The Reckoning Edition?
Editor's Note: As with many others, I've found it very difficult figuring out what to say in this moment. Below I give it my best effort. Here, a couple of housekeeping notes:
The next faiVLive on hard questions about the evolution of digital financial services will be on June 26th at 9am Eastern. I'll be joined by Tamara Cook, Salah Goss, Moonmoon Shehrin, Greg Chen and Graham Wright. Register here.
FAI Visiting Fellow Beth Rhyne has a new post about the responsibility of DFIs to step up to the existential crisis for microfinance.
It's Compass survey time again! Fill out the e-MFPs survey, which is focused on COVID-19 response and recovery.
—Tim Ogden
1. Black Lives Matter:
What do you say in the face of systemic violence and massive inequality that has persisted for centuries? What do you say when the past is not even past? What do you say in moments of torment and tragedy, but also hope--while recognizing the dashed hopes that have gone before? I don't know.
Trying to answer those questions has slowed this edition of the faiV. The only thing I've come up with is to share some of the things that I have been reading, and my colleagues at FAI have been reading, that we have found particularly touching, insightful and thoughtful. Here's an essay about the juxtaposition of America sending people in to space, again, while failing to deal with basic issues of poverty and inequality on the ground, again. While it may not seem the most directly relevant, this piece on complicity with totalitarian regimes in Eastern Europe and who resisted, and what we can learn about complicity with the current systems in the United States has stayed with me. As has this review essay from the New York Review of Books from last year which I just came across this week, centered around a question I hadn't thought of asking before: what can the US learn from Germany about reckoning with a heritage of evil? My colleague Laura Freschi pointed me to this from 2015 on what is owed because of the heritage of evil; as well as this piece, which is summed up by the title: "The Condition of Black Life is One of Mourning."
That framing of "the Condition of Black Life" brought to mind an old paper/lecture by Sandy Darrity (more from him below in the video of the week) on "stratification economics" which "examines the structural and intentional processes generating hierarchy and, correspondingly, income and wealth inequality" and explains why the systems that generate the inequality persist and often grow stronger even as individuals oppose them. Darrity, back in 2005, was pushing back against "the politically acceptable trope of cultural determinism progressively has displaced the impolite trope of biological determinism."
And that in turn has had me thinking about Case and Deaton's Deaths of Despair and the cultural determinism argument. Specifically, that the argument has focused on "deficiencies" of African-American culture rather than marveling at its role in generating the resiliency that has produced the Great Migration, the Civil Rights movement, Black Lives Matter and countless other efforts, initiatives and personal journeys against the incredible odds of taking on a racist, violent system designed to maintain the stratification and keep generating the same outcomes. America, we do have a chance to make meaningful change.
2. Violence and Inequality:
Taking that chance, it seems to me, starts with dealing with the effects of violence, violence so commonplace that it is a wonder that nihilism has not overwhelmed African-American communities or the United States as a whole. Violence has pervasive effects, not just direct one. For instance here's Lisa Cook's research on the effects of lynching on African-American patenting, and the "story of the paper" from Planet Money. Those pervasive effects show up in all sorts of contexts, if only we look for them. Here's a recent paper from Nava Ashraf et al. on how violence and unequal ability to negotiate or enforce agreements prevents women in Zambia from entering more lucrative industries as entrepreneurs. Here's a book from a few years ago surveying the effect of violence on poor communities around the world.
Yes, this is a great convergence argument but one that I had not appreciated as much as I should have. An important place for collaboration between US research and development research is on the commonality of violence as a causal factor in poor economic outcomes. Chris Blattman is working on this in Colombia, Liberia and Chicago, but there should be much more.
Of course, that requires broader recognition of the violence in the American system, not just criminal violence, directed especially at Black men. Here's a thread on #defundthepolice that I think is illustrative. There is of course a long history there. Here's Ellora Derenocourt's paper on how the Great Migration induced more spending on police in cities but no more spending on education or other social services. Another form this structure takes is pre-trial detention. Here are two pieces worth reading on the need to reform the bail system urgently (courtesy of my colleague Michelle Kempis).
3. Pandemic Roundup:
I don't know how to make this transition other than abruptly, so here's the abrupt transition. There is, as always, more data on the impact of the pandemic. I mentioned a few weeks ago that national policies and approaches are so disparate that you could make an argument that they are close to random, at least in their implementation. Cases are surging again in China, Latin America is becoming a new global nexus, with Peru a special case, more disturbing because the country did it "right." What remains to be seen is the effect in these countries as the sovereign debt crisis rumbles on without any sign of resolution.
Mahreen Mahmud and Emma Riley have new data on the lockdown's effect in rural Uganda. Here's the latest from the Garment Worker Diaries in Bangladesh, with a focus on the transition to digital wages--more on that below. There's also an update from the Hrishipara diaries. Incomes rose somewhat as the lockdowns eased, but interestingly most respondents are against relaxing the restrictions. That's most interesting because households coped in April by spending down short-term savings and sharply reducing consumption--and they didn't receive any welfare payments or food relief. Overall, even down to the breakdown in official social support, it's quite similar to this journalistic "diary" of the impact of the lockdown on a group of workers at a bar in Oakland. China's apparent plan to deal with the economic fallout on households is for more workers to join the informal economy? Here is MSC's update on the impact of COVID on SMEs in India. Of particular concern from my perspective is disruption of supply chains. That may just be temporary because of transport issues, but if supply chains start developing serious ruptures that will make recovery much much harder (a reminder to check out Beth Rhyne's post on different types of crises). Here is the deck from a recent webinar on the Kenya Financial Diaries follow-up--while things seem to be improving some in urban area, they are getting worse in rural areas, and coping mechanisms are at their limit. Here is MSC's review of impact in India, Bangladesh, Indonesia, Kenya and Uganda, with a survey of 604 LMI households.
4. Digital Financial Services:
As mentioned above, the next faiVLive webinar will be on some hard questions about transitions to digital financial services. I had planned on doing this shortly after the last faiVLive, but as I'm sure you've noticed the webinar calendar has been pretty full. So what are those questions? For me they fall into two categories: 1) How to make sure the transition to digital doesn't become a mechanism for exclusion, leaving behind the hardest to reach (which, let's be honest, is a defining characteristic of many technology transitions), and 2) How will the transition affect the economics of microfinance (given that while the marginal costs of digital transactions are very low, the fixed costs of digital infrastructure are very very high). Joining me will be Tamara Cook, FSD Kenya; Moonmoon Shehrin, BRAC; Salah Goss, Mastercard; Greg Chen, CGAP; and Graham Wright, MSC. Join us on June 26th at 9am EST.
There is of course lots of discussion about digital financial services right now, as mobile money in particular has proven very useful in distributing social support rapidly. Here's a recent MSC webinar on what India got right in it's massive cash distribution program. Here's a CGD webinar on lessons from India and elsewhere on the use of DFS in social support programs.
Both highlight the importance of agents, but troubles remain there with agent incomes falling and, so far, not seeing much recovery. One of my biggest open questions remains what is happening with the pureplay fintechs and whether they will emerge from the crisis. Of note, from the Kenya Diaries deck above are some stories about how borrowers are interacting with and perceiving digital lenders (page 19)--there's even a specific note on purposeful borrowing from Tala with no intention to repay. Also see page page 28 and 29 of the MSC report on increased use of both digital payments and cash (I admit I'm not clear on the formula that yields fewer transactions and increases in use of cash and digital, I think it's just different measures of usage). Here's a survey from the Cambridge Center for Alternative Finance on the post-COVID future of fintech. Maybe it would be better if fintech weren't a poster child for lack of diversity?
5. Education and Inequality:
I'm guessing I'm not the only one already struggling with how to be a good parent in a (Northern Hemisphere) summer when the kids are not only out of school but all of their planned summer activities have been canceled. A huge part of the rich/poor divide in learning is what kids do when school is out, and how much learning is lost by kids whose parents can't afford enrichment of some sort. I'm wondering what we're going to see this summer. My current guess is that there is going to be a big gap between the very wealthy and everyone else, and then a more traditional inequality related to parents' education levels and the type of job the parents have (e.g. how often they are home).
The COVID disruption to education around the world is likely to have very serious and lasting consequences. Here's an overview of what we know from the RISE program based on the 2005 Pakistan earthquake. Here's Emily Oster on the inequality impact of school closures in the US, and check out David McKenzie on measuring how students in Ecuador are spending their time during school closure. Here's The Take podcast on the impact in Kenya of closed schools.
What to do about it? Here's three "no-regrets" policy suggestions from Stefan Dercon. What not to do about it? Well, you should definitely not be like most American universities who seem to have forgotten their purpose and are desperately trying to preserve their endowments rather than, say, preserve the education of their students. And then there are the large number of colleges that are in imminent danger of closing because they ramped up costs pursuing wealthy and international students as their business model.
Whether we are talking about the US and universities, or the developing world and primary students, the real possibility that millions of young people's (specifically the poorest, the girls, the minorities, the excluded) education stopped permanently in March 2020 is truly frightening for the future of inequality.
Video of the Week:
Sandy Darrity discusses the racial wealth gap and reparations on CNBC recently.
