Abhijit Banerjee and Esther Duflo, part winners of the Economics Nobel this year, wrote a bestseller in 2011 called ‘Poor Economics -- rethinking poverty & the ways to end it’ that more or less sums up their entire work. Amartya Sen called it ‘A marvellously insightful book by two outstanding researchers on the real nature of poverty’, a quote that was displayed prominently on the book’s cover.
A new way of tackling poverty
The authors set forth their moral purpose succinctly: ‘To the extent that we know how to remedy poverty, there is no reason to tolerate the waste of lives and talent that poverty brings with it.’
What sets them apart, though, is the way they look at poverty. The authors write that the ‘urge to reduce the poor to a set of clichés has been with us for as long as there has been poverty: The poor appear, in social theory as much as in literature, by turns lazy or enterprising, noble or thievish, angry or passive, helpless or self-sufficient. It is no surprise that the policy stances that correspond to these views of the poor also tend to be captured in simple formulas: “Free markets for the poor,” “Make human rights substantial,” “Deal with conflict first,” “Give more money to the poorest,” “Foreign aid kills development,” and the like.’ To go beyond such clichés, Banerjee and Duflo engaged directly in field work among the poor in order to understand how they live, the choices they make and why they made them and how policies could be tweaked in little ways that made a difference.
Instead of grand theories, their methods were local field work and experiments. Their preferred tool was Randomized Control Trials, a method modelled on clinical trials in medicine. In field experiments, people are randomly assigned to control groups and treatment groups. For example, to study the impact of a particular policy intervention the experiment would look at its impact on a group that has been exposed to the policy change, against another that hasn’t been so exposed.
Consider the sub-heads in a 2006 paper by Banerjee and Duflo called ‘The Economic Lives of the Poor’. These include, ‘How the Poor Spend their Money’, ‘How the Poor Earn their Money’ and questions such as ‘Why the Poor don’t Eat More?’, ‘Why don’t the Poor Spend more on Education?’, ‘Why so many Entrepereneurs?’ and ‘Why don’t the Poor migrate for longer?’ In short, their research is short on theory, long on empirical data and practical problem-solving.
To give an idea of the kind of research that they do, consider a recent paper by Banerjee, Duflo and Keniston titled, ‘The Efficient Deployment of Police Resources: Theory and New Evidence from a Randomized Drunk Driving Crackdown in India’. In an anti-drunken driving campaign in Rajasthan, in each police station, sobriety checkpoints were either rotated among 3 locations or fixed in the best location. The finding: rotating checkpoints reduced night accidents by 17 percent, and night deaths by 25 percent, while fixed checkpoints had no significant effects. This led to a wider discussion whether police activity should be narrowly focused and high force, or widely dispersed but of moderate intensity.
Or consider the debate on private versus public schools. At a lecture given at the EXIM Bank earlier this year, Banerjee said, ‘There is a study in India, in Andhra Pradesh -- which is one of the states with the school system working relatively well -- wherein a large random group of children were given vouchers to go to private schools and since they were chosen at random, those children were compatible with other children. The study looked at what happened to the test scores and the answer is, nothing. Private schools are just as bad as government schools….’.
On the Indian economy
What does Banerjee have to say about the Indian economy? Last October, before the general elections, he was part of the group of thirteen economists who penned an agenda for economic reform titled, ‘What the Economy Needs Now.’ These proposals have been extensively discussed in the media. Those who want a gist of the most important of them will find it here.
Far more interesting is what Banerjee said in the Exim Bank lecture mentioned above. He said that India is at risk of falling into the ‘middle-income trap’, ‘which means that countries grow up to a point wherein they do not grow any further’. He said ‘our human capital is not high quality, our infrastructure is not high quality, our environment is getting increasingly polluted and we grow despite them. I think a part of the reason why we do grow is because we have so much misallocation and distortions that create opportunities for business and we have a lot of entrepreneurial people who take up these opportunities. But once you take that as your starting point, you start worrying that once those opportunities run out, we may slow down very fast.’ His advice: ‘we need to fix our economic structure, not just because it is good for the less-advantaged people, but because we want to keep growing.’
Banerjee is a staunch advocate of Universal Basic Income and the Congress Party had taken his advice before the general elections while formulating their NYAY programme that was supposed to give each family among the poorest 20 percent of the population Rs 72,000 per year. The giveaway was expected to be financed by taxing the rich.
Banerjee has been a close associate of celebrated economist Thomas Piketty and they have authored many papers together. One of them, titled ‘Top Indian Incomes 1922-2000’ said, ‘Our data shows that the shares of the top 0.01 percent, the top 0.1 percent and the top 1 percent in total income shrank substantially from the 1950s until the early-to-mid 1980s but then went back up again, so that today these shares are only slightly below what they were in the 1920s-1930s.’ They said that the pro-business policies pursued after liberalization led to the rich cornering most of the gains.
Insights on Indian politics
Banerjee has also done research on Indian politics. A recent paper brought out in March this year by Banerjee, Piketty and Gethin titled, ‘Growing Cleavages in India? Evidence from the Changing Structure of Electorates,1962-2014’ said ‘cleavages in India’s party system have developed mostly along the lines of caste identity and religious conflict. Inequality in education, income or occupation seems to have a limited impact on political preferences.’
The researchers add, ‘The big political fights seem to be about caste and religious identity in its many forms and the caste quotas in educational institutions and government jobs, the one place where the identity and economic dimensions intersect. Interestingly, the amount of redistribution that actually happens through the quota system is quite limited, just because there are not so many government jobs and not that many high quality educational institutions. But it is possible that in a world of multi-dimensional competition, the fact that quotas and fights over symbolic aspects of identity (cow slaughter, Ram Mandir, triple Talaq, etc.) are so salient means that all the other, potentially very important dimensions of political competition (better schools and health facilities, cleaner air, land redistribution, etc.), tend to get lost.’
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