Poor economics by Abhijit Banerjee and Ester Duflo

One of the followers of this blog, Mr. Henk Dam, drew my attention to the recent study called “Poor Economics” written by Abhijit Banerjee and Ester Duflo, both economic professors at the Massachusetts Institute of Technology. It is an extensive study of the nature of worldwide poverty based on over 15 years of investigations in different parts of the world.  On top of this, as may be expected from professors, the list of consulted literature on the subject alone takes up more than thirty pages. Despite this academically very thorough approach the writers feel that they have to refrain from sweeping conclusions as their investigation shows that no development model would be applicable to all poor in all circumstances. Although specific measures may work under certain conditions they may fail completely when applied in a different context.
Nevertheless the writers formulate some general observations which I will summarize below as I feel they could serve as an important input to the discussion on development cooperation which is taking shape in The Netherlands and elsewhere.
  1. To achieve new pro-poor developments one may assume that well educated, well fed and healthy men and women have a greater chance to develop sufficient confidence to invest in their future and the future of their children.
  2. There is no point in waiting for new developments to occur as this may lead to anger and violence as people have nothing to lose. In this sense even non-sustainable social programmes could be better than doing nothing.
  3. Lack of information, or ( unintended) wrong information, leads to wrong decisions and there is an urgent need for simple and attractively presented instruction material.
  4. Simple facilities as chloride for drinking water, banking and health insurance are not available to the poor which further complicates their already complicated lives and their ability to escape the poverty trap. As markets fail to reach the poor on those issues governments may have to step in.
  5. Many programmes offered to the poor do insufficiently take into account the daily realities of living in poverty.
  6. Macro economic policy and the quality of institutions are not decisive in enabling the poor to better their lives. However small improvements may lead to better opportunities for those who live on less than a dollar a day.
Taking this book seriously, (which it definitely deserves) one may pose the question if any conclusions should be drawn from it by the donor community, be it governmental or non-governmental. I think this is the case.
First of all there is no need to dream up new development models. I wrote about this in my earlier blogpost “No need for new development models” . The poor don’t react to models but to very specific changes in their environment which will differ from country to country and from village to village; a situation which goes beyond any general development model
Although poverty is a world wide phenomenon, causes and solutions are essentially local. As even local organizations, working for years in certain poverty stricken areas keep on making mistakes, donors should not pretend that they have the expertise or capacity to appraise or develop efficient poverty eradication programmes. The book shows that even throwing money at the poor, which about the only thing the donor community could do, will not lead to a sustainable escape from the poverty trap. Small, qualitative improvements of the local environment may however have long lasting positive effects.
Secondly the book only justifies one general conclusion in relation to people living in poverty. People who are healthy, well fed and educated will develop sufficient confidence to invest in their future and the future of their children.  Consequently an investment in health, food and education contributes the the ability of the poor to escape the poverty trap. This conclusion however only differs marginally from the (now very old) basic needs strategy developed by the International Labour Organisation in 1976. Since that time we lived through various “development models”; integrated development, broadening of cooperation, public-private partnerships and many more. All of course with a due attention for women and the environment and all driven by political considerations in donor countries.
The study of Banerjee and Duflo shows where the donor community could make a difference: back to basic needs!

Photo attribution
– By Dylan Thomas / UKaid / Department for International Development (Creative Commons)

Click HERE to read more from Wieck Wildeboer columns.

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