Helping those in Extreme Poverty using "Targeting Ultra-Poor" Program

There is about a billion people who earn less than $1.25 a day, and these individuals are said to be living in extreme poverty. The absolute number of people in extreme poverty has been falling over the past 20 years, and there is a pledge to eliminate extreme poverty by 2030. This is a very ambitious task, and so far, there hasn't been any silver bullet that has been shown to eliminate poverty. Bringing people out of extreme poverty can be especially difficult because this group, even if they are out of poverty, are the most vulnerable to fall back into extreme poverty if some adverse economic shock afflicts them. Besides, programs and methods that have been proven effective in reducing extreme poverty in one area may fail to work in another region of the world.

One method that has been shown to be effective is the Targeting Ultra Poor program pioneered by BRAC, an development organization founded in Bangladesh. This program transfers an asset to a family in extreme poverty, and then provides them with training and cash support for the next 1.5 to 2 years. The cash transfer and training from the NGO gives the family support, while the family uses the asset for income generation. If the family is hit by an adverse economic shock in the early stage of the program, the cash support ensures that the family do not have to sell their asset to counteract the shock. After about two years, the family has sufficient financial resources to graduate from extreme poverty, and also reduce the probability of falling back into extreme poverty.

This project was originally implemented in the northern districts of Bangladesh, a region that is prone to extreme poverty. Analysis showed that the program not only increased cash income of those in extreme poverty, but also improved the overall well-being of the families. After it was shown to be successful in graduating most of the participants out of extreme poverty in the northern districts of Bangladesh, the program was replicated in other parts of the world. A recent article in the Economist magazine shows that it showed favorable results in other parts of the world too, like Ethiopia, Ghana, Honduras and India. The program, though labor-intensive, is cost effective.

Such an intervention can be safely assumed to be successful in reducing extreme poverty by a large extent. Development partners, and governments should think about adopting this program, besides microfinance, to help the extreme poor.

Free Higher Education?

The idea of free higher education, at least in public universities, is being promoted by certain circles. Is that a good idea? Education undoubtedly brings a lot of personal benefit to the life of the person receiving it, and, to some degree, also brings benefit to the community. Because of higher education, a person personally benefits by earning a higher income and leading a better standard of living. Society too benefits from having a better educated workforce, higher tax collection, less petty crime and better health.

If society gets more benefit than the individual receiving education, then it might make sense to subsidize education of that individual. However, this may not be true for all individuals. In many cases, the individual benefit from education can exceed the societal benefit. In that case, it may not be beneficial for society to fully subsidize the education of such individuals.

Lets look at an example to make it clearer. Suppose a poor state, in the hopes of having an educated workforce, makes higher education free for all the residents of that state. Now, every individual has an incentive to go for higher education. However, once they are educated, there is no bar that prevents them from moving to another state or country in search of higher pay. So, the poor state spent all its resources to educate the youth, but may not have enough sway to keep them in the state once they graduate.

What if the whole country instituted free higher education, at least in public universities. A much clichéd term in economics is "there is no such thing as a free lunch." If higher education is made free to students, someone needs to pay for it. The only way of doing it is by raising taxes, which may not be popular among the people. Besides, if something is given out for free, people may start perceiving that the quality is low (which may not be true). So, to signal that one is of higher caliber in terms of skills, students who believe they have the ability will go to private schools and pay the fee. If students believe that they have the potential to earn more if they attend a private university, they will continue to take loans and go to private schools, instead of attending the free public universities. 

Therefore, in theory, free higher education sounds good. But if implemented, there might be some negative consequence. 

A Successful Economic Zone - the Research Triangle Park of North Carolina

The success of economic zones may not be guaranteed, but there are certain instances where such zones thrived against all odds. One such example is the Research Triangle Park, located in the state of North Carolina, USA. The Research Triangle Park, or RTP, is one of the best examples where government, academia and industry collaborated together to create a research center that soon turned into a center of excellence.

The RTP is surrounded by 3 world-renowned research universities - Duke University, University of North Carolina at Chapel Hill and North Carolina State University. It is built on 7000 acres of land and has around forty thousand individuals working in more than 200 research centers. It has also become a great place to live, according to this Forbes article, which attracts more people to move to the region. The RTP has been so successful that the government of the state of North Carolina is creating some more research parks following the RTP model. One such center is near Charlotte and is called the North Carolina Research Campus.

One of the prime reasons why the RTP has flourished is that academia, industry and the public sector worked together in unison to make the Park successful. The universities taught courses and majors that the industrial sector demanded and employed, and the public sector provided the land and the necessary infrastructure for the research centers to set up. As more industries were attracted to the region because of the availability of skilled workforce and business-friendly environment, the youth in that area were also encouraged to pursue higher education.

Another important aspect about RTP is that is houses hi-tech research centers that requires skilled workforce. Labor-intensive manufacturing industries are not present in the area. To remain competitive, the region needs to continue to produce a skilled workforce. With a large number of renowned universities all round North Carolina, that may not be a problem in the foreseeable future. Another reason why the Park is flourishing is because it focuses on hi-tech research, something that we need now and in the future.

The success of such an economic zone shows the importance to have educational centers that produce skilled workforce.Simply providing tax incentives and subsidized land is not enough. Actually, North Carolina is an example where the prevalence of high state income taxes do not deter companies from moving to RTP, or encourage them to exit. This is because the benefits of the availability of skilled workforce outweighs the cost of tax. Therefore, if governments want to create successful economic zones, they should consider setting up universities/technical colleges/training institutes near those zones, that produce workforce the zone needs. This can increase the changes of success of an economic zones.  

The lure of creating Special Economic Zones (SEZ)

Special Economic Zones (SEZs), in a nutshell, are pockets of investors' paradise in a region or a country. Governments try to provide as much facilities - such as tax breaks, subsidies in buying land or constructing factories, or a commitment to train the required manpower - to attract investors to a particular area. With increased investment, politicians, policymakers and economists believe that it will create enough economic spillovers to spur economic development in the region. Eventually, the whole region can get industrialized, creating much wealth for the citizens of the region.

Because of this belief, many countries are rushing into creating SEZs. For example, just India is creating around 200 SEZs. Politicians promise large influx of future employment opportunities to locals, which makes the locals happy. There is large-scale investment in infrastructure that shows economic activity in the region. However, the long-run impact is mixed at best. This Economist article shows that most SEZs fail, and there are only a few successful SEZs. Politically, they may sound great, but economically, they may not be the right way to go.

This is mainly because SEZs do not exist in a bubble. Yes, they get special privileges from the government, but these privileges can create distortions within the economy. If I am a local investor, and region A has an SEZ and region B in the same country does not, then I would be more willing to invest in region A. Subsequently, there is more movement of migrant workers to region A. So, the rest of the country can become economically stagnant, while the SEZ region grows.

However, the above scenario can only happen if the SEZ is successful. If the SEZ fails to attract investment from locals and abroad, then all the capital used to set up the SEZ will go to waste. Besides, with the ease at which factories nowadays can locate from one country to another, if an SEZ loses its competitive advantage, it will makes investors flee, creating a lot of unemployment as a consequence.

So what is the best direction for industrialization? Instead of creating pockets of special zones, governments can take a more holistic approach and try to improve the investment climate of the whole country. If governments work to reduce bureaucracy, simplify registration, and invest in creating a resourceful workforce, investors will be willing to invest in the country. If the government wants to give a 'carrot' to foreign investors, it can do so by promoting that workers in the country are educated and efficient, the government is efficient and property rights are strictly enforced. These factors can encourage more investment that actually adds value to the local economy, rather than attract investment that is quick to leave the minute any facilities diminish.

Competency-Based Education System and MOOCs

Education has normally been delivered through lectures, where an instructor lectures pupils on a specific subjects. This model is prevalent from Kindergarten till most of undergraduate/graduate school. Only when a student is writing a thesis or dissertation is when a student works closely with a mentor or advisor. Individualized attention, where a teacher just has one or two students, is rare, unless a student or a parent specifically hires a tutor or instructor to teach a student. Nonetheless, education is a very labor-intensive industry, and it requires more human than capital for it to be effecive. However, there is a lot of discussion about changing this model of delivering education, especially in the undergraduate level.

There are two, somewhat divergent models being promoted to educate students at the undergraduate level. One is termed as MOOC (Massive Open Online Course). A number of universities like Stanford University and MIT are providing MOOC courses. Seeing the potential of growth, some commercial enterprises like Coursera, Udemy and Udacity have started to provide online courses for free. In these websites, a number of courses are offered for free. Students can view the lectures and then take and exam to get a certificate of competency in that course.

The other is called competency-based education, spearheaded by Western Governors University. In this model, the student tries to complete a major in his or her own pace, and there are mentors to guide the student to complete the degree. It is more of a mentor-student model where the mentor makes sure that the student does not fall behind; however, the student is expected to finish all the coursework, and take the required competency exam in order to pass the course. However, a big question here is whether this mentor-student model can be scaled up while keeping costs low.

These models of education are emerging because of the belief that the current higher education system is either too expensive for a large number of students, or is inflexible for working students. Although online education is trying to reach out to the largest number of students at a minimum cost, it doesn't provide some of the benefits that a traditional university offers. As an instructor in a traditional university, I know that much of the learning takes place outside of classroom. Traditional universities provide students huge opportunities to network, build resumes, take part in extra-curricular activities and be aware of the world around them. Variants of the traditional university model tend to teach students one-on-one without much emphasis of building other characteristics required for succeeding in one's professional life. For MOOC and competency-based education to succeed, attempts need to be made so that they complement the traditional universities, rather than substitute them. This way, students can get a true education, rather than a checklist of ideas that they memorized/mastered.