Poor Economics

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty is a carefully researched and factually based evaluation of poverty and assumptions which drive global policy. Released in 2011, the book challenges long-held dogmas of development economics, of both the market and interventionist models. Banerjee and Duflo, looking into some narrow scopes of their respective researches into particular, detailed aspects of microeconomics, aimed to look deeper into the reasons why actual poverty still manages to persist despite seeming improvements, which really hinders its alleviation. This report presents a critical analysis of the theoretical bases of Poor Economics, the approach in this pursuit, and the ethical implications of its findings. While offering new perspectives and re-orienting the conversation around poverty, the book is by no means without limits. In adopting a view of systemic issues that is quite highly depoliticised, it interprets data in selective manners and places too much emphasis upon the RCTs.

At the centre of Banerjee and Duflo's argument is that poverty is neither located in the failure of any one of the above areas, but rather of a complex set of binding constraints and incentives impinging upon the poor, who are then analysed into six thematic areas: hunger, education, health, family planning, entrepreneurship, and institutions. Each chapter highlights specific decision-making processes of the poor, showing how, under these conditions, apparently irrational choices make sense. The authors eschew general explanations-poor people are said to be in "poverty traps"-or the assumption that markets on their own can deal with poverty. Instead, they recommend a deeper understanding of localised contexts and propose small, evidence-based interventions. Their work is based on the use of RCTs-via valid experiments methodologically that test the impact of specific interventions in specific settings.

The strength of this book lies in a commitment to empirical evidence. Focusing on RCTs, Banerjee and Duflo thus bridge theory and reality and then test development interventions to see what works. This approach makes for a strong critique of development policies that are ideologically driven and not evidence-based. For instance, in their analysis of microcredit-one often touted as a miracle cure for poverty-the authors establish the fact that whereas it lowers the cost of accessing capital for household enterprises, it does not result in any significant increase in household incomes or increased entrepreneurship. The criticism of these micro-finance institutions is based on robust data, and their carefully drawn conclusions reflect a rigorous methodology. The insistence that there is no "one-size-fits-all" answer is salutary in this era of universalist principles guiding development aid. Their thrust for small, incremental solutions is in diametric contrast with the sweeping and utopian visions of many development economists and policymakers, making their approach refreshing: other words, rather than top-down models.

Nonetheless, the reliance of Banerjee and Duflo on RCTs as the gold standard for development research still bears significant limitations. While RCTs are a useful tool for isolating variables and determining short-term effects of specific interventions, they often fail to account for larger systemic macro-level factors in which people get trapped in. At the micro level, focusing too much on what works may cause Poor Economics to neglect some larger macroeconomic and structural conditions; again, such conditions consist of global trade systems, government corruption, and institutional inefficiencies that trap so many people within poverty. A reliance on RCTs can push development toward a narrow view. For instance, the case studies by Banerjee and Duflo are often carried out with an agenda of targeting short-term results without much concern over how such interventions might go over the long term or even in other political contexts. For instance, an example of educational intervention in remedial teaching illustrates a short-term learning gain but does not address long-term sustainability. Besides, it somehow underplays the effects of political will, social inequalities and historical legacies of colonialism that are less accessible through controlled experiments.

The book is also significantly deprived in a manner of de-politicisation in relation to poverty. Banerjee and Duflo seem to focus a lot on behavioural economics and immediate constraints, with the poor often bypassing the political or structural contexts for the creation and sustenance of such conditions. Their approach to poverty has often been too technocratic, nudging the poor into making better choices instead of understanding that they do not have choices in the first place. This technocratic approach might underestimate the import of political agency and structural change. For instance, while Banerjee and Duflo delve into why the poor reject free or almost-free health care often, they devote much less space to emphasising that a robust public health system is a necessary condition that necessarily requires political commitment to build. They are more focused on calibration of what there is, moving further to calibrate it and get better results in exchange for transformation of the institutions which would be required to get out of worse poverty traps.

Lastly, Banerjee and Duflo sometimes fall into the trap of selectively interpreting data to suit their larger argument despite having a vast majority of cases with which to work. Their focus on behavioural economics sometimes also leads to poverty being treated in reductionism: individual choice dominating larger structural forces. For example, their analysis of hunger and nutrition extensively talks about how the poor decide based on their preferences for taste and instant gratification but pays too little attention to how global agricultural policies or exploitative labour practices shape those choices. In this way, the analysis can feel disjointed: compelling insights about microeconomic behaviour, but neglecting the broader systemic context.

Despite such criticisms, Poor Economics has had much impact within the academic and policy circles. Its appeal for evidence-based intervention has been increasingly adopted with the international institutions as well as NGOs with an increasingly strident insistence on solutions in development aid rigorously tested. In its critique of both neoliberal as well as state-driven models of development, this book opens new avenues in more nuanced discourses on global poverty. But the commercial success of the book among policy circles raises concerns that the technocratic solution assumes an upper hand over more fundamental or structural changes. Pragmatic Banerjee and Duflo's enthusiasm does sound as a most dear boon for governments or organisations that opt for minor steps towards change but in doing so may bypass more overarching economic justice discourse and structural transformation, say, redistributive policies or institution reforms.

Therefore, Poor Economics is a worthwhile contribution to the corpus of development economics, an outspoken criticism against conventional models, and a more nuanced and evidence-based approach toward the solution of poverty. The use of RCTs by Banerjee and Duflo had provided priceless insight into the behaviour of the poor and the potential effectiveness of specific interventions. Their work leaves little doubt about why solutions must be designed to fit local contexts, not one-size-fits-all approaches. Despite its reliance on microeconomic analysis and, more specifically, RCTs, the book cannot delve very deeply into the structural and political dimensions of poverty. Since individual choice and short-term interventions are the focus, it is sometimes forgotten that poverty is systemic, having been "perpetuated by the interplay of historical forces." While Banerjee and Duflo's work is goldmines of insight into understanding poverty at the micro-level, the book might not give the overall vision required to start tackling global poverty at its root. Poor Economics is finally a groundbreaking development in the theory of development that reminds us also of the limitations inherent in a technocratic data-driven approach. However, this leaves all the broader political economy of poverty unanalysed.