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.

Third World development: A reading list

To my mind, the emergence of new nations out of a colonial past was one of the most significant developments of the 20th Century, and their uneven struggle to attain the comforts and possibilities of life to be found in Europe, North America, and Japan continues to loom large in the 21st Century. As a consequence, a fair proportion of my reading bears on these issues.

Much of what is written about development in what is variously called the Third World, the Global South, the under-developed countries, or the developing nations is self-serving and less than useful as a guide to understanding the true issues involved. The underlying reality is that since World War II the countries of the “West” have invested a total of nearly $2.5 trillion in “foreign aid” (as it’s popularly known in the USA) or “overseas development assistance” (as it’s termed elsewhere). You might think that investments of that magnitude would have produced dramatic improvements in the quality of life for the billions of people who live in poverty. However, the truth is appalling: there is precious little to show for this outpouring of aid other than the most obvious advances in education and public health.

Here are some of the books I’ve read in recent years that cast light on this reality. Some of them directly address the issues surrounding foreign aid. Others illuminate the backdrop to those issues. But I don’t pretend this list is comprehensive in any way. It’s simply a starting-point. I’ve listed these books in alphabetical order by the authors’ surnames.

Bornstein, David, How to Change the World: Social Entrepreneurs and the Power of New Ideas. Oxford University Press, 2007. Much of the social change taking place today in the world’s poorest countries is a result of the work of the venturesome folks called “social entrepreneurs” — and Ashoka, the USA-based organization that supports them by the thousands. This box profiles nine of the better-known Ashoka Fellows, demonstrating the role of local leadership in making the world a better place.

——, The Price of a Dream: The Story of the Grameen Bank. Oxford University Press, 2005. Muhammad Yunus gained global fame when he won the Nobel Peace Prize in 2006, but the story of his decades of dogged efforts in Bangladesh — and of the immense organization he built — is much less well know. This book demonstrates how home-grown solutions to development programs are often superior to anything imposed on developing countries by the international community.

Clark, Gregory, A Farewell to Alms: A Brief Economic History of the World. Princeton University Press, 2007. Clark puts the question of economic development in historical perspective, dispelling long-popular myths about the supremacy of the West.

Diamond, Jared, Collapse: How Societies Choose to Fail or Succeed. Viking, 2005. A fascinating exploration of the historical influence of environmental factors in the failure of “developing countries” — and a sobering perspective on the prospects for development breakthroughs in much of today’s overpopulated world.

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. This is the best book that tackles the issue head-on and makes the clearest case for an explanation.

Guha, Ramachandra, India After Gandhi: The History of the World’s Largest Democracy. HarperCollins Publishers, 2007. In global perspective, the greatest challenges to narrowing the inequities among nations lie in sub-Saharan Africa and India. This history of the subcontinent after independence helps to convey the complexity of the issues faced by change agents in the world’s second most populous nation.

Hochschild, Adam, King Leopold’s Ghost: A Story of Greed, Terror, and Heroism in Colonial Africa. (Houghton Mifflin Company, Boston and New York, 1998). The most dramatic portrayal of the legacy of colonialism I’ve ever read.

Kamkwamba, William, and Bryan Mealer, The Boy Who Harnessed the Wind: Creating Currents of Electricity and Hope. HarperCollins Publishers, 2009. The astonishing story of a brilliant, self-taught young man who demonstrated the vast potential that underdevelopment leaves behind.

Kristof, Nicholas D., and Sheryl WuDunn, Half the Sky: Turning Oppression Into Opportunity for Women Worldwide. Knopf, 2009. It is impossible to tackle the issue of economic and social development without considering the central role of women: it’s become a truism in the field that the education and empowerment of women is the surest first step toward meaningful social change. Nick Kristof, a long-time New York Times columnist, is one of the world’s most incisive observers of the daily reality lived by people in the Third World. Previously, Kristof and WuDunn reported jointly from China for the Times.

Mehta, Pavithra, and Suchitra Shenoy, Infinite Vision: How Aravind Became the World’s Greatest Business Case for Compassion. Berrett-Koehler Publishers, 2011. The Aravind Eye Care System, based in the South Indian state of Tamil Nadu, has had an outsized influence on the treatment of eye disease throughout the world. Pavithra Mehta, a grand-niece of Aravind’s founder, tells the astonishing story of this extraordinary institution, illustrating the potential for indigenous development that shuns outside support.

Prahalad, C. K., The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. Pearson Prentice Hall, 2004. In this paean to the multinational corporations of the world, the late C. K. Prahalad, one of the most celebrated management consultants of recent times, presents a host of case studies about the potential of business to foster development while increasing profits. Although the general proposition seems shaky to me, some of the case studies are impressive and thought-provoking.

Sachs, Jeffrey D., The End of Poverty: Economic Possibilities for Our Time. Penguin Press, 2005. Here is the cheerleader’s polyannish case for large-scale development assistance. Useful as a counterpoint to Bill Easterly’s White Man’s Burden, which far better reflects my own experience in developing countries.

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. Grameen Telecom is much less well known that the grassroots bank that spawned it. This intriguing story is a great case study of the long-familiar “leapfrog effect” that allows underdeveloped countries to advance rapidly by skipping over the use of technologies long dominant in the West.

Wrong, Michaela, It’s Our Turn to Eat: The Story of a Kenyan Whistle-Blower. HarperCollins Publishers, 2006. No consideration of Third World development is complete without taking official corruption into account. This story, which focuses on one courageous Kenyan man who tried to expose corruption, brings to light some of the complications it poses.