Connecting the Poor Is the Best Hope for Ending Poverty
Last month the World Bank published new global poverty estimates. They confirm that the last 25 years represent an auspicious moment in the annals of human progress. A target to cut the rate of extreme poverty in half over this period was achieved seven years ahead of schedule. Preliminary final accounts show a reduction of over 70 percent. A new goal to finish the job by eradicating extreme poverty over the next 15 years has now been endorsed by the UN. To understand how this might be achieved, we must first recognize that the lives of the poor are fundamentally changing: We’re witnessing the end of marginalization thanks to the connections made possible by digital networks.
Each year around 60 million people, equivalent to the population of the United Kingdom, see their incomes rise above the global poverty line of $1.90 a day. Impressive though this trend is, it is dwarfed by others. The number of people worldwide with a mobile phone, a bank account, a biometric identification card, and online access has each been rising by two to three hundred million—close to the population of the United States—annually. These technologies are being adopted at such speed that they are reaching many of those who remain below the poverty threshold.
In one respect, this is just another manifestation of the death of distance brought about by globalization. But for the world’s poor, it represents something more significant: an entry ticket into formal networks to communicate, to transact and access basic financial services, to obtain information, and to claim rights and recognition.
Poor people have traditionally lived on the margins of society and had limited connections with other people, markets, and government. Instead, they assemble what informal networks they can. These are invariably small, comprising people that are similarly deprived of income, information, and power, and who are vulnerable to the same shocks, such as a bad harvest. Informal networks can take the form of elaborate structures—rotating saving groups for credit, oracles for information, kinship obligations for social welfare—that fascinate anthropologists as much as they infuriate economists for their inefficiency and the limits they place on productivity.
Incorporating poor people into formal networks removes these limits and unleashes new possibilities for poverty reduction. Poor people are more capable of navigating their own way out of poverty when they have greater access to markets and information and can assert their identity. Additionally, governments, charities and international donors are better able to target the poor and determine their needs, raising the scope of what anti-poverty programs can hope to achieve.
Digital vs. Analog
Mobile, banking, identification, and online networks have another advantage: they’re digital. This makes them capable of reaching the world’s farthest corners by virtue of their low marginal costs. By comparison, the global penetration of analog networks like electricity and water remains far from complete more than a century after their rollout began due to the prohibitive cost of connecting the “last mile” to remote citizens.
Digital networks can also empower poor people since the data they generate, whether through phone records, browsing habits, or bank transactions, represent a valuable asset that the poor themselves can harness. These data can be deployed in various ways, from signaling preferences to retail companies to demonstrating creditworthiness. Finally, digital networks and the technologies they employ can be readily adapted to serve as rails for the delivery of additional services, such as the dissemination of public health warnings via SMS, and the formation of new networks, such as virtual online classrooms, bringing poor people more benefits and choice.
While digital networks are expanding fast, they’re still a long way from being universal. Completing their rollout is important and will not be without challenges. However an arguably bigger priority is preparing for what happens next. Extracting the full benefit from digital networks hinges on smart policy and regulation.
There are four components to this agenda. First, networks must be forced open and avoid being balkanized. That means providing a level playing field for those creating and distributing online services, allowing connections between different mobile providers, and having a single identity card function equally to register a vote as to open a bank account. Second, regulators should take steps to build trust in digital networks. Minimum standards of encryption on the Internet and deposit insurance for banking are immediate priorities. Third, investments in digital infrastructure are required to raise the quality of networks. This includes integrating the patchwork of fiber cables and building data centers for phone and Internet technology. Fourth, more efforts are required to promote awareness of the multiple uses of digital services, especially banking and being online, in poor communities.
This agenda has direct implications for the new global poverty goal. Incorporating poor people into open and robust networks can not only redefine what it means to be poor experientially, but may be the best hope for eliminating extreme poverty altogether.