Poor Economics – a rich new book from Abhijit Banerjee and Esther Duflo

May 12, 2011 5 By admin

Abhijit_BanerjeeJust finished Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, Duflothe latest Big Book on development. Like all good books, it has its own website, full of background papers etc. It’s from the doyennes of the new focus on measurement in general and randomized control trials (RCTs) in particular, Abhijit Banerjee and Esther Duflo from the Abdul Latif Jameel Poverty Action Lab (J-PAL) at MIT. Given that provenance, I was half-expecting a fairly reductionist form of ‘if it can’t be measured, forget it’ thinking, but like many gurus, they are much more intelligent and nuanced than their followers.

Their overall approach is Bottom of the Pyramid meets Freakonomics – ‘leave the large questions aside and focus on the lives and choices of poor people’ and why interventions by governments or NGOs do/don’t work. They draw heavily on J-PAL’s 240 experiments in forty countries. It’s all very beguiling, with RCTs presented as the ‘cleanest way to answer questions’. They are unashamedly, indeed belligerently, micro, small-is-beautiful technocrats, with little time for the ‘big questions and grand theories’ of Jeff Sachs or Bill Easterly (who both get a polite kicking, characterized respectively as ‘supply wallah’ and ‘demand wallah’).

Instead, Banerjee and Duflo prefer the benign paternalism of the ‘nudge’ approach – providing information, changing default options, introducing incentives to encourage (but not coerce) poor people to do what we think is best for them. As they point out ‘Aren’t we, those who live in the rich world, the constant beneficiaries of paternalism now so thoroughly embedded into the system (e.g. chlorinated water, routine vaccinations) that we hardly notice it?’

Chapters cover themes (hunger, population, health, education) and institutions (risk management, microfinance, entrepreneurialism, politics v policies). Each asks heretical questions (why don’t poor people do what’s best for them – spend more on food, and less on treats? Why do they insist on expensive and useless injections from quack doctors, rather than cheaper and more effective prevention?) and is crammed with fascinating research and surprising conclusions (the most cost effective ways to delay teenage pregnancy is to give out free school uniforms – page 115 for the explanation).

The authors identify five key lessons in their final chapter (‘In Place of Sweeping Conclusions’….):

“1. The poor often lack critical pieces of information and believe things that are not true (e.g. on immunization, or benefits of education)

2. The poor bear responsibility for too many aspects of their lives. The richer you are, the more the ‘right’ decisions are made for you. [hence the need for nudges]

3. There are good reasons that some markets are missing for the poor, or that the poor face unfavourable prices in them….in some cases technological or institutional innovation may allow a market to develop where it was missing, [but in others] governments should step in.

4. Poor countries are not doomed to failure because they are poor, or because they have had an unfortunate history….. failures have less to do with some grand conspiracy of the elites to maintain their hold on the economy and more to do with some avoidable flaw in the detailed  design of policies and the ubiquitous three Is: ignorance, ideology and inertia…. It is possible to improve governance and policy without changing the existing social and political structures

5. Expectations about what people are able or unable to do all too often end up turning into self-fulfilling prophecies. Changing expections is not easy, but it is not impossible”

Beyond the specifics, I found myself wrestling with the underlying narrative – how do Banerjee and Duflo actually see poor people? On one hand, they are genuinely and unpaternalistically fascinated by them – the book is studded with detailed conversations with poor people as the authors try and uncover the logic behind their choices and predicaments. Poor people are definitely not ‘the other’, but just like the rest of us, albeit living lives of greater risk and effort. The approach seems to be

a) talk to poor people
b) on the basis of these conversations and observations, come up with some hypotheses
c) then design an RCT or other data-driven exercise to test them. Discard the bad ones, and keep the ones that fit the data.
e) Then speculate on ‘likely explanations’ for the relationships you have established

What they don’t seem to do (rather than that last stage) is go back and talk to the poor people again to check if their explanations are the right ones – ‘the poor’ as the authors call them, seem to be important as informants, but not the final arbiter – instead, ultimate truth lies in what they call ‘the verdict of the data’. So for example, when they discuss the finding in Peru that ‘when former squatters were handed out property rights, fertility declined, but only if the woman’s name was included on the title’ they speculate on the reasons for this (women acquiring bargaining power) instead of going to ask some women. I would have liked more of a ‘Voices of the Poor’ exercise to reality check their conclusions and discussions with poor people themselves, but at times (e.g. in the chapter on health), ‘the poor’ started to resemble little more than lab rats.

A common critique of this kind of work is that it ignores issues of power and politics, but at least for this book, that isn’t really fair. The authors are well aware of issues of power in terms of patriarchy or caste. But they are incrementalist and disagree with the structural focus of the ‘political economy’ approach or sweeping calls for revolution – they argue that positive changes can be achieved with less pain, often on a massive scale, even in hostile political environments, simply by minor tweaks to policies and institutions.

And they aren’t scared to follow the logic of their own arguments, even when it takes them in some surprising directions, not least concluding that government intervention is widely needed, that giving out stuff for free and social safety nets are often a good idea, that poor people would usually prefer a government job to the hassle and risk of being an entrepreneur, or that industrial policy can make a lot of sense. Their treatment of microfinance, despite it’s close association with RCTs, echoes many of the misgivings in the recent discussion on this blog. So it’s hard to pigeon-hole the work as particularly right or left wing.

But is it a Big Book? Yes in terms of the approach – I think it will leave a lasting impact on its readers in showing the merits of a bottom-up, evidence-driven approach. But not, I think, in terms of content – lots of interesting, surprising facts and analyses, but no one big message. Given their suspicion of grand narratives, I’m sure the authors would be quite happy with that.

And here (again) is Esther Duflo, queen of the randomistas and all-round rising star, strutting her stuff on TED