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

Abhijit Banerjee & Esther Duflo

320 pages, PublicAffairs, 2011

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The core of Abhijit Banerjee and Esther Duflo’s new book, Poor Economics, can be summed up by a single sentence in the foreword: “[W]e 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.”

The next 250-plus pages do exactly that, describing and analyzing the choices that people living on less than $2 a day make. Those choices tend to make a great deal of sense after some illumination and contemplation. For instance, it’s common for poor families to invest their entire education budget in just one child, usually a son, hoping that this child will make it through secondary school, while shortchanging the other children. Why? Many families think the value of schooling comes from getting the local equivalent of a high school diploma, not from attending another semester of school. It would be a waste of resources to spread the family’s educational budget among all the children rather than trying to make sure that one child reaches the brass ring. Yet the value of education, it turns out, is linear—each additional week brings additional value. Helping parents understand this, the book explains, has far more impact than building schools; it rapidly changes their educational choices.

Or consider why it is so difficult to get peasant farmers to use improved agricultural methods—such as fertilizer, irrigation, and improved seeds—that can double or triple yields. Each of these methods requires an investment up front, but farmers often decline them even when they can afford them (through either subsidies or low-cost loans). Why? Because peasant farmers know how risky agriculture is. The cost of crop failure—whether by act of God or unfamiliarity with new practices—when you’ve committed all your resources or borrowed is more devastating than the cost of barely getting by with low yields.

In another startling insight, the authors explore how a program designed to reduce AIDS prevalence, which encouraged monogamous marriage among Kenyan teenagers, likely led to an increase in school dropout rates and exposure to sexually transmitted diseases, including HIV. The problem isn’t that the program didn’t work; it’s that it worked quite well. The girls did marry, but the only men with the financial resources to marry were older and, as a result, more likely to be infected and to expect the girls to drop out of school and raise their children.

The book offers such insights on nearly every page, covering topics on finance, food, health, education, and family planning. Unfortunately, the authors’ primary approach to finding such insights—the randomized controlled trial (RCT), the method used to test pharmaceuticals for safety and efficacy—often is given more attention than the insights themselves. Although methods are important—the unique insights would not have been possible without them—the debate over the pros and cons of RCTs obscures not only the insights but also the authors’ underlying theory of change, which deserves far more consideration.

This theory of change mirrors the education example above. Social impact is often conceived as a step function, requiring big changes to reap rewards. Banerjee and Duflo conceive of it as far more linear. That means that a series of small adaptations and tweaks drives impact and its rewards.

Humans have a bias toward believing in big changes for big results. But the authors believe, as Banerjee told me a few years ago, that “there is no evidence that big changes are the result of big levers.” That’s a view that’s taking hold in a wide variety of areas. It’s on display in Malcolm Gladwell’s recent writing about innovation and Tim Harford’s new book Adapt. It’s also evident in the background of Charles Kenny’s Getting Better.

In other words, much of the whole enterprise of attacking poverty is built on the wrong foundations: the idea that big changes are necessary to create the world we want. This foundation is shared on both sides of the political spectrum. For want of better descriptors, the “interventionists” want to invest large sums to remake the context of the poor all at once; the “libertarians” want to drastically change the structure of poverty interventions and social safety nets; and the “social impact investors” are hell-bent on brand-new ideas that scale up rapidly. All advocate big change.

One of the common critiques of Banerjee and Duflo’s work is that they don’t appreciate how hard it is to alter policy to implement the kinds of changes their insights into the lives of the poor suggest. But they do appreciate exactly that—and therefore they disdain those big changes entirely. They believe that the path forward is not better “big thinking” but thinking small. Improving the lives of the poor measurably and consistently is primarily a matter of making a series of small changes in lots of different domains, changes that don’t require major political battles or dramatically changing funding structures.

Banerjee and Duflo, then, are radically small thinkers. Poor Economics is perhaps the most thorough indictment of big thinking in social policy since Jane Jacobs’s The Death and Life of Great American Cities. That’s why Poor Economics is vital reading for anyone serious about confronting poverty. You may not agree with Banerjee and Duflo’s conclusions, but the poor will be poorer if you don’t wrestle with the logic that informs them.

Timothy Ogden, is executive partner of Sona Partners and editor in chief of Philanthropy Action. He blogs regularly for the websites of the Stanford Social Innovation Review, Harvard Business Review, and Financial Access Initiative.