It would be easy to yawn at yet another book about poverty written by Western economists, but this one’s a little different. Abhijit Banerjee and Esther Duflo start with the poor, attempting to understand their lives and their decisions. The result is a book about “the very rich economics that emerges from understanding the economic lives of the poor.”
That’s a promising start, and Poor Economics delivers on that promise in a series of chapters shedding new light on familiar development problems – hunger, population, education, etc. Each of these topics is subject to fads and ideological policies, and the authors have little time for those. They are concerned with results, and that stems from their own work. Banerjee and Duflo are pioneers of a specific toolbox in development thinking, randomized control trials.
What that means is that if you are going to intervene with a new programme, to encourage vaccination for example, you should set up a robust way of testing whether or not it works. You could pick a sample of participating villages, and a random set of control villages that are not part of the scheme, so that you can objectively compare results and see what works. Banerjee and Duflo specialise in these sorts of trials, through the Poverty Action Lab (J-Pal) that they set up at MIT. The book draws on J-PAL’s 18 country dataset and hundreds of specific evaluations around the world.
This field-research based approach makes the book pretty unsentimental about some cherished development ideas, such as poverty traps, or whether or not democracy aids development. It was they who opened up the debate on micro-finance. Much of the overhyped success stories of microfinance were anecdotal, and a proper study of its effects showed the reality for the first time. (They insist that microfinance is still positive and useful, and that critics have exaggerated their findings.)
Poor Economics is not concerned with the big questions, and more interested in lots of little ones. How do poor families divide their time across their various jobs? How to they borrow, and who from? How do they save? What do they eat when prices go up? Why do men and women grow different crops on their own fields, and how do families decide who gets fertilizer?
These kinds of smaller, real-life questions yield some vital insights. For example, the authors look at the diet of malnourished people in various countries, and conclude that the overall problem is not quantity of food, but quality. It’s a problem of nutrition rather than hunger. That insight suggests that rather than governments or NGOs providing subsidised staples such as rice or maize, they might want to subsidise fresh vegetables or nutrition supplements instead.
Or take work. A lot of energy has gone into helping the poor start small businesses, and much ink has been spilled praising their entrepreneurial spirit. That’s great, except that most of those businesses make very little money and have no prospects for expansion. Many of them are run by “reluctant entrepreneurs”, who would exchange their little DIY enterprises for a steady job at a factory any day of the week. Asked about their hopes for their children, parents in Madagascar didn’t dream of small businesses. They hoped their children would get government jobs. Poor Economics highlights a crucial finance gap here: there is funding for big business through the banks, and funding for cottage industries through microfinance – but there is no way to finance the medium sized businesses that are best at creating stable jobs.
On population, a study found that the Kenyan schools with the lowest rates of teenage pregnancy were not the ones with a new and interactive HIV education programme, or the ones where NGOs were running abstinence campaigns, but the ones giving free school uniforms. Why? Because girls from poorer households often dropped out of school because they couldn’t afford the uniform. If they knew they weren’t going to be able to complete their education, many of them chose to have a baby (especially with an older man) as a way of making sure they were provided for in the future. Unless you went and talked to Kenyan teenage mums, you’d never know the rational decision-making process going on there, or how simple it could be to improve the situation.
Poor Economics is rich with insightful observations, gaps in the market, small interventions, and counter-intuitive causes and effects. And this, say the authors, is how we ought to proceed – with one scheme at a time, putting aside our assumptions and our ideology. We can end poverty, but it will be through incremental change and there are no shortcuts or magic bullets (including randomized control trials, I should add.) In the closing chapter, pleasingly titled ‘In place of a sweeping conclusion’, they say that “in a sense, this book is just an invitation to look more closely.” That’s an invitation we would do well to take up.