Poor Economics by Abhijit Bannerjee and Esther Duflo

The book Poor Economics by Abhijit Bannerjee and Esther Duflo was released in the year 2011. No doubt ,it was a best seller but it’s popularity was mainly restricted to academic circles in the field of economics and NGOs. Now the book has become popular particularly in India as the authors are now Nobel laureates.

Honestly, I had not heard of the book earlier, and now there is no reason to give it a miss.

The byline of the book reads ” A Radical Rethinking of the Way to Fight Global Poverty ”  I suppose the key words are Radical , and Global. Radical would mean from the root ie from the first principles and global obviously covers the idea of external grants or help from a world body or rich countries to poor countries.

The book is on formulation of policies through an experimental approach to poverty alleviation and focuses on RCT or Randomised Control Trials

To put it briefly, the authors argue that any policy formulated for Poverty alleviation is colored by the ideology filter. There are two schools of thought, one is in favour of grants to poor people who are caught in a poverty trap and the only way is to come out of it is through external help. The other school of thought is that there was nothing called poverty traps and anyone can escape poverty through own efforts and any attempt to grant external help might actually prove counter productive.

Both parties can provide any number of test cases to prove their point.

Abhijit Bannerjee and Esther Duflo feel that every case was different and that every situation could be scientifically studied  to evaluate the likely implications of Govt policies before implementation. Sounds very logical alright. The term RCT is mainly used to filter out the subjectivity in the field of the medical science to evaluate a particular line of treatment for a disease.

Abhijit Bannerjee is Professor of Economics,  Ford Foundation. It would be of interest to note thet Infosys Founder, NR Narayanamurthy is a trustee on the board. The authors are  directors of  Abdul Latif Jameel Poverty Action Lab (J-PAL), global research center working to reduce poverty by ensuring that policy is informed by scientific evidence.  Teams from J-PAL have undertaken a number of studies in many poor countries in collaboration with Govt agencies and NGOs.

It would be worth while to check out as to how many of these studies have been used by the Govts to formulate and implement policies and how such policies have affected the poor.

With the kind of data available these days it would not be very difficult to quantify the results. While doing a basic check to understand these ideas, I learnt that a number of studies have been done in India. Here’s a list:-

• AP Smartcards: Assessed impact of Smartcards on leakages in MGNREGS and social security pensions in AP and found that it reduced time taken by beneficiaries to receive payments, reduced leakages, and increased user satisfaction.
• Haryana Schools: Experimented with teaching students at their actual learning levels, rather than the grade they are in. Such students did better at Hindi but no better at Maths.
• Bihar MGNREGA: Conducted 12 districts and is testing impact on payment delays and corruption in a new official system of funds release.
• Rajasthan Police: Conducted between 2005–08, the study involved sending decoys to police stations with fictitious complaints, and analyzing how many cases were actually registered, as well as how policing could be improved.
• Delhi Deworming: Conducted in 2001-02, showed giving iron, Vitamin A supplements and deworming drugs to 2- to 6-year-old children through balwadis greatly increased their weight and school participation.
• Udaipur Absent Teachers: In 2003, showed how financial incentives and fines increased teacher attendance, leading to improved learning outcomes for students.
• Gujarat Pollution Auditing: Experimented with third party pollution audits of industrial firms paid for by a central pool, instead of by the firm itself; found that such independently paid for auditors reported higher levels of pollution.
• Nurse Attendance: Showed monitoring nurses attendance and fining them for absenteeism led to dramatic improvement in attendance until local administration undermined the scheme.

The authors have gone into various aspects like saving habits of the poor, Micro-finance banking, the investment habits, the obstacles they face in running a business, finding a job, getting a loan etc. They have also covered the umpteen unorganized saving and investments like ROSCA (A rotating savings and credit association). In India we know it as chit funds or kitty parties.

They have been very careful in wording the title for the concluding chapter.

“In Place of a Sweeping Conclusion ”

However they have drawn some clear lessons . The five main lessons may be summarized as under:-

• The poor often lack critical pieces of information and believe things that are not true. SOme time just a piece of information would suffice to improve the life of people.
• The poor bear too much responsibility for their own lives (for the wealthy, the right decisions are often automatic). Govt should facilitate poor to help themselves.
• There are good reasons that some markets are missing for the poor, or that they face unfavorable prices in them. Services like banking are not easily accessible.
• Poor countries are not doomed to failure because they are poor, or because they have had an unfortunate history.
• Expectations about what people are able or unable to do all too often end up turning into self-fulfilling prophecies. This is quite subjective.

It would definitely be interesting to learn what happened to the reports of all the studies undertaken so far.

It would be even more interesting to see if old reports earlier rejected or ignored would now be dug up and dusted for reconsideration after the Nobel Prize awards.

It is a great irony that the State of West Bengal that has consistently created and sustained poverty through outdated ideas of communism also produces scholars in poverty alleviation. One thing for sure, Abhijit Bannerjee and Esther Duflo, mercifully , do not advocate communism or not even socialism . Abhijit Bannerjee, having been brought up in Kolkata ,sure , knows what communism can do to peoples’ lives.

There is hardly any recommendation on the form of Govt , but the authors talk more about how the wealth generated through capitalism could be utilized to fight poverty on global scale. That would lead to truly welfare states . They do not consider capitalists to be enemies of the poor as they are okay with accepting wealth produced through capitalism . Ford Foundation is a product of American Capitalism and J- PAL is from Saudi Arabian Businessman.

I don’t think any state govt should have any hesitation to make use of the findings from these studies.

At the same time we should not look at it as some kind of magic wand to eradicate poverty, as the authors themselves say in the concluding remarks,

“Poverty has been with us for thousands of years,  if we have to wait another fifty or hundred years for the end of poverty, so be it. At least we can stop pretending that there is some solution at hand and instead join hands with millions of well-intentioned people across the world—elected officials and bureaucrats, teachers and NGO workers, academics and entrepreneurs—in the quest for the many ideas, big and small, that will eventually take us to that world where no one has to live on 99 cents per day.   “