Praise for Poor Economics
"Randomized trials are the hottest thing in the fight against poverty, and two excellent new books have just come out by leaders in the field. One is Poor Economics, by Abhijit Banerjee and Esther Duflo. . . . These terrific books move the debate to the crucial question: What kind of aid works best?"
—New York Times
"Marvelous, rewarding . . . the sheer detail and warm sympathy on display reflects a true appreciation of the challenges their subjects face. . . . They have fought to establish a beachhead of honesty and rigor about evidence, evaluation and complexity in an aid world that would prefer to stick to glossy brochures and celebrity photo-ops. For this they deserve to be congratulated—and to be read."
—Wall Street Journal
"The ingenuity of these experiments aside, it is the rich and humane portrayal of the lives of the very poor that most impresses. [The authors] show how those in poverty make sophisticated calculations in the grimmest of circumstances. . . . Books such as these offer a better path forward. They are surely an experiment worth pursuing."
"In an engrossing new book [the authors] draw on some intrepid research and a store of personal anecdotes to illuminate the lives of the 865m people who, at the last count, live on less than $0.99 a day."
"A marvelously insightful book by two outstanding researchers on the real nature of poverty."
—Amartya Sen, winner of the Nobel Prize for Economics and Professor of Economics at Harvard University
"A welcome, and sobering, break from all the partisan rhetoric comes by way of Poor Economics, a new book that is the result of 15 years of research and controlled trials around the globe by two respected professors of economics at MIT. They examine the myriad effects of poverty on people and societies, upending much of the conventional wisdom held by governments, aid organizations and NGOs, perceptions which in turn drive the way they provide financial assistance and humanitarian aid."
"[Banerjee and Duflo] offer a refreshingly original take on development, and they are very aware of how they are bringing an entirely new perspective into a subject dominated by big polemics from the likes of Jeffrey Sachs and William Easterly. . . . [T]hey are clearly very clever economists and are doing a grand job to enrich their discipline's grasp of complex issues of poverty—so often misunderstood by people who have never been poor."
"A compelling and important read . . . an honest and readable account about the poor that stands a chance of actually yielding results."
"Abhijit Banerjee and Esther Duflo's book, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, is making waves in development circles. Beyond the strong focus on randomized controlled trials, the book distinguishes itself by wading into issues on which the development community has often ignored or made uninformed guesses. These include the rationale behind the decisions made by the poor, whether they make the 'best' decisions available, and how policymakers should respond."
"This new book by Abhijit Banerjee and Esther Duflo eschews the ideology of both the right and the left, and focuses on what measurable evidence has to say about the often-conflicting myths that dominate discussion of international development."
— Vancouver Sun
"If [Jeffrey] Sachs is an impassioned activist, Abhijit Banerjee, an MIT professor, is ironic, thoughtful and deliberate, ready to cast a cold eye on social issues such as health, education and poverty. The big questions are important, but they have no definite answers. So, it is better to find answers for small questions. . . . There is little doubt that RCT [randomized control testing] offers a chance to replace assumptions with hard data. Development policies are often driven by what Banerjee calls the three 'I's—ideology, ignorance and inertia. His research and his book, is 'just an invitation to look more closely' and understand how the poor make their decisions."
"Their empirical approach differs from policy discussions that base support or criticism of aid programs on a broad overview; instead they illuminate many practicable and cost-effective ways to keep children and parents living healthier and more productive lives.An important perspective on fighting poverty."
"Highly decorated economists Banerjee and Duflo (Economics/Massachusetts Institute of Technology) relay 15 years of research into a smart, engaging investigation of global poverty—and why we're failing to eliminate it. . . . A refreshingly clear, well-structured argument against the standard approach to poverty, this book, while intended for academics and those working on the ground, should provide an essential wake-up call for any reader."
"Abhijit Banerjee and Esther Duflo appeal to many local observations and experiments to explore how poor people in poor countries actually cope with their poverty: what they know, what they seem (or don't seem) to want, what they expect of themselves and others, and how they make the choices that they can make. Apparently there are plenty of small but meaningful victories to be won, some through private and some through public action, that together could add up to large gains for the world's poor, and might even start a ball rolling. I was fascinated and convinced."
—Robert Solow, winner of the Nobel Prize for Economics and Institute Professor of Economics at MIT
"This book is a must-read for anyone who cares about world poverty. It has been years since I read a book that taught me so much. Poor Economics represents the best that economics has to offer."
—Steven D. Levitt, author of Freakonomics and Professor of Economics at the University of Chicago
"To cut to the chase: this is the best book about the lives of the poor that I have read for a very, very long time. The research is wide-ranging. Much of it is new. Above all, Banerjee and Duflo take the poorest billion people as they find them. There is no wishful thinking. The attitude is straightforward and honest, occasionally painfully so. And some of the conclusions are surprising, even disconcerting."
—The Economist's Free Exchange blog
"A remarkable work: incisive, scientific, compelling and very accessible, a must-read for advocates and opponents of international aid alike, for interested laymen and dedicated academics. . . . Amartya Sen, fellow Nobel Prize winner Robert Solow and superstar economics author Steven Levitt wholeheartedly endorse this book. I urge you to read it. It will help shape the debate in development economics."
—Financial World (UK)
"Fascinating and captivating. Their work reads like a version of Freakonomics for the poor. There are insights into fighting global poverty from the remarkable and vital perspective of those whom we profess to serve. . . . They remind us, I think, of our shared humanity and how at some fundamental levels we really do think alike."
"It is one of the best gifts for anyone truly interested in development models and processes to help the poor and who reject the banal notions and mindless efforts of politicians across continents. . . . Poor Economics is a book that simply cannot be praised too much."
—Stabroek News (Guyana)
"It vividly, sensitively and rigorously brings alive the dilemmas of the poor as economic agents in a variety of contexts, whether as consumers or risk-takers. There are splendid chapters on a variety of topics that affect the poor: food, health, education, savings, micro-credit, insurance, risk and even some cursory observations on political behaviour."
"Fact-based, actionable and totally unforgettable insights on the fight to help the poor help themselves."
"This is possibly the best thing I will read all year, an insightful (and research-backed) book digging into the economics of poverty. . . . Love that the website is so very complementary to the book, and 100% aligned with the ambition to convince and spread the word."
—O'Reilly Media, "Radar" blog
"Banerjee and Duflo write exceptionally well, and given that there are two of them, the voice is surprisingly singular. But the real surprise in this book is its humility. Both the authors and the material they pull from are truly formidable, yet Banerjee and Duflo are not really out to make a hard pitch, least of all to die-hard Big Idealists who disagree with them. As such, there is nothing directly confrontational about Poor Economics. They are peeling the onion, not hacking it to pieces."
"Banerjee and Duflo assemble a fascinating assortment of interventions from across the globe in their book and they use the sharply differing perspectives of Sachs, who leads the 'supply wallahs' (this school believes in providing more schools, teachers, etc., to beat the education problem) and of Easterly, who is a 'demand wallah' (no point in providing education needlessly) as a backdrop to make their own points on how to avoid the poverty trap. They offer five key lessons. First: the poor lack critical pieces of information and thus do not make right decisions; second: the poor bear responsibility for too many aspects of their lives; third: markets are missing for the poor; four: governments start policies without understanding the reality within which these are supposed to succeed; and five: negative expectations of what people can do can be self-fulfilling prophecies. Modest suggestions? Yes, but this is part of the charm of the book. It is engaging and informative—which is more than can be said for many books of this genre."
—Business World (India)
"Esther Duflo won the John Bates Clark medal last year for her work on development economics, so I was excited to read her new book with Abhijit Banerjee Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. It's a good book. It doesn't really contain a radical rethinking of the way to fight global poverty, but it does try to cut past lame debates over whether or not foreign aid "works" to instead attempt to find ways to actually assess which programs are working, which aren't, and how to improve those that don't."
"This is a welcome shift in methodology as it implicitly concedes the need to combine social science with hard economics."
"The persuasiveness of Poor Economics lies in its authors' intellectual approach. . . . Moreover, it is well organized throughout and nicely written. . . . Poor Economics is well worth reading in full."
"[Banerjee and Duflo] draw upon the latest literature in the domain, write simply and succinctly on complex issues, display a level of honesty and humility rare among economists, and take the help of many highly illustrative examples to help us understand poverty from many different angles. The overall message is unambiguous. This is a complex problem, the causes and symptoms of which vary highly between individual cases. The solutions? Well, they are rightly silent on that—at best there is a murmur or two. Poverty is not a single problem so the solutions are too case-specific for a single solution. . . .This should be standard reading and essential material in all aid organizations and more so in the National Advisory Council, Planning Commission, Prime Minister's Office, and the various ministries—all those who don't spend time understanding poverty in close vicinity."
—Financial Express (India)
For our mothers,
Nirmala Banerjee and
Esther was six when she read in a comic book on Mother Teresa that the city then called Calcutta was so crowded that each person had only 10 square feet to live in. She had a vision of a vast checkerboard of a city, with 3 feet by 3 feet marked out on the ground, each with a human pawn, as it were, huddled into it. She wondered what she could do about it.
When she finally visited Calcutta, she was twenty-four and a graduate student at MIT. Looking out of the taxi on her way to the city, she felt vaguely disappointed; everywhere she looked, there was empty space—trees, patches of grass, empty sidewalks. Where was all the misery so vividly depicted in the comic book? Where had all the people gone?
At six, Abhijit knew where the poor lived. They lived in little ramshackle houses behind his home in Calcutta. Their children always seemed to have lots of time to play, and they could beat him at any sport: When he went down to play marbles with them, the marbles would always end up in the pockets of their ragged shorts. He was jealous.
This urge to reduce the poor to a set of clichés has been with us for as long as there has been poverty: The poor appear, in social theory as much as in literature, by turns lazy or enterprising, noble or thievish, angry or passive, helpless or self-sufficient. It is no surprise that the policy stances that correspond to these views of the poor also tend to be captured in simple formulas: "Free markets for the poor," "Make human rights substantial," "Deal with conflict first," "Give more money to the poorest," "Foreign aid kills development," and the like. These ideas all have important elements of truth, but they rarely have much space for average poor women or men, with their hopes and doubts, limitations and aspirations, beliefs and confusion. If the poor appear at all, it is usually as the dramatis personae of some uplifting anecdote or tragic episode, to be admired or pitied, but not as a source of knowledge, not as people to be consulted about what they think or want or do.
All too often, the economics of poverty gets mistaken for poor economics: Because the poor possess very little, it is assumed that there is nothing interesting about their economic existence. Unfortunately, this misunderstanding severely undermines the fight against global poverty: Simple problems beget simple solutions. The field of anti-poverty policy is littered with the detritus of instant miracles that proved less than miraculous. To progress, we have to abandon the habit of reducing the poor to cartoon characters and take the time to really understand their lives, in all their complexity and richness. For the past fifteen years, we have tried to do just that.
We are academics, and like most academics we formulate theories and stare at data. But the nature of the work we do has meant that we have also spent months, spread over many years, on the ground working with NGO (nongovernmental organization) activists and government bureaucrats, health workers and microlenders. This has taken us to the back alleys and villages where the poor live, asking questions, looking for data. This book would not have been written but for the kindness of the people we met there. We were always treated as guests even though, more often than not, we had just walked in. Our questions were answered with patience, even when they made little sense; many stories were shared with us.1
Back in our offices, remembering these stories and analyzing the data, we were both fascinated and confused, struggling to fit what we were hearing and seeing into the simple models that (often Western or Western-trained) professional development economists and policy makers have traditionally used to think about the lives of the poor. More often than not, the weight of the evidence forced us to reassess or even abandon the theories that we brought with us. But we tried not to do so before we understood exactly why they were failing and how to adapt them to better describe the world. This book comes out of that interchange; it represents our attempt to knit together a coherent story of how poor people live their lives.
Our focus is on the world's poorest. The average poverty line in the fifty countries where most of the poor live is 16 Indian rupees per person per day.2 People who live on less than that are considered to be poor by the government of their own countries. At the current exchange rate, 16 rupees corresponds to 36 U.S. cents. But because prices are lower in most developing countries, if the poor actually bought the things they do at U.S. prices, they would need to spend more—99 cents. So to imagine the lives of the poor, you have to imagine having to live in Miami or Modesto with 99 cents per day for almost all your everyday needs (excluding housing). It is not easy—in India, for example, the equivalent amount would buy you fifteen smallish bananas, or about 3 pounds of low-quality rice. Can one live on that? And yet, around the world, in 2005, 865 million people (13 percent of the world's population) did.
What is striking is that even people who are that poor are just like the rest of us in almost every way. We have the same desires and weaknesses; the poor are no less rational than anyone else—quite the contrary. Precisely because they have so little, we often find them putting much careful thought into their choices: They have to be sophisticated economists just to survive. Yet our lives are as different as liquor and liquorice. And this has a lot to do with aspects of our own lives that we take for granted and hardly think about.
Living on 99 cents a day means you have limited access to information—newspapers, television, and books all cost money—and so you often just don't know certain facts that the rest of the world takes as given, like, for example, that vaccines can stop your child from getting measles. It means living in a world whose institutions are not built for someone like you. Most of the poor do not have a salary, let alone a retirement plan that deducts automatically from it. It means making decisions about things that come with a lot of small print when you cannot even properly read the large print. What does someone who cannot read make of a health insurance product that doesn't cover a lot of unpronounceable diseases? It means going to vote when your entire experience of the political system is a lot of promises, not delivered; and not having anywhere safe to keep your money, because what the bank manager can make from your little savings won't cover his cost of handling it. And so on.
All this implies that making the most of their talent and securing their family's future take that much more skill, willpower, and commitment for the poor. And conversely, the small costs, the small barriers, and the small mistakes that most of us do not think twice about loom large in their lives.
It is not easy to escape from poverty, but a sense of possibility and a little bit of well-targeted help (a piece of information, a little nudge) can sometimes have surprisingly large effects. On the other hand, misplaced expectations, the lack of faith where it is needed, and seemingly minor hurdles can be devastating. A push on the right lever can make a huge difference, but it is often difficult to know where that lever is. Above all, it is clear that no single lever will solve every problem.
Poor Economics is a book about the very rich economics that emerges from understanding the economic lives of the poor. It is a book about the kinds of theories that help us make sense of both what the poor are able to achieve, and where and for what reason they need a push. Each chapter in this book describes a search to discover what these sticking points are, and how they can be overcome. We open with the essential aspects of people's family lives: what they buy; what they do about their children's schooling, their own health, or that of their children or parents; how many children they choose to have; and so on. Then we go on to describe how markets and institutions work for the poor: Can they borrow, save, insure themselves against the risks they face? What do governments do for them, and when do they fail them? Throughout, the book returns to the same basic questions. Are there ways for the poor to improve their lives, and what is preventing them from being able to do these things? Is it more the cost of getting started, or is it easy to get started but harder to continue? What makes it costly? Do people sense the nature of the benefits? If not, what makes it hard for them to learn them?
Poor Economics is ultimately about what the lives and choices of the poor tell us about how to fight global poverty. It helps us understand, for example, why microfinance is useful without being the miracle some hoped it would be; why the poor often end up with health care that does them more harm than good; why children of the poor can go to school year after year and not learn anything; why the poor don't want health insurance. And it reveals why so many magic bullets of yesterday have ended up as today's failed ideas. The book also tells a lot about where hope lies: why token subsidies might have more than token effects; how to better market insurance; why less may be more in education; why good jobs matter for growth. Above all, it makes clear why hope is vital and knowledge critical, why we have to keep on trying even when the challenge looks overwhelming. Success isn't always as far away as it looks.
Think Again, Again
Every year, 9 million children die before their fifth birthday.1 A woman in sub-Saharan Africa has a one-in-thirty chance of dying while giving birth—in the developed world, the chance is one in 5,600. There are at least twenty-five countries, most of them in sub-Saharan Africa, where the average person is expected to live no more than fifty-five years. In India alone, more than 50 million school-going children cannot read a very simple text.2
This is the kind of paragraph that might make you want to shut this book and, ideally, forget about this whole business of world poverty: The problem seems too big, too intractable. Our goal with this book is to persuade you not to.
A recent experiment at the University of Pennsylvania illustrates well how easily we can feel overwhelmed by the magnitude of the problem.3
Researchers gave students $5 to fill out a short survey. They then showed them a flyer and asked them to make a donation to Save the Children, one of the world's leading charities. There were two different flyers. Some (randomly selected) students were shown this:
Food shortages in Malawi are affecting more than 3 million children; In Zambia, severe rainfall deficits have resulted in a 42% drop in maize production from 2000. As a result, an estimated 3 million Zambians face hunger; Four million Angolans—one third of the population—have been forced to flee their homes; More than 11 million people in Ethiopia need immediate food assistance.
Other students were shown a flyer featuring a picture of a young girl and these words:
Rokia, a 7-year-old girl from Mali, Africa, is desperately poor and faces a threat of severe hunger or even starvation. Her life will be changed for the better as a result of your financial gift. With your support, and the support of other caring sponsors, Save the Children will work with Rokia's family and other members of the community to help feed her, provide her with education, as well as basic medical care and hygiene education.
The first flyer raised an average of $1.16 from each student. The second flyer, in which the plight of millions became the plight of one, raised $2.83. The students, it seems, were willing to take some responsibility for helping Rokia, but when faced with the scale of the global problem, they felt discouraged.
Some other students, also chosen at random, were shown the same two flyers after being told that people are more likely to donate money to an identifiable victim than when presented with general information. Those shown the first flyer, for Zambia, Angola, and Mali, gave more or less what that flyer had raised without the warning—$1.26. Those shown the second flyer, for Rokia, after this warning gave only $1.36, less than half of what their colleagues had committed without it. Encouraging students to think again prompted them to be less generous to Rokia, but not more generous to everyone else in Mali.
The students' reaction is typical of how most of us feel when we are confronted with problems like poverty. Our first instinct is to be generous, especially when facing an imperiled seven-year-old girl. But, like the Penn students, our second thought is often that there is really no point: Our contribution would be a drop in the bucket, and the bucket probably leaks. This book is an invitation to think again, again: to turn away from the feeling that the fight against poverty is too overwhelming, and to start to think of the challenge as a set of concrete problems that, once properly identified and understood, can be solved one at a time.
Unfortunately, this is not how the debates on poverty are usually framed. Instead of discussing how best to fight diarrhea or dengue, many of the most vocal experts tend to be fixated on the "big questions": What is the ultimate cause of poverty? How much faith should we place in free markets? Is democracy good for the poor? Does foreign aid have a role to play? And so on.