Today I Felt Poverty

At least sort of. Let me explain.

You always have unexpected expenses when you move to a new place. There are those upfront costs you forgot to take into account, the supplies your new place needs, and (for me) good old tuition.

Egypt has been no different. And this was no problem because I have a bank account and a credit card.

Well, that works pretty well unless you’re in a cash economy. Most stores don’t take credit cards, which, again, is fine because there are ATMs around. Fine, that is, unless your bank decides to block your account even though you told them you would be overseas.

But once again, there are options, like calling my bank. So I call them and then run out of phone credit in the middle of the call. I try to reload my phone but then realize I only have 10 EGP left in cash (~$1.20). So I reload my phone with 5 EGP (since they wouldn’t take all 10 for some weird reason) but again the credit runs out just as I’m getting to someone.

And then I realize I’m hungry. So I buy two sandwiches and walk home with 1 EGP in my pocket ($0.14).

That’s kind of poor.

Thankfully, I actually have 2 bank accounts so once tomorrow rolls around it really will be OK. But without this extra capital, my only recourse would have been relationships with people who had money.

This situation illustrates many of the significant problems for the world’s poor, especially the extreme poor. Unlike most Westerners, they have no access to the kind of liquidity we do. So when difficulties hit, whether they be medical expenses or crop failure, the poor simply get poorer. If need be, I could get a significant loan out tomorrow because I have a good credit history and banks are more willing to loan to people with an established record of paying things on time.

But no one really wants to loan to the poor, especially the extreme poor, because of the greater likelihood that you will never get your money back (unless you are somewhat poor also and want to gain a favor). So when hard times hit, the main recourse for the poor is their network of relationships. But this can pose a significant problem as well. Many people are poor because their families always have been poor and their relationship networks are primarily made up of other poor people. This is exacerbated in our status-driven societies where the poor are often kept out of the networks that would do them the most good.

Here’s where micro-finance usually steps in and provides a way for the poor to pool their money with other people like them in a network with accountability measures in place. And this works excellently in many cases.

But what do you do when localized disasters strike, like famine or floods? What if everyone in your network is as devastated as you are? And what if what counts as devastation on your level doesn’t really register on the scale of international relief? After all, the smallest shocks that Westerners would mean giving up a Twix bar can send the poor over the edge—even to prison.

Many of Westerners also have access to a thing called insurance that provides backup for situations like these. Not so with the poor. In fact, even in cases where organizations have tried to offer to insurance to extremely poor communities, most of them don’t want it. It’s incredibly difficult to give up money today for some ethereal future problem when literally every piece of money you make everyday isn’t even sufficient for basic needs, not to mention education for your children.

This is something economists call a poverty trap. Not only do the poor not have access to money today from consistent jobs and other benefits, they also lack access to their future money. Thus, when disaster strikes (remember, this can be a very small event for them) it further solidifies their place in the economic class of “poor.” The poor simply get poorer.

Muhammad Yunus and others seem to think that entrepreneurship combined with micro-finance is pretty much a cure-all for these situations. But when you look at the facts, it really doesn’t add up. Most of the poor don’t want their kids to be “entrepreneurs” like them; they slave away in order for their kids to get a stable job, preferably in some government position. In other words, most of the poor are entrepreneurs by necessity, not by choice. It’s really only glorious to us on the outside who have access to all our Western backup plans. In addition, the number of poor people truly escaping poverty themselves is just a fraction of what it should be in order to realize the grand dreams put forth of “the end of poverty in our generation.” Yes, there are many success stories of people who were once dirt poor and are now managers of big companies. But the percentage is minimal.

My purpose here is not to provide some grand solution to the problem of extreme poverty (though I’d like to one day), but merely to point out that there are no sweeping solutions currently in the market. Those solutions that do exist are helpful as far as they go but lack the ability to help the majority of the poor. A good measure of luck is required in addition to the proffered solutions in order to escape the trap of poverty and become at least “lower-class.”

Still, despite this realism (it’s not pessimism), good things are happening across the world and many people are escaping poverty. But we will never provide true solutions unless we’re willing to be brutally honest about the limitations of the current “solutions.”

For more on this, I recommend Poor Economics.

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