking water. Public entities that provide “free water” are often slow to provide it in new settlement areas, so that the poor often wind up paying 10 times more for water delivered by private firms that are quicker to recognize the need. Public entities look to politicians for leadership and direction rather than consumers, so that allowing private-sector water firms to charge two or three times the cost of water could save poor people money and make the firms responsive to water customers rather than politicians.

The children of poor people in developing countries begin to lag behind early in life, just as children of poor people in industrial countries. However, education systems in the rural areas of developing countries where extreme poverty is concentrated are often inferior because of rent-seeking behavior. For example, a quarter of the teachers in rural areas of India do not show up to teach, but they do work on the campaigns of local officials, so they keep their jobs but shortchange children who do not obtain the education needed to achieve upward mobility.

Human development means increasing the capabilities of people, especially children born to poor parents. Achieving an equal opportunity society requires designing programs to give poor children a chance for upward mobility by overcoming the gaps that arise from the many factors that create them, ranging assortive mating (highly educated people marrying each other) through neighborhood and schooling effects, as peers and transmit good and bad behaviors. Markets cannot undo the inequality-inducing effects of personal behaviors, but early-intervention government programs can help to narrow differences.