Poor Economics: A Radical Rethinking of the way to fight poverty by Esther Duflo and Abhijit Barnejee

10245602Anyone interested in Africa’s development should read this book authored by two MIT professors. I was lucky enough to participate in their Edx class, which means I have literally studied this book in great details. And believe me, I have enjoyed every second of it.

What is EdX? It is a not-for-profit partnership between Harvard University and the Massachusetts Institute of Technology that features learning designed specifically for interactive study via the web. edX is one of the  most popular MOOCS – massive open online course – platforms. These MOOCS are very popular these days. You should try one!

This book is not specifically about Africa. After all, Poor people are everywhere in this planet. Out of 7 billions people on earth, 1 billion are poor.But, as the title suggests – A Radical Rethinking of the Way to Fight Global Poverty – it is about fighting poverty.

The good News: It is a book of economics with a lot of real life examples and studies called randomized control trials.(RCTs)

The Super good News: It is book of economics  very easy to follow and understand. Not a lot of theories but plenty of real life examples.

About the authors

One could say a highly qualified team to tackle the issue of Global poverty.

Abhijit Vinayak Banerjee was educated at the University of Calcutta, Jawaharlal Nehru University, and Harvard University. He is currently the Ford Foundation International Professor of Economics at MIT. He is the recipient of many awards, including the inaugural Infosys Prize in 2009, and has been an honorary advisor to many organizations including the World Bank and the Government of India. Together with Esther Duflo and Sendhil Mullainathan of Harvard University, he founded the Abdul Latif Jameel Poverty Action Lab in 2003.

Esther Duflo is Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics in the Department of Economics at MIT. She was educated at the Ecole Normale Supérieure, in Paris, and at MIT. She has received numerous honors and prizes including a John Bates Clark Medal for the best American economist under 40 in 2010, a MacArthur “genius” Fellowship in 2009.. Together with Abhijit Banerjee and Sendhil Mullainathan of Harvard University, she founded the Abdul Latif Jameel Poverty Action Lab in 2003.

Sources: www.pooreconomics.com

About the book

The  official excerpt goes like this:

For more than fifteen years Abhijit V. Banerjee and Esther Duflo have worked with the poor in dozens of countries spanning five continents, trying to understand the specific problems that come with poverty and to find proven solutions…

…Through a careful analysis of a very rich body of evidence, including the hundreds of randomized control trials that Banerjee and Duflo’s lab has pioneered, they show why the poor, despite having the same desires and abilities as anyone else, end up with entirely different lives….

The main argument is that so much of anti-poverty policies has failed over the years because of an inadequate understanding of poverty. The battle against poverty can be won, but it will take patience, careful thinking and a willingness to learn from evidence. The book in itself is structured in a very clever way. Plus, there is a very effective and informative website that supports it. (http://pooreconomics.com).

What I really love about this book is “the rethinking of the global issues”. For every major issue,  the authors brilliantly present the two sides of each argument (demand/supply) and then rethink the whole problematic from a different perspective. Usually demand represent the poor and supply is either the government, NGO or the private sector.

I will be giving examples that I think need to be spread far and wide as per original structure of the book.

Understanding the challenge of poverty

Universal question: Is aid good or bad? 

Dambisa Moyo: Stop Aid

dead_aid

Vs

 Jeffery Sachs : Increase Aid

Poor Economics

The book: There is not enough evidence to say who is right or wrong!

Solution : Shift from looking for universal answers to thinking in terms of concrete problems which can have specific answers.

Food: Is there a nutrition based poverty trap? 

what is a calory- based trap?  Ex: To do physical work, One needs a certain amount of calories, however, if you don’t  work, then you can’t afford to eat enough calorie, which means you can’t work! and on and on. It’s a vicious circle.

Universal question: 1 billion people are hungry ! Why? Is it by choice or is there a nutrition based trap?

The book: There is no calory based trap because when people got the chance, they eat tastier and expensive food. Plus,It has been proven that people do not understand the value of feeding themselves and their children better. They also have other pressures on their expenditures, such as funerals, festivals, and legitimate desires like cell phones or televisions.

Solution: develop ways to package foods that people like to eat with additional nutrients. Come up with new strains of nutritious and tasty crops that can be grown in a wider range of environments.

Health: The poor are still dying of preventable disease

Universal question: Every year, nine million children under five die from preventable diseases. Why? Treatments are really cheap, safe, and readily available. But they are not used.Why is it the case exactly?

The book: Poor People spend a lot money on expensive cures rather than  preventative care. It means then that they care about their health.

Solution: Small incentives to make it as easy as possible for people to do the “right” thing, while, perhaps, leaving them the freedom to opt out.

Very interesting statement by Pr Duflo:

In rich countries, most of these decisions are made for us, and we don’t have to think about it: It should not be different for the poor.

Education: Why are children learning so little?

Universal question: More and more children are enrolled in school everywhere, but both teacher and child absentee rates remain very high.  The quality of education is deteriorating. Why are children learning so little in school?

The book: The School system is elitist and fails to deliver basic skills to a larger number of students. Education has monetary and non-monetary benefits: Each year of education increases earnings more or less proportionally, and  there are also non financial benefits such as healthier children. It is proven that education can lift entire generation out of poverty.

Solution: Scale down expectations , focus on teaching the basics and use technology to complement or if necessary substitute for teachers.

Credit: the Real Impact of Micro-credit

Universal question:  Will micro-credit  eradicate poverty  or is the real impact of the mechanism over rated?

The book:  There is clear evidence that micro-finance is working. However, there were no detectable impacts on women’s empowerment, spending on education or health or in the probability that kids would be enrolled in private schools. Why?  Micro finance have a very inflexible structure and zero default policy.It may not be an effective borrowing channel for entrepreneurs who are willing to take risks and will go on to set up a large business.

Solution:  More established businesses are too large for the traditional moneylenders and microfinance agencies, but too small for the banks.We need to see the equivalent of the microfinance revolution for small and medium firms; figured out how to do it profitably on a large-scale is the next big challenge for finance in developing countries.

Very interesting indeed! They are a lot puzzling facts in this book.

5 takeaways from this book:

  1. The poor often lack piece of critical information and most of the time they believe things that are not true. Hence, they are making wrong decisions.
  2. The poor bear responsibilities for too many aspects of their lives ” …the richer you are, the more the right decisions are made for you…”
  3. Some markets are missing, for the poor, for good reasons. The pricing is  unattractive for them and the conditions for the market to exist are non-existent.
  4. Poor countries are not doomed to failure because of their history (curse, conspiracy…). The problem is that almost all policies that are implemented are flawed.
  5. Expectations, about what people can or cannot do, turn into self-fulfilling prophecies

Sometimes, as a member of the Diaspora watching CNN or BBC, you lose faith. It, always, seems like more people are dying and there is nothing we can do about it.  Books like Poor Economics provide practical solutions that have been tested on the ground. I sincerely think that every policy maker in Africa should read this book.

I strongly recommend  you this very important book!

Did you read it? What did you think?

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4 responses to “Poor Economics: A Radical Rethinking of the way to fight poverty by Esther Duflo and Abhijit Barnejee

  1. Pingback: What I read in the first half of 2013 and where I am heading for the rest of the year | Under the Neem Tree·

  2. I just came across your blog today and have been enjoying reading back through some of your posts. Poor Economics was a truly eye-opening book for me and I’ve been recommending it to everyone! I wish I had known about the edX class. Hopefully they will offer it again!

  3. Pingback: 2013 Under The Neem Tree best non-fiction books | Under the Neem Tree·

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