Enlightened Capitalism

Essays about how to harness people's natural desire to create wealth and improve their quality of life to solve global problems such as war and poverty.

Saturday, March 11, 2006

Vaccine for Poverty (part 4)

If you have been following this multi-part essay on solving poverty, by now you know my rule #1: Take on the easiest cases first.

I want to say a bit more about what makes a case "easy". As you can imagine, for example, it is easier to help someone get a job if they are disciplined, qualified, and have a "good attitude", and the only thing they are lacking is some coaching on how to apply and what to say in an interview.

I am not saying that we shouldn't help poor and desperate people. I am saying that if we focus our efforts on comforting the desperate cases and ignore the marginal cases, we risk never getting there. I want to end poverty, not die trying!

I am also not saying we shouldn't seek sweeping improvements to the tax system and other aspects of government and economy. I am saying that unless you've got a track record of winning big political battles, I suggest starting with something smaller. Reform the taxes of one small town in a repeatable way (i.e. such that your influence and resources grow, not shrink, in the process), and I will join you in taking on the next easiest target.

Another way to construe what makes a case "easy" is to look at the "bang per buck". When we spend time, effort, and money on something we expect something back. Sometimes we get back less than we gave, for instance when we buy a lottery ticket and we get the fun of scratching it but it's not a winner.

Other times our effort pays off more than we put in, like I recently spent $58 on a bicycle and I've ridden it to work dozens of times so far, which is fun for me, keeps me healthy, and gets me to work, where I make money and write long essays on o/net. The kicker is that after reaping all those benefits, I still have the bicycle, which is basically still worth $58! So that investment is paying off pretty amazingly.

Buying real estate (if you know how to do it safely, and consistently) is even better. You get a place to live (or you get to provide someone else with a place to live), a tax deferral, a source of really cheap financing, and then thousands of dollars in profit when you rent or sell.

One might argue that prenatal care is an even better investment than that, the child might enjoy better health for their entire lives. Ten dollars in multivitamins might yield millions of dollars in value later.

Those are the kinds of investments we want to make! The stories I have heard about microfinance are exciting, a $50 loan transforms a person's life and provides them with the means to dig their way out of poverty, and they even pay it back! What's more, that person doesn't just impact their own family. By working and improving their lot, they inspire everyone around them.

People are incredibly sensitive to the behavior of those around them. Think about how you feel when you are in a noisy crowd. And then imagine the crowd suddenly gets quiet. Peer pressure is one of the most powerful forces in the universe. It is the wave we surf on, in all our self-actualisation.

Think of how people behave in a church or temple or a museum. Even gang members are quiet and respectful in those situations. Think of how you feel when you see people dressed in business suits rushing for a cab. Or when you see people strolling in the park. Or lurking in an alley. Why do new clothing fashions catch on so fast? Do our individual preferences actually change every season, and all in the same direction?

Most crimes are committed when no one is looking, but the blatant exceptions to this, e.g. people being mugged on a crowded street or in the subway, really prove the rule -- the mode of behavior in these places is to avoid touching others, remain aloof and separate, as if there were an invisible bubble around each person. Helping someone fend off a mugger would break the bubble, and enmesh you in their affairs. You would then stick out in the crowd as a bubble breaker.

Malcolm Gladwell discussed the power of the environment to influence our behavior in "The Tipping Point", and many books have been written on the subject of peer pressure. The bottom line is that people are profoundly influenced by their surroundings, and in particular, the behavior of the people around them.

Consider the most expensive real estate in the world. There are three general categories of places on this list, (1) religious, historical, or artistic landmarks, e.g. Taj Mahal or the Statue of Liberty; (2) natural resources or beautiful landscapes, e.g. a gold mine or Niagra Falls; and (3) places where people behave in a highly sought-after manner, e.g. Oxford University, Wall Street, Beverly Hills. This behavior includes the kinds of buildings they build and how they maintain them.

The amazing thing about these three causes of high real estate value is that on closer examination, they all boil down to human behavior. Religious significance exists by agreement, as does the value of gold or the beauty of a particular landscape feature. If gold went out of fashion, it's value would drop, just like Beverly Hills.

Our behavior has a huge impact on the quality of life of the people around us. And their behavior has a huge impact on ours. But all behaviors, just like all fashions, and all religions, are not created equal. Some are more contagious than others.
In designing the Active Ingredient for the Poverty Vaccine, we are looking for a behavior with the following characteristics:

a) It enriches the person doing it.

b) It is easy, legal, safe, and FUN to do, and not at all embarrassing, scary, or controversial.

c) It is done out in the open, in full view of the public.

d) Rich people can do it in places where poor people live.

e) Poor people can do it too.

Part (a) ensures that it will reduce poverty, when engaged in. Part (b) ensures that once they start, people will continue doing it. Parts (c),(d),(e) allow for an effective delivery mechanism.

There may be many behaviors that fit these criteria. The one that I know intimately is buying real estate and fixing it up, and beautifying the whole neighborhood in simple, inexpensive ways, enriching the community and creating opportunities for the most enterprising poor people to quickly work their way out of poverty and inspire their less enterprising neighbors in the process.

Real estate values depend on the behavior of people in the community, and we can influence that behavior, improving the quality of life and the desirability of the real estate, which in turn rewards the community, and us.
Now the question is, "Which properties should we buy?" This is my favorite part. :)


  • At 10:10 am, Blogger answer-man said…

    ps I'm having a little trouble sending comments so if I do it twice please excuse me and I apologize.

  • At 2:28 pm, Blogger angeles said…

    I have one criticism about your argument on combatting poverty by taking the easiest cases first. I take a world view when I think of combatting poverty, although this applies to many cases in the U.S. as well. I do not believe that taking the "easiest" cases first is the most humane thing to do. After all, the worst cases include people that are malnourished, plagued by disease and lack basic necessities of life. Even though a person in Compton may not have the best standard of living, a child in Africa or Central America does not have adequate nutrition. One child may have to eat cheap fast food while the other may have no food at all or only a very small portion that was rationed off so there would be enough for everyone. This ties into getting the most bang for your buck and decreasing marginal utility. In economic terms, the better a standard of living a person has, the less the utility that results from x investment in improving that person's standard of living. Giving a working class family a car does not increase the utility of humankind in general as feeding a family nutritious food; a well-nourished family will be more useful to society than one with a car- that is my point. If one wanted to be sinical one could say that a family must be fed everyday and a car only has to be given once- the argument then becomes one of ethics. Why are starving people allowed to die simply because it is too expensive to feed them? These people are simply cursed by geography, bad politics, and selfish economics on the part of developed states.

    Essentially, the difference in our arguments is that you create a threshold for the advancement of humankind. Your argument, as I interpreted it- if we can get 10 past the threshold, why waste those resources on getting 10 half-way there. My response, or rather my philosophy is that the only threshold a human needs to pass to become useful to society is being alive. Once a person is alive it is our duty as fellow human beings to provide them with what they need to at least survive, not to mention become as productive and happy as they can be.


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