To End Poverty, What Works, What Doesn't and Why: A Conversation with the Authors of 'Poor Economics': Knowledge@Wharton

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To End Poverty, What Works, What Doesn't and Why: A Conversation with the Authors of 'Poor Economics'
Published : November 09, 2011 in Knowledge@Wharton

"Why would a man in Morocco who doesn't have enough to eat buy a television? Why is it hard for children in poor areas to learn, even when they attend school? Why do the poorest people in the Indian state of Maharashtra spend seven percent of their food budget on sugar?" Such are the questions that MIT economists Abhijeet Banerjee and Esther Duflo seek to investigate in their research, according to the website of their book, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. What makes Banerjee's and Duflo's approach radical? The reason is that, unlike other economists who focus on macro issues such as aid, they approach poverty much as medical researchers might set about finding the treatment for a disease -- by conducting clinical trials. Duflo, who delivered a TED talk on this theme in February 2010, explained that the effects of aid are often hard to measure, but it is "possible to know which development efforts help and which This is a single/personal use copy of hurt -- by testing solutions with randomized trials." Their method involves Knowledge@Wharton. For multiple copies, custom reprints, e-prints, posters putting social initiatives to the same rigorous scientific tests that medical or plaques, please contact PARS International: reprints@parsintl.com P. researchers use for drugs. This takes the guesswork out of policy-making, (212) 221-9595 x407. according to Duflo, by showing "what works, what doesn't work and why." There are no miracle cures, but specific steps -- such as providing food as an incentive for immunization or providing subsidized bed nets to reduce malaria -- can end up having a massive impact on efforts to reduce poverty, the authors note. Banerjee and Duflo never expected Poor Economics to make for good business. "We wonder how our book is a business book," says Duflo. But the attention their book has received has now been capped by the 2011 Financial Times Goldman Sachs Business Book of the Year award. Banerjee and Duflo were at a conference in Goa, India, last week. After their presentation, the authors sat down with Knowledge@Wharton to explain their concepts and how they can be used to end global poverty. An edited version of the transcript follows. Knowledge@Wharton: How does it feel to win the book award? Esther Duflo: We are certainly happy but at the same time baffled. We wonder how our book [can be considered] a business book since it is about finding and thinking of ways to end global poverty. Nonetheless, we are happy that some businesses and businessmen are interested in our work. Knowledge@Wharton: What, in your view, is the best way to tackle poverty? Abhijeet Banerjee: The central point of our book is that there isn't a single answer, that the question itself is wrong. There is no single action that is going to solve the problem of poverty. There are perhaps a few hundred steps that we need to take, each of which will do something, as long as we take the right steps. There is no evidence that we could adopt one step that is far more important than the others. I think that the one-size-fits-all recipe for tackling poverty is an illusion. It is a convenient illusion, so that you can believe that you can solve the problem with a single step. But this does not seem to be supported by data. Knowledge@Wharton: But surely of those hundreds of steps, there must be some crucial ones that come to mind when you talk of eliminating poverty?
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you emphasized the quality of education. I don't believe we are giving children a decent chance to learn. the next 15 years. This notion is misguided. If you are trying to capture a set of people who are so desperate that they need immediate help. which we know will be good from a medical point of view. The problem with that conversion is that it doesn't allow for differences in prices. However. I can't say they are the most important but these. an education that is so blatantly ignorant and irrelevant is a torture. Would you briefly explain that? Banerjee: Let's not use [the conversion to U. and they are there for us to see. A lot of people inspired by C. Prahalad became famous for The Fortune at the Bottom of the Pyramid. What Doesn't and Why: A Conversation with the Authors of 'Poor Economics': Knowledge@Wharton (http://knowledge. Would you agree that poverty in India is a lucrative opportunity area? Duflo: At a basic level. Knowledge@Wharton: The Indian Planning Commission has set the poverty line at 65 cents a day. There is nothing worse than this. are some of the effective steps that can be taken in the initiative towards ending poverty. Sometimes it is true that there is a market and someone can come and creatively tap it. I am not saying that these opportunities don't exist. According to our current state of knowledge. No one is talking to them. that is absolutely crucial. that is not to say that in the future there will not be other steps which would be even more effective. are very effective. It is a crime that children should be subjected to such education.. But there are also lots of things that the poor need and the market is not able to provide them. etc. 32.imparting quality education to them right from a young age. poverty has always been a top-of-mind issue. which includes steps like better access to preventive health [and] finding ways to put iron.S. If you don't learn to read or acquire basic math skills by the time you are 13 or 14 -.to extremely poor people. you have to be a little more careful. also works. Knowledge@Wharton: How do you define poverty? Banerjee: There is no one way to define poverty that is going to satisfy everyone. There are some forms of social businesses that have done well in this regard. You have to make an arbitrary call as to what you think poverty is. it is very misleading. But there are some things we do know that work across sectors. and when you make that call. dollar. and the country needs to somehow fix that problem.   All materials copyright of the Wharton School of the University of Pennsylvania. for example. is one of them -. There is no definition that is independent of the question you have posed.like a cow -. there are lots of poor people. we feel. If the policy question is. in the food that poor people consume. In the case of the poor.K. Giving an asset -. These.wharton. say. Similarly. there could be positive social and political impact of health care for the poor. If you want to say what is an unacceptable level of standard of living. where educating children is often seen as the only passport to escape poverty. Knowledge@Wharton: In your presentation at the Goa conference. and so they are a market.upenn. then that is a different thing. 'How do I target emergency help?'. What Works.and there is a significant portion of students with this deficiency -. Educating children. C. there are some crucial steps. and then some help in taking care of that asset. It depends upon what policy question we are trying to answer. It would be very different if you were to decide to set the target for. as we know today. Amartya Sen won the Nobel Prize for his work on poverty. Let's say Rs. Prahalad say that you can make money while helping the poor. Our poverty line for the desperately poor should be much lower than our goal that you will provide everyone at least 'X' after 15 years.To End Poverty. the whole class is going on and they do not understand a thing. The latest conversion between the rupee and dollar that allows for differences in prices is roughly Rs. you should decide what you are trying to capture. then that is one definition. quality of curriculum.then the entire effort is worthless. You have different views on this and on what parameters poverty should be measured.edu/article. there is a zone of shadow where we are not sure exactly what to do.                    Page 2 of 4  . etc. 19 to a U. 48 or Rs. However.cfm?articleid=2871) Duflo: Yes.S. and let's be very clear about what that means. not Rs. That is the right conversion. that is one thing. vitamins. Knowledge@Wharton: In India. It is a big mistake to think that markets will be able to do everything.K. does the quality of education matter? Banerjee: Yes. cents]. Duflo: [While] it is not good to say that no education is better than some education.

for example -. So. This way. Knowledge@Wharton: The poor. too much is spent on [the] wrong programs. eat chickpeas everyday -. If you don't do that. There are countries -.for instance. So you have to dig out their reality as to how they want to live their lives. problems that can be dealt with one by one. There is a lot more money that could be spent. In the U.they are not going to do it. If you really want to do something for them. And if you tell them to have a particular kind of food every day just because it is healthy food -. You have to adjust for the fact that things are cheaper in India than in the U.                    Page 3 of 4  . Knowledge@Wharton: You say that the three villains of efforts to eradicate poverty are ideology. you have to make it attractive enough for them to do it. In rural India. At the end of the day. are trying to have a good life within the constraints they face. etc. are more discerning customers than the rich because they have to make a little go a much longer way.wharton. For any of these questions [about poverty]. India gets very little aid. the aid worker and the local policy maker. ignorance and inertia..edu/article. people get depressed by the enormity of the problem. And even within what is being spent. What is your experience of other countries? Duflo: Essentially. There is a lot of difference between the places where policies are being designed. They are not doing them because you have not understood their lives very well.To End Poverty.in Africa. So. and people in the field. You have to think of what the priorities are. In some sense. What Works. make any effort to provide choice? Banerjee: It's a good question. Knowledge@Wharton: Is the problem of global poverty too huge to envision and address? Duflo: We need to cut this huge problem into many problems. Some people term it as one huge problem and then conclude that there is one big solution to it. the social policy ignores the free will of the poor. And the three problem interfaces are the expert. Too much money and governmental resources are spent on programs that have not been tested. Projected this way. but a series of issues that need to be addressed in numerous ways.you give them this and they are going to take it. India itself has a long tradition of doing that very well. there will be incremental victories and progress towards ending poverty. and they put in lots of effort at measuring poverty levels. This is what the World Bank uses in PPP [Purchasing Power Parity] estimates. The poor. aid workers. People in the World Bank do it. Rs.upenn. What Doesn't and Why: A Conversation with the Authors of 'Poor Economics': Knowledge@Wharton (http://knowledge. on the other hand. Rather than spending it carefully. Their knowledge is not necessarily being harnessed. You take a bus ride here. 32 is $1. Duflo: We are not deeply interested in measuring poverty. you say. but there are many good NGOs [non-governmental organizations] in India who are doing excellent work.. There is too little money going into anti-poverty programs that we would like to   All materials copyright of the Wharton School of the University of Pennsylvania. They are seen as sort of desperate -. You tell them to do things and then wonder why they are not doing them.which receive lots of aid. there is not much aid coming to India. in general. carefully identified and carefully implemented. what is important is not to measure poverty as much as try to understand what to do about it. little money goes into supporting innovative programs that can be carefully tested. 3. you get a completely misleading number. the market dollar rate is not relevant.S. Twenty minutes is a lot of time for a woman who has to do so many things in the house.70. You can't think of the poor as machines.S.cfm?articleid=2871) 49 to a dollar [the current exchange rate]. These field workers are doing good work. there is no large presence of aid workers in India. it would cost $2. it costs Rs. I think lots of aid policy and. and hence you cannot blame the aid workers. The right thing is to say that it is not one giant problem. You have to give them choices and understand their choice behavior. That's the right number. not 65 cents a day. and they have a much better sense of what is actually going on at the field level. but essentially face the same issues. under this conversion. say in New Delhi. and most of the money on anti-poverty programs is spent by the government. But do the government. Others do it. Knowledge@Wharton: Do anti-poverty campaigns receive enough money? Is there adequate funding for projects such as yours? Banerjee: No. it is a democratic debate in which all people should have something to say. We often tell them to boil water for 20 minutes but we don't take the reality of their lives [into consideration]. companies. it is the local government and the aid worker who are regarded as the biggest hurdles.

please contact PARS International: reprints@parsintl. So I frankly don't know whether or not this protest is going to have any impact on how to think about solving the problem of global poverty. we need talent from the whole world to think about ways of ending poverty. over the past decade. There is too little money going into anti-poverty programs that we would like to see.S.   All materials copyright of the Wharton School of the University of Pennsylvania.com P.                    Page 4 of 4  . In some of these countries. Duflo: The crises in the end have to affect the lives of the very poor. based on what we call randomized control trials. This is a single/personal use copy of Knowledge@Wharton.wharton. (212) 221-9595 x407. They are all going to face some constraints on that account. China. As of 2010. the Occupy Wall Street protest is very much in response to domestic issues in the U.S. due in part to the economic downturn. populist backlash in policymaking in the West. posters or plaques.To End Poverty. custom reprints. in the past 10 to 15 years. we founded the Poverty Action Lab to encourage and support research on a new way of doing economics.cfm?articleid=2871) wrong programs. J-PAL researchers had completed or were engaged in 240 experiments across 40 countries. Bangladesh and Pakistan. It could turn into something like the Tea Party. and there is very little official response to tackle this. will impact the ongoing debate on global poverty? Duflo: At the moment. And that will be bad. The immediate impact of the global financial crisis was not as harsh on the very poor as on the middle classes of the rich countries. Knowledge@Wharton: What has your Poverty Action Lab (the Abdul Latif Jamil Poverty Action Lab or J-PAL) accomplished so far? Banerjee: In 2003. there is ballooning inequality. These give researchers. Many have come to share our basic premise -.it is possible to make very significant progress against the biggest problems in the world through a set of small steps. Knowledge@Wharton: Recent studies have shown that poverty has increased dramatically in the U. What is more worrisome is the inability to get out of the crisis in the past few years. like anti-trade and all that. particularly for the people in the developing world. What Doesn't and Why: A Conversation with the Authors of 'Poor Economics': Knowledge@Wharton (http://knowledge. What Works. that started on Wall Street and has spread globally. But right now. to the increasing inequalities in the U. carefully tested and judiciously implemented. A very large number of organizations. they are just reacting to what is the real problem in all the OECD [Organisation for Economic Co-operation and Development] countries. That eventually will create additional challenges. what challenges do we face in fighting global poverty? Banerjee: Slowing growth in the West is a huge problem for growing countries like India. which rely on servicing these markets. each well thought-out. working with local partners. In a world of continuing global financial uncertainty.edu/article.upenn. After all. Banerjee: There is a general worry that it will lead to an irresponsible. to inertia and to the inadequate response to the economic crisis in the U.. Knowledge@Wharton: How do you think the Occupy protest movement. researchers and policy makers have embraced the idea of randomized trials. a chance to implement large-scale experiments designed to test their theories.S. It is also clear that there is a certain amount of policy attention or creativity that is now being directed to finding the equilibrium within [Western] economies. e-prints. Global poverty is not at the forefront of their consideration at this point in time. For multiple copies.S.

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