The Poor as Value-Conscious Consumers

As previously discussed, the BOP proposition views the poor primarily as consumers, and as an untapped market suggesting that the consumption choices available to the poor can be increased by targeting various products and services, such as shampoo and televisions. Holding the poor consumer’s nominal income constant, the only way a person can purchase the newly available product is to divert expenditure from some other product. Still, this increased choice will increase his welfare, assuming he is a rational and well-informed consumer. However, as a practical matter, this increase in choice is unlikely to result in a significant change in his poverty situation. A poor person is far more constrained by lack of income than by lack of variety of goods and services offered in the market.

Additionally, if for some reason, the poor consumer is deceived by marketing or is poorly informed, the BOP initiative might even reduce his welfare. Civil society organizations have often argued that targeting the poor as a market might cause them to wastefully spend part of their already meager income on low priority products and services.21 It is almost an “item of faith” among development economists that the poor act rationally.22 The libertarian view presumes that the poor hold coherent, well-informed beliefs and pursue their self-interest effectively. The BOP proposition argues that the poor have the right to determine how they spend their limited income and are in fact value-conscious consumers; the poor themselves are the best judges of how to maximize their utility.

This is free-market ideology taken too far, and it harms the poor. Even a stalwart proponent of neoliberal policies like The Economist concludes that the poor do make choices, and the empirical evidence suggests that “they are not always the best ones.”23 The assumption that the poor are value-conscious consumers is empirically false, and the implications of this assumption are morally problematic.

The poor in fact are vulnerable by virtue of a lack of education (often they are illiterate), lack of information, and economic, cultural, and social deprivations. People’s utility preferences are malleable and shaped by their background and experience, especially so if they have been disadvantaged. It is not appropriate to assume that the expressed preferences are truly in the self-interest of the poor. We need to look beyond the expressed preferences and focus on people’s capabilities to choose the lives they have reason to value. Amartya Sen eloquently argues that

the mental metric of pleasure or desire is just too malleable to be a firm guide to deprivation and disadvantage____Social and economic factors such as basic education, elementary health care, and secure employment are important not only in their own right, but also for the role they can play in giving people opportunity to approach the world with courage and freedom.24

The growing field of behavioral economics—the integration of psychological insights with economic analysis—empirically demonstrates that, contrary to the neoclassical assumption, people are not perfectly rational economic actors. Behavioral economists Bertrand, Mullainathan, and Shafir argue that the poor “exhibit the same basic weaknesses and biases as do people from other walks of life, except that in poverty, with its narrow margins for error, the same behaviors often manifest themselves in more pronounced ways and can lead to worse outcomes.”25 The poor are just as irrational as more affluent people, but their penalty for irrationality is more severe. For example, when a poor person spends too much on alcohol, it has a major detrimental impact on his and his family’s lifestyle, which is an unlikely occurrence for an affluent family.

 
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