In a small village in rural Kenya, when a farmer's cow dies unexpectedly, something remarkable happens. Within days, neighbors contribute money, grain, and labor to help the family recover. No paperwork, no insurance claims, no interest rates—just an unwritten understanding that today's giver becomes tomorrow's receiver.

But here's the puzzle that development economists have wrestled with for decades: if these sharing networks are so effective at protecting people from disaster, why do they often keep communities locked in poverty? The answer reveals something profound about how humans balance survival against ambition, and why moving to a city changes everything about your obligations to others.

Imagine living without bank accounts, insurance policies, or government safety nets. A single drought, illness, or accident could destroy everything you've built. In this world, your neighbors aren't just friends—they're your entire financial system. This is the reality for billions of people in developing countries, and it explains why elaborate sharing networks have evolved in nearly every traditional society on Earth.

These systems work because everyone faces similar unpredictable risks. Your crops might fail this year, but your neighbor's might fail next year. By pooling resources informally, communities create what economists call mutual insurance. Studies in rural India, Ethiopia, and the Philippines show that when disaster strikes, affected households receive substantial help from their networks—often covering 30-50% of their losses.

The genius of these systems lies in their enforcement. Unlike formal contracts, village networks rely on reputation and social pressure. Refuse to help a neighbor in need, and you'll find yourself excluded when your own crisis arrives. This creates powerful incentives for cooperation that no legal system could replicate. The entire community becomes both insurance company and enforcement mechanism.

Takeaway

Traditional sharing networks aren't signs of economic backwardness—they're sophisticated responses to environments where formal financial services don't exist. Understanding this helps explain why simply introducing banks doesn't automatically replace these systems.

Here's where the story gets complicated. A farmer in rural Tanzania tries something new—a different seed variety, an irrigation technique, extra hours of labor. It works. Her harvest doubles. But almost immediately, relatives and neighbors arrive with requests. A cousin needs school fees. A neighbor's roof collapsed. Everyone remembers that she now has more.

Economists call this the claims problem. In sharing networks, visible success triggers legitimate expectations of generosity. The farmer faces an impossible choice: share her surplus and maintain relationships, or keep it and face social isolation. Research by Professors Abhijit Banerjee and Esther Duflo found that in many communities, entrepreneurs deliberately hide profits, avoid visible investments, or even sabotage their own success to escape these claims.

This creates a devastating trap. The very networks that protect against downside risk also punish upside success. Why plant that extra acre if the harvest will be claimed by others? Why start a small business if profits attract endless requests? Some economists estimate this "success tax" can exceed formal taxation rates, with informal obligations claiming 20-30% of income gains. The safety net becomes a ceiling.

Takeaway

Social insurance and individual advancement can work against each other. When helping others is mandatory but gains are shared, the incentive to take risks and innovate diminishes—even when those innovations could benefit everyone eventually.

When someone moves from a village to a city, something fundamental shifts in their economic life. The migration isn't just geographic—it's a transformation in social obligations. In anonymous urban environments, the neighbor who watched you grow up doesn't exist. The cousin who helped your family during the drought lives 500 kilometers away. Suddenly, your success belongs to you.

This explains a curious pattern in developing countries: migrants often send money home (remittances remain vital for rural economies), but they also accumulate wealth in ways that would be impossible in their villages. The physical distance creates social distance. Urban migrants can invest in education, start businesses, and save money without triggering the same claims that would consume their surplus at home.

But this freedom comes with real costs. Cities offer opportunity but also vulnerability. Without sharing networks, a job loss or illness can be catastrophic. Urban poverty often feels more desperate than rural poverty precisely because the safety net has disappeared. The challenge for development policy is helping people access urban opportunity while maintaining some form of protection—through formal insurance, savings accounts, or new kinds of community support.

Takeaway

Migration to cities represents a trade-off between social protection and individual opportunity. Understanding this helps explain why people move despite obvious hardships, and why successful development often requires building new safety nets to replace the ones people leave behind.

The tension between sharing and advancing isn't a flaw in human nature—it's a rational response to genuine tradeoffs. Communities developed sharing networks because survival required cooperation. Those same networks can discourage risk-taking because visible success triggers legitimate claims.

The path out of this trap isn't dismantling community bonds. It's building formal systems—insurance, savings, social protection—that provide security without penalizing success. When people can take risks knowing a safety net exists regardless of their neighbors' fortunes, both community and individual can flourish.