Why poverty and insecurity are so persistent : Planet Money Melissa Dell, winner of the John Bates Clark Medal for economics, on why poverty and insecurity are so persistent in certain parts of the world.
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The Persistence Of Poverty

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The Persistence Of Poverty

The Persistence Of Poverty

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UNIDENTIFIED PERSON, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

STACEY VANEK SMITH, HOST:

Within the economics profession, the John Bates Clark Medal is a huge deal. It's awarded each year by the American Economic Association to the best economist under 40 who is working in the U.S.

CARDIFF GARCIA, HOST:

And because typically only one economist wins the award each year, the medal is even more exclusive than winning a Nobel Prize. And this year's winner is Harvard economist Melissa Dell, who has produced a truly unique body of work. Melissa has studied labor markets all over the world. She has studied the effects of the U.S. bombing campaign in Vietnam. She has studied how China's entry into the global trading system affects crime in Mexico. And she has even studied the relationship between temperature and economic development.

VANEK SMITH: And although she studied a really wide range of topics, Melissa says she does think there is a through line to her work. It's about why poverty and insecurity are so persistent in some places but not in others.

MELISSA DELL: Ultimately, what motivates me is thinking about economic development. But in order to think about that, in order to understand why some countries are much richer and much more prosperous than others, we have to also understand their underlying systems of government, of social organization, because that's essential to economic growth.

GARCIA: And after the break, Melissa Dell, this year's John Bates Clark Medal winner, guides us through one of her most famous papers - a paper that explains why even the distant past can matter for how ordinary people live their lives in the present.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

GARCIA: Why are some parts of Peru and Bolivia poor and others are not? The answer actually explains a lot about the modern world. And one of the economist Melissa Dell's papers answers it by looking at something that happened roughly 450 years ago.

DELL: When the Spanish came and discovered the New World, one thing in which they were very interested in is that there was a lot of silver and precious metals there. And so they wanted a way to extract that silver from mines in Bolivia, which had one of the largest deposits of silver in the world, and take that back to Spain.

VANEK SMITH: The Spanish needed workers for the mines. At first, they tried to hire workers from the local Indigenous population, but that population started dying off in massive numbers from diseases brought by the Spanish.

GARCIA: And so the wages of the remaining Indigenous workers went way up because there were fewer of them. The Spanish - they did not want to pay those higher wages. So in 1573, the Spanish established a more brutal system instead.

DELL: They decided to institute forced labor, which is oftentimes a reaction, you know, historically, to population collapse. And so they institute forced labor. They require Indigenous communities in what is today Peru and Bolivia to send one-seventh of their male population to work in the mines each year.

VANEK SMITH: These mine workers lived in villages that were close to the mines. And it's important to know that the king of Spain did not allow Spanish settlers and landowners to live in the same areas where the Indigenous workers lived.

DELL: And the reason for that was that the king didn't want to have to compete for the labor and the mines. And so if you let a Spanish landowner come in and settle nearby, he would want those Indigenous people living in that community to work for him.

VANEK SMITH: And this created two different kinds of places - the places where the Spanish settlers and landowners lived and the places near the mines where the Indigenous population lived. Melissa was therefore able to study how the economies in each of these kinds of places are doing today and compare them.

GARCIA: So what did she find? Well, even though this system of forced labor was abolished more than 200 years ago in 1812, those places where the mine workers once lived have much worse economies than the places where the Spanish settlers had lived. They make less money. The towns are less connected by roads to other parts of the economy. And there are even bad health effects. There's a higher chance, for example, that children will have stunted growth.

VANEK SMITH: And how could this be? I mean, how could a system that was established so long ago and abolished more than two centuries ago - how could it still have such lingering effects today? The answer, says Melissa, is that the places where the Spanish settlers lived had been provided with more public goods by the Spanish government - goods like roads, property rights and a system of education - because those landowners had more power to lobby the Spanish government for investments in these public goods.

DELL: So in the places where the Spanish landowners had settled, there's stable property rights. They want to bring roads so they can take the crops that they grew and take them to the ports. There is more investment in education where - these places where the Spanish settlers had not been allowed to come initially.

Instead, what you see is a lot of conflict over property things like, you know, land grabs, cattle theft, et cetera. And you just never have the stability that you need to promote economic development. You don't get the public goods because there's not people there that are able to lobby the government for that. And so when you go forward to today, the reason why people are poor in the places that contributed forced labor to the system is that they don't have roads to get their crops to market.

GARCIA: And these findings show how investments in public goods, like roads and education, can put in place the conditions for faster economic growth later on. Plus, strong property rights made the places where the Spanish settlers had lived more secure, more safe because the people who lived there knew that their land and their other belongings couldn't just be taken from them.

VANEK SMITH: Meanwhile, the lack of property rights in the places where Indigenous mining workers had lived would linger even well into the 20th century, long after Peru and Bolivia had become independent from Spain. And Melissa tells this amazing story about one of the places she came across while researching her paper.

DELL: So in the 19th century, you know, this area that I look at, they have a lot of sheep there. And that became important in the 19th century 'cause you have the Industrial Revolution, and they're making clothing at large scale. And so factories in Britain are demanding wool.

GARCIA: And because of that interest in wool, foreign investors were interested in building a railroad to this place so that they could transport the wool to the global markets, where it would be in demand. Now, you would think that the people who lived there who owned the sheep would love this because it means they can make more money, but that's not what happened.

VANEK SMITH: Instead, the Indigenous people who lived there knew that this railroad would make their land more valuable. And because they didn't have strong property rights, Melissa says they were constantly afraid that their land would be stolen. So guess what they did instead.

DELL: They actually just keep destroying the railroad. They keep tearing up the tracks. It never works to have a railroad there. And so actually, you know, there would have been these opportunities for economic growth, but you don't have the system of incentives, you know, that need to underlie that. The people who were living there knew that they would be worse off because their land would get taken by outsiders who tried to come in and, you know, take it now that it was valuable. And so it was better for them to stay in the state of very poor subsistence, you know, than to have their land stolen.

VANEK SMITH: Melissa's findings show how much institutions can matter - not just now, but across time. And it's easy for people to miss just how important these historical episodes can be. When Melissa visited the areas where the Indigenous workers had lived all those centuries ago, she would ask people there if they could explain why there was not more economic development in their town.

DELL: They'll say well, you know, it's because I don't have any roads to get the corn that I grow to market. So I could actually grow more corn on my farm, but there wouldn't be any point because I have no way to transport to that - to the market because there is no paved roads. And they very much, like - that's the reason why they're poor, and they can tell you that. And then you kind of - we see how this actually traces back in time to this forced labor decree. And it's not an accident that they don't have roads. It's really a result of how the societies were organized very differently starting at this critical point in history when the Spanish showed up 500 years ago.

GARCIA: And this is why Melissa places such a heavy emphasis on history and institutions in her work. The effects are everywhere, and they help us to see that to understand what's happening in the world now, it's not enough just to look around. We also have to look back in time, and that'll help us realize that the things we do today could also end up having big effects tomorrow.

This episode of THE INDICATOR was produced by Darius Rafieyan and fact-checked by Brittany Cronin. THE INDICATOR's editor is Paddy Hirsch, and THE INDICATOR is a production of NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

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