Poor Economics: It Ain’t so Dismal!

Must economics be stuck with the “dismal science” image? Can there not be more imaginative and powerful ways to make economics useful to world? Let Esther Duflo (b. 1972) show the way. Duflo is a professor of economics at the Massachusetts Institute of Technology (MIT). She was part of a team advising President Obama on global development policy and was named one of Time magazine’s most influential people in the world. Below is an edited summary of her TED talk.

MIT economist Esther Duflo

Imagine you have a few million dollars that you’re raised. Maybe you’re a politician in a developing country and you have a budget to spend. You want to spend it on the poor. How do you go about it? Do you believe the people who tell you that all we need to do is spend money? That we know how to eradicate poverty, we just need to do more? Or do you believe the people who tell you that aid is not going to help; on the contrary, it might hurt, it might exacerbate corruption, dependence etc?

Sadly, we don’t know. And worst of all, we will never know. Take Africa, for example. Africans have already got a lot of aid… and the GDP in Africa is making much progress. Okay, fine. How do you know what would have happened without the aid? Maybe it would have been much worse…We have no idea. We don’t know what the counterfactual is. There’s only one Africa.

Here are some other questions. They’re smaller questions, but they are not that small. Immunization: that’s the cheapest way to save a child’s life. And the world has spent a lot of money on it. The GAVI and the Gates Foundations are each pledging a lot of money towards it and developing countries themselves have been making a lot of effort. And yet, every year, at least 25 million children do not get the immunizations they should get. So this is what you call a “last mile problem.” The technology is there, the infrastructure is there, and yet it doesn’t happen. How do you use your million to solve this last mile problem?

And another question: Education. Maybe that’s the solution; maybe we should send kids to school. But how do you do that? Do you hire teachers? Do you build more schools? Do you provide school lunches? How do you know?

I cannot answer the big question. But these smaller questions, I can answer them. It’s not the Middle Ages anymore; it’s the 21st century. In the 20th century, randomized, controlled trials have revolutionized medicine by allowing us to distinguish between drugs that work and drugs that don’t work. And you can do the same randomized controlled trial for social policy. You can put social innovation to the same rigorous, scientific tests that we use for drugs. And in this way, you can take the guesswork out of policy-making by knowing what works, what doesn’t work, and why.

So I start with immunization. Here’s Udaipur District, Rajasthan. Beautiful. Well, when I started working there, about 1 percent of children were fully immunized. That’s bad, but there are places like that. Now, its not because the vaccines are not there – they are there, and they are free – and its not because parents do not care about their kids.

So what is the problem? Well, part of the problem, surely, is people do not fully understand. After all, in this country (the US) as well, all sorts of myths and misconceptions surround immunization. So if that’s the case, that’s difficult, because persuasion is really difficult. But maybe there is another problem as well. That is moving from intention to action.

Imagine you are a mother in Udaipur District. You have to walk a few kilometres to get your kids immunized. And maybe when you get there, what you find is this: the center is closed. So you have to come back, and you are so busy and you have so many other things to do. You will always tend to postpone and postpone, and eventually, it gets too late.

So what we did is we did a randomized, controlled trial in 134 villages in Udiapur District … In the red dots [referring to a map of the area], we made it easy and gave people a reason to act now. The white dots are comparison; nothing changed. So we make it easy by organizing this monthly camp where people can get their kids immunized. And then you give them a reason to act now by adding a kilo of lentils for each immunization. Now, a kilo of lentils is tiny. It’s never going to convince anybody to do something they don’t want to do. On the other hand, if your problem is that you tend to postpone, then it might give you a reason to act today rather than later.

So what do we find?… Just having the camp, immunization increases from 6 percent to 17 percent … That’s not bad; that is good improvement. Add the lentils and multiply the immunization rate by six. Now you might say, “Well, but it’s not sustainable. We cannot keep giving lentils to people.” It turns out that’s wrong economics, because it is cheaper to give lentils than not to give them. Since you have to pay for the nurse anyway, the cost per immunization ends up being cheaper if you give incentives than if you don’t.

Suppose your goal is to get kids into school. There are so many things you could do. Now I’m going to show you what we get with various education interventions. So the first ones are the usual suspects: hire teachers, school meals, school uniforms, scholarships etc. These get you between one and three extra years of education. And here are the most surprising results. In places where there are worms, intestinal worms, cure the kids of their worms. And for every hundred dollars, you get almost thirty extra years of education. So this is not your intuition, this is not what people would have gone for, and yet, these are the programs that work.

You have to keep experimenting, and sometimes ideology has to be trumped by practicality. And sometimes what works in one place doesn’t work in another. It’s a slow process, but there is no other way.

Further Study

Abhijit Banerjee and Esther Duflo, Poor Economics: A Radical Way of Rethinking the Way to Fight Global Poverty, Public Affairs (reprint ed), 2012.

Leave a Reply