Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit V Banerjee and Esther Duflo (New York: PublicAffairs), 2011; pp 316, Rs 499.
An Anthropological Way of Doing Economics
Ajit Sinha
the poor eat so little? Well, because they are poor, most of us would think. Since the poor have so little income (i e, less than $1 a day), they are not able to meet their nutritional requirements; this makes them weak and sick and hence unable to earn much – a classic case of the poverty
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udwig Wittgenstein once told his student Rush Rhees that “the most important thing he gained from talking to Sraffa was an ‘anthropological’ way of looking at philosophical problems” (Monk 1991: 260-61). What did Wittgenstein mean by an “anthropological way”? To put it simply, he meant “look and see”. It is well known that Wittgenstein had developed a tightly knit logical theory of meaning in his famous Tractatus Logico-Pholosophicus (1922), where he argued that the “essence” of meaning of any factual proposition was its “logical form”. This was a powerful generalisation of the meaningfulness of all propositions.
When Wittgenstein came back to Cambridge in 1929, Piero Sraffa had already been there since 1927. They soon became friends (through friends in common, John Maynard Keynes and Frank Ramsey) and started to have regular conversations, lasting for more than a decade. Wittgenstein, over this period, started to have second thoughts about the Tractarian thesis of a generalised theory of meaning. Over the years, he sketched out another book called Philosophical Investigations, which was published posthumously in 1953. In the preface to this book, Wittgenstein acknowledged Sraffa for the “most conse quential ideas” of the book. What were these “most consequential ideas”? Simply put: “give up the generalities and take particular cases” (Sinha 2009 for details). Sraffa apparently hammered into Wittgenstein the idea that questions of essences are metaphysical in nature and that real questions must come from lived experience. Hence, generalities should be given up for particularities. As Wittgenstein explained (1953: 282-83):
When philosophers use a word – ‘knowledge’, ‘being’, ‘object’, ‘I’, ‘proposition’, ‘name’ – and try to grasp the essence of the thing one must always ask oneself: is the word ever actually used in this way in the languagegame which is its original home?
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book review
Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit V Banerjee and Esther Duflo (New York: PublicAffairs), 2011; pp 316, Rs 499.
What we do is to bring words back from their metaphysical to their everyday use.
Thus the “anthropological way” stands in sharp contrast to the Popperian “scientific method”, where every observation is supposed to be an act of falsification of some prior hypothesis – a methodology that has almost completely dominated 20th century economics.
Subverting Methodology
Such a long philosophical preface to a review of a book on poverty may seem odd. But for me, the significance of this book under review lies more in what it does than what it says. Of course, it says a lot of things, and a lot of these things it says about poverty and how one should go about solving this problem are interesting. But what it does is more intriguing. It uses what I would call the anthropological way of doing economics and in the process, subverts the methodology of orthodox economics. At the outset, Banerjee and Duflo tell their readers (pp 4-5):
This book will not tell you whether aid is good or bad, but it will say whether particular instances of aid did some good or not. We cannot pronounce on the efficacy of democracy, but we do have something to say about whether democracy could be made effective in rural Indonesia by changing the way it is organised on the ground and so on.
They further go on to explain their method (p 14): “This radical shift in perspective, away from the universal answers, required us to step out of the office and look more carefully at the world”.
Throughout the book, the reader comes across strange questions such as: why do
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trap: one is poor because one is poor!
Banerjee and Duflo argue that this is not true, at least not in most cases. When they look and see, they find that it is true that the poor eat much less calories than an average healthy person is required to. It is also true that eating better (in terms of calories) makes them more productive; however, productivity increases fast at low levels but tapers out quickly. Still we find that the poor do not spend more than 36% to 79% of their income on food. When their income increases, their expenditure on food does not increase by a greater proportion (and the pattern appears to remain the same for income ranges of $0.5 to $3 a day). Why is this so? Are the poor simply irrational? The answer is no. It so happens that the poor are not economic machines. They live in communities. If there are social norms that expect them to spend on funerals and weddings, etc, then these claim higher priority on their income.
Similarly, it is understandable that people would sacrifice some calories to escape the boredom and the hardships of life by spending on festivals and festivities, when the occasion calls for it, or going to the cinema or saving enough to buy a television. As one poor Moroccan told the a uthors: “Oh, but television is more important than food” (p 36).
And suppose productivity does increase if one eats better. Would it translate into higher incomes? Not for hired workers on a fixed wage. So why bother? Yes, for piece-wage workers or independent farmers, it may make sense to eat better. Again, it is the particularity of the situation that matters.
Banerjee and Duflo are economists based at the Massachusetts Institute of Technology in the United States; they co-founded the Abdul Latif Jameel Povery Action Lab (J-PAL) in 2003. This book is a product of more than 15 years of concerted work in this area, including J-PAL’s highly innovative work in collaboration with various local
BOOK REVIEW
non-governmental organisations (NGOs) in about 40 countries. Most of the evidence in this book comes from randomised control trials at the J-PAL, which won the inaugural 2008 BBVA Foundation Frontier of Knowledge Award for Development Cooperation.
Apart from the Foreword and the Introduction (“Think Again, Again”, p 1), the book is divided into two parts. The first part deals with “private life”, with separate chapters dealing with the relation of poverty to food, health, education and family size respectively. The second part deals with institutions such as insurance, banking, entrepreneurship and corruption. The authors characterise the two competing ideologies on the problem of world poverty as “supply wallahs” (p 73) and “demand wallahs” (p 151).
The supply wallahs and the demand wallahs represent two aspects of the same universalising methodology. The supply wallahs (e g, Jeffrey Sachs) argue that the poor of the world are trapped in a vicious cycle of poverty and that is why eradication of poverty requires a big push, either from government or international agencies to get the poor over the hump so that they are able to take advantage of the opportunities provided by the market to improve their lot. The demand wallahs (e g, William Easterly) argue, on the contrary, that it is government policies and the corrupt nature of governments in poor countries as well as the policies of international aid agencies that are mostly responsible for poverty. Given unfettered access to the market, most of the poor would take advantage of the opportunities provided by “free” markets and climb out of poverty on their own.
Banerjee and Duflo find that neither of the two ideologies is right when one looks at the problem in light of concrete circumstances. For example, in Zambia, supply appears to be not a constraint when it comes to chlorinating drinking water in poor localities where piped water is not available, as the cost of chlorinating water is sufficiently low even for the poor with less than $1 income per day. And given the health benefits of drinking chlorinated water, which translate into signi ficant income benefits over a lifetime, it appears highly irrational why only 10% of the population actually uses chlorinated water, particularly when 98% of the poor surveyed seemed to know the a dvantages of drinking it.
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On the other hand, it appears that in Kenya, the demand for mosquito nets is highly sensitive to prices, as the demand for bed nets rose significantly when they were offered for free or at highly subsidised prices. It was also found that those who were offered the bed nets free or at highly subsidised prices were more inclined to buy another one at market price. However, the researchers also found that people who were 15% richer were only 5% more likely to buy a bed net even though, on average, use of the net increased income by 15% by reducing the risk of catching malaria. Similarly, the poor in Udaipur district spend a good deal of their income on expensive treatments but avoid very cheap preventive care. Many such findings are curious; they do not fit into any grand narrative.
Banerjee and Duflo suggest that the explanation of many such acts of curious b ehaviour may lie in the fact that human beings are highly complicated creatures. They suffer from, what psychologists call “time inconsistency”: “our natural inclination is to postpone small costs, so that they are borne not by our today self but by our tomorrow self instead” (p 65). The way we
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make and break our new year’s resolutions, Banerjee and Duflo claim, could explain why a poor mother does not immunise her child or stops the immunisation shots before completing the course. Or why a free chlorine dispenser installed next to the village well could substantially reduce the incidence of diarrhoea. What the authors recommend are well-modulated “nudges” (p x) to make people behave in their own longterm interest. Most of the well-to-do have such nudges institutionalised in their lives. For example, those of us who are lucky enough to get piped water at home get it already chlorinated; we need not think about it every time we get a drink of water. Of course, such psychological explanations are not an aspect of the anthropological way and are vulnerable to the same criticisms as any universalising theory of human behaviour.
In the Minds
Sometimes, Banerjee and Duflo argue, it might be the case that poverty traps exist in the minds of the poor rather than in reality; the effect, nevertheless, is the same. They find that in Madagascar, poor parents are very uninformed about what to expect from the education of their children. Their expectations on the returns from primary education, on the one hand, turn out to be much lower than what the data suggest. On the other hand, their expectations on returns to secondary education are much higher. This creates a poverty trap, as the parents then try to pick winners among their children and put all their resources into one child rather than distri buting them evenly among all children. This, in effect, leaves most of the children in a poverty trap due to lack of education. Similarly, the authors found evidence of very low expectations among children as well as their teachers, which creates a vicious circle. In such circumstances, neither building more schools nor letting the market persuade the parents to demand quality education for their children would work. What is needed, yet again, are innovative policies designed to fit the circumstances.
One curious aspect of this book is that it does not ask the question: what causes poverty? We are accustomed to thinking about a problem by looking for the cause of it – are people poor because they are unemployed? Are they poor because they
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are landless? Are they poor because the wages are too low or because their family size is too large and so on? Once the cause or the causes of the problem are identified, then the policy prescription logically follows: remove those causes. For example, if the cause of poverty is unemployment, then government policy should aim at removing unemployment.
Apolitical Stance
This book eschews such causal analysis of the problem. Instead, it presents a description of the life of the poor in a community and asks the question: why is it that, given the circumstances, the poor seem to be missing many opportunities that are available to them to improve their living conditions? Since the question concerns available opportunities and not creation of new opportunities, the stance is necessarily apolitical. It does not ruffle any feathers. The basic message of the book appears to be that marginal reforms have better chance of success than revolution: governments and international agencies should move away from grand plans for removing poverty and instead try to design well-informed “nudges” at the various nodes of the incidence of poverty, such as nutrition, health, education, banking, insurance, etc.
Though moneylenders and usurers show up in the book, Bhaduri’s (1973) “semifeudal” relations (or any power relations akin to these) make no appearance. The high interests charged by the local moneylenders are explained by the simple economic reasoning of the high risks and costs of lending to the poor. Banerjee and Duflo argue that though the evidence suggests that default rates are low, this is because local moneylenders spend a great deal of time ensuring that loans are repaid; of course, time is money. Similarly, the costs of vetting borrowers are high, and given that such costs are more or less fixed per borrower, they translate into high interest rates for small loans.
Again, corruption makes an appearance but politics and institutional corruption take a backseat. The authors argue that both politics and institutions can be improved at the margin (i e, at the local level) and that the reason for the failure of many government policies does not lie in institutional corruption, but rather in the fact that
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“the whole system was badly conceived to start with… large-scale waste and policy failures often happen not because of any deep structural problem but because of lazy thinking at the stage of policy design” (pp 256-61).
Some may find the apolitical nature of this book its strength; others, however, may find it to be its fundamental weakness. One wonders how it is that class and power relations have nothing to do with the problem of poverty. Why does the description of the life of the poor choose to neglect the question of production relations and their relationship with the income of the poor? Again, it is the political stance, and not the method of the anthropological way that chooses to highlight the statistically significant effects of certain policies and ignore the observation that a vast majority nevertheless remain unaffected by those policies. For example, though the observation that the offer of two pounds of free dal resulted in a seven-fold increase in the immunisation rate from about 6% to 38% in Udaipur is important, it is still more important to note that 62% nonetheless did not respond to the measure.
Politics apart, this is a well-written book. Many of its observations would prove indispensable to experts, policymakers as well as activists concerned with poverty. For me, it shows the strength and freshness of the anthropological way of doing economics. Its apolitical nature, however, is its stance, not a natural outcome of the anthropological way. That, perhaps, would prove to be its most controversial aspect.
I would like to thank, without implicating, Romar Correa, Roger Guesnerie, Geoffrey Harcourt, Srijit Mishra, Sripad Motiram, Sanjay Reddy and Partha Sen for comments on an earlier draft of the review.
Ajit Sinha (ajit.sinha@igidr.ac.in) is at the Indira Gandhi Institute for Development Research, Mumbai, and author of Theories of Value from Adam Smith to Piero Sraffa.
References
Bhaduri, A (1973): “A Study in Agricultural Backwardness under Semi-Feudalism”, Economic Journal, 83(329): 120-37.
Monk, R (1991): Ludwig Wittgenstein: The Duty of Genius (London: Vintage).
Sinha, A (2009): “Sraffa and the Later Wittgenstein”, Contributions to Political Economy, 28(1): 47-69.
Wittgenstein, L (1953): Philosophical Investigations (Oxford: Basil Blackwell).
– (1974 [1922]): Tractatus Logico-Philosophicus (London and New York: Routledge).
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