Economics provides a host of tools that enable us to better understand poverty and why it might arise, persist, reduce or increase. That better understanding should, ideally, help us in designing policy and actions to tackle poverty better. That it has not occurred to the extent desired is to a very large degree a result of poor use of the tools available and the tendency generalises across states, countries and continents. This is not just a problem within India but is as strong internationally. This, in short, is what motivates this volume by Abhijit V Banerjee and Esther Duflo.
They draw upon the latest literature in the domain, write simply and succinctly on complex issues, display a level of honesty and humility rare among economists, and take the help of many highly illustrative examples to help us understand poverty from many different angles. The overall message is unambiguous. This is a complex problem, the causes and symptoms of which vary highly between individual cases. The solutions? Well, they are rightly silent on that — at best there is a murmur or two. Poverty is not a single problem so the solutions are too case-specific for a single solution. Even the institutionalist approach that favours strengthening democratic institutions and ensuring freedom, while desirable, is not the solution. Large institutions themselves are the aggregate of many smaller local institutions that function in an environment marked by varying conditions and forces.
Unfortunately, Banerjee and Duflo do not take this far enough. What does this mean for the great welfare bandwagon that most Indian economists and the Indian government have fallen for? Take nutrition. Should the government provide free food to all? But what if the poor favour entertainment over nutrition? Should the government go for cash transfers everywhere? If nutrition is a problem, will cash work in all areas? But what if the household does not know what’s good for it? Do we depend upon the community or the ministry? Would all village communities know what’s good for them? How, then, should the state respond to the problem of nutrition? This would have been a great volume had they tackled such questions. For that we will have to wait, and Banerjee and Duflo’s moment of greatness awaits their next volume.
But this is an important work, not merely because what’s in it, but also because who is saying it. International institutions, whether in the form of the World Bank or many other institutions, have created an environment in which anything goes in the name of the poor and (more so in India) inclusive growth. The World Bank Types (WBTs) drive much of the development discourse in India; in recent years the Touchy Feely Types (TFTs) have drawn bits and pieces of data generated by the WBTs and government organisations to create a straightforward, standardised and incorrect picture of the underprivileged in India. This is contributing to the creation of centralised mechanisms and policies that serves the interests of the powerful more than the poor.
Anyone who has spent substantial time traversing the Indian landscape knows this. What works in Gurgaon does not work in Faridabad, what works in Dharavi does not work in Matunga, what works in Kalahandi does not work in Bolangir, and these places are very close to each other. But the Indian government goes about devising standardised mechanisms that apply more or less uniformly to both the Andamans and Arunachal or for that matter Ladakh and Lakshadweep. At the same time even the objectives are standardised, the Millennium Development Goals are the new Ten Commandments and heaven forbid if someone argues that. But in India especially, the government is infatuated with WBTs and is under the control of TFTs. Rational hard-headed economic logic, it seems, will only be heard if someone with a reputation of Banerjee and Duflo and a US address says it.
There are flaws here and there. They repeatedly mention randomised control trials (RCTs) as a tool to evaluate programmes, but RCTs are typically costly to undertake, require human capital that is not available for many district- or even state-level authorities, and many times can be costlier to undertake than the programme itself. This work is more important than RCTs and that discussion only takes away from it. Similarly, there is too much play on the Easterly-Sachs debate; again, there was no need.
But this should be standard reading and essential material in all aid organisations and more so in the National Advisory Council, Planning Commission, Prime Minister’s Office, and the various ministries — all those who don’t spend time understanding poverty in close vicinity. The key take, the big idea, is that we don’t have to have one.
POOR ECONOMICS: RETHINKING POVERTY AND WAYS TO END IT
Abhijit V Banerjee
and Esther Duflo
Random House India, 2011 303 pages; Rs 499
