Saturday, February 25, 2012

Book Review


Title: Poor Economics: Rethinking Poverty & The Ways To End it   

Author: Abhijit V. Banerjee & Esther Duflo

Price: 499 INR

Publishers: Random House India

ISBN: 9788184001815




How often does it happen that we refrain from dropping pennies into the steel bowls shoved outright towards us by the poor, thinking that what we offer would be but “a drop in the bucket, and the bucket probably leaks”? Should we pay heed to the words of leftist economic thinkers like Jeffrey Sachs who believe in the power of aid lifting the poor from the poverty trap, or do the rightist thinkers like Easterly and Moyo make more sense when they state that such contributions would make no difference? And why is it that the poor spend extra money on luxuries instead of necessities like nutritious food?


From fifteen rigorous years of field experiments in India and other parts of the world comes one of the most insightful books written in the realm of development economics by two professors at MIT. Poor Economics reads like an extensively detailed and extended answer to the problem of fighting global poverty, and it does so by “abandoning the habit to reduce the poor to cartoon characters” as we tend to view them through the colored lens of clichés.


Starting off with, “Because the poor possess very little, it is assumed that there is nothing interesting about their economic existence” the book from there on explores the world of the poor and why they make the choices that they do using the results of randomized control trials (RCT’s). Their points are extremely well made and it seems like all the ‘buts’ and ‘if’s that a reader would think of are already taken care of, and that is impressive. Each chapter discusses a specific problem related to the poor, be it microfinance, health care and insurance, child education or jobs and growth, without an ounce of deliberate glamour dotted on it, and yet the simplicity of the writing style and the bluntness used has a strong impact on the reader.


For those of us who believe in poverty traps, and the need for a big push, the book describes an S-Shape curve- flat at the beginning and end, and rising rapidly in the middle. For the others, there is the inverted L-Shape curve that becomes slower and slower with time.  Which graph applies to which individual depends on the case at hand, according to the book. Once that is figured out, a series of experiments can be carried out to determine whether a program would work or not.


Various forms of poverty traps are discussed; from the nutrient-based poverty trap that highlights the strange evil that “the less money you have, the less you are inclined to spend it on wholesome food” to the health-based poverty trap that says that the poor spend money on expensive cures rather than cheap prevention when it comes to health care.  It also discusses the demand-supply war consisting of demand-wallahs and supply wallahs that believe in bottom-top and top-bottom policies respectively.


While the former part of the book deals with the private lives of the poor, the second part talks about the institutions surrounding the poor, reminding us that life for a poor person means “living in a world whose institutions are not built for you.” The wrong policies that exist and are implemented are primarily due to the 3i problem- ideology, ignorance and inertia that can be attributed to lazy thinking on the part of policy makers and others.


One of the core reasons that sets this book apart from the others is that it doesn’t just throw light on the problems facing global poverty and doesn’t just raise questions, it also tries to fight it through suggestions.  Another reason that distinguishes it is that it is an evidence-based book that lets the results speak for themselves, which clearly indicates how well researched it is. However, a certain amount of hypocrisy does seem to seep in at the point when the authors state the five key lessons learnt while improving the lives of the poor as these lessons seem to incorporate assumptions although the book clearly attempts to relax any that might be present to understand the poor - 1) The poor often lack critical pieces of information and believe things that are not true, 2) The poor bear responsibility for too many aspects of their lives, 3) There are good reasons that some markets are missing for the poor, 4) Poor countries are not doomed to failure because they are poor, or because they have had an unfortunate history and 5) Expectations about what people are able or unable to do all too often end up turning into self-fulfilling prophecies.

However, it stays true to its tagline of ‘rethinking poverty’ as it is radicalized in terms of the way it approaches the issue of global poverty. One of the biggest clues to understanding the nature of the poor is given in this book-“ The poor are so absorbed by the problems of the present that they don’t have the mental space to worry about the future.” It’s not like they don’t care, but the tendency of making decisions with shortsightedness finds its roots in that very statement.  It deserves to be read by all, and so the next time you see Poor Economics lying around or at a bookstore- grab it!