Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit Vinayak Banerjee and Esther Duflo
By Arup Maity
Research Intern, Jindal Centre for the Global South
About the Authors
Abhijit Vinayak Banerjee is the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology. He has been a Guggenheim Fellow, an Alfred P. Sloan Fellow and a winner of the Infosys Prize. He is also a co-recipient of the 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his ground-breaking work in development economics research. In addition, he has written several path-breaking books on poverty and ground related issues, including Poor Economics.
Esther Duflo is the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics in the Department of Economics at the Massachusetts Institute of Technology. Besides working on the economic lives of the poor, her research area includes health, education, financial inclusion, environment and governance. She has received numerous academic honours and prizes, including the 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (with co-Laureates Abhijit Banerjee and Michael Kremer). In 2003 Abhijit Vinayak Banerjee and Esther Duflo both co-founded the Abdul Latif Jameel Poverty Action Lab (J-PAL).
Introduction
Britain’s Charles Dickens’ exceptionally famous novel ‘David Copperfield’s character Mr Micawber asserted that “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”[1] Similarly, the famous Bengali Novelist Bankim Chandra Chattopadhyay has also written in his eminent novel ‘Anandamath’ that ‘the Bengal’s poor people have sold their daughter, son and wife for their poverty compulsion.’[2] Whether it is rural Bengal or urban Britain, poverty is a pompous question. And in the 21st century, Banerjee and Duflo’s Nobel Prize winner book Poor Economics has given parsimonious answers. This book does not simply provide an analysis of poverty but also delivers the solutions for it, and these described solutions terminate the gap between intention and implementation.
The book is divided into two parts: the first part is ‘Private Life’ and the second part is ‘Institution’.Banerjee and Duflo have expressed about the private life of poor people with the institution’s causation – how we can transform the grassroots reality of our society by managing the institution (behaviour, influence and result); and simultaneously, the book has denied the ‘Transcendental Institutionalism’ way. In earlier times, the ‘enlightenment theorists’ like Smith, Condorcet, Bentham, Wollstonecraft, Marx, Mill and in present time Sen have applied the same ‘Comparative’ approach in their tenets. In an advanced capitalist world, Banerjee and Duflo have again taken Marx’s political economy question about poverty and rights, but it has been answered in a very pragmatic way, i.e. with an ‘Alternative Revolution: The way to abolish Poverty’. In the question of why the poor don’t save more, the writers have answered by their research that the poor can save little money for the future, but their grudging idiosyncrasy is resisting them to save money in banking institutions. With this perspective, the writers have included the issue like making brick houses which is primarily necessary for human life. The house by brick is also a consequence of saving money for the poor. On a similar ground, whatever it is, saving money for the future or making a brick house both are about a parsimonious lifestyle. But the state institutions are not ingenious to give the salvage way to the poor people to get out from poverty, the transgressions from the derogatory system of rules are probably not for the institutions. The book also shows how Microfinance Systems are helping people to save more and simultaneously are also training them for the future. In some developing countries (like India & Kenya – ‘Rotating Savings and Credit Associations’), the Self Help Group (SHG) has similarly changed the way – that the authors have named these institutions ‘sophisticated’ ( for its superficially tenacious attributes) because the institutions are vulnerable to attempt to self-regulate. The book tantamountly indicates the philosophy and self-controlled substance of savings – in an ambiguous case study of ‘Indian fruit sellers and Kenyan farmers’ shows us about the “time inconsistency” and “tomorrow’s self”,[3] which are the most relevant question for today’s world’s instalment policy, as Adam Smith described in his book ‘The theory of moral sentiments’ (1790). With these physiology and insensitive issues, the book exhibits the model of small businesses opportunity for the poor – how the microfinance institutions, i.e. the ‘Fighting Poverty with Microfinance and Social Enterprise (FINCA) groups, are making the new divergence of dimensions for business. Additionally, some private initiatives (self-regulated capitalist without capital) are taking part in the Development. (As the writers have used the example of – XI Aihua. A Chinese small businesswoman- she has established her business without any kind of capital. And her ingenious capability made a successful enterprise, which illustrates that – with the thinking of rationality can be a capital with little money).
Not just private, but the book emphasizes the government issues too. The book illustrates the actual obstacles to poverty, like the practice of corruption. Approximately, in general, all developing countries are facing corruption issues – only because of government officials’ inefficiency and inadequacy. The writers’ empirical evidence suggests how little subsidy can benefit the poor, but the subsidy gets grimly hazards for an issue like corruption. As a legal institution, the States’ misbegotten character is the cause of hopelessness. And again, corruption becomes extensively devastating for states’ health and education progression. Because in most cases, the government awareness is not sufficient for the service work for the nation and society, so, the teacher and health workers are not concerned very much, and that’s why the developing countries are facing big problems with little causation. Superficially, these profligacy works are affecting societal growth tremendously. As an example, the writers have surveyed the Ugandan government’s expenditure strategy; and the team of Ritva Reinikka and Jakob Svensson has found out that only 13 percent of the funds ever reached the school.[4] The writers have argued from the example that ‘poverty causes corruption and corruption causes poverty,’ as the Greek philosopher Aristotle has written, “poverty is the parent of revolution and crime.”[5] And most of the developing countries are facing the ‘basket case’, ‘bad political institutions and bad economics’. As a solution, the book rejects the derogatory concept of “one-size-fits-all” and creates new ways like ‘Randomized Control Trial’, which is a transgression from the old policy system because it can give new answers to both old and new questions.
However, this book illustrates its argument only by quantitative data method- numerical and statistical; qualitative data and explicitly the ground political-philosophical values have not been used. Additionally, all solutions are not applicable in real-life issues because other difficulties are not discussed, which are inexorably intertwined with poverty annihilation – like, poverty is not only the issue of developing countries. After all, most developed countries also have a large number of poor people- the US’s enormous number of people was not able to afford hospitals during the pandemic. Nevertheless, the title of this book is outstanding, successful and relevant. Because the name of this book, ‘Poor Economics: Rethinking poverty & the ways to end it’, is enamoured and pertains to its subject and vision – as the book is a new beacon for educational, health, policy and poverty-related issues in the present zeitgeist.
[1] Charles John Huffam Dickens is a world-known English writer and social critic, by his Fictional Autobiography book ‘David Copperfield’s (1849) character Mr Micawber, he established the poverty of ‘Great Britain’. The family income and expenditures’ balances have been measured. The cost-benefit calculation is very relevant today.
[2] Bankim Chandra Chattopadhyay is a remarkable novelist, poet and journalist of India, his world-known novel ‘Anandamath’ (1882), only by one sentence, has illustrated the pictures of poverty, famine and its effects in the ‘society’ of Bengal. This novel’s illustration by words
is showing that humans can behave like an animal in the time of poverty, famine.
[3] Writers of ‘Poor Economics’ have described the idea of ‘time inconsistency’ (chapter- 8), by this idea the writers have explained how the physiology of the human brain works and manipulates the economy. This creates the idiosyncratic dilemma between “tomorrow’s self” and “today’s self”. We do not have any future instantly, but according to writers the human expands for now simultaneously they have a plan to save for the future. The present world’s instalment policies are based on this dilemma. People want to live idyllically and also they are contemplating the future.
[4] In the book Poor Economics (chapter- 10), the writers have studied a case on the issue of corruption in Democratic Systems. And this example is indicating the ominous cycle of poverty and corruption. And in the long term, its physiognomy is propelling the Democratic society into promiscuousness.
[5] The Greek philosopher Aristotle has said the same about poverty, and the book gives the answers democratically to the questions of corruption and poverty relations.
Global South Studies Series 