Must reading about global poverty and the contrasting approaches to ending it

A review of Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, by Abhijit Banerjee and Esther Duflo

@@@@@ (5 out of 5)

Public debate about the way to combat global poverty has ricocheted between two extremes. One was summed up in 2005 in The End of Poverty by Jeffrey Sachs, the Columbia economist who spearheaded the UN Millennium Development Goals. The other was laid out by former World Bank economist William Easterly the following year in The White Man’s Burden. Sachs advocates massive government-to-government foreign aid. Easterly deplores foreign aid, convinced that it does more harm than good.

In Poor Economics, Abhijit Banerjee and Esther Duflo seek a path between these two extremes, emphasizing the Randomized Controlled Studies they and their colleagues had conducted to ascertain what works and what doesn’t. (As of 2010, they had completed more than 240 studies in forty countries around the world.)They characterize Easterly’s approach as demand-driven, since he believes that poor people must seek their own solutions — a conservative, free-market attitude. By contrast, Sachs’ approach is supply-driven, reflecting Sachs’ conviction that a government must provide for its people based on consensus thinking about what poor people need — a liberal, top-down attitude. (I find myself bemused that I’m on the right side of this debate.)

Banerjee and Duflo report that their observations and research results support each of these two approaches — and sometimes both — depending on what issue they study. Hunger, health, education, financial services, family planning, business development, policy options: each field offers up a unique picture of success and failure attributed to one or another of the two approaches. In other words, circumstances and details matter, all of which may vary from one country to another. There is no silver bullet, they assert, no panacea to eliminate poverty.

Poor Economics focuses on the overarching question of whether there is such a thing as a “poverty trap.” Sachs contends there is: poor people will be stuck in poverty unless and until they are given the resources to release themselves from the trap. In many circumstances, Banerjee and Duflo find scant evidence to support this assertion. In others, however, they see the need for government intervention in the lives of the poor because otherwise they will perceive no reason to act for themselves.

Rather than identifying a simple, unitary explanation why Sachs’ approach often fails, they emphasize “ideology, ignorance, and inertia — the three I’s — on the part of the expert, the aid worker, or the local policy maker.” These three I’s, they claim, “often explain why policies fail and why aid does not have the effect it should.” Banerjee and Duflo explain further: “The poor often resist the wonderful plans we think up for them because they do not share our faith that those plans work, or work as well as we claim.”

It would be difficult to find two scholars better prepared than Abhijit Banerjee and Esther Duflo to forge a middle course through the opposite poles of thought about global poverty erected by Jeffrey Sachs and William Easterly. Banerjee, an Indian economist who is also the son of two economists, holds an endowed chair in economics at MIT. He co-founded MIT’s Abdul Latif Jameel Poverty Action Lab with Duflo, a French economist and a former MacArthur Fellow (recipient of the “genius” award).

For anyone who seeks deeper understanding of global poverty and the ways and means of fighting it, Poor Economics is must reading. This book is the latest I’ve read in my ongoing effort to study world poverty. For a list of additional books on the topic, go to my reading list.

Narrowing global inequities: a reading list

Lately I’ve been working with Paul Polak on a book about how to end global poverty. (Berrett-Koehler will publish the book in 2013.) Paul’s previous book, Out of Poverty, was published six years ago, and this new work – provisionally titled The Business Solution to Poverty – represents the evolution of his thinking, six more years of work with poor people in developing countries, and the reading and relevant field experience I’ve had over the years.

As I’ve dug more deeply into the subject of global poverty, it has become increasingly clear to me that truly understanding how today’s glaring inequities have come about requires extensive knowledge in a wide array of topics, from Third World history to social psychology, development economics to the history of business and international trade.

Well, I confess I’m no expert in any of those fields. I’ve read widely in some, superficially in others, and I’m learning a lot.

My reading has emphasized economic history, the economics of poverty, colonialism, Third World development, social enterprise, and the ongoing debate about the impact of “foreign aid” (more properly, overseas development assistance). Along the way, I’ve reviewed in this blog many of the books I’ve read.

In previous posts, I’ve offered up reading lists on some of these subjects individually. Here, I’m sharing a compiled list. These are the books I’ve actually read. Where I reviewed a book, you’ll find boldfacing and underlining that signifies a link to my review. The books are listed alphabetically by the author’s last name.

Banerjee, Abhijit, and Esther Duflo, Poor Economics A Radical Rethinking of the Way to Fight Global Poverty. PublicAffairs, 2011. (review to come)

Bornstein, David, How to Change the World: Social Entrepreneurs and the Power of New Ideas. Oxford University Press, 2007.

——, The Price of a Dream: The Story of the Grameen Bank. Oxford University Press, 2005.

——, and Susan Davis, Social Entrepreneurship: What Everyone Needs to Know. Oxford University Press, 2010.

Clark, Gregory, A Farewell to Alms: A Brief Economic History of the World. Princeton University Press, 2007.

Cohen, Ben, and Mal Warwick, Values-Driven Business: How to Change the World, Make Money, and Have Fun. Berrett-Koehler Publishers, 2006.

Collier, Paul, The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It. Oxford University Press, 2007.

Collins, Daryl, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven, Portfolios of the Poor: How the World’s Poor Live on $2 a Day. Princeton University Press, 2009.

Crutchfield, Leslie R., and Heather McLeod Grant, Forces for Good: The Six Practices of High-Impact Nonprofits, 2nd Edition. Jossey-Bass Publishers, 2012.

Diamond, Jared, Collapse: How Societies Choose to Fail or Succeed. Viking Press, 2005.

Easterly, William, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good. Penguin Press, 2006.

Elkington, John, and Pamela Hartigan, The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World.Harvard Business Review Press, 2008.

Govindarajan, Vijay, and Chris Trimble, Reverse Innovation: Create Far From Home, Win Everywhere. Harvard Business Review Press, 2012.

Guha, Ramachandra, India After Gandhi: The History of the World’s Largest Democracy. HarperCollins Publishers, 2007.

Hochschild, Adam, King Leopold’s Ghost: A Story of Greed, Terror, and Heroism in Colonial Africa. Houghton Mifflin Company, 1998.

Kamkwamba, William, and Bryan Mealer, The Boy Who Harnessed the Wind: Creating Currents of Electricity and Hope. HarperCollins Publishers, 2009.

Kidder, Tracy, Mountains Beyond Mountains: The Quest of Dr. Paul Farmer, a Man Who Would Cure the World. Random House,2003.

Kristof, Nicholas D., and Sheryl WuDunn, Half the Sky: Turning Oppression Into Opportunity for Women Worldwide. Knopf, 2009.

Light, Paul Charles, The Search for Social Entrepreneurship. Brookings Institution Press, 2008.

Lynch, Kevin, and Julius Walls, Jr., Mission, Inc.: The Practitioner’s Guide to Social Enterprise. Berrett-Koehler Publishers, 2008.

Mehta, Pavithra, and Suchitra Shenoy, Infinite Vision: How Aravind Became the World’s Greatest Business Case for Compassion. Berrett-Koehler Publishers, 2011.

Moyo, Dambisa, Dead Aid: Why Aid is Not Working and How There Is a Better Way for Africa. Farrar, Straus and Giroux, 2009.

Polak, Paul, Out of Poverty: What Works When Traditional Approaches Fail. Berrett-Koehler Publishers, 2006.

Prahalad, C. K., The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. Pearson Prentice Hall, 2004.

Sachs, Jeffrey D., The End of Poverty: Economic Possibilities for Our Time. Penguin Press, 2005.

Schwartz, Beverly, Rippling: How Social Entrepreneurs Spread Innovation Throughout the World. Jossey-Bass Publishers,2012.

Sullivan, Nicholas P., You Can Hear Me Now: How Microloans and Cell Phones Are Connecting the World’s Poor to the Global Economy. Jossey-Bass Publishers, 2007.

Wrong, Michaela, It’s Our Turn to Eat: The Story of a Kenyan Whistle-Blower. HarperCollins Publishers, 2006.

The Top 10 Books on the Economics of Poverty

Back in January, I posted “Third World development: A reading list.” Today, the celebrated rural development specialist and author, Paul Polak, called my attention to a similar list that was published at about the same time in the Stanford Social Innovation Review, an outstanding journal that has run a few of my articles and reviews. Only three titles appear on both lists, so I’m reproducing the SSIR article in its entirety here.

The Top 10 Books on the Economics of Poverty  

A suggested reading list to provide a foundation for understanding development, aid, and poverty

By Amy Lockwood

The growing community of students and professionals who are turning their attention to social endeavors as careers is inspiring. As someone who made the career switch from strategy consulting to international development work, I remember all too well the anxiety of trying to understand the different theories, familiarize myself with the players, and become fluent in the languages of this community.

In addition to listening more than speaking, cultivating curiosity, and abandoning the fear of looking stupid when asking, “What does [fill in the blank] mean?”—in my first years in this new space, I asked for recommendations of books that would provide a foundation for my understanding of development, aid, and poverty. I recently revisited these recommendations as a member of the Opportunity Collaboration, and the following is a suggested reading list to provide a foundation for your adventures.

The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (2006), by William Easterly

Easterly, a celebrated economist, presents one side in what has become an ongoing debate with fellow star-economist Jeffrey Sachs about the role of international aid in global poverty. Easterly argues that existing aid strategies have not and will not reduce poverty, because they don’t seriously take into account feedback from those who need the aid and because they perpetuate western colonial tendencies.

The End of Poverty: Economic Possibilities for Our Time (2006), by Jeffrey Sachs

Taking an almost entirely diametrical approach than Easterly, Sachs outlines a detailed plan to help the poorest of the poor reach the first rung on the ladder of economic development. By increasing aid significantly to provide the basic infrastructure and human capital for markets to work effectively, Sachs argues such investment is not only economically sound but a moral imperative.

The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It (2007), by Paul Collier  

Economist and Africa expert Collier analyzes why a group of 50 nations, home to the poorest one billion people, are failing. Considering issues such as civil war, dependence on extractive industries, and bad governance, he argues that the strongest industrialized countries must enact a plan to help with international policies and standards.

The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (2009), by C.K. Prahalad

Prahalad, a business strategy professor, was among the first to argue that the fastest growing market in the world was made up of the world’s poorest people. He details the purchasing power of this segment, and advocates that big businesses should learn how to understand this population’s needs in order to develop products that address both economic mobility and corporate growth and profit.

Creating a World Without Poverty: Social Business and the Future of Capitalism (2009), by Muhammad Yunus

Yunus, an economist and Nobel Prize Winner, was among the first to describe a social business as one that is modestly profitable but designed primarily to address a social objective. Using this approach, he argues that modern-day capitalism is too narrowly defined, particularly in its emphasis on profit maximization. By including social benefits in the equation, he believes that markets and the poor themselves can alleviate poverty.

Out of Poverty: What Works When Traditional Approaches Fail (2009), by Paul Polak

Polak, a psychiatrist, has applied a behavioral and anthropological approach to alleviating poverty, developed by studying people in their natural surroundings. He argues that there are three mythic solutions to poverty eradication: donations, national economic growth, and big businesses. Instead, he advocates helping the poor earn money through their own efforts of developing low-cost tools that are effective and profitable.

Dead Aid: Why Aid is Not Working and How There Is a Better Way for Africa (2009), by Dambisa Moyo  

Moyo, a Zambia-born economist, asserts that aid is not only ineffective—it’s harmful. Her argument packs a strong punch because she was born and raised in Africa. Moyo believes aid money promotes the corruption of governments and the dependence of citizens, and advocates that an investment approach will do more to help reduce poverty than aid ever could.

Poor Economics A Radical Rethinking of the Way to Fight Global Poverty (2011), by Abhijit Banerjee & Esther Duflo

Using the framework of randomized control trials, which allow for large-scale data collection to evaluate the effectiveness of an intervention, these two development economists assess the impact of a wide range of development programs in alleviating poverty. They have found that most programs have not been designed with a rigorous understanding of the behaviors and needs of the poor or how aid effects them, they advocate that for programs to be successful they must be designed with evidence gathered from direct interaction with those who they are meant to benefit.

Development As Freedom (2000), by Amartya Sen

A Nobel Prize winning economist, Sen examines the essential role that elementary freedoms, social and political, have in improving the prosperity of the society at large. Although his focus on human welfare as a central aspect of economic thought is not universally accepted among economists, this approach inserts elements of ethics into a field from which it is often not emphasized. Although this is a difficult read, the concepts included are important to the dialogue about the causes and remedies to the economics of poverty.

Good to Great and the Social Sectors (2005), by Jim Collins

Meant to accompany the seminal business book Good to Great that examined why companies succeed or fail and found nine key aspects, including: leadership, simplicity, discipline and innovation, this work focuses on applying these lessons to the nonprofit sector. While more focused on management of organizations than macroeconomic issues, this short and easy to read monograph suggests a roadmap of how those interested in addressing issues of poverty should pursue these efforts.

Amy Lockwood is the Deputy Director of the Center for Innovation in Global Health at Stanford’s School of Medicine, where she works on research, education, and innovation programs focused on issues of global health. With a background spanning the business, nonprofit and academic sectors, she has deep experience developing strategies, managing, and evaluating development projects and organizations throughout Africa, Asia, and Latin America.

A brilliant rural development specialist shares his ideas on ending poverty in the world

A review of Out of Poverty: What Works When Traditional Approaches Fail, by Paul Polak

@@@ (3 out of 5)

Paul Polak is an extraordinary man. A Czech Holocaust refugee as a child and a practicing psychiatrist throughout the 1960s and 70s, Dr. Polak turned his attention to the challenge of ending global poverty in 1981. In that year, he founded the International Development Enterprises (IDE), a Colorado-based nonprofit organization distinguished by its successful launch of the treadle pump that enables farmers to irrigate very small plots of land at minimal cost. IDE’s mission more generally is to fashion and develop new tools to help poor farmers and other “dollar-a-day” families in developing countries work their way out of poverty. Now nearing 80, Dr. Polak has relentlessly pursued this mission for the past three decades.

In Out of Poverty, Dr. Polak interweaves the IDE story and the principles that guide it with that of one Nepalese family who moved from poverty into the middle class. The fundamental precepts of Dr. Polak’s work are clearly laid out in the introduction:

“1. The biggest reason most poor people are poor is because they don’t have enough money.

“2. Most of the extremely poor people in the world earn their living now from one-acre farms.

“3. They can earn much more money by finding ways to grow and sell high-value labor-intensive crops such as off-season fruits and vegetables.

“4. To do that, they need access to very cheap small-farm irrigation, good seeds and fertilizer, and markets where they can sell their crops at a profit.”

Much of Out of Poverty deals in detail with the challenges entailed in implementing these principles. Irrigation, including the story of the treadle pump, gets the most attention. Dr. Polak describes himself and the staff of IDE as what might be called catalysts rather than experts: from his perspective, the first step in any venture in rural development must be to talk to the people who will be affected by whatever is done — and listen to them. The IDE approach is resolutely bottoms-up, because “To move out of poverty, poor people have to invest their own time and money. The path out of poverty lies in releasing the energy of Third World entrepreneurs.”

IDE’s work over the years has tightly focused on farmers. As he notes, “most of the poor people in the world live in remote rural areas that will likely continue to be bypassed by successive waves of urban-centered industrial growth.” However, in the concluding chapters of Out of Poverty, Dr. Polak also shares a number of ideas for helping slum-dwellers (“43 percent of the urban populatioin in developing regions”) move out of poverty, too. The book is chock full of great ideas for small-scale entrepreneurs.

Dr. Polak and IDE were pioneers in the bottoms-up development model that is fast emerging as the only approach likely to make a dent in the endemic poverty in so many poor countries.

Regrettably, Out of Poverty is not well written. It is endlessly repetitive, with the same phrases and anecdotes appearing in chapters throughout the book, and it fails to deliver on its promise of sharing many examples of families that have moved into the middle class through IDE’s work, since the only story told in any detail is that of one Nepalese farm family. That’s a great pity, since this is a message that needs to be disseminated far more widely among policymakers around the world. A second edition, reorganized and with additional examples, would be a boon to the development community.

Hope for Africa

A review of The Boy Who Harnessed the Wind: Creating Currents of Electricity and Hope, by William Kamkwamba and Bryan Mealer

@@@@@ (5 out of 5)

A debate has been raging for years within that rarefied global community that earns its keep from the business of what we Americans call “foreign aid.” (Others, less afflicted by an aversion to international engagement, call the field “overseas development assistance.”)

On one side are the advocates for large-scale bilateral and multilateral aid, insisting that huge grants from the World Bank, the International Monetary Fund, the U.S. Agency for International Development, and their ilk are the only source of real hope for the many desperately poor nations of what is broadly, though incorrectly, called the Global South (Asia, Africa, and Latin America). The advocate-in-chief for this perspective is Professor Jeffrey Sachs of Columbia University, who has argued that massive infusions of aid to the governments of the poorest nations can lift them out of poverty in short order. In 2006, Sachs published his seminal book, The End of Poverty: Economic Possibilities for Our Time, a work that provided the rationale for the Millennium Development Goals.

Arrayed against Sachs and his colleagues are the born-again critics of government-to-government aid, most noticeably William Easterly, a long-time World Bank economist who came in from the cold in recent years to testify to the widespread failure of “foreign aid.” His 2007 book, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good, set off the debate between the two opposing camps.

The gist of the difference between the two perspectives is simple: One side insists that the problem of poverty is far too big to be addressed through anything other than large-scale action carried out within each poor country on a national scale. The other side contends that top-down, nationwide development programs rarely work and that only solutions crafted at the grassroots and adopted by those who are most affected by them can bring about genuine social change.

Though I’ve read a number of other books taking one side or another in this debate, the work that has cast the most light on the topic is one that paid no attention whatsoever to “foreign aid” or economic development schemes, whether large or small. It’s an extraordinary, first-person tale by a young man from Malawi entitled The Boy Who Harnessed the Wind.

William Kamkwamba, the narrator of this awe-inspiring story, was a seventh-grade dropout who mastered fundamental physics by reading an out-of-date English textbook in a local, three-shelf library near his village and using his knowledge to construct a working windmill out of junkyard parts to generate electricity to irrigate his father’s farm. He was 14 years old.

You can read news reports and even the most perceptive magazine articles about the challenges of development, but you won’t get nearly as close to the essential truth of the challenge as you will from reading The Boy Who Harnessed the Wind. Kamkwamba’s tale is unsparing of himself, his community, and his country. Through his all-seeing eyes, we witness the tragic consequences of the profound official corruption that held sway in Malawi for so many years after it gained its independence from Britain in 1964. We feel the unrelenting hunger he and his family experienced for months on end in the famine of 2001-2002. We see the darkness descend all around us as William is hounded by fearful villagers who can only explain his windmill as magical. But, most of all, we observe the steady evolution of his brilliant young mind as he confronts one setback after another, and prevails over them all.

If there is hope for Africa, as I firmly believe, it lies in the minds and hearts of William Kamkwamba and other young people whose innate genius is unlocked by the spread of education and opportunity for self-expression at the grassroots. There are hundreds, maybe thousands, of William Kamkwambas across Sub-Saharan Africa. And it will be a combination of top-down aid – to build schools, train teachers, and buy textbooks – with the local action of countless NGOs, with both local and international support, that will provide them with the tools and the freedom to solve the problems that have held down their forebears for generations past. I don’t think genuine development – thorough-going social change – will come any other way.

ISBN-10: 0061730327

ISBN-13: 978-0061730320

ASIN: B002PEP4U0