By Dean Karlan

An approach to helping the poor that actually works

Posted on June 26, 2015

FOR YEARS, policy makers have debated different approaches to helping the poor -- everything from building schools, to delivering soccer balls that produce electricity. But new data, published in May after a nine-year, six-country study, offers resounding evidence for a strategy that works.

A group of my economist colleagues and I, together with the research and policy nonprofit Innovations for Poverty Action, and MIT’s J-PAL, tested an approach known as a “Graduation” program. The program is designed to boost the livelihoods of the “ultra-poor” -- the one billion people worldwide who live on less than $1.25 per day.

We tested these programs using a randomized controlled trial: a scientific methodology more typically associated with health care research, and considered the gold standard for impact evaluation. Workers offer a new policy or program to a group, and over the same period track it and a comparison group that continues on as normal. This comparison is key because changes in the outside environment -- such as a dry season for crops, or disease outbreak -- can create massive swings in fortune for the world’s poor. By comparing two groups that both experience the environmental changes, but only one of which receives the program, we can learn how much change is from the program.

Through these kinds of rigorous evaluations, we often find that programs thought to work don’t -- or don’t work as expected. For example, we’ve discovered that microloans -- one of the most visible tools for helping the poor, and bolstered by a Nobel Peace Prize -- are helpful, yet largely ineffective at lifting people out of poverty.

In education, we’ve learned that while some organizations in poor countries give out free uniforms and others scholarships, in Kenya a simple anti-parasite pill that kept children healthy enough to learn was 20 times as cost-effective as the uniforms, and 51 times as cost-effective as scholarships. Our local teams tracked the children into adulthood, and found that the children who received the anti-parasite pills went on to earn over 20% higher wages as adults than their peers who didn’t. In India and sub-Saharan Africa, where governments are implementing these programs, over 95 million children have now received the pills.

Yet poverty, and especially extreme poverty, is difficult to eliminate. The poorest of the poor have more problems than just lacking a regular income. Because they usually experience multiple challenges at the same time, we decided to look at the Graduation approach. Organizations employing this approach had been offering participants a “productive asset” (an asset that generates income, such as livestock or supplies to sell in a small store), training on how to use it, health care to keep them healthy enough to work, a small amount of food or money to support themselves while they learned to make a living (so they didn’t have sell the asset immediately, merely to eat), access to a savings account to build up a buffer for future emergencies, and weekly coaching in areas like overcoming unexpected obstacles and meeting their savings goals.

Starting in 2006, we studied Graduation programs in six countries to determine if an approach this complex could actually work. We tracked more than 21,000 adults in 10,495 households in India, Pakistan, Ethiopia, Ghana, Peru and Honduras. Across all three continents we saw increases in mental and physical health, income, assets, and reductions in hunger -- not just at the end of the program, but when we revisited the participants a year later.

When the program worked, it returned 133% to 433% on investment, depending on the country. So for every dollar invested in India, participants spend and eat $4.33 more -- a great deal from the government’s perspective. The program is being scaled up in Ethiopia as part of the country’s national social safety net program, and to a smaller extent in India and Pakistan as well.

Like practitioners in other fields, we have used the power of good data to take the guesswork out of what strategies work -- in our case, efforts to alleviate poverty. Rather than spending critical resources on programs and policies that aren’t effective, governments and aid organizations can instead invest in a program that will foster self-sufficiency among the world’s poorest people.

Ideas should be funded based on evidence that they work -- not hope.

Dean Karlan is professor of economics at Yale University and president and founder of Innovations for Poverty Action.