The Nobel Prize in Economics has been awarded to three scholars who have radicalised development economics and our understanding of poverty. Mayank Jain explains the significance of their work.

 

 

On Monday, three economists were declared as joint winners of the Nobel Prize in Economics for 2019: the couple Abhijit Banerjee and Esther Duflo of Massachusetts Institute of Technology, and Michael Kremer of Harvard University.

The trio was awarded “for their experimental approach to alleviating global poverty”, according to an official statement by the Royal Swedish Academy of Sciences. This was the first time a husband-wife duo has won this prestigious award in economics.

“This year’s Laureates have introduced a new approach to obtain reliable answers about the best ways to fight global poverty which involves dividing this issue into smaller, more manageable, questions—for example, the most effective interventions for improving educational outcomes or child health. They have shown that these smaller, more precise, questions are often best answered via carefully designed experiments among the people who are most affected,” as per the Academy’s official statement.

This award has reconfirmed the true potential of an experiment-based approach in the field of development economics. For their research, these economists mostly used the randomised controlled trial method (RCT), a scientific method used largely by pharmaceutical companies for drug trials and aimed at reducing certain source biases when testing the effectiveness of a specific theory or formula.

Abhijit Vinayak Banerjee was born in Mumbai into a Bengali family. He was educated at the University of Calcutta, then moved to Delhi’s Jawaharlal Nehru University, and received his PhD in 1988 from Harvard University. He is currently the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology.

Duflo and Banerjee also co-founded MIT’s Abdul Latif Jameel Poverty Action Lab (J-PAL) in 2003, along with Professor Sendhil Mullainathan, now of the University of Chicago. J-PAL examines the kinds of local interventions that can help in alleviating social problems, devises projects around that, and works to implement these projects in cooperation with governments and NGOs.

According to Delhi’s chief minister Arvind Kejriwal, Banerjee put together one of Delhi government’s most important education reform programmes, called “Chunauti”. “Banerjee’s pathbreaking work has also benefitted lakhs of children studying in Delhi’s government schools,” Kejriwal tweeted. “‘Chunauti’ has transformed govt. school classroom teaching. It is based on the model developed by him.”

Under the “Chunauti” scheme, children are segregated based on an assessment of their reading capabilities, and then special classes are held for non-readers for an hour every day, using material specifically designed for them. Similar classes are held for those who are weak in mathematics.

Banerjee has also been very vocal on political matters. In 1983, he served a ten-day jail term for having participated in a students’ protest in Delhi. More recently, he was among the 108 academics who signed a letter questioning the BJP government’s willingness to release authentic data on unemployment and GDP.

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, co-written by Banerjee and Duflo, was published in 2011. The book is based on a very rich body of evidence which includes hundreds of randomised controlled trials pioneered at the various branches of the J-PAL lab around the world. In this book, the duo sheds light on the many problems facing the poor, related to nutrition, immunisation and so on.

2019 Nobel laureates in Economic Sciences: (L-R) Abhijit Banerjee, Esther Duflo and Michael Kremer. Illustration: Niklas Elmehed/Nobel Media

Author Timothy Ogden, while reviewing the book for the Stanford Social Innovation Review, wrote, “Poor Economics is perhaps the most thorough indictment of big thinking in social policy since Jane Jacobs’s The Death and Life of Great American Cities. That’s why Poor Economics is vital reading for anyone serious about confronting poverty. You may not agree with Banerjee and Duflo’s conclusions, but the poor will be poorer if you don’t wrestle with the logic that informs them.”

Duflo and Banerjee, through their field research, found that increased incomes do not necessarily lead to better nutrition. The couple also observed that the poor do not prefer to spend more when their income increases. “In Udaipur, for example, we find that the typical poor household could spend up to 30 percent more on food than it actually does if it completely cut expenditures on alcohol, tobacco, and festivals. The poor seem to have many choices, and they don’t elect to spend as much as they can on food,” they write.

They also suggest in Poor Economics that there is a dire need for a complete overhaul of the way different countries of the world devise their food policies. Providing more food grain—which most food security programmes are aimed at—does not quite help the poor. Citing examples of food wastage in India, they suggest that policymakers should shift focus from recording per-capita calorie consumption to other aspects like food wastage and overall nutrition. With this logic, Duflo and Banerjee try explaining how poverty is intricately linked to nutrition. They call this the “nutrition-based poverty trap”, which you can’t escape even with increased incomes.

Dealing with poverty is not as straightforward as it might seem. As Duflo said after her Nobel win, “Without understanding the intricacies of the lives of the poor and understanding the choices they make, it is impossible to design the right approach [to fight poverty].”

Their RCT research methodology is all about understanding the lives of the poor from up close, and finding better solutions to the problem of poverty. “Around 400 academicians from  diverse backgrounds are doing randomised controlled trials at J-PAL to find solutions to the problems as diverse as governance in Indonesia to getting children immunised in India,” says Banerjee.

Development is a much misused term in this context. Policymakers and politicians often confuse development with growth. The Nobel laureates in Economics for 2019 have often argued against this model of development. According to them, a country needs policy interventions aimed at holistic development, rather than the fanfare of quarterly statistics and GDP figures.

This evidence-based multidisciplinary approach to poverty alleviation, as suggested by the Nobel laureates, can hugely benefit a country like India, as its problems are diverse and the solutions it needs are multi-dimensional.

 

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