Physics of Poverty: Cumulative Advantage

Physics of Poverty series by Dr. Tara Thiagarajan, Chairperson, Madura Microfinance Ltd

The attraction of the United States for immigrants has been the hope of social mobility. That with some hard work and good ideas you have a shot at a better economic life. In India social mobility is far more elusive. For a long time there was little expectation of it. People knew and accepted their place. Today something is changing. Hopes are emerging. Aspirations are rising. But what does it take to create conditions that allow social mobility? Why is it so hard the world over to achieve and hold on to?

Our biology and natural social structure works against social mobility. For starters, we generally pass on our wealth to our children rather than to society at large. In India a little over 80% of the rupee billionaires inherited their billionaire status (compared to 20% in the United States). But that’s only a small part. What we do for our children runs far beyond simply passing on wealth. More than any other species, we humans spend inordinate time and effort raising our young, struggling for 20+ years over where to live, school choices and how to get our kids to behave properly. And what we are doing is essentially working hard to integrate them into society – linking them into social networks as well as knowledge and information networks. Our children inherit not just wealth but relationships and access. When we are wealthy, these relationships tend to be far more economically valuable. They are relationships typically to others who are similarly wealthy and most likely hold keys to opportunities such as jobs, business deals and large bank loans. And they are often relationships that come with social capital accumulated over generations. “You are so-and-so’s son? Please come in, I knew your father and grandfather very well.” We also pass on behaviours that signal our social standing. “You talk just like your father. Please come. What can I do for you?”. So also when we choose a more expensive “better” school we also place our children in social networks of higher economic value. “Hey, meet my friend. He’s also IIM-Microsoft.”

In our generational effort to ensure the success of our DNA we offer up our cumulative social capital to our children. For some of us this is a cumulative advantage. And in India, like nowhere else, we have had a deep seeded respect for the entitlement of accumulated social capital as part of a natural social order. As a nation we have transferred our allegiance and loyalties from generation to generation of political and business dynasties with ease.

For most, however, it is a cumulative disadvantage. There are few relatively wealthy in India - hardly a few percent. This means that entry into this world is extraordinarily hard for the poor. They are unlikely to know people in these networks and rather have economically disadvantaged relationships. “I don’t have a job myself. How can I help you?” Nor do they have the information networks that would lead them easily to larger opportunities. This means that the rich have a terrifically easier time getting richer than the poor. Social network scientists have been building models of this under various names such as ‘preferential attachment [into the social network]’ and ‘cumulative advantage’. In these models, with each generation, people grow wealthier with a probability that depends on ‘who’ they are connected to or how much social capital they have to start with. No surprise that these models produce results of wealth distribution and social mobility (or lack thereof) that can be highly similar to empirical measurement – highly skewed distributions where most of the wealth is held by a few for many generations.

Yet it is not economic inequality that bothers most. What troubles young aspirants more is when there is little hope of socioeconomic movement, of social mobility. It’s OK if only a few are rich if I feel empowered enough to have a shot of getting there myself. So what are the keys of social mobility? We can’t change the way we inherit wealth and relationships unless we dramatically change our social structure away from family units. But we can find ways of creating more equitable access to knowledge and information to make good on the hopes and dreams of a new generation.