Michael Jackson and the Wealth of Nations

thriller“Poor people just need more money” concludes Slate’s review of unconditional cash transfers and their role in ending poverty. Well, that’s an incomplete conclusion. How do I know? I went to middle school.

Keith, Greg, and Mark led an exclusive network in my seventh grade class. They were the cool kids. Those on the inside enjoyed privileged access to information (what was in and what was out) and opportunities (invitations to the best parties). Those on the outside wanted in, desperately. Of course, entry was not free. As a prospective candidate, my fitness for the network would be judged by my ability to:

  • Employ the correct vernacular like Bitchin’, Rad, and Awesome
  • Master ritualistic body movements like the Hand Gide, Worm and Windmill.
  • Adhere to strict protocols of dress by donning Jazz shoes, skinny leather ties, and parachute pants

Judgment would be forthcoming at what was billed as the “party of the century” with all you can drink Mellow Yellow, endless Donkey Kong on the Atari and a guaranteed round of spin the bottle.

I knew I could pass the first two trials. However, given my family’s socio-economic status, my prospects for fulfilling the final trial were in doubt.

Adam Smith could relate to my predicament. In the “Wealth of Nations”, he discusses the role of linen shirts in realizing social inclusion.

“A linen shirt … is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times…a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct.”

Parachute pants were my linen shirt.  I needed a pair to signal my worthiness to Keith, Mark and Greg. Yet, there was only one pair in my house. They belonged to my sister and we could not afford another. What did I do?

I wore her pants, worked it, and enjoyed insider status for the duration of the party!

Yet, on the following Monday, Mark showed up to school wearing a brand new MJ Thriller jacket. The bar had been raised and my insider status was revoked.

Where am I going with all of this?

Networks are valuable. They provide members with access to each other, information, and economic opportunities. More importantly, they build trust among its members. Trust is a key ingredient in eliminating poverty. People who trust one another will trade with one another. Trade creates economic opportunities. In turn, economic opportunities create an incentive for members to invest in machines, technology, education, and other great things that spur economic prosperity.

For the poor, networks are even more valuable. Generally, the poor lack access to the same public services or social safety nets that the wealthy enjoy. If they do have access, services are more than likely inefficient, unreliable and/or very costly. So, they turn to each other. They form networks to supply day care, early childhood education, unemployment benefits, and old-age care. The poor also lack access to well-functioning insurance markets. Their networks can provide health, funeral, and life insurance.

Since it’s possible to slip into a network and enjoy its services without paying, networks are selective. They continuously sort insiders from outsiders. For this reason, networks have a couple drawbacks. They are usually too small (in number of members) to provide the foundation for a modern economy’s success: complex trade among a large number of people who do not know each other by name, family background, or history. Moreover, not all networks are created equally. They vary in the quality of opportunities, services, and information that they supply. And, given that some of the easiest ways to sort insiders from outsiders is by race, gender, religion, caste and so on, network can foster inequality across many divides.

Like other wealthy nations, part of our economic success can be explained by our willingness to become more inclusive. Over the years, we have found ways to engender trust among a larger and larger swathe of our population. It’s not that we have rid ourselves of networks. We still have our share of smoke-filled backrooms, country clubs, and political dynasties. Yet, as a nation our path has been one of expanding access and opportunities (economic, social and political) to more and more of our citizens. For some, the pace has been too slow and for others too fast. Regardless, the only membership requirement is citizenship.

This was and continues to be a political process.

So, I don’t doubt that giving cash directly to the poor will do some good. The research reports an increase in hours worked and labor productivity of those who receive a cash transfer. Who knows? Maybe the cash transfer allowed recipients to go out and buy their culture’s equivalent of my sister’s parachute pants. Having done so, they may have gained access to a formerly exclusive network and all the benefits therein.

Yet, here is the thing. Those who have exclusivity like their exclusivity. For many of them, their livelihoods depend on the favorable differential in access and opportunities that they enjoy persisting. And, just like Keith, Greg and Mark, who is to say that the elite will not just introduce additional and more costly barriers to entry. They may even go out and buy their culture’s equivalent of an MJ Jacket.

Poor people need more than just money. In addition to cash transfers, there needs to be a political process bent on expanding access and opportunities for all citizens.

It’s not all about the money. It is also about the voice, agency, and ability to hold politicians accountable.

The poor will need to build a network to realize these.

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