Economists Discover Holistic Development
And 5 Reasons Why It’s Likely More Effective
Although it has been a guiding principle of many development practitioners for some time, economists have begun to discover holistic development. While NGOs working in poverty and development have often framed their work in terms of “bringing hope to the poor,” economists have avoided touchy-feely subjects like hope in their research and policy recommendations. And until relatively recently we relegated phenomena such as social relationships, emotion, trust, identity, character values, spiritual beliefs, self-esteem, aspirations, even transcendent phenomena such as temptation and self-control, to psychologists, sociologists, theologians, and faith-based development practitioners.
It has seemed self-evident to economists that economic problems require economic solutions. Our beliefs about the world guide our actions. And thus the focus of development economics has historically rested in relieving external economic constraints through interventions such as infrastructure investment, the development of export markets, and microcredit. If people are uneducated, we build them a school. If they lack access to markets, we provide them microcredit or pave some roads. We electrify a village. There is nothing that development economists have exhibited a greater devotion to than trying to solve the problems of the poor through relaxing different types of resource constraints.
The experimental revolution has turned economics upside down. And one of the best things about it is that we found out how many of these things aren’t very effective. That we as economists continue to fight poverty simply through relaxing resource constraints appears to be attributed to a “If I have a hammer, I see everything as a nail” problem. Moreover, our professional and personal pride creates blinders, making us see solutions to problems in the domain of our own expertise, although more effective solutions often lie outside it.
A parallel exists in modern western medicine, which has traditionally seen the solution to nearly every problem in terms of treatment through drugs or surgery. These prescriptions stem from the way medical doctors (in the west) are trained to deal with health problems. The alternative, or at least complementary, approach of holistic medicine, however, views people not just in terms of their physiology and body chemistry, but in terms of their psychology, relationships, and work habits. Alternative therapies and activities such as healthy life balance, herbal medicine, acupuncture, and massage therapy have helped millions, and evidence-based impacts have led more insurers to cover these approaches. Just as not every medical problem can be dealt with most effectively through a strictly medical intervention, not every economic problem can be either understood most clearly, or addressed most effectively, through a strictly economic intervention.
Toward this end, a movement in economics that began about two decades ago in the profession is finally starting to flourish and bloom. That movement first began a departure from seeing human beings through the lens of “homo-economicus” by exploring the importance of phenomena such as social capital (as economists, we still had to call it capital…), but has now come to delve deeper into the internal constraints, the psychology, motivations, and deeper beliefs of human beings. At the same time, behavioral economics offered strong empirical challenges to the assumption that people continually make “rational” economic decisions, in the narrowest sense.
Leading development economist Esther Duflo of MIT began to argue in a series of lectures in 2012 about the paramount role hope plays in the lives and behavior of the poor. Hopelessness among the poor, she argues, is accompanied by low aspirations, which diminish investment in just about everything—education, one’s own skills, small businesses, even fertilizer on crops—all of which perpetuate poor outcomes. In the last few years, economists are taking baby steps in understanding how social, psychological, spiritual, and economic factors work together, and as a result we are on the cusp of beginning to propose more effective poverty interventions.
As a sign of the strength of the movement toward holistic development in the economics profession, the World Bank’s 2015 World Development Report: Mind, Society, and Behavior chronicles the influence of behavioral economics on the way academics and practitioners now approach poverty issues. The issue provides an expansive exposition on new research exploring the influence of psychology and social relationships on economic decision-making and is critical reading for both researchers and practitioners in the field.
Without making this post a review article, several recent papers have studied interventions among the poor focusing primarily or significantly on non-economic phenomena. These interventions appear to realize significant long-term effects. The new article by Duflo and her colleagues in Science shows the results of a project carried out in six countries that combined a productive asset transfer (donation of a large farm animal, typically a cow) with health interventions and—hear this economists—life-skills coaching. This integrated intervention realized significant impacts on all 10 poverty indices the researchers tracked, including food security, household income, and health. She suggests that the multi-pronged intervention increases hope among the recipient population, encouraging them to invest more of their own resources in economic activity.
Our multi-country study of Compassion International’s child sponsorship program, an intervention that combines tangible benefits such as paying for school fees, uniforms, and health with heavy socio-emotional and spiritual nurture of young children, showed large long-term impacts: a 44.5% increase in secondary school completion), 35% increase in white-collar employment, and a 17% increase in adult income. We show in a follow-up paper how Compassion’s program dramatically increases hopefulness (> 0.5s) in young children through a quantitative analysis of their self-portraits. Crazy as it sounds to some, hope matters.
In an experiment that focused solely on aspirations development, Oxford economist Stefan Dercon and his coauthors found that that the screening of an inspirational film depicting four families escaping poverty had lasting impacts on savings, investment, child schooling and microloan demand in Ethiopia even six months later, this from the lightest of interventions: a 60-minute film.
A series of papers by Nobel laureate James Heckman and his colleagues found early childhood development of character traits such as perseverance (or “grit”) developed in programs like the Perry Preschool Project to substantially explain later adult outcomes. The theme of Heckman’s work is captured marvelously in the NY Times bestseller How Children Succeed by Paul Tough.
I want to suggest five reasons why a holistic (or “integrated”) approach to development may be more effective than the traditional path.
- A holistic development approach takes into account that for the poor, internal rather than external constraints may be the binding factor. An example of what this means is that microfinance loans may have little impact if aspirations are low among micro-entrepreneurs. Perhaps it may be that micro-entrepreneurs in developing countries don’t believe that they are capable of growing and managing a larger business. Perhaps they never even considered the possibility of growing a large business. In this case all the micro-lending in the world is not going to create a sea of dynamic and growing small businesses. Suppose that children have low aspirations for education. If so, showering such children with scholarships won’t be very effective at advancing education. Apparently surprising to many economists, the aspirations of the poor in developing countries typically don’t reflect those of North-American urban professionals. If we believe that small businesses growth and education are good things, we either need to (a) carry out these interventions where existing aspirations for them are high, or (b) help build aspirations as part of the intervention.
- A holistic development approach recognizes that often what matters is not just economic facts, but people’s perceptions of these facts. Many of the poor suffer from chronically low self-efficacy. They look around them and see few examples of people like them able to prosper in the conventional ways. What they infer from these observations is that they also are incapable of finishing secondary school, becoming a community leader, growing a successful business, becoming a professional, and so forth. Basic economic theory tells us that if we think that we are no good at something, then we don’t put too much effort into it. Why invest in our future if it is all but certain to yield a low payoff because of our incapabilities? The belief then becomes self-fulfilling, and external economic interventions are unlikely to help. A holistic development approach gets under the hood of human beings to create more profound changes than are possible by simply relaxing different types of economic constraints. NGOs did not have to intervene to help, say, the United States or China develop. People’s aspirations and belief in their own agency were such that relieving economic constraints took care of themselves. A community of people with strong aspirations will relieve its own economic constraints. Economic growth happens when more fundamental factors are in place.
- A holistic development approach understands that economic relationships are nested in a web of social relationships. Healthy relationships with not only our friends but with anonymous people in our society are key to genuine well-being. In this context social trust is critical not only for economic prosperity, but for good relationships, freedom from violence and crime, and a perception of honesty and fairness in society. When people sense that a “society works for them” it becomes harder to self-justify anti-social behavior. An economy that realizes rapid economic growth for a few percent at the top sows the seeds of jealousy and a breakdown of social cohesion and trust. The market is a powerful engine for the creation of prosperity, but wise and thoughtful interventions are required to help this engine pull the whole train.
- A holistic development approach understands the importance of identity, and not just economic incentives, to understanding behavior. While I am writing this article, I am living in a small village in Oaxaca, Mexico. A fair amount of what people do in the village I can explain through a traditional neo‑classical economic model of profit and utility maximization. But the majority of the choices my neighbors make are based not on economic incentives, but on their identity. People grow their own corn here even though arguably cheaper corn comes down from the U.S. They grow corn on their plot and make tortillas and tamales with it because that is what people in rural Zapotec communities have done for the last 2500 years. An understanding of identity helps to explain all kinds of behavior, from the healthy to the pathological, from winning spelling bees to carrying out drive-by shootings, behavior that traditional economic analysis is at a loss to explain.
- A holistic development approach understands that material well-being is not the endgame. Even if one considers the somewhat superficial outcome of human happiness, a quick glance at the statistics shows that although a positive correlation exists between per capita GDP and happiness, it is far from perfect (Costa Rica and Brazil are far happier than Japan, Mexico slightly more than the U.S.) and many other factors explain happiness other than income: freedom, health, and good social relations together dwarf the impact of income on happiness. A biblical perspective, for example, teaches us that our purpose as humans is not to accumulate, but to give; at least that was what Jesus had to say about the subject. And the data appear to indicate Jesus was right. Generosity itself is empirically correlated with happiness. If traditional economists were right, giving away your money would make you sadder, not happier. (So we know that it is probably your pastor or priest who knows more about what makes people happy than your economics professor.) A holistic approach to development understands that a healthy community is one that is integrated, supportive, generous, just, and giving. Higher productivity and income may be important steps in the process because when our very basic needs are met it is easier to live lives of integrity, grace, and compassion—since we are less tempted by dishonest gain in order to secure enough to eat. But higher and higher income is not the endgame.
Both in its objectives, its analysis, and in its prescriptions, a holistic approach to development economics offers a more robust lens through which to measure poverty, understand poverty, and develop effective programs to end it. Now attracting some of the best minds in the research community, it will be exciting to see how researchers and practitioners can work together to break new ground in effective poverty interventions.
Follow Bruce Wydick and AcrossTwoWorlds on Twitter @BruceWydick.