ROBERT SMITH, HOST:
Recently, I was in southern Africa. And my favorite person that I met was this apple farmer but not any apple farmer. He was the apple farmer of Lesotho. His name was Blessing.
BLESSING NKHASE: My name is Blessing Nkhase.
SMITH: His orchard was high up on a mountain ridge in Lesotho. And you could see for miles out over the river and the whole capital city off in the distance. But I was here to see his trees. Now, all the other farms nearby consisted of just three things - cows, corn and this leafy green cabbage-y (ph) thing. But Blessing...
NKHASE: We do grow some Golden Delicious, Fuji...
NKHASE: Yes. Yes, we do have a Granny Smith.
SMITH: Granny Smith.
NKHASE: We do have Galas. Yes, we do.
SMITH: These are the same we have in the United States.
NKHASE: Yeah. Yeah, yeah.
SMITH: Blessing's apples are famous because Blessing discovered something that no one else had. In the bright sunshine and short growing season up in the mountains where he is, his apples ripened faster. He could harvest them earlier than anyone else. He could sell them in neighboring South Africa before anyone else. And so...
NKHASE: We are able to tap into the market two to three weeks earlier than the South African counterparts.
SMITH: Oh, so your apples come earlier?
NKHASE: Exactly to be true.
SMITH: So you get an advantage in the marketplace.
NKHASE: Exact - expect - exactly, that's right (laughter).
SMITH: Blessing is one of the few farmers in Lesotho who exports food. People come from all over to learn apple farming from him. He even has some open fields where he would love to expand his orchard. But when I asked him - what's next - like, what are you big plans? - he said this thing that, at the time, did not make sense to me. He was going to do what every other farmer in the country was already doing. He was going to start to raise animals.
NKHASE: Into animal production also.
SMITH: So you're going to get cows here...
SMITH: ...Or sheep, goats?
NKHASE: Yes, yes.
SMITH: But you're one of - if not the best - apple farmer in Lesotho. Is that right?
NKHASE: In short, I am - I'm the top in the country at the present stage.
SMITH: And Blessing wants to grow more apples, sure. If he grows more apples, he'll make more money, be able to expand even more. But he explains to me - look, there is a drought right now. And you have to run irrigation over from the well to the orchards.
But you don't have the money?
NKHASE: Yeah, I don't have money.
SMITH: So the best apple farmer in the country is going to do what every other farmer is doing - raise some cattle on the side. If the drought continues, at least he'll have something. He doesn't want to take the risk of losing everything.
(SOUNDBITE OF DAVID ISAAC FELDSTEIN AND MARC FERRARI PIECE, "THE BEST AROUND")
SMITH: Hello, and welcome to PLANET MONEY. I'm Robert Smith.
NOEL KING, HOST:
And I'm Noel King.
SMITH: What's holding Blessing back and holding millions of other small-businesspeople back in Africa and around the world is fear. They know what they want to do. They know it can pay off big, but it just seems too risky.
KING: And that is totally understandable. But if skilled people took more risks, the world could be better off. We'd have more new businesses, more new ideas, more delicious apples in Africa.
SMITH: Today on the show, how to overcome your fear of losing everything. Two economists have two different theories, and they put them to the test in the real world - and quickly get in over their heads.
(SOUNDBITE OF DAVID ISAAC FELDSTEIN AND MARC FERRARI PIECE, "THE BEST AROUND")
SMITH: In one of the economics buildings at Yale University, there is this tiny section where they talk about this really big idea, which is, why do poor people stay poor? One of the economists who thinks about this a lot is Chris Udry. He's a tall guy with gray hair. He was posted randomly, back when he was young, to Ghana in the Peace Corps. He taught math. But when he became an economist, he kept returning to Ghana.
CHRIS UDRY: Once you live in a place like that and meet people who are - had all this potential and weren't able to reach it because of the economic situation they were in, it just becomes impossible to study anything else.
SMITH: And impossible to decorate with anything else (laughter) - his entire office is filled with Ghanaian art, Ghanaian toys - even wears a brightly colored Ghanaian shirt when he teaches.
KING: And Chris is particularly obsessed with this one problem that he's noticed in Ghana. When he looks at how farmers there are doing, he sees that there hasn't been a lot of progress for them over, like, the past couple decades. You look at China or India or South Asia - there have been all these advances in farming. Farmers are using new seeds and new techniques. They're growing more crops.
SMITH: But every time Chris goes back to Ghana, he looks around, and it doesn't look much better than it did when he was back in the Peace Corps. There's still a lot of empty fields. There's a lack of irrigation and use of fertilizer.
KING: OK. Remember, Robert, we promised you two economists...
KING: ...Who get in over their heads. Dean Karlan works across the hall from Chris in the economics department. And he started a group called Innovations for Poverty Action. Dean travels around the world and does experiments on what kind of help for poor people works the best for poor people.
SMITH: Dean is shorter than Chris. He's bald. He's a pretty fast talker. He's not a Peace Corps guy. Dean's early economic education was two years as an investment banker.
DEAN KARLAN: I just learned enough to know what I didn't want to do.
SMITH: Which was what?
KARLAN: Investment banking.
SMITH: All right, so I got a good one. A former investment banker and a former Peace Corps volunteer walk into a room to talk about the causes of rural poverty.
KING: Great joke, Robert.
SMITH: Go, go.
KING: (Laughter) And they have this very specific question about Ghana. Here's a place where farmers could clearly grow more corn. They could invest in irrigation and in fertilizer, and they could be a lot richer. So why don't they?
SMITH: Dean, the former investment banker, says usually, when you look at it, there is a simple reason why people do things. And so they ask the farmers - what's going on here?
KARLAN: The answer you get when you do that, most often, is money.
SMITH: Money - poor farmers are poor. Like Blessing, the apple farmer, they had these big dreams to do things. But they say they don't have the money. And there's no one willing to lend them the money.
KING: But Chris Udry, who - remember - has spent his whole life working with these kind of farmers, he suspected it was something deeper because he noticed that sometimes these same guys - these same farmers who said they didn't have money to spend on their fields would go out and maybe buy a cow. Or they'd start a little store on the side, so they did have some money.
UDRY: They do not want to put all of their eggs in one basket. They're going to make sure that if there's a disaster on one field, they've got another field. Or if one - if growing conditions are poor for one crop, they've got another crop.
SMITH: It wasn't just money. Farmers were afraid of the risk. So this became the real question between the two economists - which one was it? Which is the bigger problem? Is it that these farmers don't have enough money, or is it the eggs in one basket problem? Is it fear of risk?
KING: It was economist versus economist.
SMITH: Did you guys physically fight each other, or was it just verbal screaming back and forth across the hall?
UDRY: No, I don't think (laughter) it's actually at all like that. No (laughter).
SMITH: Harsh words?
UDRY: No (laughter).
SMITH: Name calling?
UDRY: It's so sad we can't...
KARLAN: Yeah, I know.
KING: Robert, they weren't giving you anything.
SMITH: I was hoping for, at the very least, like, a catty footnote...
SMITH: ...Somewhere (laughter) in a paper. But no, they are economists. This was an intellectual question to be solved in an intellectual way, which is a randomized controlled experiment.
KING: So here's what they did. They focused on northern Ghana, which is very dry and very rural - there's a lot of farmers. And they picked a handful of villages, and they started trying out various solutions.
SMITH: One set of farmers, chosen randomly, got what they asked for. They got money.
KARLAN: We sent them 200 and - the equivalent of $250.
SMITH: One time?
KARLAN: One time.
SMITH: And did you say, you have to use this to put in irrigation, do some of your fields?
KARLAN: No. There was no rules put on how they had to use it.
SMITH: So that was the money group. The risk group was harder to test because Chris had to find a way to reduce the riskiness of farming. Now, he couldn't control the weather. He couldn't control insects or any other unfortunate thing that might happen out there in the fields. But there is a time-honored way to make something less risky.
KING: You probably have it yourself to make your life less risky - insurance - in the case of the farmers, crop insurance. Now, this is a concept that didn't really exist in Ghana at the time. The country had health insurance. They had some forms of car and home insurance, but nobody wanted to provide farm insurance.
KARLAN: If we were going to do this, we were going to have to make the Chris and Dean Insurance Company.
SMITH: You were going to have to start your own insurance company?
KARLAN: Well, yeah (laughter).
SMITH: There's a lot of things that go into an insurance company. There's a lot of paperwork. There are statistics. They have to decide how much they would pay out and figure out when to payout, which is not an obvious thing. You don't want to pay somebody for having bad crops, let's say, because that would encourage them not to maybe put a lot of effort in, not to get up at 4 in the morning.
KING: So they ended up basing the insurance on rainfall, something that farmers can't control but is going to affect them.
SMITH: That you can measure.
KING: Right. If it rained too little or too much, the insurance policy would pay money to the farmers. If there was normal rainfall, no payout.
SMITH: Seems logical. Now they just needed farmers to sign up for it. But farmers in Ghana had never seen anything like this - had never seen rainfall insurance. So the Chris and Dean Insurance Company - they had to explain what is this insurance and why should you get it.
KING: And so if you're in northern Ghana a couple of years back, say, you're a farmer. You're getting ready to go out into the fields. You've got the radio on. You're going to hear this attention-grabbing ad.
(SOUNDBITE OF RADIO AD)
UNIDENTIFIED MAN: If you happy and you know it, clap your hands. If you're happy and you know it, clap your hands.
UNIDENTIFIED MAN: Hey, (unintelligible), any good news?
UNIDENTIFIED MAN: It is exciting, interesting - indeed, very good news. Have you heard that the Ghana Agricultural Insurance Pool - GAIP - has come out with a new insurance policy to protect our crops, animals and poultry? Oh, I cannot hide my feelings. I'm so happy.
SMITH: Does not sound happy.
KING: I think he sounds so legit happy - crop insurance, man (laughter).
SMITH: And then, if you're in one of the target villages, you would then get a knock on your door. A young researcher with Dean's group, Innovations for Poverty Action, would smile and would read you a script.
LINDSEY SHAUGHNESSY: Hello. We're working with the Ministry of Food & Agriculture. We recognize that you need help dealing with the unpredictability of rainfall.
KING: This is Lindsey Shaughnessy, a young woman, by the way, whose only previous sales job was working at the Clam Box in Ipswich, where she grew up.
SMITH: Have you ever been to the Clam Box?
KING: Never (laughter).
SMITH: Oh, my God.
KING: Have you been?
SMITH: It's in the shape of a giant, like, takeout container.
KING: You've been?
SMITH: Oh, yeah.
SHAUGHNESSY: Our first year, I had a lot of charts. I had 30-page scripts with facts and figures.
SMITH: And Lindsey quickly figured out that this was going to be more than just getting people to sign a policy. In order for insurance to work, people need to believe in it. They need to believe in it enough to risk more money to risk more money, to risk their livelihoods, to invest more in their farms.
KING: Here's how Lindsey did it. First off, she would show people the simple economics. You pay us the equivalent of a couple U.S. dollars, and if there isn't enough rain, which is measured at a rainfall station, then we're going to make up some of your losses - not all of them, but enough to get you through, so maybe a couple hundred dollars.
SMITH: Sounded good to the farmers - in fact, it sounded great to the farmers. Lindsey started to notice that people were talking about the insurance like it was gambling, like they were gambling on next season's rainfall.
SHAUGHNESSY: When you say you give me a little money and you might get a lot of money, that seems like a lottery. And were they using the word for lottery? According to my translator, yes.
SMITH: Which was a huge problem. The point wasn't for farmers to pray for a drought so they'd win the lottery. Lindsey needed a different pitch.
KING: And Lindsey wasn't a sales person, Clam Box aside, so it took her a long time to understand the most basic rule of selling. Don't pitch the mind. Pitch the heart. She started to put away her charts, and she just talked to these families.
SHAUGHNESSY: We would start out by saying - can you remember a year recently, or in the last 20 years or so, that there was a giant flood or drought? And they would say, yes, of course.
SMITH: And they'd tell you some story?
SHAUGHNESSY: Yes. The farmers would tell me stories about, oh, my goodness, I can't believe - you know, I couldn't feed my family this year. No one could in the village. And so we would say to them - OK, this would have been your payout 600 cedis - 500 cedis. And they would say, that wouldn't have been even close to enough money to cover my losses. And I would say yes.
SHAUGHNESSY: She'd say, think of it like health insurance. Ghana has government health insurance, and yet no one hopes their child gets sick so they get a payout. Crop insurance, she would say, is the same thing. And to drive this emotional point home, Lindsey's team created a soap opera - on radio - that told this heartbreaking story of a man, a farmer, who was trying to decide if he was going to get crop insurance.
(SOUNDBITE OF RADIO BROADCAST)
UNIDENTIFIED ACTOR #1: (Foreign language spoken).
SMITH: He decides not to. Everyone else in the village gets the insurance, and, sure enough, the insurance pays off.
(SOUNDBITE OF RADIO BROADCAST)
UNIDENTIFIED ACTOR #2: (Foreign language spoken).
(SOUNDBITE OF PAPER SHUFFLING)
KING: You can hear them counting out the cash.
SMITH: Everybody in the village gets the cash except for our hero. And he cries for about 10 minutes at the end of the soap opera.
(SOUNDBITE OF RADIO BROADCAST)
UNIDENTIFIED ACTOR #1: (Sobbing, foreign language spoken).
SMITH: I know this seems over-the-top. But really, when you think about it - when you think about what insurance does, I mean, all insurance has that tragedy built into it. Like, I may get in a car wreck. I may get very sick. My house might burn down. And so they were sort of teaching people that this is the emotion behind insurance. And it worked. Farmers rushed to sign up for this thing - in fact, a lot of farmers.
UDRY: We expected hundreds of policies being sold, and we got thousands. My first reaction was delight. This is working. This is fantastic. My second reaction was uh-oh. What are we going to do if we have to pay out all this money?
SMITH: If it did not rain in northern Ghana that year, they would have been on the hook for more money than they'd calculated in their grant. They would've had to pay out a half a million dollars.
KING: So they had to go to the higher-ups at Yale and say, if this goes bad, will you lend us the money? And Yale said, yes. But we are going to take it out of your future grants.
KARLAN: The guarantee our future at Yale.
SMITH: Which was somehow dependent on rainfall in Ghana.
KARLAN: Well, yeah.
SMITH: Now who's gambling?
SMITH: Now who's gambling with the money?
So they would get these numbers every day. OK - no rain, no rain, sprinkle, then no rain, then, finally, the clouds opened up - not a lot - but enough to hit the rainfall target.
KING: This was very good for the farmers, even better for Chris and Dean Insurance Company. They didn't have to pay out any money.
SMITH: If you had been a real company, you would have made a profit.
UDRY: If we had been a real company, we would've made a profit.
SMITH: Now, I should say, like in any real insurance company, not everyone was happy. Lindsey said, after the harvest, she started to get calls from some of the farmers who didn't get a payout. And they said, I mean, look at my crops. There technically was enough rain - I know that. But the harvest is terrible. They told her...
SHAUGHNESSY: In my opinion, my crops didn't do well, and I really thought you'd be helping me out. And now I'm kind of in the lurch. And so what that lurch was varied. It might be that they didn't have enough food to bring to market. It might be worse - that they didn't have enough food to give their families.
SMITH: So wait - what did you say back?
SHAUGHNESSY: This was how insurance worked, so that was always a tough conversation.
SMITH: At times like that, the team had to keep reminding themselves that all of this - all of this insurance company stuff was for a good reason. They had to act like a real insurance company in order to get the data for a real insurance company. And finally, they had the numbers. Looking at it, the farmers who got cash - who got the $250 - they did spend more on their fields. They cultivated more corn. They had a bigger harvest.
KING: But even more interesting was the farmers who got the insurance. Because talking to them afterwards, the researchers found that once the farmers had insurance, they would find the money to plant more crops. They would go and borrow it from their parents or their kids. They would go in on new fields with their friends.
KARLAN: Amongst the people who we had given nothing other than a promise...
SMITH: The insurance group.
KARLAN: The insurance group. So they got literally nothing other than a piece of paper that said that under certain circumstances, they'll get money to make them whole. They increased the size of their fields. They invested more. They applied more fertilizer. So it was remarkable. They found the money to invest in their farms.
SMITH: Same people that said they didn't have money.
KING: So to recap, giving farmers money works. It leads to more investment, and that leads to more crops. But giving them insurance works even better, and insurance is way cheaper than just handing out cash.
SMITH: And as much as I begged Chris to lord this result over Dean - to say, in your face, man - they would not comply.
You're taking all the drama out of this.
UDRY: I know. We're sucking your drama....
SMITH: I just wanted a little more soap opera.
KING: There's already a soap opera in the show (laughter).
SMITH: I - there is a soap opera in the show. And the results of the study are dramatic enough because insurance - like, I think, we think of this as this, like, boring, financial tool. And we don't think about it because it's everywhere in our lives. But it's this really powerful tool, this study shows, to motivate behavior - I mean, thousands of farmers doing things very differently out of the sheer promise of having the risk lifted off their shoulders.
KING: Right. Now it just has to work in the real world. So when the experiment was finished, Chris and Dean had a private insurance company take over. And so far, it's been pretty slow going, right? It's hard to drive out to all of these rural farms and to sign people up. And you don't have grad students. It's not catching on.
SMITH: Yeah, not yet. But the market is out there. Remember Blessing, the fabulous apple farmer in Lesotho? I asked him about insurance.
Do you have insurance here, like crop insurance?
NKHASE: What? No, not insurance. No, not at all. Not here in this this country - nothing like that.
SMITH: He can't buy it in Lesotho because it doesn't exist. He said if it did exist, sure, he would think about buying it. And here's where you can see the behavioral power of insurance - because when I asked him, like, what would you do if you knew you had this protection against failing? And he's like, oh, well I wouldn't need the cows. And I could plant this, and I could grow more apples here. And I could put in this thing I've been wanting to do, this new irrigation system.
NKHASE: I will (unintelligible) to bring back and make some boreholes for irrigation.
SMITH: You would drill more holes looking for more water...
SMITH: ...So you could grow more trees...
NKHASE: That means that I can use expand - I can even leave the (unintelligible) - the animal husbandry and just go straight into this because just need water.
SMITH: It would be nice to have a safety net in case the rains don't come.
(SOUNDBITE OF DANIEL PORTIS-CATHERS PIECE, "RISE AND FALL")
KING: Tell us what you think of the show. Send us an email at email@example.com, or find us on Facebook or Twitter.
SMITH: And special thanks to Damba and the other team members of the Ghana office of Innovations for Poverty Action. They were really helpful in getting us all this information and the soap opera and the advertising campaign. This episode was produced by Sally Helm.
KING: And if you're looking for another show to listen to, check out NPR's Ask Me Another. It's like trivia night but funnier. Listen at npr.org/podcasts or on the NPR One app.
SMITH: I'm Robert Smith.
KING: I'm Noel King. Thanks for listening.
(SOUNDBITE OF DANIEL PORTIS-CATHERS PIECE, "RISE AND FALL")
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