Now, a long-term study of the poor in small villages in
The study, based on a unique set of data collected under the direction of MIT economist Robert M. Townsend, shows that among rural households, 43 percent realized significant and lasting gains in net worth over a seven-year period, and that 81 percent of that wealth accumulation was due to savings of income, as opposed to gifts or remittances, that is, contributions the family did not earn.
“There is not a poverty trap in these Thai villages,” says Townsend, the Elizabeth and James Killian Professor of Economics at MIT. “There are strategies people can pursue to increase their relative wealth.”
The findings are summarized in a new working paper, “Wealth Accumulation and Factors Accounting for Success,” written by Townsend and Anan Pawasutipaisit of
The Thai villagers in the survey tend to be farmers, fishermen, laborers or run small businesses. Households that do get ahead have some generally shared characteristics. The heads of households tend to be younger than in the families that do not increase their worth. Additionally, gains in wealth correlate specifically to the highest level of education obtained by a family member, and not the family’s median educational level, as Townsend notes.
“It’s not the average wisdom of household members pulled together,” says Townsend. Rather, he notes, “It’s suggestive that it is the ability or talent of one individual” that can change a family’s entire economic trajectory.
Moreover, the data show financial success to be a persistent feature of certain households, meaning it is not the case that “successful entrepreneurs are those that simply get lucky” due to one good crop or fish harvest, as Townsend and Pawasutipaisit write in the paper. But new ventures are sometimes behind the accrual of wealth. In one survey village, the household with the highest annual rate of return on assets (17 percent) was headed by a corn farmer whose wife insisted that they try raising dairy cows instead, sensing that owning livestock would be more profitable in their area; the idea came in part after a milk cooperative sent workers to educate villagers about cows.
“This work really lifts the veil on the lives of low-income people that had been hidden, largely because we don’t usually collect data with this frequency,” says Jonathan Morduch, a professor of public policy and finance at New York University. “Once you do that, you see that people are not passively accepting their fates. We see a lot of consumption smoothing — people’s incomes are going up and down, but they’re borrowing, saving, insuring with each other and reducing risk in an informal way. People are actively seizing opportunities. That’s exciting and important to know.”
Townsend has also summarized some of his research in a 2010 book, Households as Corporate Firms (
How do small gains feed a large economy?
In turn, another area of ongoing research for Townsend and his colleagues is the attempt to take the microeconomic data from individual households and villages, and use it to flesh out the macroeconomic analysis of
“It’s easy to think of
The financial activities of people in the more rural areas of
“And then that money becomes somebody else’s loan,” says Townsend. “In the
Some funding for the research was provided by the John Templeton Foundation, the Bill & Melinda Gates Foundation, and the National Institute of Child Health and Human Development.