Poor economics

A pioneering contribution to the poverty debate fails to see the bigger picture

Oliver Kamm

A loan from a microfinance company enabled this tailor in Hyderabad to set up his own shop

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty

by Abhijit Banerjee and Esther Duflo, (PublicAffairs, £15.99)

Abhijit Banerjee and Esther Duflo want to reduce poverty. That goal is common—what distinguishes the work of these young economists, both at MIT, is their methods. They aim to inject scientific evidence into policy deliberation, and advance the debate with conclusions that can be widely agreed on while not being truisms.

The authors have assembled evidence from hundreds of randomised control trials, which test anti-poverty measures (for example, whether insecticide-treated bed nets should be sold or given away) in the same way that trials are used in medicine to test the effectiveness of new drugs. The data provide no grand universal answer to poverty. There is, however, “a body of knowledge that grows out of each specific answer and the understanding that goes into those answers that give us the best shot at, one day, ending poverty.”

Banerjee and Duflo stress that “the debate cannot be solved in the abstract.” Poverty is a more complex phenomenon than is captured in grand theories. The experts they criticise stand on both wings of the argument. These include William Easterly, who believes that markets and incentives will allow the poor to better themselves; and Jeffrey Sachs, who believes that market solutions will not work for those who are caught in what economists call a “poverty trap,” in which poor people need significant capital to earn enough to escape from poverty. Sachs argues that a big initial investment is needed to overcome disadvantage.

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