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No silver bullet to cure poverty
December 5, 2011, Monday
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WHY would a man in Morocco who doesn't have enough to eat buy a television? Why do the poorest people in the Indian state of Maharashtra spend 7 percent of their food budget on sugar?
Such are the questions that MIT economists Abhijit 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."
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.
Banerjee and Duflo 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.
Q: What is the best way to tackle poverty?
Banerjee: The central point of our book is that there isn't a single answer, that the question itself is wrong. There is no evidence that we could adopt one step that is far more important than the others.
Q: But surely of those hundreds of steps, there must be some crucial ones that come to mind when you talk of eliminating poverty?
Duflo: Yes, there are some crucial steps. I can't say they are the most important but these are very effective. Educating children, for example, is one of them - imparting quality education to them right from a young age.
Similarly, there could be positive social and political impact of health care for the poor, which includes steps like better access to preventive health and finding ways to put iron, vitamins, etc, in the food that poor people consume.
Q: In India, poverty has always been a top-of-mind issue. Would you agree that poverty in India is a lucrative opportunity area?
Duflo: At a basic level, there are lots of poor people, and so they are a market. There are some forms of social businesses that have done well in this regard.
A lot of people say that you can make money while helping the poor. However, you have to be a little more careful. I am not saying that these opportunities don't exist. But there are also lots of things that the poor need and the market is not able to provide them. It is a big mistake to think that markets will be able to do everything.
Q: Is the problem of global poverty too huge to envision and address?
Duflo: The right thing is to say that it is not one giant problem, but a series of issues that need to be addressed in numerous ways. This way, there will be incremental victories and progress towards ending poverty.
Q: What has your Poverty Action Lab (the Abdul Latif Jamil Poverty Action Lab or J-PAL) accomplished so far?
Banerjee: In 2003, we founded the Poverty Action Lab to encourage and support research on a new way of doing economics, based on what we call randomized control trials.
These give researchers, working with local partners, a chance to implement large-scale experiments designed to test their theories.
As of 2010, J-PAL researchers had completed or were engaged in 240 experiments across 40 countries. A very large number of organizations, researchers and policy makers have embraced the idea of randomized trials.
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, each well thought-out, carefully tested and judiciously implemented.
Q:How do you think the Occupy protest movement, that started on Wall Street and has spread globally, will impact the ongoing debate on global poverty?
Duflo: The Occupy Wall Street protest is very much in response to domestic issues in the US, to the increasing inequalities in the US in the past 10 to 15 years, to inertia and to the inadequate response to the economic crisis in the US.
Global poverty is not at the forefront of their consideration at this point in time. 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.
Banerjee: There is a general worry that it will lead to an irresponsible, populist backlash in policy making in the West, like anti-trade and all that. But right now, they are just reacting to what is the real problem in all the OECD (Organization for Economic Co-operation and Development) countries. In some of these countries, there is ballooning inequality, and there is very little official response to tackle this.
Q: Recent studies have shown that poverty has increased dramatically in the US over the past decade, due in part to the economic downturn. In a world of continuing global financial uncertainty, what challenges do we face in fighting global poverty?
Banerjee: Slowing growth in the West is a huge problem for growing countries like India, China, Bangladesh and Pakistan, which rely on servicing these markets. They are all going to face some constraints on that account.
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. After all, we need talent from the whole world to think about ways of ending poverty.
Duflo: The crises in the end have to affect the lives of the very poor. 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. What is more worrisome is the inability to get out of the crisis in the past few years.
Adapted from Knowledge@Wharton, http://www.knowledgeatwharton.com. To read the original, please visit: http://bit.ly/uoOcup
Such are the questions that MIT economists Abhijit 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."
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.
Banerjee and Duflo 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.
Q: What is the best way to tackle poverty?
Banerjee: The central point of our book is that there isn't a single answer, that the question itself is wrong. There is no evidence that we could adopt one step that is far more important than the others.
Q: But surely of those hundreds of steps, there must be some crucial ones that come to mind when you talk of eliminating poverty?
Duflo: Yes, there are some crucial steps. I can't say they are the most important but these are very effective. Educating children, for example, is one of them - imparting quality education to them right from a young age.
Similarly, there could be positive social and political impact of health care for the poor, which includes steps like better access to preventive health and finding ways to put iron, vitamins, etc, in the food that poor people consume.
Q: In India, poverty has always been a top-of-mind issue. Would you agree that poverty in India is a lucrative opportunity area?
Duflo: At a basic level, there are lots of poor people, and so they are a market. There are some forms of social businesses that have done well in this regard.
A lot of people say that you can make money while helping the poor. However, you have to be a little more careful. I am not saying that these opportunities don't exist. But there are also lots of things that the poor need and the market is not able to provide them. It is a big mistake to think that markets will be able to do everything.
Q: Is the problem of global poverty too huge to envision and address?
Duflo: The right thing is to say that it is not one giant problem, but a series of issues that need to be addressed in numerous ways. This way, there will be incremental victories and progress towards ending poverty.
Q: What has your Poverty Action Lab (the Abdul Latif Jamil Poverty Action Lab or J-PAL) accomplished so far?
Banerjee: In 2003, we founded the Poverty Action Lab to encourage and support research on a new way of doing economics, based on what we call randomized control trials.
These give researchers, working with local partners, a chance to implement large-scale experiments designed to test their theories.
As of 2010, J-PAL researchers had completed or were engaged in 240 experiments across 40 countries. A very large number of organizations, researchers and policy makers have embraced the idea of randomized trials.
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, each well thought-out, carefully tested and judiciously implemented.
Q:How do you think the Occupy protest movement, that started on Wall Street and has spread globally, will impact the ongoing debate on global poverty?
Duflo: The Occupy Wall Street protest is very much in response to domestic issues in the US, to the increasing inequalities in the US in the past 10 to 15 years, to inertia and to the inadequate response to the economic crisis in the US.
Global poverty is not at the forefront of their consideration at this point in time. 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.
Banerjee: There is a general worry that it will lead to an irresponsible, populist backlash in policy making in the West, like anti-trade and all that. But right now, they are just reacting to what is the real problem in all the OECD (Organization for Economic Co-operation and Development) countries. In some of these countries, there is ballooning inequality, and there is very little official response to tackle this.
Q: Recent studies have shown that poverty has increased dramatically in the US over the past decade, due in part to the economic downturn. In a world of continuing global financial uncertainty, what challenges do we face in fighting global poverty?
Banerjee: Slowing growth in the West is a huge problem for growing countries like India, China, Bangladesh and Pakistan, which rely on servicing these markets. They are all going to face some constraints on that account.
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. After all, we need talent from the whole world to think about ways of ending poverty.
Duflo: The crises in the end have to affect the lives of the very poor. 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. What is more worrisome is the inability to get out of the crisis in the past few years.
Adapted from Knowledge@Wharton, http://www.knowledgeatwharton.com. To read the original, please visit: http://bit.ly/uoOcup
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