Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit V. Banerjee
My rating: 5 of 5 stars

Poor Economics is a book which discusses the various methods adopted by Western philanthropists and academics to fight poverty in the developing world and judges the efficacy of these policies through the results of randomized controlled trials (RCTs). RCTs are a research approach where economists randomly select communities, households or individuals to test the effectiveness of policies by studying the different outcomes between those who are affected by the policies and those who are not.

Initially RCTs were celebrated as a revolutionary approach to generate poverty-fighting evidence which could be used to generate effective policies. But recently a lot of cold water has been poured on this methodology by economists and academics in developing countries who have raised serious ethical concerns about RCTs. While reading the book for instance, I was shocked by an RCT which informed some school girls in Kenya that elderly men were more likely to be HIV+ but withheld this information from another set of girls in order to measure outcomes in HIV rates, teen pregnancy and drop out rates. Seems shockingly reckless to me to withhold this vital information.

But let me not get carried away by contemporary criticism of RCTs. The book is extremely valuable in the way it presents the two general schools of international intervention to tackle poverty. Jeffrey Sachs represents the liberal tradition which believes in the existence of a poverty trap. He believes that disease, low agricultural productivity, malnutrition etc means that the children of the poor will become poorer. He believes that a significant injection of aid is needed to break out of the poverty trap as a less sick, more productive and more educated population would be able to produce more and earn more and eventually rise out of poverty. William Easterly and (to a lesser extent) Dambisa Moyo believe that there should be no aid as it only reinforces corruption and elite rule. They believe that nations should be left to their devices for them to develop culturally-fitting institutions that would eventually break them out of poverty.

Through the results of RCT studies in Latin America, Africa and South Asia, Abhijit & Esther discover mixed results pointing to the usefulness of both theories. For instance they find out that the supply of free mosquito nets, schools, healthcare and fertilizer do in fact contribute to higher earnings among the poor in years to come. But they also find out that sometimes these policies have no long-term impact, particularly in the case of micro-credit which should have provided enough resources for the poor to break out of the poverty trap if indeed the poverty trap existed.

The authors do not conclude on a decisive conclusion either way so let me not risk misquoting them by arriving at a conclusion. Instead, I will touch on 5 key takeaways they have arrived at which should be crucial to anyone seeking to eradicate global poverty.

1. The poor are sceptical about information which the rest of the population tend to take for granted such as the benefits of immunization. Without ample education some policies would continue to fail.

2. Poor people are under far more stress than the ordinary person as they have to worry about the sources of their next income, health, food, the quality of their water, savings, etc. In contrast, people with more income have salaries, pensions, bank accounts, credit, treated water flowing through their pipes, compulsory immunization of their kids, compulsory education etc. We cannot judge the poor for bad decisions when many of us have had good decisions essentially forced on us by virtue of our social standing.

3. Some markets cannot just exist for the poor. The poor continue to face higher risks for the lack of insurance, higher credit interest because of money lenders as opposed to banks, and lower interest rates on savings because of co-ops instead of investment products. A lot of the eagerness to create markets for them have had lukewarm results because of the social situation they find themselves in. Government support cannot be eliminated if these challenges are to be resolved.

4. Poor nations are not doomed to fail for the lack of institutions.

5. Expecting poor nations to fail can be a self-fulfilling prophecy.

There is a lot more to say about this book but I will leave it here. Given the grim topic it covers, it is surprisingly easy to read and understand even for a non-economist. If you’ve ever been curious about fighting poverty I will wholeheartedly recommend this book to you.

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