Below the Fold: Getting Concrete about Equality by Educating Girls and Women

A month ago in 3QD, I argued that microfinance wouldn’t eliminate poverty or do much in advancing global economic equality. Two weeks ago, I proposed that it’s no use thinking you can eliminate global poverty without achieving economic equality, something now supported by even the World Bank. Equality eliminates poverty, but poverty elimination doesn’t achieve equality. It produces people who are less poor at best, and who are not able to protect any economic gains they might make via poverty reduction programs. Several months ago, I argued that poor countries could not close the inequality gap between them and us without rich countries sharing some of their wealth.

One 3QD respondent asked, given my dim view of microfinance, what I would propose instead. I want to take up one proposal and show how it would be superior to more investments in microfinance.

Suppose you want to invest a dollar with the goal of increasing world economic equality, and so you are considering how to make that dollar work to the best advantage of poor people in poor countries. Consider subsidizing poor family incomes by rewarding people for keeping their girls in school. That is, give a family that keeps its daughters in school a monthly income supplement for every girl in school.

The Benefits of Educating Girls and Subsidizing Families to Do It

Why? Because economists and poor people’s advocates alike will tell you that spending money to put poor girls through school is the best way to build sustainable and poverty-free economies. Further, girls’ education is key to achieving gender equality, and as an added benefit, a family subsidy helps reduce poverty at home. Not incidentally, if people are induced to put girls through school, the evidence suggests that they will endeavor to keep their boys in school too.

The economic benefits are significant. Economies grow faster the more education women have. Not only do societies produce more because they have more workers, productivity improves because you are enabling the least qualified persons to be more qualified for more difficult and rewarding work. At the same time, one need not settle for improvement solely in the relatively small industrial economies of poor countries. Educated rural women improve agricultural productivity as well – a significant step forward for poor societies considering that women perform the lion’s share of agricultural labor.

Women with more education in poor countries have children who live longer, are better fed, and experience better cognitive development. The children are more likely to be immunized against basic infectious diseases. Increased women’s earnings are also more likely to be used to support children than if men remained the sole money source of the family.

As economist and former Harvard president Larry Summers argues, educating young girls is the best single investment a poor society can make.

How Does It Work in Mexico?

Increasing girls’ school attendance by providing their families with income supplements is not cheap. Mexico has an exemplary program of providing monthly stipends for keeping poor children in school. Though the state pays a subsidy for every poor boy and girl, more is paid for the education of a girl. The further the girl goes in her schooling, the monthly stipend increases so that, for example, when a girl reaches her third year in secondary school, her family receives a monthly grant equivalent to 46% of an agricultural worker’s monthly income.

The results have been terrific. School enrollments have grown by as much as 17% in the crucial higher grades, a time when children are often taken out of school to work in the fields. Now girls attend middle school in roughly equal proportion to boys, and both sexes have now passed the 75% rate of school attendance.

As I said, the program is not cheap. In 2004, the program did reach 5 million poor Mexican households, twenty percent of all Mexican households. The cost, 2.3 billion dollars a year, is certainly a lot of money, but proportionately is only 1.5% of the Mexican federal government’s budget, and a fraction of 1% of the Mexican national output.

Suppose you took the same dollar and put it as capital into non-profit microfinance. You might be surprised to find out that providing poor people with small loans to start and improve small businesses costs much more on a mass basis than educating their children and subsidizing their monthly incomes. The United Nations Capital Development Fund, the sponsor of an initiative to spread microfinance operations worldwide, but especially among poor people in poor countries, estimated in 2005 that it takes 22 billion dollars to adequately serve the microfinance needs of 100 million poor people.

Let’s do the math for Mexico. Half of Mexico’s 100 million people, or 50 million people, are poor. So, if we were to provide Mexico’s poor with adequate microfinance funds, it would cost us 11 billion dollars a year, or half of what the United Nations estimates is needed to cover 100 million poor people.

In contrast, suppose we provide education subsidies to all poor families sending their children to school, and for as long as they attend school. Right now, as noted above, the supplement program covers 20% of all households. Given that I do not have average Mexican household size by income handy, I ask your indulgence here. I am assuming for the purposes of the argument that the average size of a Mexican household is the same from top to bottom of the income distribution. In other words I am supposing that the 50 million Mexicans (half the population) whom we know live in poverty compose half, or 12.5 million of Mexico’s 25 million households. That means that the education subsidy program would have to be increased two and a half times its present rate of 2.3 billion dollars a year to cover all poor families. This would cost approximately 5.75 billion dollars year.

There is a certain dumb luck, perhaps, in how symmetrical the numbers here turn out to be.

An anti-poverty program that by supporting girls’ education increases the prospects for ultimately greater economic and gender equality while providing cash income support to all Mexico’s poor households costs a little more than half as much as availing them of microfinance. Even assuming poor households are significantly larger than rich and middle class households, the difference between the cost of microfinance and the cost of education subsidies is large enough to cover any mistakes made in estimating the number of poor children with change to spare.

The difference between Mexico and very poor countries is that Mexico, at least, has the state funds to provide education subsidies on a large-scale basis. If the lesson that education support is better and cheaper than microfinance holds, rich countries in assisting very poor countries will need to provide proportionately more money support. Being a very poor country means lower incomes and few state resources. Again, though, it seems to make more sense than pumping up the poor with microfinance.

The worldwide campaign to make microfinance the key to eliminating poverty and improving economic opportunities for the poor looks both expensive and likely to be ineffective, I hope my previous column Buddy, Can You Spare a Dime? gave you reasons why in principle you should not support microfinance. Recall too that microfinance has not been shown to measurably reduce poverty in poor countries, and almost by definition cannot be expected to help eliminate economic inequality. Quite the contrary: if it works well, microfinance should create a probably a minority stratum of small business people who by their success would be a cut above the poor. Microfinance, if it succeeds, then, could actually increase economic inequality in poor countries.

Well, reader, place your bets. Where would you, and where should we, put that dollar to work? Education for poor girls that puts money in their parents’ pockets or small, high-interest loans for a minority of their mothers in high-risk enterprises? Me, I’m sticking with Larry Summers, perhaps for the first time in my life.

Next time, I will write about global, universal health care.