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Posts Tagged ‘social mobility

The world is not a zero-sum game, but it matters if you think it is

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tall-poppy

Question: A farmer in your neighbourhood has had an exceptionally productive 2016. He has managed to double wheat output, and his favourite cow – Daisy – was awarded first prize in the national competition. What is the reason for the farmer’s success? Is it: a) He has worked very hard, b) He was lucky, or c) he put a spell on the rest of the farmers in his village?

This is an example of the type of survey questions a team of Harvard economists have been asking to subsistence farmers in the Democratic Republic of the Congo on several visits over the last few years. In contrast to what one might think, the answer to this question is almost always the same: C. Witchcraft and supernatural beliefs are widespread in Africa and throughout the developing world. One aim of the research group is to identify how these cultural traits affect economic decision-making. Clearly, if my answer to this question was that the farmer’s success was due to hard work, I would conclude that the way to excel is to work harder. But if my understanding is that this farmer somehow cheated – that his success was due to a spell he put on the rest of the community, and that his gain was our loss – then my takeaway is that I need to spend more of my surplus not on investing in my farm, but on bribing the local spiritual leader for favours.

The belief that the world is a zero-sum game is widespread. Like these Congolese farmers, many of us believe that the success of one member of our communities must be to the detriment of others. In some cases, this is, of course, true: when one bowler takes 7 wickets in an innings, it leaves only 3 scalps between the remaining bowlers. But, generally, the world is not zero-sum. China’s success is not a consequence of America’s decline, despite what the Trump propaganda machine says. Trade, as economists have known since David Ricardo, can be mutually beneficial, even if it means that the benefits and costs of growth are not shared by everyone equally. My neighbour’s financial success after she designed and marketed a new app is not the result of her ‘stealing’ my success.

But beliefs of a zero-sum world are widespread, and results in what has become known as the Tall Poppy Syndrome. I’ve seen this in action: students that excel sometimes draw the envy of their poorer-performing peers. And it has consequences: the envious ones believe that the good student must have achieved the high marks because of external factors, such as being the teachers’ favourite. They avoid taking responsibility for their own mediocre efforts. The star student, depending on the sanction of the envious ones, also reacts, either by withdrawing from social interaction or, worse, by putting in less effort in the next test to avoid standing out.

The Tall Poppy Syndrome is prevalent in all societies, but its density and effects are likely to vary. If TPS is more concentrated in poorer communities, for example, it will hamper social mobility, reinforcing both the poverty and the cultural beliefs itself. Development economists are therefore hoping to not only identify the causes of these beliefs but also how to change them.

This will not be easy: beliefs are difficult to measure accurately, and their origins may be deep in history. Nathan Nunn and Leonard Wantchekon’s work several years ago showed how the Atlantic slave trade still affects trust in African societies: people that today live in areas where most slaves were captured are more likely to distrust their neighbours and the government. In a new paper, Oded Galor and Ömer Özak show that people’s belief about time preference – whether you have a long-term horizon or not – were affected by what type of crops their ancestors grew. Both trust and time preferences are necessary ingredients for development. As Adam Smith already pointed out in the eighteenth century, trust is necessary for specialisation and exchange. A long-term horizon allows one to forego future income, invest in the present and earn the higher future returns. It affects our propensity to save, to adopt new technologies, and, as Galor and Özak show, even our likelihood to smoke.

If these cultural beliefs are so deeply rooted and have such a pervasive influence over our behaviour, what can be done to change them? This is difficult to answer and requires the interdisciplinary efforts of psychologists, economists, anthropologists and neuroscientists. The answers they provide may not only contribute to sustainable development and social mobility, but may have applications elsewhere. Marketers may have to design products that appeal to those with a zero-sum worldview, or managers may have to lead teams of people where some ascribe to this view. The incentives that motivate people who have Tall Poppy Syndrome, for example, are likely to be different to those who are less envious of their successful colleagues.

Our beliefs about the world shape our economic decision-making. We are only now beginning to understand how it does, and what to do to change it.

*An edited version of this first appeared in Finweek magazine of 1 December.

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Written by Johan Fourie

January 16, 2017 at 08:16

On the road to riches

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RDP houses

Road to nowhere: RDP houses outside Kokstad, South Africa (Rhodes University)

Escaping poverty is one of the most difficult things to do, especially in a country like South Africa where at least a quarter of the labour force is unemployed. Every year, thousands of young rural men and women move to the urban periphery in search of jobs and a better life for their children. They mostly end up in townships on the fringes of South Africa’s largest cities where the lack of services – housing, water and sanitation, education and health – are unlikely to allow them to escape the poverty they so desperately hope to. Their children, in all likelihood, will remain on the fringes of the formal economy, unable to break free from the poverty trap.

How to solve the immobility of the poor is one of the most vexing questions that captivate economists. What are the policy levers that we can pull to allow a poor household migrating from Qunu to Cape Town to build a better life for their children? One might think of a plethora of policy options: more housing, clinics and sports fields, better sanitation, teachers and public transport, safer streets, classrooms and public parks; in short, all the things we associate with better neighbourhoods. But better neighbourhoods are highly correlated with high incomes, and it is difficult to know which comes first: do rich people create better neighbourhoods, or do better neighbourhoods create rich people?

Two Harvard economists have recently provided the most compelling evidence to date to show that it is neighbourhoods that, in fact, create rich people. They track the participants of a lottery programme in the USA that allowed some families – those that were lucky to win the lottery – to migrate to better neighbourhoods. Because it was a lottery programme, selection is not an issue, meaning they can interpret the difference between those that migrate and those that stay behind as the causal impact of the new neighbourhood. Here they summarize their results:

As an example, consider a set of families who move from Cincinnati to Pittsburgh. Children who grow up in low-income families (at the 25th percentile of the national distribution) in Cincinnati from birth have an income of $23,000 on average at age 26, while those in Pittsburgh have an income of $28,000. Now consider the incomes of children whose families moved from Cincinnati to Pittsburgh at some point in their childhood.

Harvard

 Figure 1 plots the fraction of the difference in income between Pittsburgh and Cincinnati that a child will on average obtain by moving at different ages during childhood. Children who were nine years old at the time of the move (the earliest age we can analyze given available data) capture 50% of this difference, leading to an income of approximately $25,500 as adults. Children who move from Cincinnati to Pittsburgh at later ages have steadily declining incomes, relative to those who moved at younger ages. Those whose families moved after they were 23 experience no gain relative to those who stayed in Cincinnati permanently.

The earlier you  move to a better neighbourhood, the better chance you will have to escape poverty. While this might sound intuitive, this is the first time that economists have credibly established the causal link from residing in a better neighbourhoods to better outcomes later in a child’s life.

But what is it about these better neighbourhoods that really matter? Is it, as Justin Wolfers writes in the New York Times, “their schools, community, neighbors, local amenities, economic opportunities and social norms” that matter the most? The Harvard team has an answer: commuting time. This is how one newspaper reported it:

Commuting time has emerged as the single strongest factor in the odds of escaping poverty. The longer an average commute in a given county, the worse the chances of low-income families there moving up the ladder.

The relationship between transportation and social mobility is stronger than that between mobility and several other factors, like crime, elementary-school test scores or the percentage of two-parent families in a community, said Nathaniel Hendren, a Harvard economist and one of the researchers on the study.

These results should have profound implications for how we think about attempts to alleviate poverty in South Africa. Following the end of apartheid, the government decided to build large, new townships of what became known as RDP-houses in response to the massive housing backlog. These, located on the outskirts of towns and cities, was a legitimate attempt to provide shelter and a basic living standard for South Africans neglected by the previous government. But while they may have improved standards of living immediately, these new neighbourhoods had the crippling effect of locking households into poverty: far from town and city centers with job opportunities, these promises of a new future did little more than to entrench the nefarious spatial policies of apartheid. South Africa today, I venture to say, may be less socially mobile than it was at the dawn of democracy.

What does the South African city of the future look like? More urban sprawl with longer commuting times? Possibly, but then we should accept the fact that it will also be a society with lower levels of social mobility, a society locked into the inequalities of the past. The only way to expunge the past injustices is to bring the poorest closer to the city center. Public transport can help, which it is great to see that Cape Town is now building MyCiti to the poorest neighbourhoods. But it is only a beginning. Why not make Paardeneiland, located close to Cape Town’s city center, a model for new, denser neighbourhoods that cater to low-income households?

If the kid from Qunu will make it in Cape Town, he needs to live in a good neighbourhood with short commuting times for his parents. The walk to economic freedom is still too long.

Written by Johan Fourie

May 20, 2015 at 07:09

The apple and the tree

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How much of my relative wealth today is a direct result of the relative wealth of my parents? And my grandparents? And my great-grandparents?

Because of South Africa’s unequal society, understanding the extent to which wealth (or income) persists over generations is important. Public opinion on policies that promote some form of redress or redistribution – affirmative action and black economic empowerment – is usually split between those favouring an end to ‘a new form of racism’ and those who feel not enough is being done. One way to scientifically quantify the legacy of the past is to calculate what economists call intergenerational social persistence, a ratio that calculates how much the present generation’s income can be explained by their parents’ incomes. Intergenerational persistence is usually quite low in countries with low inequality, such as Sweden (a ratio of 0.2), whereas intergenerational persistence is high in countries with high inequality, such as America (0.5) and South Africa.

Frans Hals, Family Portrait in a Landscape

Frans Hals, Family Portrait in a Landscape

Parental income is not the only measure that is important for the next generation. As Stellenbosch PhD-student Asmus Zoch shows in a recent working paper, very little is left to explain the inequality in South African education outcomes once you control for a child’s socio-economic background. This means that your education depends not on how hard you work, but on your fortitude to be born in a rich household. Specifically, he finds, “the single most important variable to explain schooling outcomes are mother’s education.” This result is confirmed by earlier research. Perhaps this points to adult education as an important policy in alleviating education disparities of future generations?

But these are simply estimates of persistence across two successive generations. Does intergenerational persistence exist across multiple generations, perhaps over 5 or more? This is a question that Patrizio Piraino, Sean Muller, Jeanne Cilliers and I address in a recent working paper which I will present at the European Historical Economics meetings in London on Friday. Multiple generations present a number of data challenges: Usually, income data are not available. Even if income data were available, there would be strong biases in favour of men and of employment in the formal sector; farmers and domestic workers, for example, would usually be excluded. We circumvent this problem by focusing on yet another measure of well-being: longevity. In short: how much of your life duration can be explained by the life duration of your parents and grandparents?

To answer this, we use a genealogical dataset of European descendants in South Africa between 1652 and 1850. This rich dataset – of 122,766 individuals over 6,485 families – allows us to match not only boys and girls to their fathers, but also to their grandfathers, and also boys and girls to their siblings and even to their cousins. We find positive and significantly persistent effects that parents who grew old also had children who grew old, ceteris paribus (we limit the sample to only those children above 15 years or their reproductive age). Interestingly, we don’t find any statistically significant effects for grandfathers on their grandchildren. That might either be because grandfathers’ longevity do not persist over two generations, that the effect is too small to register, or that mobility was quite high in the Cape Colony and therefore we find no effect.

While the effect of fathers’ longevity on their children is not as large as one would typically find if income is used – our coefficient ranges from 0.05 to 0.1 – it does suggest that children inherit traits from their parents. Here, of course, we enter another literature, that of the genetic inheritance that one receives from your parents versus the socio-economic characteristics (the typical nature versus nurture debate). We can test which of these effects dominate by considering cousins, who share the same grandfather but not the same parents. We find that a cousin-pair is more likely to be correlated than a pair of two randomly chosen individuals, but not because of their grandfather. This suggests that the socio-economic environment is more important than genetic inheritance in explaining intergenerational persistence.

Of course, some intergenerational persistence is understandable, even desirable. But if we want to live in a country where every child has an equal opportunity in life, then the socio-economic environment in which those children grow up needs radical improvement. That remains our most difficult challenge.

Written by Johan Fourie

September 4, 2013 at 08:51