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As I prepare for the G20 summit, I firmly believe that data has to be at the cor

e of the analysis and conclusions in our report on development. At the same time
, we need to look beyond the numbers and understand the everyday challenges face
d by the world s poorest people. The book Poor Economics is very helpful, because
it is both empirically rigorous and insightful about the realities that the data
doesn t always capture.
Poor Economics is by two MIT economists, Abhijit Vinayak Banerjee and Esther Duf
lo. Their life s work is traveling to poor countries, looking closely at what wor
ks and what doesn t work in efforts to fight hunger and disease, improve education
, and broaden access to basic financial services. The authors are directors of J
-PAL, an MIT poverty action lab that s a network of 59 professors around the world
who use scientific methods to answer critical questions about alleviating pover
ty.
To me, what s really great about J-PAL is that it s producing scientific evidence th
at can help make our anti-poverty efforts more effective. This is tremendously i
mportant. The money that governments invest in development is saving millions of
lives, and improving hundreds of millions. But to sustain support for these eff
orts, we need to rigorously assess the cost-effectiveness and overall impact of
aid, and make continuous improvements.
J-PAL conducts randomized evaluations of different approaches to achieving a par
ticular objective, such as reducing malnutrition. For example, researchers try d
ifferent ways of distributing food aid in similar villages, observe what happens
, and compare the results. They ve repeatedly found that outside of situations whe
re there s actual famine, just handing out food
no matter how nutritious doesn t nec
essarily improve nutrition. Sometimes people just cut back on their own food pur
chases and use that money for something else they need or want, even though cons
uming more calories could increase their productivity.
Although this may seem strange to us, J-PAL probes deeper to find out why people
do what they do. In some instances, they may be in a situation where consuming
more calories to work harder will not raise their incomes much or at all. And th
ey may have other, urgent expenses, such as for health care.
Poor Economics does a great job of bringing alive the complexities of poor peopl
e s lives. It explores the tough, difficult decisions they must make
often based o
n very little information and with no room for error about things that most of u
s take for granted, like access to enough food, clean water or vaccinations.
Poor Economics focuses on the specific results and unintended consequences of an
ti-poverty projects, and in doing so, it reveals some smart strategies for achie
ving positive results. In some situations, for instance, limited aid may go fart
her if it is directed toward specific groups of people. One example mentioned in
the book is delivering food aid and nutrition information to pregnant women and
to children whose development can be permanently stunted by malnutrition.
Related to food aid, one of the win-win strategies we re using at the foundation is
helping poor farmers sell their produce to aid programs in their own and neighbo
ring countries. That way, the aid programs can fight hunger and help raise the i
ncomes of local farmers at the same time.
Poor Economics also is very good in spotlighting how small tweaks can sometimes
turn failing interventions into effective ones. As I ve learned, this often involv
es identifying and removing unintended barriers that prevent people from getting
vaccinated, say, or using bed nets to prevent malaria. Given the challenges tha
t poor people face in their daily lives, we need to make it as easy as possible
for them to get the help they need.
For example, Rajasthan, India, had for a long time suffered from very low immuni
zation rates about 6%. This despite the government s providing the vaccines for fr
ee. Increasing the vaccination rate was a challenge walking to the clinics can b
e a hassle, and the clinics are unpredictably closed. To address these barriers,
mobile clinics were established to provide vaccines on site. The impact of thes
e mobile clinics was profound, with full vaccination rates jumping from 6% to mo
re than 18%. Building on this success, the program was further enhanced with an
incentive: a bag of lentils to all families vaccinated, which effectively double
d the rate again to 38%. Even with the incentive, the program was twice as cost

effective per patient as just the mobile clinics alone, since the clinic staff w
as much busier. More importantly, a much larger group of children was vaccinated
against polio, measles, DPT and tuberculosis
saving families from potential tra
gedy down the road and government from higher costs of sick care. You can read t
he J-PAL policy briefcase Incentives for Immunization to learn more about this stu
dy.
To be more effective, we also need a deeper understanding of people s values and c
ultures. I ve seen first-hand that local knowledge is critical. A couple of years
ago, I visited AIDS-prevention projects that our foundation has supported in Sou
th Africa. They were effectively reducing AIDS transmission from women to men by
persuading adult and teenaged men to be circumcised. As you can imagine, this w
as not an easy task, but with knowledge and respect, it can be done, and it can
save many lives.
With the authors experience on the ground and their willingness to go where the e
vidence leads, I found Poor Economics a refreshing change from the sometimes the
oretical and divisive debates that surround development aid. (An excellent compa
nion book I d also recommend is Getting Better: Why Global Development is Succeedi
ng.)
So, is development aid good or bad? A moral obligation or a waste of money? That
depends on how it s done, say Banerjee and Duflo. Financial resources are finite,
so let s figure out how to use them in ways that can have the most substantial im
pact.
-----------------------------------------------------------------------------------------------------------------------------------------------------------Despite the wonkiness of the discipline, the most famous academics in the field
of economic development, from Jeffrey Sachs to William Easterly, enjoy a public
status akin to rockstars, at least within the economics field. The authors of Po
or Economics: a radical rethinking of the way to fight global poverty, Abhijit B
anerjee and Esther Duflo, are certainly no exception, having racked up accolades
from MacArthur Genius Grants and Time profiles to TED talks. Banerjee and Duflo c
o-founded the Abdul Latif Jameel Poverty Action Lab (J-PAL) at MIT, a network of
economics professors around the world who are known for their commitment to the
use of Randomized Evaluations (REs) to answer the big questions of the developmen
t economics field of what kind of aid interventions are the most effective, and
why. The terms sound decidedly un-sexy, and yet they represent nothing short of
a revolution in the way that academics and policymakers approach the problem of
global poverty. By using a scientific process that is modeled on the randomize
d trials that are used in medicine to evaluate the effectiveness of new drugs, w
ith control and variable groups to determine what kinds of interventions are eff
ective, Banerjee and Duflo hope to ensure that policy approaches are based on sc
ientific evidence for what works rather than the abstract economic models or wis
hful thinking that so often seem to guide policy.
Poor Economics is an exploration of J-PAL s Randomized Evaluations strategy. Writ
ten for a popular audience, the authors seek to sweep aside the broad generaliza
tions about global poverty that economic models tend to create. They use case st
udies and anecdotes from their work on the ground with NGOs and individuals livi
ng in poverty around the world, showing how their evaluation methods provide ins
ight into development and poverty alleviation best practices. The book is also a
ccompanied by a website that provides interactive maps and graphics for each cha
pter, as well as a list of affiliated NGOs that interested readers can get invol
ved with.
Banerjee and Duflo s system of Randomized Evaluations provides some fascinating-an
d surprising-conclusions. Perhaps the most interesting chapter in the book seeks
to explain why despite the existence of inexpensive health interventions like b
ed nets or vaccines, the poor don t often avail themselves of such low-hanging frui

t (Chapter 3, Low-Hanging Fruit for Better (Global) Health? ). Economist Jeffrey Sa


chs would argue that the problem is a health poverty trap: being very poor makes
it difficult to prevent illness or seek treatment once getting ill, illness mak
es it more difficult to earn a decent income, in turn perpetuating poverty. The
problem with this theory is that even the poorest of the poor should be able to
access certain low-cost health interventions. Banerjee and Duflo point for just
one example to drinking water: a family of six in Zambia can buy a bottle of ch
lorine for just $0.18 per month, which would reduce diarrhea in young children b
y up to 48%- yet just 10% of Zambians actually treat their drinking water with b
leach (p. 48-49). The issue is not that poor families don t care about their healt
h: the evidence suggests that when faced with serious health issues, poor househ
olds often end up cutting their spending, selling assets, or borrowing money to
treat them, often pushing them into greater debt (p.50). The problem, therefore
, is that poor households select what amounts to the more expensive option: rath
er than investing in prevention, they spend more on expensive cures.
Part of the blame lies with governments, which are usually the primary players r
esponsible for setting up local health centers that would provide such cheap pre
vention mechanisms. Economists like Bill Easterly argue that health intervention
s like the ones that Jeff Sachs advocates don t work because government health cen
ters are often dysfunctional- health workers don t bother to go to work so the cen
ters are closed when they are supposed to be open, and health professionals are
not well educated or don t care enough to treat their patients properly. Yet J-PAL s
randomized evaluations found that even high-quality, privately provided health
interventions do not significantly increase the numbers of people who choose to
access them (p. 56).
According to Banerjee and Duflo, the primary explanation lies in weak beliefs an
d procrastination. Because the poor cannot afford treatment for major illnesses,
but it is human nature to feel like you are doing something positive for your h
ealth, even if you can t afford to treat major illnesses. This is why the poor are
actually less likely to go to the doctor for potentially fatal conditions like
chest pains or blood in their urine than they are for lesser illnesses such as f
evers and diarrhea, and why they are likely to go to a traditional healer or pre
acher for treatment- they give the patient a sense of doing something (p. 61).
Time inconsistency is another issue. Psychology research shows that people think
about the present very differently than they do about the future, in that peopl
e are likely to act impulsively in the present and to avoid unpleasant tasks tod
ay that can be put off into the future. Thus, the poor may want to postpone the p
urchase of a bed net or a bottle of Chlorin [to treat drinking water] until late
r, because [they] have better use for the money right now (there is someone fryi
ng 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 w
hy small incentives encourage it (p. 65). Banerjee and Duflo are not arguing tha
t the poor are any more lazy or more impulsive than the rich- in fact, they may
have more self-control than we do, but we rarely need to draw upon our limited en
dowment of self-control and decisiveness, while the poor are constantly being re
quired to do so (p. 68).
These issues naturally lend themselves to specific aid interventions, and indeed
, the authors provision of interventions to match the problems that they have ide
ntified at the end of each chapter is one of the more satisfying aspects of the
book. To overcome time inconsistency, governments and NGOs should provide a nudge
to encourage people to invest in prevention. They can do so by mak[ing] the optio
n that [they] think is best for most people the default choice, so that people w
ill need to actively move away from it if they want to and by providing small inc
entives that encourage people to act in the present rather than putting somethin
g off (p. 66). Such nudges must be designed to meet the specific circumstances in
the environment of developing countries. Banerjee and Duflo give chlorinating w

ater at home as an example: the key challenge is remembering to do it every time


someone has a drink of water. J-PAL tested a number of innovative solutions, in
cluding a free chlorine dispenser installed at the village well which delivers t
he correct amount of chlorine with one twist of a knob. Randomized trials show t
hat of all interventions that have been tested, this is the cheapest way to prev
ent diarrhea (p. 66). Governments and NGOs must also subsidize health intervent
ions, providing them for free or even providing payments to get households to in
vest in them, while also restricting access to unnecessary drugs in order to pre
vent growing drug resistance (p. 69).
Banerjee and Duflo conclude with a chapter entitled In place of a sweeping conclu
sion, emphasizing their carefully scientific approach. In it, they offer five key
lessons that emerge from their various studies, but caution that when the fad of
the moment (be it dams, barefoot doctors, microcredit, or whatever) is turned i
nto a policy without any attention to the reality within which it is supposed to
function, aid interventions are doomed to fail (p. 271). In a way, Poor Economic
s is a less satisfying read than other development economics books, since it doe
s not provide a neat solution for all aid or development problems. However, the
careful and focused attention to tackling each of the many problems that confro
nt the poor and development economists, and the authors clear sense of compassion
for and empathy with their study subjects, ultimately makes Poor Economics a gr
atifying and fascinating read.
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