A pioneering contribution to the poverty debate fails to see the bigger pictureby Oliver Kamm / May 25, 2011 / Leave a comment
A loan from a microfinance company enabled this tailor in Hyderabad to set up his own shop
Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty
by Abhijit Banerjee and Esther Duflo, (PublicAffairs, £15.99)
Abhijit Banerjee and Esther Duflo want to reduce poverty. That goal is common—what distinguishes the work of these young economists, both at MIT, is their methods. They aim to inject scientific evidence into policy deliberation, and advance the debate with conclusions that can be widely agreed on while not being truisms.
The authors have assembled evidence from hundreds of randomised control trials, which test anti-poverty measures (for example, whether insecticide-treated bed nets should be sold or given away) in the same way that trials are used in medicine to test the effectiveness of new drugs. The data provide no grand universal answer to poverty. There is, however, “a body of knowledge that grows out of each specific answer and the understanding that goes into those answers that give us the best shot at, one day, ending poverty.”
Banerjee and Duflo stress that “the debate cannot be solved in the abstract.” Poverty is a more complex phenomenon than is captured in grand theories. The experts they criticise stand on both wings of the argument. These include William Easterly, who believes that markets and incentives will allow the poor to better themselves; and Jeffrey Sachs, who believes that market solutions will not work for those who are caught in what economists call a “poverty trap,” in which poor people need significant capital to earn enough to escape from poverty. Sachs argues that a big initial investment is needed to overcome disadvantage.
Campaigners against poverty almost all accept Sachs’s premise that there are poverty traps. Banerjee and Duflo offer a striking counterargument, rebutting the notion that hunger can lead to this kind of trap. The merit of their empirical approach is that they can substantiate their scepticism. They demonstrate that calorie consumption per head in India has declined in the last 25 years despite the country’s rapid economic growth. The reason seems to be that very poor people do not typically seek to maximise food consumption when they grow richer: instead, they buy food that tastes better. The seemingly obvious hypothesis that better nutrition leads to prosperity is not always true. The modern world, argue Banerjee and Duflo, “is for the most part too rich for…