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.

Comments

[Ali Choudhury]

"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"

Don't they already do so in terms of soft loans, grants and developmental aid? Redistribution of wealth isn't the answer ; raising domestic productivity through spending on education, health and inculcating a corruption-free and enterprise-friendly environment is.

[Harlan]

But the money invested in microfinance is a *loan*, not a *grant*! The vast majority of microfinance recipients pay their loans back, with interest, right? Are the numbers above correct, given this?

Also, I'm not sure how you can argue that raising a large number of very poor people out of poverty increases economic inequality. That's fuzzy math. Economic inequality is not, I think, measured by the very poorest single person, which is what the article implies, it has to do with the distribution of wealth. Anything that increases wealth in the lower socioeconomic strata will shift the distribution of wealth, and thus reduce inequality.

This is not to say that your advocation of education for girls is misguided or anything, merely that your argument comparing it favorably to microfinance seems to be poorly argued.

[Michael Blim]

You agree that education is key, but where is the money to come from? The UN Millennium Project has already highlighted the continuing shortfall in improving school enrollments throughout the poor world.

Look at the balance sheets of poor countries, and compare them against school programs. Only Brazil and Mexico have been able to fund national programs with any discernible impact on girls' (and by implication boys too) school attendance.

It's a little like Willy Sutton's response as to why he robbed banks. As he said: It's where the money is.

Well, the rich countries need to pass along money for schooling projects.

Do you really expect that a total of $60 billion a year in developmental assistance from the rich to the poor countries is enough to meet the all of the manifest needs of poor countries, and then support universal education, family subsidies, as well as health, which as you mention is a critical need? (I will present a health proposal in the next column.)

On soft loans, be aware that the lion's share goes to countries that could fund these programs themselves because they can successfully pay the World Bank back. They also fund much of the World Bank's operations, so the World Bank has no incentive to lend to poor countries. Recall the poor country debt disaster that the world community is still trying to resolve through loan forgiveness. And remember too that a Congressionally appointed committee chaired by Alan Meltzer, a conservative economist, recommended that the World Bank stop loaning money and start giving it directly in the form of grants.

So, I am glad you approve the goals, mindful too of corruption, the attack on which I support.

Now let's really fund it.

[Karen]

When you look at the case of Kerala, simply put, issues around poverty, high birth rates, food insecurity were most successfully addressed primarily by strong education programs for women and girls as well as effective food security programs. It is now a state that boasts 100% literacy and the lowest birth rates in India.

This does not negate the positive effects of micr-enterprise programs.

[Michael Blim]

Harlan: several points.

The fuzzy math is not mine. It is the World Bank's. Challenge them. See my "mole at the World Bank" column last month for references that would lead you to be able to examine their whys and wherefores.

Yes, money to the bottom in theory should by definition create more equality. But the point is that without wholesale redistribution, both from inside and outside, it is unlikely as the World Bank notes, that the poor can catch up and thereby live the decent lives we take for granted.

On microfinance as self-financing and thus self-sufficient, no program, even Grameen, is. There is a move on to securitize the loans in packages to investors, whereby the loans guarantee lending capital back to the bank/ngo. These are loans, high risk ones, that add to the microfinance cost structure. And don't forget that spreading microfinance is costly (see my estimate), and those costs are not one-time, offset by loan paybacks. Consider that the overhead for microfinance projects is 31%, in contrast to 14% encumbered as expenses by banks, according to microfinance advocates. This adds to the burden of self-reproduction.

Somebody ends up paying in the end. If not the lenders through the interest rates (which are enormous -- see my blog "Buddy Can You Spare a Dime?), then the bank/ngo will have to pay or make up both lending losses and overhead to keep going. Making banks/ngos in microfinance tax exempt, as we do in the States by granting coops and ngos tax exemptions, simply shifts costs to states via revenue lost on economic activities that they would otherwise tax.

The education subsidies suggested in the column are "supply-side," so that one expects that they will pay off in the future, not only as they do in the present by putting money into poor people's hands. Consider this a form of investment too.

[Michael Blim]

Karen: Nothing is free. Money is forever scarce. You must compare initiatives against a standard. Mine is: which program advances equality, and at what cost?

Microfinance fails this test in light of other alternatives, including here family subsidies for assuring girls' school attendance -- an ambition that you obviously share.

Ask yourself too why Kerala is not number one on the microfinance activity list, given their historic political activism, Congress or Communist.

I venture to say because they have other, equality-oriented beliefs and activities.

[maniza]

Micro finance won't do it. It's a good service and should be there--but its not about to lift the world out of poverty. This expectation that the poor will all become thriving enterpreneurs and all we need to do is provide access to financial services is a pretty dream. Are the participants on this blog's discussion thriving enterpeneurs or do they have the wherewithal to be ones? I doubt it.

Education will certainly bring gains. Reams and reams of research available to show gains in health and income, due to education.

Remove the US$350 billion in agriculture subsidies and tarriffs barriers that the developed world provides as protection for its agriculture goods and let the developing world compete on an even playing field-then those of us sitting in the developed world won't have to beat our breasts or scratch our heads about where best to place our development dollar--which is a paltry US$50 billion a year compared to the US$350 billion in agricultural subsidies that constrains the developing world particularly Africa from thriving.

Oh and yes--let's put that dollar to work by not handing it over to build guns and bombs lets use that dollar to stop the damn war--that's costing US$17 million dollars an hour--money that could have been spent lifting everyone out of poverty.

[Ali Choudhury]

If there's a war which needs stopping, it's the one India and Pakistan are fighting over Kashmir. Then maybe both countries could raise their pitiful social spending.

I doubt the failure of poorer countries to eradicate illiteracy is simply the result of them not having the money. It seems more like the political elites would rather spend their money elsewhere.

I'm very sceptical about the benefits of external aid without there being good institutions in the target country. It's not really about how much money is available but what safeguards are in place to ensure accountability, transparency and results.

Removing trade barriers would a Good Thing but I doubt it'll happen anytime soon given the political power of agricultural lobbies in France and the US. Besides which, commodities aren't the road to real progress in the 21st century. Developing human capital - brainpower - is.

[Karen]

Michael, having studied gender (ie. both sexes) and livelihood options in Kerala, it is remarkable how the state of Kerala made political decisions to address social-economic issues. The variety of "Communism" applied in Kerala is certainly nothing like the kind imagnined by other nations that have a more limited political spectrum. Addressing gender equality through educational programs does not negate the possibilities and potentials of micro-enterprise systems.

[Almendra]

hey, I know that all the comments are from january.. and it's a little bit.. late.. but i just came across your blog. I am a girl, I live in Mexico and I was looking for information about girls' education in developing countries.
I currently attend the last grade in high school and my school does every year a simulation of the united nations, this year the topic we are dealing with is one of the millennium development goals which is ensure universal primary education and I totall y have to agree with you.

I have known here in my country many microfinancing programs that the government gives to rural workers and I have come to the conclusion that even though microfinancing helps it is in very small proportions because most of the money used in.. microfinancing... is not really spent as it should. It is easyer for the government to keep track of the money that they spend in subsidizing families who send their kids to school due to the SEP (secretaria de educacion publica or public education.. program)

However it is important to make emphasis in the fact that even if kids are attending school, in countries like mine we need a lot of infrastructure and funds for teachers, we recently had a big problem with teachers in one of the shouth-west regions because salaries are really not enough and to give teachers the adequate methods to.. teach...

Giving families incentives to send children to school is a big step, though, and I am glad that people are aware of it.

By the way, I'm going to take the first picture you have for this un simulation project.

There are so many benefits when investing in education and it is a key to development.

[vinesh kumar]

how are u study i am not understand