Why can’t I invest in poor children? « Robert Wiblin

Why can’t I invest in poor children? « Robert Wiblin: "Why can’t I invest in poor children?

May 26, 2010 in Uncategorized | Tags: economics, education, capital, poverty

Nicholas Kristof reports on one of the reasons many poor people stay poor:

It’s that if the poorest families spent as much money educating their children as they do on wine, cigarettes and prostitutes, their children’s prospects would be transformed. Much suffering is caused not only by low incomes, but also by shortsighted private spending decisions by heads of households.

…

We asked to see Jovali’s parents. The dad, Georges Obamza, who weaves straw stools that he sells for $1 each, is unmistakably very poor. He said that the family is eight months behind on its $6-a-month rent and is in danger of being evicted, with nowhere to go.

The Obamzas have no mosquito net, even though they have already lost two of their eight children to malaria. They say they just can’t afford the $6 cost of a net. Nor can they afford the $2.50-a-month tuition for each of their three school-age kids.

“It’s hard to get the money to send the kids to school,” Mr. Obamza explained, a bit embarrassed.

But Mr. Obamza and his wife, Valerie, do have cellphones and say they spend a combined $10 a month on call time.

In addition, Mr. Obamza goes drinking several times a week at a village bar, spending about $1 an evening on moonshine. By his calculation, that adds up to about $12 a month — almost as much as the family rent and school fees combined.

I asked Mr. Obamza why he prioritizes alcohol over educating his kids. He looked pained.

Other villagers said that Mr. Obamza drinks less than the average man in the village (women drink far less). Many other men drink every evening, they said, and also spend money on cigarettes.

“If possible, I drink every day,” Fulbert Mfouna, a 43-year-old whose children have also had to drop out or repeat grades for lack of school fees, said forthrightly. His eldest son, Jude, is still in first grade after repeating for five years because of nonpayment of fees. Meanwhile, Mr. Mfouna acknowledged spending $2 a day on alcohol and cigarettes.

If this story is typical it’s possible that worldwide we are investing far less in human capital than we should. If these parents are too short sighted or poor to invest in their children’s health and education, why can’t somebody else with more money step up and help the kids out? The government and non-profits sometimes fills this gap by subsidising education with taxes and donations. But where those groups are investing too little or in the wrong ways, an outsider cannot take advantage of the opportunity to help those who are getting insufficient education while turning a buck. It is very peculiar that I easily could take my savings and profitably invest them in a construction project, a business or an invention while if I wanted to invest in a person’s education it would be a great challenge. The poor have few or no assets against which to borrow money and would not be keen to take on debts that could get out of control. To level the playing field between these kinds of investments, why not allow people to sell a stake in their future earnings just like new companies sell a stake in their profits to attract investors? Alex Tabarrok explains:

The Unincorporated Man is a science fiction novel in which shares of each person’s income stream can be bought and sold. (Initial ownership rights are person 75%, parents 20%, government 5%–there are no other taxes–and people typically sell shares to finance education and other training.)

The hero, Justin Cord a recently unfrozen business person from our time, opposes incorporation but has no good arguments against the system; instead he rants on about “liberty” and how bad the idea of owning and being owned makes him feel. The villain, in contrast, offers reasoned arguments in favor of the system. In this scene he asks Cord to remember the starving poor of Cord’s time and how incorporation would have been a vast improvement:

“What if,” answered Hektor, without missing a beat, “instead of giving two, three, four dollars a month for a charity’s sake, you gave ten dollars a month for a 5 percent share of that kid’s future earnings? And you, of course, get nothing if the kid dies. Now you have a real interest in making sure that kid got that pair of shoes you sent. Now it’s in your interest to find out if he’s going to school and learning to read and write. Now maybe you’ll send him that box of old clothes you were thinking of throwing away. Under your system you write a check and forget about the kid, who’ll probably starve anyway. Under our system, you’re locked into him.

…the real benefit comes about when those ‘evil, selfish, horrible corporations’ get involved. How long will it take for a business to realize that there’s a huge profit to be made in those hundreds of millions of starving children?…Imagine a world where a bank gives a loan to a corporation to build a school, hospital or dormitory. Not because its the right thing to do; who cares! They’d do it because it’s the profitable thing to do. And because of that, my system, not in spite of greed and corruption and incorporation, but because of it, will work better than yours in any time period with any technology you choose.”

By selling equity rather than taking a loan the lender need not worry about the risk of default, and the borrower need not worry about crippling debt or bankruptcy should their earnings be less than expected. The equity owners will have a good reason to make sure kids are getting a good education and staying healthy and so can partly compensate for the failings of parents and governments.

So, why not?

Added: An interesting discussion over at Aid Watch.

“Edcuation in Nigeria where I live has no practical returns for many young people apart from a tremendous turnover of unemployed graduates. Also the quality of the education does not allow these children to graduate with any useful skills so again the important question comes up, why not splurge on beer which has an immediate utility than spend so much in proportion on something that has not proven itself as an investment.

Education in developing countries has to change so that people can see practical returns to their investment. That sit in class and listen all day model won’t work in Nigeria. Parents will only send their students to school is it represents a practical investment with immediate returns. The only way to do it is to inject entrepreneurship into their curriculum.”


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