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

This book is a treasure trove of information about global poverty. I came into the book with a host of naïve assumptions about why poverty exists and what can be done to stop it, but the authors referenced a plethora of research studies that obliterated my ill-conceived notions about poverty and provided me with a solid foundation of knowledge upon which I can build. Prior to this book, I held a number of beliefs that I simply assumed were common sense. For example, I had assumed that if you offered free food to someone who is consuming barely enough calories to survive that the overall amount of calories they consume would increase. Apparently this is not the case-- if you give them free rice, they will take the money they used to spend on rice and instead spend it on more expensive, unhealthier food (or worse yet, something like tobacco). Thus, even if everyone in developed countries purchased food and gave it to the people in poorer nations this would not solve world hunger. In chapter after chapter the authors bring up an issue faced by the world's poor, offer up the existing theories about the problem, point to research that sheds light on why the theories or current efforts fail to address the problem, and suggest solutions that we have reason to believe would work based on the findings of various research studies. The issues faced by the poor are wide-ranging and the authors do an excellent job trying to cover them all. Here are the main issues covered (a full chapter is devoted to each one): 1. Hunger (why poor people are not getting enough calories) 2. Health (why poor people don't try harder to get their kids de-wormed, vaccinated, etc.) 3. Family size (why poor people choose to have large families even though it is difficult to support more children) 4. Education (why poor people don't invest in all of their kids' education) 5. Risk/insurance (why poor people incur so much risk yet aren't insuring themselves against it) 6. Borrowing/microfinance (why microfinance isn't going to solve poverty and why borrowing is still an issue for some) 7. Saving (why poor people aren't saving) 8. Entrepreneurship (why poor people aren't all the great "entrepreneurs" that microfinance makes them out to be) 9. Politics/institutions/corruption (why poor people can see improvements in their lives even with corrupt institutions) Each chapter begins with a difficult question which might seem to have an intuitive answer but does not; then the authors point to the results of research studies that shed light on the answer proceed to explain why the problem has not been solved if we know why it is occurring. For example, the chapter on saving begins with the following question: can poor people actually save money? Many people would immediately answer "of course not" simply based on the fact that the people we're talking about are poor. However, the authors provide convincing evidence that shows poor people are in fact capable of saving. This begs the question, if they can save, and it would be in their interest to do so (to provide a safety net for the enormous risk they face in their lives-- e.g., a family members becomes sick and can't work), then why don't they save? Are they simply lazy, short-sighted, and incompetent as we are told in the press? As you might imagine, the answer is not so simple (or condescending). Poor people don't save for a variety of reasons. First off, many of the world's poor don't have easy access to savings accounts. Banks are highly regulated and thus there is a significant cost involved in serving a client-- so why would a bank make an effort to cater to poor communities where they'll receive very little income from their customers to compensate for the costs they're incurring in offering banking services? Furthermore, it is easier for middle-class or wealthy people to save, not simply because they have more income but because the system makes it incredibly simple: for example, many people work for an employer that sets up a 401k plan for them and offers to match funds and deduct funds from your paycheck without you having to do anything. Most of the world's poor do not have such a simple option for saving-- they must exercise willpower week after week to overcome the temptation to spend (which we all have, poor or not), whereas the rest of us can just tell an employer once that we want to contribute to our 401k plan and that's the end of it. The authors even told stories of women who were taking out a loan at 24% interest and then saving the money in an account that only paid 4% interest. This seems incredibly foolish, so the authors inquired as to the women's motivations. It turns out they were doing this because this would force them to save-- having to repay the repay the loan would act as a disciplining mechanism. Essentially they were trying to force themselves to save because they didn't have a 401k account that would just automatically withdraw the money. They face the same temptations that we all do, they just don't have an easy means of overcoming them. But the authors don't simply point out problems and throw up their hands in desperation-- they offer concrete solutions to each problem. Not all the solutions are equally convincing and the authors are the first to admit there is no "magic bullet" but they go a long way toward providing a framework for how we might think about solving global poverty in the next one hundred years. For example, in the chapter that deals with the enormous amount of risk the poor face (due to crop failures, health problems, etc.) they ask why the poor don't simply obtain insurance. The answer is complicated and has to do with moral hazard, adverse selection, and fraud, the combination of which has made it difficult for a "market" in microinsurance to develop in the same way we've had an innovation in microfinance. Thus, the authors suggest that governments step in and help create such a market by providing subsidies for insurance premiums. Before you throw up your hands and yell "that's socialism!" bear in mind that they cite previous instances of such subsidies and how they led to dramatic increases in the number of poor people who were insured. There is no easy way to solve global poverty, as the world's poor face a number of problems that seem intractable. Yet when we examine each of these problems by looking at how the poor actually behave and how they respond to incentives, we can begin to develop a framework for how we might solve each of these problems and reach a point where poverty is a thing of the past. But before we can do anything to eradicate poverty, we need to understand why it exists, why it is self-perpetuating, and what can be done to stop it. This is the function of this book, and it excels on all fronts.

This book is a perfect example of how economics should be done. Rather than beginning from a very general ideological standpoint (government is the solution, or government is the problem) and then attempting to marshall arguments for that general standpoint, the authors of this book stay close to the ground, synthesizing an amazing amount of empirical evidence, in an attempt to analyze the causes of poverty, and possible solutions. Only by understanding the causes of poverty in detail is it possible to devise solutions that are actually likely to work. I listened to this book in the car over a long period so I am not going to be able to summarize all the details from memory but I will give an example of what I mean. The reader should be aware that this is only a single example. There are many more examples in the book. There are, as the authors outline, two general ideological camps in the poverty debate. There are what the authors call the "supply wallahs" and there are the "demand wallahs". The supply wallahs, like Jeffrey Sachs, tend to believe that poverty is largely the result of "poverty traps", situations where a person's current poverty makes it impossible for them to take the steps necessary to lift themselves out of poverty. Supply wallahs tend to support forms of aid because aid is supposed to allow those in poverty to escape from such poverty traps, at which point they are then able to support themselves. The problem is that aid often fails to have the desired effect, and those in poverty often fail to act the way supply wallahs predict that they should in response to aid. This has led the demand wallahs, like William Easterly, to argue against the general efficacy of aid. Demand wallahs argue that the escape from poverty has to be demand driven. As soon as those in poverty begin demanding services that have the potential to lift them out of poverty, like education or medical services, the market will react and supply them. The demand wallahs argue, therefore, against the efficacy of aid, since it does no good to give people things they do not want and will not use. How does this abstract debate play out on the ground? One example I remember from the book is the issue of contraceptives. Those in poverty tend to have a lot of children. This can give rise to a poverty trap since poor families rarely have the money to educate large families and this tends to perpetuate poverty. The supply wallahs might argue that the solution to this problem would be to provide poor families with free contraceptives so that they can limit their number of children. The problem is these policies have not succeeded in having the desired effect. The demand wallahs, therefore, argue that as soon as the poor start demanding contraceptives they will be supplied. Rather than choosing a side, and presenting some very general arguments in support, the authors of this book decided to do something radical. They decided to ask poor families why they had large families. It turns out that a lot of poor families consciously choose to have large families as a kind of social insurance. Parents need someone to take care of them in their old age, and the more children they have the more likely it is that at least one of them will be willing to do so. One can see immediately why neither the supply wallahs, nor the demand wallahs, have an adequate solution to this problem. Supplying the poor with free contraceptives does no good if they do not use them, and they will not use them as long as they consider having large families an advantage. Similarly, waiting around until the poor start demanding such services on their own is not going to solve the problem, because as long as the poor need large families to insure their future they are never going to demand such services. As long as the arguments remain at a very general level (whether the escape from poverty is supply or demand driven, etc.) the real solution to this problem remains invisible. Once we understand the problem, however, it becomes possible to devise actual solutions. For example, by providing the poor with social safety nets, like we have in most developed countries, the dependence of parents on their children can be reduced, which would remove the incentives to have large families, and would eliminate the poverty trap. This book is full of examples like this. The authors isolate a problem, give a brief overview of the standard solutions that have often failed in their intended goals, and then, by analyzing the actual causes of the problem, are able to devise solutions that have a better chance of actually working. People who read economics books are often looking for support for their own broad ideological commitments. People often want a "general conclusion" that provides a general "one size fits all" solution to all problems, and one that is in line with their prior ideological commitments. This book will not satisfy anyone looking for support for their own broad ideological commitments, or for a "one size fits all" solution to every problem. If you are reading this book in the hopes of finding some arguments to support your "government is always the solution" or "government is always the problem" standpoint you should look elsewhere. What this book does do is analyze a number of problems in great detail and give suggestions for possible solutions to those concrete problems. This, in my opinion, is what the world needs. Less ideological debate, and more concrete solutions to concrete problems. If we could get everybody on board with this message I think the world would be a better place. One other important insight that this book offers (among many) has to do with institutions. The notion that institutions are important is now a common place in economics. The authors also point out in this book that institutions have a tendency to perpetuate themselves. This can give rise to a pessimistic view. If one believes both, 1) that any escape from poverty requires a fundamental transformation in institutions, and 2) that fundamental transformations in institutions often require full scale revolutions and are extremely rare, then one can easily come to the conclusion that nothing can be done about poverty. The authors of this book, however, give a number of examples where small changes were made, on the ground, to the way that institutions operate, that had rather large effects. One does not even, necessarily, have to change policies, but can simply make cosmetic adjustments to the way that policies are implemented on the ground, or the rules for implementing them, and these small changes often have profound effects. This message is important as an antidote to despair. Small incremental changes can have dramatic effects. The bottom line is: poverty is not a single problem but is actually thousands of little problems, and those problems have solutions, we just need to find them. Anyone interested in finding those solutions should put this book at the top of their "to read" list.

As a development professional (i.e. someone who is paid to help poor people in poor countries) I'm very happy to see how the experiences and theories of the authors meld with my own experiences of how poor people in developing countries conduct their lives and organize their livelihoods. As such, I'd say the book serves as an excellent introduction to the economic lives of the poor (although their is another book entitled exactly that, also excellent) and what type of development interventions are likely to work. The authors advocate for a more measurable approach to development: conduct development projects like scientific experiments to see what work's and what doesn't. In the jargon, this is known as using Randomized Control Trials (RCTs). The authors are very reasonable and don't see RCT's as a cure to all ills, but a step on the path to making development projects a bit more effective. The book functions as an introduction to the use of RCTs in development projects There are many objections to the effectiveness of RCTs. But the major one is this: In most scientific experiments, an experiment can be replicated by someone else doing the exact same thing and end up with the exact same result. This is called, in the jargon, external validity, and is necessary for science to be,well, science. Unfortunately, there is no guarantee of external validity in international development. There are simply too many unknown unknowns and uncontrollable variables that a successful development project in one place and time has no guarantee of working in another. So, if this makes any sense, RCTs are not very effective in improving aid effectiveness. In my own experience, there are three practical problems with implementing RCTs: 1) You need to have very smart, well trained people involved from the beginning to ensure the construction of the experiment is valid. This is not always possible. 2) These things are very very expensive to do. 3) Development organizations that do the implementing of projects don't want their projects evaluated since they see it as a way to cut funding. Insofar as RCTs can be used as an organizational learning tool, there are cheaper methods of M&E (monitoring and evaluation, the jargon again) that can accomplish just that. All in all, a very good read. The book is obviously meant for a wide audience and is easy reading. As someone who knew alot about what was introduced, I still found it worthwhile to read.

If you have any interest in poverty alleviation at all, I highly recommend this book. Much time has been spent arguing about the best and worst methods for alleviating poverty. The authors of this book have a refreshingly straightforward take on this: let's figure out what works for each specific issue and do that. It seems kind of obvious, right? But as they point out, a lot of poverty relief efforts are NOT evidence-based, but instead motivated by broad, sweeping ideological positions such as "provide enough monetary aid to get the poor on their feet and they will be self-sufficient from there" or "aid is at best a bandaid and at worst a barrier to long-term success - rather, we need to let the free market do its job and over time poverty will dissipate." The authors argue (persuasively, in my view) that neither of these sweeping conclusions is all right or all wrong. Instead, the problems causing and caused by poverty are complex, multifaceted, and cannot be solved by a single action plan and certainly not by a single ideology. Government aid won't fix ALL of the problems, but neither will private charity or the free market. If we are truly interested in alleviating poverty or bringing any relief to the living conditions of the poor, we need to evaluate each issue individually. Some things will require government intervention. Example: subsidized insurance programs. The poor would undoubtedly benefit from insurance which would reimburse them for losses incurred from natural disasters, yet most of them simply will not purchase insurance policies. There's just not enough institutional trust in insurance companies for them to part with even a small amount of their hard-earned money for the insurance premiums. It won't happen without government subsidies. Some things can be improved with the help of private organizations. Micro-credit is one example of this. Micro-credit loans can be very helpful for poor business owners and can eventually become self-sustaining even if they initially need to be funded by charitable contributions. Some things can be improved by the free market, with the right nudges. Stable jobs are sorely lacking in many poor communities, especially in more rural areas. Setting up new factories and other businesses in these areas can radically improve the economic standing of an entire community. Sometimes, we just need small tweaks to existing services, such as offering birth control to women privately or making access to certain goods easier and more automatic. The bottom line is that there is no quick fix, no one-size-fits-all solution, no single policy or program that will fix poverty once and for all. Some of the solutions that really work are counterintuitive and some proposed solutions that really seem like they should work just don't. The actions we take should be based on evidence, not ideology. Some things are going to make free market enthusiasts uncomfortable and others will make anti-capitalists uncomfortable. But if we really care about alleviating poverty, we need to be open to all kinds of solutions. There's plenty of work to be done, so if you're not thrilled with the effective solutions in one area, put your support behind another area that fits better for you. Just don't get in the way of others doing what needs to be done elsewhere. I didn't have any reservations about this book that were big enough to knock off a star, but I have one caution worth noting. First of all, I am not an economist and not familiar with the full breadth of research on this subject. The authors were excellent about basing their conclusions on actual research and evaluation, which they always cited and described thoroughly. Most of the time, they based their final conclusion for each issue on a few different program evaluations. It is POSSIBLE of course that the research they cite in support of their conclusions is cherry-picked to some degree. If you are a layman who has not studied this body of literature firsthand, you will probably have to choose to trust the authors' integrity to some degree in order to fully accept their conclusions. But that would be true with any book on any subject you don't have firsthand expertise in. I think it is always good to foster a healthy level of skepticism and I will remain open to new information that may contradict some of the authors' conclusions. But the main point of this book was to re-direct our focus from broad sweeping conclusions to more modest-but-effective case-by-case evaluations. So even if their recommendations on say, improving nutrition programs, turns out to be wrong, that woudn't invalidate the rest of their findings on health and education and entrepreneurship etc. And it is clear that they are not driven by political partisanship either, since their various recommendations would each find favor at different points on the political spectrum. I would say they probably lean a little left, since most recommendations involve at least a little bit of aid in some form. But it often is not necessarily government aid and right-leaning people are often supportive of private charity (often more so than left-leaning people, though that's a whole other conversation). So wherever you fall on the political spectrum, this book is worth your time if you are at all interested in helping with poverty alleviation. You may not agree with everything but there are a lot of helpful, evidence-based insights and we need more voices like this in the discourse, keeping us focused on effective interventions: figuring out what works and then DOING THAT.

The authors identify three major approaches to dealing with world poverty, suggest that whatever their virtues and faults, there is a very piecemeal and pragmatic approach through which significant gains can be made without addressing the systemic obstacles identified by the three approaches. Their analysis is brilliant, focused, rooted in first-rate data sets, yet rich in social detail and anecdotal vignettes. I believe there are probably right, and their approach deserves to be widely studied an evaluated by policy makers in the advanced and developing countries. The dominant school of thought is probably the supply-side theory, most visibly represented by Jeffrey Sachs (the authors call him a "supply wallah"). According to this theory, the poor are poor because they lack money and resources, and there is a "poverty trap" such that investment in productive technologies must be very large in order to have a positive and sustainable effect. Because poor individuals, and even poor countries, lack the capacity to finance such investments, they are trapped in a low-level economic equilibrium. For this reason, Sachs and the supply theorists advise that the rich countries transfer a large lump-sum amount of money to a poor country, so it can get over the poverty-trap hump. A second salient school of thought is the demand-side theory, represented by William Easterly and many others. Demand-siders (the authors call them "demand wallahs") believes that the poor are poor because they do not want to undertake what would be necessary to move out of poverty and there is no poverty trap. Thus, if you throw money and resources to the poor, they consume it immediately rather than using it for long-term betterment. The third school of thought is the corruption school, represented by Acemoglu and Robinson, as expounded in the book Why Nations Fail. According to this theory, countries remain poor because their governments are predatory, exploiting the citizenry by refusing to make investments in productive infrastructure, by direction all profits to cronies, and by permitting rampant corruption that renders creative entrepreneurship unprofitable. According to this school, to which I admit to being very favorable, the supply wallahs are wrong because the resources throw into the system will be appropriate by the rich and powerful, and the demand wallahs are wrong because the poor are actively maintained by the oligarchy in their position of servitude. The authors are very insightful and balanced in presenting the views of these three schools and the evidence that supports these various positions. They also clearly explain their mutual critiques. For instance, the supply wallahs claim that states are predatory and corruption is rampant only because the country is so poor, and the demand wallahs claim that when the people want to move out of poverty, they will reform their governments. I find these defenses of supply and demand wallahs rather tendentious, leaving the corruptions school as the overall most plausible school. I think it is fair to say that Banerjee and Duflo have little sympathy for demand and supply wallahs, but considerable respect for the corruption theory. Their own position is that there are virtually always ways to productively intervene to pull a significant fraction of people out of poverty. The authors, who have collected huge amounts of data and interviewed many poor people from around the world, make the following argument. Most important, the poor in a poor country have about the same array of preferences and capacities as that of the human population as a whole, and humans are substantively rational in making decisions that affect their lives. However, the poor have a lot fewer resources than the well-off, they lack information and skills provided to the well-off, and lack access to such public goods as clean water and consumables subject to food and drug regulations. The poor are therefore extremely heterogeneous. Microfinance organizations like the Grameen Bank therefore provide a general path to affluences, simply because only a fraction of the population has the will and ability to be successful entrepreneurs. On the other hand, entrepreneurs often fail several times before finally becoming successful, so the authors advise an expanded microfinance industry that is more tolerant of the sorts of behaviors that may involve short-term losses, but lead to long-run successes. The authors conclude that we must consider microfinance policies as extremely successful and worthy of following, even though it is not panacea for the abolition of poverty. Because the poor lack access to social services freely available to the non-poor, the authors advocate such measures as providing clean water to poor villages and adding nutrients, such as iron, to staple foods. This, they argue, is not charity but simply the extension to poor of services already supplied to the rest of society. Concerning education, the authors believe that poor parents are usually very eager to have their children educated, although they may lack the means of enrolling their children in schools or providing for their transportation to and from school. However, too often the content of schooling is determined by what is good for the more affluent classes, so poor children are led voluntarily to quit school. The authors advise that the content of education take into account the preferences and culture of the target population. I cannot do justice to the beauty and intricacy of the argument developed in this book. The authors' main point is that we must look closely at the details of the lives of the poor in order to develop policies to help people to pull themselves out of poverty. This is neither demand or supply wallah-ism, and as they repeatedly stress, real progress can be made even in a society whose government provides a poor environment for economic development.

Although I am an economist by training and have studied economics for many years, I admit that in reading this book I have learned a great deal about the complexities of both the theory and the practice of anti-poverty policies in developing nations. Why are people so interested in the issue of global poverty? Well, to list a few of the many aspects about poverty addressed in this book, every year about 9 million children die before they reach their fifth birthday, usually in the poorest countries. In the developed world, a woman has a one-in-5,000 chance of dying while giving birth, but in many sub-Saharan Africa countries the odds are one-in-30. There are at least 25 countries in the world with life expectancies of 55 years or less. If these sorts of situations capture your mind and lead it to ask what can be done, one of the first things you might consider doing is learning more about the conditions and circumstances that lead to these revealing statistics. That's where this book comes in. So, is this book one you should buy? Presumably that's why you are reading this. Here are a few observations that may help you decide whether to buy this fine book: In the authors' own words, the book "is ultimately about what the lives and choices of the poor tell us about how to fight global poverty." That may not sound too sexy or exciting, but if you have an interest in facts, theories and observations about global poverty, then this is your book. On the other hand, if what you seek are simple theories and, especially, strong advocacy of a few preferred solutions, then you are probably barking up the wrong tree. Don't get me wrong; I like the book just as it is. There is so much information to consider and so many approaches to fighting poverty to contemplate. Just don't expect the authors to take a lot of your time championing pet solutions. Because the problem of poverty is itself rather complex, so are some of its solutions. Jack Webb (the "just the facts, ma'am" star of the "Dragnet" series) might have loved this fact-filled book. At least, he'd love it if he was an economist or someone interested in learning (a lot) about global poverty. Yet there's much more to the book that mere facts. Primarily, there is a pursuit of understanding the circumstances associated with poverty and the efforts to overcome it. That's where this book excels. It's certainly early to judge, but this book could prove to be a classic in its field. It successfully challenges and encourages the reader to think in new ways about anti-poverty initiatives. Although its authors are probably unknown to the general public, they are well regarded in economics. They both have received a number of prestigious awards, including the John Bates Clark Medal (to Esther Duflo) for the best American economist under age 40. Previous winners of this award include a Who's Who of economists, such as Paul Samuelson, Milton Friedman, James Tobin, Kenneth Arrow, Gary Becker, Martin Feldstein, Lawrence Summers and Steven Levitt. In short, this is a substantial book with a great deal of important content. There are some graphs, but less than you might expect from two economists. Importantly, it is readable and understandable by the interested lay reader. Frankly, I think it's a book you won't forget. If the issues of global poverty and economic development interest you, this is a book well worth your careful consideration.

It was good.

I’ve spent the past seven years working for Intuit, the company behind such successful consumer software products as TurboTax, QuickBooks, Quicken and Mint.com. A fundamental principle to our product management approach is the “follow-me-home.” That is, we literally shadow our potential customers – usually small business owners and American taxpayers and budgeters – to observe how they behave and why they make the decisions they do. The intent is to learn by observing, rather than surveying or relying on research reports. This widely acclaimed book by two young MIT economists, Abhijit Banerjee and Esther Duflo, takes the Intuit “follow-me-home” approach to the fight against global poverty. While Jeffrey Sachs is declaring the macro-decisions required to end global poverty literally within years and critics like William Easterly are asserting that such claims smack of utopian social engineering, the authors of “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty,” take a more customer-back approach to making a dent in the problem. They ask a few fundamental questions: “Are there ways for the poor to improve their lives, and what is preventing them from being able to do these things?” In Part I: “Private Lives,” Banerjee and Duflo take a close look at the lives of the poor from the ground level. Rather than conjuring up solutions from above, the authors first investigate actual behavior of those who are targeted with massive foreign aid packages. The world of development economics assumes that the poor are “trapped” and need our help to escape. They are hungry, lack access to healthcare, and family planning. Is that true? Moreover, there are two basic schools of thought in development economics, which the authors refer to as “wallahs,” from the Hindi word. Those, like Sachs, are “supply wallahs, who envision supply side solutions. That is, if you build schools and supply teachers, more children will go to school and overall education levels will improve. The other approach, the “demand wallahs,” is best exemplified by Easterly, who argues that only demand driven changes will make a difference. In other words, unless and until you change how locals see the value of education there is no point in building schools and hiring teachers. First, are there really a billion hungry people in the world? Is there a nutritional poverty trap? No, there isn’t, the authors say. A close review of the lives of the poor show that even those living on less than $0.99 a day spend only half of that on food. And if they happen to get more money, they almost always spend it on “empty calories” – sweats and delicacies – not more food. Is there a “health trap” affecting the poor, as Sachs argues? No, not really either, they claim. The poor actually spend a relatively significant sum on health care, but mainly on expensive cures rather than cheap prevention, mainly due to lack of information, “weak beliefs” and procrastination, according to the authors. Is there an “education gap” that explains why certain countries can’t seem to find growth? Sort of, they say, but it’s artificial and created by the locals themselves. Parents believe that only advanced education (high school and higher) pays dividends (the authors claim that each extra year of education boosts earning potential, even early elementary education) and both parents and teachers subscribe to an “up or out” mentality where only the most talented students are encouraged to stay in school and receive family support. Do large families contribute to poverty? Could better access to birth control alleviate the problem? Banerjee and Duflo claim that poor families having 10 children can be rational from their perspective. In all likelihood only 1 or 2 of their children will prove “worthwhile” – succeed in school, get a “good job” (more on that below), and take care of them in old age. Much like the other areas, there is little evidence that “supply” of family planning matters. “Demand” for such services is what really matters. Until poor families alter their views on the value of large families, no amount of intervention will matter. The same goes for valuing preventative healthcare and education, according to the authors. They clearly want to come across as neutrals in the Sachs vs. Easterly debate, but the weight of their evidence piles up heavily on the “demand wallah” side. In Part II: “Institutions”, the authors review the argument that the poor are hampered by the lack of critical institutions such as access to financing, savings accounts, insurance. “For the poor, every year feels like being in the middle of a colossal financial crisis,” they write, mainly because they lack many safety nets and support institutions. Some, like Nobel Peace Prize winner Muhammad Yunus, claim that microcredit financing institutions (MFI) hold the key to solving the riddle of global poverty. Banerjee and Duflo agree that the benefits of microcredit are significant, (“In our minds, microcredit has earned its rightful place as ‘one’ of the key instruments in the fight against poverty”), but it is far from being a panacea (“…we are kidding ourselves if we think they can pave the way for a mass exit from poverty”). The fact that only a fifth of eligible businesses in areas where MFIs are present leverage microcredit while the rest use local moneylenders offering extortionist rates needs to be explained. There are a couple of ways to look at it, really. For example, the amount available for loans is quite limited and the terms of repayment are rather inflexible. The informal network of money lenders provide several benefits that MFIs don’t. The lending is often based on personal relationships; the loan amounts can be larger; and the repayment schedule can be modified as needed. For many poor these benefits outweigh the extortionist rates the money lenders charge. Perhaps even more important, is the developing world home to a billion entrepreneurs waiting to grow their businesses if only they had the access to capital and other resources required? Hardly, the authors say. Rather, most “poor entrepreneurs” are entrepreneurs only because they can’t find any other work. Most of these enterprises are small retail shops that are undifferentiated and lack any real growth potential. “Perhaps the many businesses of the poor are less a testimony to their entrepreneurial spirit than a symptom of the dramatic failure of the economies in which they live to provide them with something better,” the authors write. The type of investment needed for genuine growth requires heavy upfront capital with delayed return, precisely the type of investment that microcredit does not support. “Taken together, this evidence makes us seriously doubt the idea that the average small business owner is a natural “entrepreneur,” in the way we generally understand the term, meaning someone whose business has the potential to grow and who is able to take risks, work hard, and keep trying to make it happen even in the face of multiple hardships.” What about access to saving accounts? The authors write how many of the world’s poor build their house brick-by-brick; whenever they come into some extra cash, they immediately buy some building supplies and add to the home, which may decade over a decade to complete. Why? Because the poor have no access to savings accounts and the authors suggest that there is no viable private market for it. Finally, Banerjee and Duflo rejects the pessimistic arguments made in “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” by Daron Acemoglu and James Robinson that INSTITUTIONS (that is, democracy, free speech, free markets, or lack thereof) in poor countries tend to be lacking and therefore arrest development and promote negative influences, like corruptions. The Banerjee and Duflo claim that changes for the better are possible, but only from the margins and from the bottom up. They maintain that even modest changes can have significant political repercussions, such as the threat of public audit. Yes, they conclude, INSTITUTIONS are critical and difficult to change, but they are not necessary and sufficient in and of themselves. Even well-intentioned programs have bad results due to lazy thinking at the policy stage. The important thing to remember is that “Details matter. Institutions are no exception.” In the closing chapter, “In Place of a Sweeping Conclusion,” Banerjee and Duflo write about five lessons from their research; although they stress that there are no silver bullets. First, the poor lack information; there’s evidence that simple information presented effectively can make a big difference. Second, the poor bear too much personal responsibility for critical decisions; we can make it easier for them to chlorinate their water, inoculate their children, save their money, and so on. Third, the conditions for some markets serving the poor are simply not there; we likely must give away or subsidize critical goods and services (e.g. bed nets, insurance, savings accounts). Fourth, many poor countries have poor political institutions, but they are not therefore doomed to failure; it is possible to design smarter policy without charging the existing social and political structures. Fifth, limited or unrealistic expectations become self-fulfilling prophecies; it is possible to change expectations by tackling the “Three I’s”: ignorance, ideology, inertia. In sum, “Poor Economics” offers a valuable and embarrassingly novel perspective – the perspective of the poor themselves, who have been the target of $2.3 trillion in foreign aid investment since World War II. They leave the reader with this thoughtful concluding statement: “If we resist the kind of lazy, formulaic thinking that reduces every problem to the same set of general principles; if we listen to poor people themselves and force ourselves to understand the logic of their choices; if we accept the possibility of error and subject every idea, including the most apparently commonsensical ones, to rigorous empirical testing, then we will be able not only to construct a toolbox of effective policies but also to better understand why the poor live the way they do. Armed with the patient understanding we can identify the poverty traps where they really are and know which tool we need to give the poor to help them get out of those.” Or, to put it more succinctly, “Attend to the details, understand how people decide, and be willing to experiment.”

Dans ce livre, les auteurs traitent des spécificités des économies des pays en développement. Ils présentent idées et hypothèses et les comparent aux résultats d'expériences et de campagnes très concrètes menées sur le terrain. Ce faisant, ils remettent en question pas mal d'idées reçues et démontrent que la bonne volonté seule ne suffit pas à faire avancer les choses. Au travers d'un livre très agréable à lire, ils nous encouragent à essayer de voir les choses au travers des yeux des plus pauvres, en nous demandant 'quels choix feriez-vous si vous deviez vivre avec moins de 1.9$ par jour'?

Bom livro, traz um bom aparato sobre trabalhos da Duflo e Banerjee do que funciona ou não para reduzir a pobreza extrema. Avisando que esse livro é a versão "poor" de encadernação, com uma capa que pode sujar facilmente e parecendo ser bem frágil, se quiser algo melhor acabado, compre a versão de capa dura. Entretanto, o conteúdo compensa essas falhas.

An excellent book; lays out the authors' case in a clear well formed fashion. Well researched. Quite informative and inspiring.

This book is fantastic for every human being, but specially for those of us who want to tackle the problem of human poberty one way or another. It just doesn't explain why things are the way they are, but it also offers solutions. And not just theoretical ones, but solutions that have actually worked in some parts of the world. Besides, the authors focus on each part of the problem in every chapter (hunger, education, health, etc.) which makes it even easier to understand and grasp the whole picture. Highly recommended book for everyone!

Ich finde dieses Buch wirklich großartig. Es ist einfach geschrieben und gibt gleichzeitig Einblicke in neueste wissenschaftliche Erkenntnisse. So ist es sowohl für mich als Ökonomin interessant, als auch für nicht-Ökonomen gut verständlich. Ich war immer wieder überrascht und beeindruckt von den Ergebnissen die die Autoren zu Tage gefördert haben. Dabei habe ich mich oft ertappt gefühlt dabei, wie einfach ich mir Entwicklungsökonomie vorstelle und wievielen Irrtümern ich aufsitze, wenn ich denk dieses oder jenes müsste man mehr machen, dann könnte man so viel erreichen. Klare Kaufempfehlung!