Philanthropy Action

Latest Articles

Pic 05

News & Commentary

Archive

This post summarizes findings from a study in education presented on March 2, 2012 at a half day event hosted by Innovations for Poverty Action (IPA) and the University of California’s Center for Evaluation for Global Action (CEGA). Please forgive any errors or omissions.

Michael Kremer from Harvard University presented in the second half of the morning on the results of a study he conducted to assess whether empowerment and political engagement increase for girls who stay in school longer.

The results were part of a ten-year follow up on merit scholar recipients from a study Kremer conducted in 2001. In the original study, Kremer and his colleagues Edward Miguel and Rebecca Thornton found that offering merit scholarships to the top performing girls in poor rural schools increased school attendance and performance across the board—even among those girls and boys who were well outside the range of achievement (to say nothing of gender) to receive a scholarship.  In sum, scholarships help girls do better in school and they go to school longer. This is particularly important for this population, which is extremely poor, socially marginalized, and resident in a part of Kenya that is not politically empowered. But does the extra schooling also make the young women more empowered and more actively engaged in their communities and society, as many have suggested?

The evidence in favor is muted to nonexistent. Ten years later, the girls in treatment schools did have more progressive views about their rights. They were less likely to agree that it was okay for a man to beat his wife, and less likely to have had their parents choose their spouse. They were much more likely to read a newspaper regularly and their political knowledge was much higher than that of their peers. Yet that knowledge did not necessarily translate into action or engagement. These more educated women did not have different feelings about democracy or their ability to affect change within a democratic system.

These results fail to provide strong support for the theory that education empowers marginalized groups and replaces assigned identities (caste, tribe, gender) with a self-empowered identity based on personal achievement. But in many ways this study is more interesting for its long-term outlook. Kremer is one of the pioneering researchers applying randomized techniques to the social sciences. Just last year he and Edward Miguel published another paper offering a ten-year look at young adults who had been the first cohort to receive deworming pills in Kenya’s schools. That he is able to look back ten years later to assess the long-term impact of certain programs is itself a huge achievement.

This post summarizes findings from a group of studies in education that were presented on March 2, 2012 at a half day event hosted by Innovations for Poverty Action (IPA) and the University of California’s Center for Evaluation for Global Action (CEGA). Please forgive any errors or omissions.

Leigh Linden from the University of Texas at Austin open the second session of the IPA/CEGA event on education with the promise of results from two studies he conducted in India on the impact of computer-aided instruction. Computer-aided instruction refers to the use of computers in the classroom for a range of purposes, from self-directed lessons to practice in core skills.

Linden first summarized what is already known about the impact of computer-aided instruction. In brief, the research results have been mixed. In one study, computer-aided instruction led to a significant decrease in skills; in another to a significant increase. On balance, Linden says that the evidence has shown positive, if muted, increases in reading and math skills from computer aided instruction, but that it is difficult to generalize since existing studies vary dramatically in the programs they test, the students they assess, the teaching environments and other highly variable factors.

On to the evidence: Linden first presented findings from a project he conducted with Gyan Shala, a network of private schools in India. These schools were well-structured with a highly specified curriculum. In a baseline test intended to assess math skills, Gyan Shala students massively outscored their peers attending other local schools.

Gyan Shala students in this project were randomly selected to receive an hour of special computer-aided instruction for the purposes of practicing math skills. Students were divided into two groups: a “pull out” group that received computer time during school hours; and a second group that received computer time after school hours.

Linden found that the pull out program resulted in a significant average decline in skills over the study period. The pull out group saw a .7 standard deviation decrease in skills compared with their peers who did not receive computer time. The effect varied depending on the ability of the student at the beginning of the project. The best students in the school saw some decrease in skills, but far less than the least successful students, whose skill loss was dramatic. The children who received computer-aided instruction after school hours saw the reverse effect. The best-performing students did not benefit much, but the worse performing students benefited significantly.

These results may cause many teachers unions to celebrate, as they suggest that instruction really matters, especially for struggling students. Computers cannot replace instructional time, even in India, where teacher and student absenteeism is high.

Linden’s second study measured the impact of computer-aided instruction in English language learning. In this second study, Indian public schools were given tablet computers similar to the LeapFrog. The tablets had an English language application that children could follow at their own pace. Some schools also received flashcard activities that the teachers did with the children. Linden divided the students into four randomly assigned cohorts. One got to use the tablets only; one got to do the flashcard activities only; some got to use both tablets and flashcards; some got nothing.

Linden’s results again varied depending on the skill level of the child. All three cohorts showed average improvements. But the best performing students did much better using the tablet computers at their own pace, and gained nothing from the flashcard activities. In contrast, the less successful students saw the greatest benefit from doing flashcard activities led by the teacher, and gained nothing from the tablets. Again, for the lowest performers teachers really matter.

Curiously, students also showed improvements in math—a subject not addressed by the computer-aided technology. Linden concludes from interviewing students that the technology and/or the flashcard activities allowed the students to finish their English-language lessons faster, so the teachers were using the extra time for other instructional areas.

These findings reinforce an important idea for social interventions: context matters. Linden expressed his concern that many social interventions are planned with the assumption that they might help and won’t hurt, but the evidence shows that they can hurt. All the students who had their instructional time limited in order to take advantage of computer-aided instruction saw their skills decline.

Someone should tell Nicolas Negroponte.

This post summarizes findings from a group of studies in education that were presented on March 2, 2012 at a half day event hosted by Innovations for Poverty Action (IPA) and the University of California’s Center for Evaluation for Global Action (CEGA). Please forgive any errors or omissions.

Karthik Muralidharan from UC San Diego opened the event by presenting findings from a large randomized controlled trial in which he tested four different approaches to improving student learning. In the last decade, student enrollment has improved significantly in primary schools in the developing world, but student learning has not seen a corresponding jump: In India, only eight percent of first graders can read at grade level. Muralidharan’s four approaches correspond to existing theories about why poor children do not learn. His studies tested the theories by seeing what happens when:

1) Teachers have better information about where students are failing
2) Schools have more money to buy supplies
3) Schools gain a low-paid, minimally trained contract teacher from the community
4) Teachers have better incentive to perform, either through performance pay based on how all students do in the school overall; or providing individual performance payments based on how their students do

The findings, in brief, show that better information for teachers had no effect on student learning, and providing money for supplies had only a tiny effect, with diminishing impact over time (the decrease in impact corresponded to a decrease in parents investing household funds in school supplies for their children).

The third approach of providing a contract teacher, in contrast, resulted in significant improvements for students. Though Muralidharan’s data was not precise enough to know for sure, he cannot rule out that contract teachers were ultimately more effective than their better-trained, better paid counterparts, due in large part to a 40 percent lower absentee rate (recall that the contract teachers live in the community, so it is easier to get to school, and if they don’t show up their neighbors won’t have to go to far to complain). 

Last, providing incentives through performance pay had the greatest effect on student learning, and individual incentives worked better than group incentives. Interestingly, teacher absence did not change at all, but when teachers were there it seems they more actively applied their skills, so that teachers who had the most training produced the best results in student achievement.

Muralidharan concludes that providing additional instruction in the early schooling years particularly to disadvantaged kids can make a huge difference, and that educators with less training can be an effective resource. His findings support earlier IPA/JPAL evidence from India and Kenya that quantify the positive impact of additional teaching resources on student outcomes.

For my upcoming book, Experimental Conversations, I’m interviewing a variety of economists conducting field experiments on poverty interventions. Here’s the second excerpt from my interview with David McKenzie, an economist at the World Bank (and now prolific blogger at the World Bank’s Development Impact blog) who has been studying the dynamics of microenterprises. David’s goal is to better understand how profitable these firms are, why they don’t grow, and how we may be able to help put them onto a growth path.

Tim Ogden: Let’s talk about microenterprise profits. You’ve written a paper on how to measure profits of microenterprises. You found a lot of these small operations are profitable, but there’s a lot of question about that. Why is it so hard to measure profits?

David McKenzie: There’s a couple of things going on there. The first is how you value the time of the people participating in these enterprises. Our measure of profits includes any return to the labor of these enterprises. If you worked on this business and your business earned 3000 rupees this month, that includes a return to your own hours of work. If you start trying to value the opportunity cost of that labor and you calculate it at some sort of market wage rate quickly you’ll find that many of these businesses look unprofitable.
I think this is one of the key questions about how to think about microenterprises and what we should do to help them, especially when you are looking at women in these businesses. For these women there usually is no outside option to generate cash.

TO: The labor markets are so thin how do you assess the opportunity cost? Is that it?

DM: That’s one part of it. The second part of it, and that’s something that comes up in this profits paper, is that if you ask people detailed questions on revenues and detailed questions on expenses, there’s a lot of noise on each of those numbers. A small shopkeeper is buying stuff in one period and selling it in another period and you’re trying to match all those things together. When you do that, you’re going to find that revenue minus expenses is really, really, really noisy and a bunch of studies have found negative values on that measure.

Now what we do in the profits paper is try and better match expenses and revenue. Rob Townsend has done some work with his Thailand data to better understand whether you should you use accrual or cash methods for measuring these enterprises. Especially when you’re looking at a short time horizon [like how the business has done in the last month, or last three months] the mismatch between when things are bought and sold can make a lot of firms look unprofitable. But under a longer run view they would be profitable.

But when you start to ask people to recall lots of small transactions over six months or a year, that’s pretty hard to do. So in these studies of microenterprise profits we usually ask for recall over just a month span. But that’s where you get the mismatch between revenues and expenses. I think that’s why when you directly ask people about profits most of them say they are profitable.

TO: As long as you don’t factor in the cost of labor.

DM: Right. There’s this really nice paper by Shahe Emran and Joe Stiglitz on why it is that microfinance can get a woman to run somewhat profitable businesses with chickens and things but they never get those businesses to grow into something greater. And the whole thing is that the women in these Asian countries have no other options. When their time value is 0 they can do this but as soon as they have to hire somebody at market wage it becomes unprofitable to expand.

TO: In the profits study you asked people to use ledgers to record their costs and revenues, presumably to aid recall. But that seems like that would be a very helpful tool to the average small enterprise—it’s certainly part of the standard advice to new business owners: keep careful records. But you found that people didn’t typically use the ledger for very long and use didn’t seem to have much impact. Greg Fischer and Antoinette Schoar’s work in the Dominican Republic found not much impact from formal accounting training but some notable positive effects from teaching simple “rules of thumb.” How do you match up those findings?

DM: There’s a couple of themes there. One is that our study is from a general pool of microenterprise owners and not those who have already self-selected themselves or been selected by MFIs. So when we found that 50% of people will only keep up these ledgers, if all those people happen to also be microfinance clients then maybe the MFIs are doing a good job selecting for clients more inclined to do that. Secondly we weren’t giving them any training, we were just giving them these sheets of paper with five columns and asking them to write things down each day. Some people did and kept doing it, and others said there’s no real value to me and so they quit doing it.

With the rules of thumb, Greg and Antoinette are not finding it has much impact on ultimate business outcomes. They tell a nice story but if you look closely they have a bunch of sales measures. One of the six sales measures is significant at the 10% level—sales in a bad month. So it’s not clear that it’s really having a huge impact, even that training. What they’re pointing out is that it has more impact than formal training.

I think this is an issue with a lot of these experiments. The power these studies have to answer some questions is really low. And these profit measurement issues sort of feed into that. So if you look at the Banerjee and Duflo Spandana paper, for instance, there’s a huge amount of noise in their profits data. I did some calculations and I think it came out that they would need 2 million people to find an increase of 10% in profits given the take-up of microfinance and the noise in profit measurements Measuring these profits is crucial for our understanding for figuring out what makes sense but it’s incredibly hard to measure.

We have this other paper following up on measuring profits based on the work we’re doing in Ghana. There we used PDAs to do our measurements. Each wave after the first wave we put in the previous wave’s data and we checked their profits relative to last month and if the change was too large we would challenge them. So we would see that a business’s profits were 100 Cedi 3 months ago but this month the owner is reporting it’s 1000 Cedi. So we ask them, “Did we get things wrong?” Not implying that they’re lying to us, but that we made a data entry error. The remarkable thing to us is that in 85% of the cases they did confirm that their profits did change that much from one month to the next.

Part of it is just seasonality, but part of it is one of the things that comes up in Portfolios of the Poor.  There’s a huge variation of incomes on a day-to-day and a month-to-month basis. You have good months and bad months. Some months you get sick and you don’t earn much, other months something else happens. It’s a huge challenge for trying to look at some of the impacts of our programs on profits if profits are jumping around this much. It’s not just all measurement error, some of it is general challenges that are facing the business.

So our solution to that is we can try to measure things more times. The current work in Sri Lanka has 11 waves of data on these firms so if we get one or two bad months we can average that out. In Ghana we have 6 waves. I’ve got a paper called “Beyond Baseline and Follow-up” where I’m trying to say that more people should be doing this. The standard approach to doing these experiments is to measure the baseline, run the program and then come back and do one more survey a year later or two years later. That works really nicely for things like health and education where the outcomes are highly correlated but it doesn’t work so well for things like business profits or consumption or things like that. The standard methodology needs to change.

For my upcoming book, Experimental Conversations, I’m interviewing a variety of economists conducting field experiments on poverty interventions. Here’s Part 1 of 2 excerpts of my interview with David McKenzie, an economist at the World Bank (and now prolific blogger at the World Bank’s Development Impact blog) who has been studying the dynamics of microenterprises. David’s goal is to better understand how profitable these firms are, why they don’t grow, and how we may be able to help put them onto a growth path.

Tim Ogden: Tell me about where this research into microenterprises, entrepreneurs and returns to capital started.

David McKenzie
: We started in Sri Lanka attempting to test this idea that people may be stuck in poverty because if you invest small amounts of money, the returns on those small amounts of money are just very low. That would help explain why, when there are so many microenterprises, so few of them grow, and so few of their owners seem to climb into the middle class.

So we gathered a sample of microenterprises and randomly assigned some of them to receive a cash grant larger than the lump sum they could typically accumulate on their own, either $100 or $200, and some to not receive a grant. Then we compared them and looked at their performance over the next 2 ½ years. In Sri Lanka we got these very surprising findings. We had very high increases in profits for male-owned businesses when we gave them grants. Their profits showed a real return on capital of about 11% per month which is incredibly high. But there were 0% returns to giving these grants to women.

TO: But returns by gender wasn’t what you started the project to look at it, was it? It came out of data to try to measure returns for microenterprises in general?

DM: Right. In Sri Lanka, we had a sample of men and women, but gender wasn’t the principal focus of it. When we went into Ghana we wanted to see if this finding would hold up in another setting and in particular in a different context. In South Asia we know that women have very low labor participation rates, but in Ghana women are actually the majority of small business owners. We purposely chose Ghana because it’s a country with this long history of women running businesses and is more gender equal than most countries in terms of labor force participation. In Ghana there’s this feeling that women can work and can do things. So that’s why we chose Ghana.

We replicated the experiment there and we gave these grants of about $120. We gave half of the randomly assigned grant recipients the grant in cash and half of them got the grant in-kind. With the in-kind grants we said to the owners, “We’ll go with you and buy you something for your business, you tell us what to buy.” The basic result in Ghana was again big returns on capital. On average for both men and women we find big increases in profits when we give the in-kind grants. Their profits went up about 30 Cedi a month, about a 20% return per month on the grant.

When we gave the women cash though, there was no increase in business profits. And when we look more closely at the data, even for the in-kind grants, the increase is really only happening for the top 40% of women. So women who were starting off in these subsistence businesses earning a $1 a day had no benefit in terms of business outcomes from getting more capital. The grants all seemed to get spent on household needs. For men across the board, with the in-kind grants we see these large effects on profits, and while noisier, there also seem to be some benefits to the men of cash grants. For the top 40% of women we also get big increases in profits if we push them to invest in their businesses via the in-kind grant but not if we just give them cash without any restrictions.

TO: The result that these grants only matter for the top 40%, looking at in hindsight, was that predictable? Were those 40% in industries that one would have expected to see higher returns?

DM: They seemed to not have been differentiated much in terms of the industry they were in from the women in the bottom 60%. The difference was in baseline profit levels.

The bottom 60% averaged about a $1 day in profits but the top 40% were earning about $5 a day in terms of profits. So it’s quite a difference in terms of size of profits. These women were better educated, they were wealthier to start with. They were more likely to have gone into business for business reasons rather than other reasons.

So there’s something different about the types of women who are running those businesses and were able to generate high returns from the grant, but it’s not that they are choosing different industries.

TO: In Sri Lanka there appears to have been a significant industry-related issue. The women were primarily concentrated in industries with low returns to capital like lacemaking.

DM: In Sri Lanka we found there to be two main reasons for the gender difference. The first seemed to be this industry difference, women who were in traditional female industries had the lowest returns. But even when we looked at retail trade where both men and women worked, men were doing better. The second thing, though we could only look at this suggestively because we hadn’t set out to look at this in the first place and our sample sizes became smaller, but it seems there was something to do with intra-household cooperation. Women who said their husbands were more supportive of their businesses seemed to be doing better. The data seem to suggest women perhaps were not investing optimally in their business for fear that the proceeds would just get captured by others. It’s very hard to distinguish how that happens—who is capturing that profit: people inside the household, people outside the household, or even whether it was captured from themselves. Maybe they were thinking, “I don’t trust myself not to spend loose cash,” so they overinvest in equipment and don’t buy enough working capital.

TO: You’re now looking in Sri Lanka at helping women shift industries. How are you randomizing that? Are you trying to judge the issue of intrahousehold cooperation?

DM: What we’ve done there is we’ve taken a group of 600 women who currently have low profit businesses clustered in the types of industries which are mostly female dominated. We’ve used our three years of survey data to find out what type of industries women seem to be earning more in and have more prospects for growth. Then we’ve given them a five day business training course, based on the ILO curriculum, and as part of that training we’ve also provided them with this information about what the opportunities are in different industries in terms of how much money women like them earn. Those tend to be industries where both men and women work but we also tell them about some more female dominated industries that seem to have higher prospects. So for example, bakeries seem to do pretty well in comparison to making lunch packets for neighbors. Baking cakes is something not as many people do—you need a little more capital to be able to do it—but the returns seem to be pretty high. So we’re giving them that information and seeing whether that will push them into higher potential return industries. Some of the sample also received training with additional capital grants to see if you need additional capital in addition to the information and the training to switch industries and start achieving higher levels of profit.

TO: This is particularly interesting because it’s a vexing problem in developed economies too that most people starting small businesses go into industries with low barriers to entry, low capital requirements and low returns.

DM: Exactly. What we’re doing also in Sri Lanka is trying to understand what it really takes to make this jump to hiring employees. That’s the big distinction between being self-employed and starting to grow a business: when they start hiring workers outside of the family. So we’re doing this with men also. We have a sample of just over 1500 men, where we’re trying to—well, if you think about in terms of a production function, we’re trying to hit A [total factor productivity], K [Capital] , and L [Labor] together and separately. But basically what we’re trying to do is look at what the constraint to growth is and do we need combinations of things to overcome those constraints.

So we’re giving some of them business training, we’re using a [commitment] savings program to build capital for some of them and then something we think is really innovative, that we haven’t seen anyone do before, we’re using a wage subsidy program. We subsidize, by giving them a grant of about half the market wage, these sole proprietors to hire their first worker for six months and then we phase the subsidy out. The idea is that this gives you time to learn whether your business has what it takes to support an additional worker and whether you have what it takes to manage a worker. It also sort of subsidizes that training period for both the owner and the employee. So for instance we talked to a guy who runs an aquarium for tropical fish. He says it takes him a month of having somebody work with him before he can be trusted to be left alone with the fish and six months to get him up to level that he can produce at an export standard. So we’re subsidizing that training process, but he’s likely to keep the worker on once the worker is trained—at least we think so.

So we’re trying to learn what is really going on that’s keeping these businesses from growing and hiring. Is it a labor market matching problem and the need to learn about your ability as an employer or is it a credit constraint problem or is it a human capital and business skills gap? So we have people who have been randomly chosen to receive one of these programs—the skills training, the employee subsidy or the savings—or a combination of the three. We’ve been doing this for about 2 years now and because of the possible complementarity of these things—you might need capital and training—we’ve staged the interventions. We had people who had nine months in the matched savings program to build up some savings, and then they got the business training or the wage subsidy treatment, and then the 9 months when they could use the wage subsidy and then you have to wait to see what happens after that. Over six months to a year is when we’ll have data that start to give an answer to whether this worked, and what combinations mattered.

I think a lot of us who have been working on microenterprises think these are the key critical questions. What are the constraints to getting some microenterprises to grow, to have a level increase in profits? With grants and microfinance it seems like you can lift people a little out of poverty; you can raise their incomes a little bit but then they level off. We’ve done these grants and we’ve found they lift profits at least in male businesses and they stay higher for three years at least, so this one off grant does at least semi-permanently raise their incomes but it’s just a level increase. It doesn’t shift their growth patterns. They don’t get better and better over time, they just move up a level and reach a new equilibrium almost.

Can we put them on a growth trajectory? I think its still valuable on a mass scale if we can lift people’s income for a long period of time with these one-off interactions but we’d like to know whether we can alter the growth pattern at least for some of them.

TO: Lots of people in aid would love to find a one-off interaction that has 3 year effects, but it still doesn’t get us where we actually want to be.

DM: Exactly

Following up on the “debate” I had with Barbara Magnoni on targeting microfinance at women, a review of research on the topic of women and development has appeared. Via Chris Blattman, I just found this review paper by Esther Duflo that surveys research on how economic development affects the status of women and how the changing status of women affects economic development.

I haven’t had a chance to closely read the paper yet, but any of Esther’s papers are, as they say, self-recommending. Here are a few choice bits:

“This paper reviews the literature on both sides of the empowerment-development nexus, and argues that the interrelationships [between empowerment and development]
are probably too weak to be self-sustaining.“

“The conclusion here is a more balanced, somewhat more pessimistic picture of the potential for women’s empowerment and economic development to mutually reinforce each other than that offered by the more strident voices on either side of the debate.“

For the record, my priors, as I hope are documented in the conversation with Barbara, are:
* If your goal is economic development, focusing on women is likely a sub-optimal strategy.
* Rapid economic development may have a greater impact on women’s empowerment than a strategy focused on economically empowering women.

I’m looking forward to having those priors challenged.

Describing the Bill and Melinda Gates Foundation as the world’s largest foundation is accurate but a substantial understatement. Its annual giving is more than six times larger than its closest “peer.” There are fewer than 100 US foundations that give more than $50 million annually. The Gates Foundation gives $50 million per week.

But it’s not just the amount of giving that distinguishes the foundation. As Ed Skloot puts it, the foundation “differs from the institutional norm in almost every way: in size, ambition, high-level connections, proactivity, long-term commitment, operational engagement, and public leadership.” The Gates Foundation is treading new ground, changing expectations and the policy environment of philanthropy by its very existence.

That’s why I was pleased to be asked to serve as Guest Editor of a special section in the Fall issue of Alliance Magazine, examining the impact of the Gates Foundation. The goal of the issue was not criticizing the foundation but honestly raising questions and issues that inevitably emerge from such a unique entity. You can read my introduction to the section here, where I provide an overview of the various contributions.

The issue has, I hope, moved some important conversations and discussions out into the open. This week I participated in a panel discussion based on the issue hosted by Bill Schambra at the Hudson Institute—you can see a recorded video of the session here. Caroline Preston has a summary here.

As Ed Skoot and Laura Freschi, contributors to the special section and co-panelists, noted there are many reasons to praise the energy and vitality the Gates Foundation has brought to its areas of interest. But there are also concerns. Some of the behaviors of the foundation while undoubtedly intended to accelerate positive change may have the perverse effect of limiting the foundation’s ability to hear and react to feedback.

Beyond the issues around specific programs, there is the larger question of how not only the approach but the very existence of such a large foundation will affect public policy and beliefs about philanthropy and the role of private foundations in society. As I asked toward the end of the session, how should we balance goals of honoring donor intent with huge institutions capable of affecting policy but only accountable to a few individuals?

If you find these questions vital and interesting, I’d invite you to join a webinar on Living with the Gates Foundation, hosted by Stanford Social Innovation Review next week. I’ll be moderating a panel that includes Ed Skloot, Laura Freschi, Megan Tompkins-Stange and Bruce Sievers as we wrestle further with these issues. The session won’t be a series of presentations but a conversation. I’ll be asking the panelists my own questions but also taking questions and comments from the audience right from the beginning. You can find all the details here—I hope you’ll join us. You’ll not only get access to the special issue of Alliance, but a discounted subscription to both Alliance and SSIR.

 

Barbara Magnoni, President of EA Consultants, an international development consulting firm with a specialty in finance, began a debate in the comments of our interview series with Abhijit Banerjee and Esther Duflo. Our conversation was focused on the issues around investing in microcredit focused on women. I asked Barbara to join me in an asynchronous “debate” that would be a bit more accessible than a conversation in the comments. Herewith is our discussion on the subject. Please weigh in with your own thoughts either in the comments or on your own blog of choice (but be sure to tell us where to find your thoughts via the comments or on Twitter). 

Barbara: I read your interview with Esther and Abhijit with interest. At one point you comment: “On average women entrepreneurs’ businesses don’t grow. But you dig a layer beneath the headlines and you find that a lot of women entrepreneurs don’t want to grow their businesses. They only want to work a few hours a week, that’s all they have time for and they need a lot of flexibility. Women like that are shut out of traditional labor markets so they start their own home-based business.” That caught my attention.

We worked on a study in Latin America on women entrepreneurs and didn’t find this at all. In “A Business to Call her Own”, we spoke to women throughout the region and found that it isn’t that they didn’t want to grow, but that they were severely constrained by the choice of sector they went into, their limited time, limited savings to use to make capital investments, and low skill levels. If you have a business that is ‘hand to mouth’ you want it to grow. Maybe not to become a huge company, but to become sustainable and offer a decent living for your family.

I would be interested in any further substantiation of your views. The issue of women and business is understudied, and is clearly linked to many of the issues posed in your interview.

Tim: I agree that most microentrepreneurs want their businesses to be self-sustaining and to generate cash flow (though their profitability seems to depend entirely on whether you account for the cost of family labor, see Poor Economics and David McKenzie on this). But there doesn’t seem to be much evidence that microentrepreneurs, women or men, aspire to grow their businesses to the scale that would have a societal impact or push a family into the middle class. When they do have access to fresh capital, they don’t seem to invest much of it in their businesses. Surveys tend to indicate that their aspiration is for a job, not to run a growing business.

Certainly this isn’t true for everyone but it is true for many. And if the evidence from developed nations is any guide, then it is more likely that men aspire to build these larger, truly profitable businesses. For the evidence for this claim, see Scott Shane’s book The Illusions of Entrepreneurship, pp 130 to 133, where he cites more than a dozen studies.

One of the explanations that is consistent, as you note, is that women tend to run businesses in industries that have less profit potential. In some cases this is clearly a societal construct around “appropriate” women’s work (see for instance McKenzie’s work in Sri Lanka), but it’s also likely that it has something to do with the choices women make about what industries to be in—in other words they choose low-profit, low-growth businesses because those are the ones that offer the flexibility they need to be able to meet their other commitments.

This is not an argument for restricting women’s access to capital. But it is an argument to think very differently about the value and purpose of microcredit focused on women. I believe it’s a mistake to think of such a product as entrepreneurial growth capital.

Barbara: I am still skeptical of this evidence. I don’t have the book handy, but it seems to be focused on only developed markets. In many of the developing countries that I work, formal sector wages for similar skilled people are lower than those in the informal sector and many SMEs pay their employees under the table, so they aren’t often in the formal sector, although they are employed rather than independent workers.

While I agree with many of your points, I am concerned that the limited recent research is leading to recommendations that promote lending to men’s business for growth rather than betting on women. Perhaps it depends on your goals, but I think that women’s businesses (some, not all) could be equally if not more successful with some capital, and additional support and mentoring. If we give up on that possibility, we give up on trying to reduce the gender gap, and promote the status quo, of men earning money and women in the household with limited financial resources. I believe development experts over 30 years ago agreed that this economic structure was not ideal in providing families with health, food and education they needed.

Of course another approach would be to work to change men’s role in the household so that they take on greater financial and family responsibilities, and thus prioritize those expenses more, but that may just lead to research saying that people shouldn’t provide men with investment capital, because they won’t put it to work.

I think ultimately, we don’t know enough and more research should be done around these questions.

Tim: We certainly agree that there isn’t enough research on this topic. As is all too common in development circles, the prevailing view seems to have swung from one distortion (ignoring women) to another (“we must focus on women and girls”).

In this case, I think that distortion isn’t exactly harmful but it isn’t helping. Here’s my operating hypothesis: as family incomes rise, families invest more in all their children, boys and girls. That investment often yields much higher levels of schooling for girls which in turn increases their opportunities.

If you accept that hypothesis, it makes sense to focus on raising family incomes in the fastest way possible. That in turn suggests that we should be paying attention to what groups generate the highest returns on capital. Given the status quo, that again implies that it makes a lot of sense to provide working capital to male entrepreneurs—and then work with them to encourage them to invest in all of their children.

For me, that’s as plausible a path to both increasing family welfare and addressing gender imbalances as focusing microcredit outreach on women who, until you change societal norms, will likely earn very low returns on capital and raise family incomes less.

I think you also have to take into account sociological research from around the world that men’s behavior in terms of investing in their families is strongly affected by their ability to be productive and be providers—in other words, to live into the existing societal norms. When men do not have opportunities to work and provide, they tend to abandon a role as investors in their families. By excluding them from access to credit in favor of their wives, we are creating a self-fulfilling prophecy about the behavior of the men.

In sum, I support working to address gender imbalances and creating equality of opportunity for men and women. But I think pursuing that goal via a “preferential option for the poor women” (to paraphrase from the liberation theology movement) isn’t the best way of achieving that goal.

Barbara: Your doubts about development practice focusing on women and girls are justified. That is, there is just as little proof that this is a useful strategy as there is that lending money to men will only drive them to drink and gamble it away (another popular and anecdotally common hypothesis).  However, what is extremely real is the discrimination and power inequality of women in many poor households. Family violence, low self-esteem and inaccessibility of land rights are only some of the conditions we run across frequently in women in our work. In your operating hypothesis above, you don’t take into account these issues but look only at financial wellbeing as a sign of development of socio-economic wellbeing. Additionally, you suggest those who currently wield the greatest power in the family should continue to do so, by supporting their earning potential over that of others in the family. I suggest that this is flawed from a humanistic perspective. I believe that we should strive to ensure that women and men have freedom, opportunity and choice. These are critical aspects of a developed society.

A final point about your hypothesis. It assumes that in general, men will prioritize the welfare of their families, and thus their wellbeing will trickle down to that of girls. I think like most trickle-down theory, there is some truth to this, but the practical reality is that it is all too slow and that it often leads to more inequality. I have some suggestive evidence that men don’t re-invest as much of their business profits as women into the family.  Without parallel efforts to encourage such investment by men, the “return on capital” for men’s businesses may be quite high in terms of the “math”, but low in terms if you look at the return to the welfare of the family. In the paper I note above, we interviewed male and female merchants in Nicaragua and found that men more often save to reduce their cost of capital while women more often save to plug up gaps in the family economy, pay for schooling, and make up for economic downturns. In the same study, we notice that men’s savings balances went up during economic crises, while women’s fell.  In sum, doing the math is useful, but probably not sufficient when thinking about who to support and how.

Tim: There are important questions that remain to be answered on family dynamics (and they may have very different answers based on a variety of cultural, geographic and economic contexts). Your point about women spending relatively more of their income on the family is true as far as I know but I think fails to take into account the dynamics of family dynamics. As I discussed with Esther in the interview, she and Chris Udry have found suggestive evidence that this disparity is a cultural construct. In other words, women spend more on families because caring for families is “women’s work.” As women gain disposable income from growing businesses their spending may end up looking more like that of their husbands. In other words, changing the cultural constructs that limit women’s opportunities may very well erode the basis for the difference in spending patters of men and women.

In terms of the research in Nicaragua, I find it very plausible—but it also underlies the basic point about how to think about investing in women via microcredit. The behavior of men you describe is consistent with what we would expect of entrepreneurs who were focused on growing their businesses and generating increased profits. The behavior of the women is not. Thus, thinking about microcredit focused on women as entrepreneurial capital—e.g. capital designed to foment growing, profitable businesses—may be in part contradictory. So if the goal is increasing the welfare of women and girls, why not look instead to direct cash transfers rather than requiring these women to start businesses with all the attendant demands that takes?

That’s were I return to my basic suspicion that microcredit dressed up as encouraging microenterprise for women is a poor way of achieving the stated goals whether those goals are benefiting women and girls or those goals are creating growing, profitable businesses.

Barbara: Ouch! So women and children at home getting handouts, huh? Well, that may get them better fed, but will it help women achieve more freedom? I look forward to hearing what others say.

Abhijit Banerjee and Esther Duflo certainly don’t lack for attention. Their papers are among the most cited in development economics over the last decade and last year Duflo won the John Bates Clark Medal as the best economist under 40. But their fame extends beyond the reach of the Economic Ivory Tower. Duflo has won a MacArthur “genius” grant, been profiled in The New Yorker, spoken at TED and recently gave a keynote at the Center for Effective Philanthropy’s conference. Banerjee is a regular staple in many national Indian newspapers.

If I had to summarize their work into a short phrase, it would be “radically small thinking.“ As I wrote in my review of their new book Poor Economics for the forthcoming Fall issue of SSIR: “One reading of Poor Economics is as the most thorough indictment of big thinking in social policy since Jane Jacobs’ The Death and Life of Great American Cities. That’s why the book is vital reading for everyone serious about confronting poverty. You may not agree with the conclusions, but the poor will be poorer if you don’t wrestle with the logic that informs them.“

Banerjee and Duflo’s work is bad news for cynics and optimists. It’s bad news for cynics because they’ve provided solid evidence, again and again, that small tweaks can bring about changes that materially improve the lives of the poor. In other words, they’ve shown that change is possible and aid, philanthropy and government policy can make a positive difference. Their work is bad news for optimists because it also shows, again and again, that the best of intentions often go awry, big efforts to change the world or “fix” or “solve” a problem faced by the poor don’t work very well, and that big changes take a long time.

Poor Economics has been receiving stellar reviews (you can see ours here) and exposing an even wider audience to Banerjee’s and Duflo’s way of thinking about poverty, development, economics and how to make the world a better place. Still, it seems, that plenty of readers miss some fundamental pieces of their thinking. See for instance my recent back and forth with Eric Meade on the Stanford Social Innovation Review blog (including Eric’s original post, my response and the comments that follow).

Whenever I read one of their papers or talk with them I walk away with the exhilaration that only comes from (as the economist’s would say) changing my priors—in other words, I learn something and look at the world in a new way. That’s why I was so excited to spend more than an hour talking with them this spring after Poor Economics came out. We’re publishing a transcript of that extended interview in parts because it runs to over 6000 words in its entirety. We hope to publish the complete interview as a Kindle Single shortly. 

Over the course of the interview we discuss microcredit, microenterprise funding and growth, labor markets in developing and developed countries, the evidence for focusing on women and girls with aid programs, the debate over RCTs and how they think about their own impact on changing the world.

Here is Part 1.

Here is Part 2.

Here is Part 3.

Here is Part 4.

Compassionate types may be feeling a bit sorry for Greg Mortenson this week. The author of Three Cups of Tea has been accused of fabricating details of his bestselling account of building schools for girls in Pakistan. He has thus joined the ranks of more than a few nonfiction authors who’ve leaned on the nonfactual, from the revered journalist Ryszard Kapuściński, to the former addict James Frey. In some ways we, the readers, are to blame. We cannot demand fiction-like entertainment from the nonfiction books we read and then act surprised when the writers feel like they have to fudge.

Mortenson is in a particularly tight spot for having to fulfill expectations for both nonfiction and for international development. Since its inception, development has thrived on Big Ideas, those major actions or programs that, in theory, will bring wholesale change for people living in poverty. Poor countries lack infrastructure, so let’s build a national network of roads. The poor need education, so let’s build schoolhouses.

Billions have been spent on such large-scale projects, but quite often, when their creators go back, they do not see major changes in income from market access, or major improvements in education levels for having that building (regardless of who built it). That is because Big Ideas often fail to account for the small changes in behavior necessary from the human beings that live near the roads or the schools. The roads are useless if they do not lead to buyers and the schoolhouses are not much good if the teacher never shows up. But would Three Cups of Tea and the Central Asia Institute Greg Mortenson runs have inspired so many devoted readers, and donors, if they had imagined their money would be used on an idea as small as getting teachers to show up (an act that most westerners take for granted—it’s their job, after all) rather than on one as large, solid and tangible as building a school?

Two new books from the world of development economics offer solid arguments for why all of us should care more about the small things than the big things: More Than Good Intentions, by Yale economist Dean Karlan and his co-writer Jacob Appel, and Poor Economics by MIT economists Abhijit Banerjee and Esther Duflo. (to read complete reviews of the books, click here for MTGI and here for PE).

Karlan, Banerjee and Duflo are members of a new cohort of development economists working at the intersection of behavioral psychology and economics. Their work shares a deep interest in how real people behave in real situations. There is a lot of attention right now on this mode of thinking, and as a result, all three are famous, insofar as economists can be, for pioneering the use of randomized control trials (RCTs), the classic tool of medical research, to test whether social programs implemented in the real world bring real benefits. Both books are rich with descriptions of RCTs that have taken place in many of the world’s poorest countries, and most of the same studies are highlighted in both, drawn respectively from Banerjee and Duflo’s work with the Latif Jameel Poverty Action Lab at MIT (J-PAL), which they co-founded, and from Karlan’s work at Innovations for Poverty Action (IPA), which runs RCTs in the field on behalf of researchers, including some JPAL affiliates. [FD: IPA is a client of Sona Partners, the sponsor of Philanthropy Action.]

The mutual focus on behavioral economics and the use of RCTs gives these books rigor, a significant amount of subject matter overlap, and a shared interest in the role that people play in development success. Despite these similarities, these are very different books; More Than Good Intentions is to Poor Economics much as Predictably Irrational is to Nudge. The books are trucking in the same material, but they are writing to very different audiences and they come to some distinct conclusions. Just as Predictably Irrational introduced the general reader to behavioral psychology and the illogical decisions that individuals make on a daily basis, More Than Good Intentions is for a layman reader largely unfamiliar with the use of RCTs (and only a passing knowledge of economics in general), the specific development questions they address and the studies they profile. The generalist tone and technique of More Than Good Intentions reflect Karlan’s ultimate goal of informing and influencing where the generalist’s individual donations of $10, $100, $1000 in giving go every year.

Poor Economics, in contrast, is more like the Nudge of development economics, well written and highly readable with a much greater focus on policy issues. As such it’s natural audience is institutional actors, those policy makers, practitioners and program officers who determine what is done when, where and how.

For detailed reviews of each book, see:
More Than Good Intentions
Poor Economics