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Book Review

Book’s Authors: Abhijit Banerjee and Esther Duflo

Book’s Title: Poor Economics: A Radical Rethinking of the way to Fight Global Poverty

Year of Publication: March 27, 2012
Place of Publication: New York
Publisher: PublicAffairs

Number of Pages: 320 pages

Price: $11.99

ISBN-13: 978-1610390934

Book Review

When asked concerning their viewpoint on how to alleviate worldwide poverty, economists often fall into two camps: the first camp argues that foreign aid is crucial to get individuals out of their poverty trap since foreign aid has the potential of kick-starting a virtuous cycle by assisting poor nations invest in crucial areas and make them extra productive (Ravallion, 2012). Jeffrey Sachs contends in his book, The End of Poverty, that if rich countries had dedicated $195 billion to foreign aid yearly from 2005 to 2025, poverty would have been eliminated entirely by the end of 2025 (Ravallion, 2012). The second camp believes that reliance on foreign aid is wrong. According to Dambisa Moyo and William Easterly, aid is as effective as a plaster on a broken leg: while it may give an injured individual the comforting feeling that there is someone caring for them, it does not make the injured person walk again (Rosenzweig, 2012).  Aid, as Ravallion (2012) contends, would prevent an individual from searching for their individual solutions, while undermining and corrupting local institutions and creating self-perpetuating campaign of aid agencies.  To individuals who do not have robust viewpoints on the matter, but care about building a globe free from poverty, this paper recommends Poor Economics: a radical rethinking of the way to fight global poverty. Co-authored by Abhijit Banerjee and Esther Duflo (MIT economists), the book is a highly enjoyable and readable presentation of field research in villages of developing nations for eight years. This book review aims at reviewing Poor Economics book, highlighting the views presented on why countries miss on economic development and cites policies that if implemented can effectively help alleviate poverty globally.

Notwithstanding the wonkiness of the economics discipline, the authors of Poor Economics, Abhijit Banerjee and Esther Duflo, enjoy a public status that is likened to rock stars, having scooped awards from Time profiles and MacArthur “Genius” Grants to TED talks (Besley & Robin, 2013). Duflo has been awarded the “winner of the 2010 Clark Medal for the best economist under 40” (Ravallion, 2012). The duo also co-founded the Abdul Latif Jameel Poverty Action Lab (J-PAL) that is known across the globe for their dedication to issues about Randomized Evaluations (REs) to respond to development economics’ ‘big questions’ about the kind of aid interventions that are most effective and why, making them have a substantial following among development practitioners and economists (Rosenzweig, 2012). 

Written for a general/popular audience, Banerjee and Duflo draw from a rich body of proof, including 100 randomized controlled trials (RCTs). Banerjee and Duflo, in 250-plus pages, explain, describe and analyse the choices that people living on below $2 per day make. For instance, they note that its commonplace for poor families to invest their whole education budget on a single child, often a son, with the hope that the child will make it through the education ladder, while short-changing other children (Besley & Robin, 2013). According to Banerjee and Duflo, this is done because many families think the worth of education comes from obtaining local equivalent of high school diplomas as opposed to attending a semester or so in learning institution (Rosenzweig, 2012). The families believe that it is a waste of resources to spread educational budget of a family among all children as opposed to trying to ensure that a single child attains the highest level. However, the worth of education is linear; each extra week in school brings an extra value. Assisting parents comprehend this, the book does explain, has far extra effect compared to building learning institutions; it quickly transforms their educational choices. The authors also question why it is so hard to get peasant farmers in developing countries using improved agricultural techniques, like irrigation, fertilizer, and improved seeds, that have the potential of doubling or tripling yields.  Each of these techniques needs an investment upfront, yet farmers in these countries usually decline them even when they are affordable (through low-cost loans or subsidies). Banerjee and Duflo explain that such tendency is common since farmers in developing countries understand how risky agriculture is. The price of crop failure when one has committed all their resources or borrowed is extra devastating compared to the price of hardly making do with low produce (Rosenzweig, 2012).  The authors also explore how a program that is designed to minimize the prevalence of AIDS, which fostered monogamous marriage among teenagers in Kenya, possibly resulted in a rise in the rates of in school dropouts and exposure to sexually transmitted infections or diseases, including HIV. Banerjee and Duflo establish that the challenge is not that the program did not work; it is that it did work very well. The girls were married, yet the only men who had the financial resources sufficient to marry were older and, consequently, extra likely to be infected besides expecting the girls to drop out of school and bring up their children.  Apart from anecdotes and case studies from NGOs and people living in poverty globally, the book is equally supplemented by a website that gives collaborative graphics and maps for the book’s chapters, as well as a list of associated NGOs that any reader can get engaged with.

The REs used by Banerjee and Duflo provides some interesting and surprising conclusions. Among other things, the book explains why notwithstanding the presence of cheap healthcare interventions such as vaccines or bed nets, the poor do not usually reward themselves of such “low-hanging fruits” (Rosenzweig, 2012). Economist Jeffrey Sachs, according to Besley and Robin (2013), would reason that the challenge is a health poverty gap: being poor makes it challenging to avert diseases and illnesses or seek medication once one gets sick and illness makes it hard extra hard for one to earn a decent salary, and consequently perpetuating poverty. This theory’s challenge is that even the poorest of the poor people ought to be capable of accessing some low-cost healthcare interventions (Ravallion, 2012).  According to Banerjee and Duflo, the challenge is not that poor individuals do not care concerning their healthcare: when they face sever healthcare challenges, poor families usually end up reducing their expenditure, borrowing money, or selling assets for treatment reasons, and this usually push them into greater debt (p.50). The authors conclude that the challenge, thus, is that poor families choose the amounts to be extra costly option as opposed to investing in illness prevention, eventually spending more on cures.

According to the book, partly the blame lies with the governments. Governments have the sole responsibility of instituting domestic healthcare centres that would offer such less costly prevention mechanisms. Rosenzweig (2012) notes that economists, such as Bill Easterly, debate that healthcare interventions such as the ones advocated for by Jeff Sachs do not function since government healthcare facilities are usually dysfunctional – healthcare workers do not bother going to work so the facilities are often closed when they should not be and healthcare experts are ill-trained or do not care sufficiently to aptly treat their patients. However, J-PAL’s REs established that even high-quality and privately offered healthcare interpositions significantly do not increase the total number of people who opt to access them (p.56).

Banerjee and Duflo contend that the fundamental justification for the above tendency lies in procrastination and weak beliefs. While the poor individuals cannot afford treatment for serious diseases, it is human to feel that one is doing something constructive and positive for their health regardless of whether they can afford to treat the serious disease/illness (Besley & Robin, 2013). This explains why poor individuals are less likely to seek doctors’ intervention for possibly dangerous conditions like blood in urine or chest pains, than they are for lesser serious diseases, like diarrhoea and fever, as well as why they are more likely to go to preachers or traditional healers for treatment (they give patients a feeling that they are doing something to better their health conditions) (p.61).

Inconsistency in time is another challenge. Psychology researcher show that individuals think concerning their present very differently from how they think about their future: people tend to act impulsively now and to avert unpleasant responsibilities now that can be postpone into the future (Rosenzweig, 2012). Therefore, the poor may choose to “postpone the purchase of a bed net or a bottle of Chlorine [to treat drinking water] until later, because they have better use for the money right now (there is someone frying delicious conch fritters across the street, say). It is easy to see how this could explain why a small cost discourages the use of a life-saving device, or why small incentives encourage it” (p. 65).  Banerjee and Duflo do not contend that poor individuals are more impulsive or lazier relative to their rich counterpart, but “we rarely need to draw upon our limited endowment of self-control and decisiveness, while the poor are constantly being required to do so” (p. 68).

The book proceeds to highlight possible interventions to the above challenges. To surmount time inconsistency, NGOs and governments ought to offer a prod to motivate individuals to invest in and focus on prevention (Rosenzweig, 2012). Nudges, like small incentives, should be designed to meet particular circumstances within a targeted environment. Similarly, NGOs and governments should subsidize healthcare interventions, offering them free of charge or even offering payments to get families to invest in them, while at the same time limiting access to unnecessary drugs to prevent becoming drug resistant (Besley & Robin, 2013).

Banerjee and Duflo, according to Ravallion (2012), see little value in macro responses to the question of whether aid is worthwhile. Instead, they have a micro one: aid can be effective if it is well based upon domestic-level knowledge about poor people’s lives. Crafting effective interventions demands patient native research and experimentation with an honest desire to honour whatever arises from comparative and rigorous evaluations. Banerjee and Duflo’s study reveal two issues that often beset development aid. First is that the efficacy and effectiveness of foreign aid is usually unevaluated at all. They add that even if aid is assessed, the techniques are usually biased. Secondly, Banerjee and Duflo note that there is little attention being paid to what the poor individuals say and do. Besley and Robin (2013) note that human beings have a bias towards believing in “big changes” for “big outcomes.” However, Banerjee and Duflo believe there is no proof that big changes are the outcome of big levers. Essentially, the authors are reasoning that much of the entire enterprise of addressing poverty is founded upon the wrong bases: the notion that big changes are needed to create the globe we desire.

Critiques of Banerjee and Duflo’s work do not appreciate how hard it is to change policy to implement the types of alterations into the lives of the poor, reasoning that the forward path is “small thinking” and not “big thinking” (Rosenzweig, 2012). Bettering the lives of the poor consistently and measurably is fundamentally a matter of making an array of small changes in several different domains, changes that do not need major political wars or dramatically changing financing structures. 

Personally, no book-length assertion about the issues addressed by Banerjee and Duflo could be presented and constructed in a manner more likely to make readers persuaded to agree. Banerjee and Duflo’s book’s persuasiveness lies in the authors’ tactic: (i) their effort to listen to poor individuals and comprehend the logic of how they survive as a village or families and individually; and (ii) their aversion for over-generalized/ideological viewpoints, along with their confidence in what factual, rigorous analysis has shown.

In conclusion, Banerjee and Duflo’s book is a relevant and interesting work written by two established, accomplished and highly learned MIT economists and J-PAL co-founders, with the objective of making sure that policy is founded upon scientific proof. Banerjee and Duflo’s work focuses upon bringing people back in the formulation of development aid initiative. Though it may take time, the author’s message is that through persistence and careful thinking, the war against poverty will be won eventually.