The explosion in the poverty lab

OUR GRANARIES are overflowing. Foodgrain stocks have scaled to an alltime high of 65.60 million metric tonnes. This is frustrating news for everyone worried about the nutritional status of the poor in India. With the Food Security Act hanging in the balance, this would be the perfect moment to suggest the poor be given more subsidised grain. However, a new book, Poor Economics, suggests we rethink this received wisdom.

The book cites studies in India and China to indicate that when rice was subsidised and when income rose, people actually ate less rice and consumed less calories overall. Which leaves us stymied for a bit but also curious about what a real solution to nutritional poverty is. And this kick-start to thinking will happen to you over and over again as you read Poor Economics, an important book that has emerged out of the partnership of two economists — one Indian and the other French in origin.

The authors, Esther Duflo and Abhijit Vinayak Banerjee, are like concert pianists who decided to look under the hood and figure out how each string works. Poor Economics encourages you to get under the hood too. Why does a man, who doesn’t have enough to eat, save for months to buy a television? Does having more kids make you poorer? Why do the poor have more children? Is microfinance a failed dream? Do the poor not value anything they get for free? What should India do to improve its educational system?

The authors sought answers for these and other questions by founding the Abdul Lateef Jameel Poverty Action Lab (J-PAL) at the Massachusetts Institute of Technology in 2003. In a series of studies across 18 countries, Duflo, Banerjee and other J-PAL economists applied the rigour of Randomised Controlled Trial (RCT) techniques to poverty interventions. The technique is the same approach used to determine if a drug is effective — study two identical groups, one that has received the drug and one that hasn’t. Bringing this process to the human realm is complex, fiddly and full of surprises.

Is a kilo of dal enough to make more parents in Udaipur complete an immunisation programme? (yes) Are families in Kenya, who had received a free mosquito net, likely to buy a second a mosquito net? (yes) If free healthcare is in the vicinity,will the poor choose it over an expensive private doctor? (no) Why do children drop out of school in India? (not because of child labour as you imagine.) Why did the NGO Pratham find the government school teachers conscientious and effective during summer remedials and despair-inducing in the school year? Each case study trots like a murder mystery from red herring to red herring to cunning clue to the ‘aha’ of discovery. The results are fascinating but the methodology — so far, from the Grand Unified Theory tendency of economic theory — is also making news.

BETWEEN THE pair, Duflo and Banerjee have won every award in sight. At 50, Banerjee, has won the inaugural Infosys Prize (2009), the Guggenheim Fellowship and is currently the Ford Foundation International Professor of Economics. At 38, Duflo has already won the MacArthur Genius fellowship and been named one of the best economists of the world by the Economist. In 2009, she was the youngest woman ever to be asked to lecture at the 500-year-old College de France. Hundreds, including former prime minister Dominique de Villepin, found themselves crowded out.

None of this means their work hasn’t been accused of being naïve, of lowering the ambitions of economics (by focussing on mosquito nets rather than the impacts of exchange rate policies) and, of course, of ignoring the big picture. Duflo shrugs these critiques off. “You cannot study the sun with a microscope, but microscopes are useful nonetheless,” she says. “A more important critique, from Nobel prize winner Jim Heckman is that organisations or governments that agree to do RCTs may not be representative. They may be better run. So, the results may not generalise to less efficient organisations. However, RCTs are a wonderful way to understand what drives people — by creating different conditions, and seeing how people behave under them.” This may seem like an huge amount of work for policymakers but definitely preferable to wondering why your milliondollar, well-intentioned project nosedived.

The authors have been influenced by Amartya Sen’s nuts-and-bolts approach. Banerjee jokes, “As a student at JNU and something of a left-wing activist, I’d argue with my co-conspirators about why Marxism had to be a complete description of reality rather than just an analytical framework. My friends thought this was a sign of my not being pure at heart.”

For Duflo, too, it has been a slow shift in perspective. She talks of one of her earliest images of poverty: “People in Calcutta who’d die of leprosy without Mother Teresa. When I was 13, I was shocked by images of Ethiopian kids with their distended bellies. I thought being poor meant starving, helpless victims. One fundamental way in which my work has changed me is teaching me how sophisticated the poor are, and how far their lives are from my clichés.”

And this dogma — that the poor are passive victims — is what the book dismantles. “The fact that they have so little to work with and are subject to so many conflicting demands, does not mean that they do not make choices,” says Banerjee. “It is the opposite. They often have to make difficult choices (should I buy the expensive medicine for my mother by selling my only cow? Or should I just leave it to fate?) and these decisions have to be made under conditions of extreme stress, whereas we (the non-poor) pretend to make choices, when we don’t care much one way or the other.”

Poor Economics is startlingly fun to read. Partly it is the excellent writing. Partly it is the realisation that conventional economics is based on the most unreliable baseline: the rationality of humans. Poverty Lab offers a future in which economists factor in stress, self-actualisation, hope and resilience. And far from making it touchy-feely and vague it could make economics more accurate. One of the poster boys of this — the behavioural economics movement — Cass Sunstein, co-author of Nudge, is now serving in the Obama administration.

Their evidence-based approach and lack of condescension have liberated the pair enough to draw some politically incorrect conclusions without apologising for them. That the poor lack critical pieces of information and believe things that are not true. That governments may need to make many paternalistic decisions on behalf of the poor and reward them for making decisions that are good for them. That health insurance does not make sense for the poor. That the poor are not cool, barefoot hedge-fund managers as the MFI-rara crowd would have you believe. That good policy may happen in bad regimes.

There is an infectious optimism about Poor Economics that leaves you feeling the contradiction of the poor and the overflowing granaries can be resolved if we look for small, localised interventions.


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