Philanthropy Action

Analysis, Interviews, and Reviews


MIT economists Abhijit Banerjee and Esther Duflo spend a lot of time in the villages of India, Indonesia, Morocco, Kenya and other developing nations conducting surveys and studies and speaking with the poor people. Ultimately they want to help, but first they want to learn why the poor make the choices they do. Their new book, Poor Economics, emerges as a readable exploration of those choices, but the book is more than that. It aims, no less, to discredit the popular notion that big problems like poverty need Big Ideas. Inevitably, their main targets are Jeffrey Sachs, the Columbia University economist who posits that poor people are poor because they are caught in one or more poverty traps, and William Easterly, an economist at NYU and one of the highest profile advocates for the Big Idea of community level market-based development initiatives.
A poverty trap can be poor health, which saps funds and prevents an individual from working; it can be poor education, which limits future earning potential; it can be lack of access to formal financial services, which makes it hard to weather income fluctuations or make productive investments in businesses or individuals. If poverty traps truly cause poverty, Banerjee and Duflo posit, than fairly straightforward interventions would be enough to resolve poverty in any given group. On health, they say, “The good news is that if something like this is what is going on, we may only need one push, one generation that gets to grow up and work in a healthy environment, to set the trap loose.”

A Sachs-ian “push” involves significant short term services made broadly available either for free or with a substantial subsidy. For this position, Banerjee and Duflo label proponents of Sach-sian thinking “supply wallahs” (in Hindi, a “wallah” is a as a purveyor of some good; a Chai-wallah sells tea, for example, and an auto-wallah a rickshaw driver).  On the other side are the “demand Wallahs,” people like Easterly who are at least minimally skeptical of the value of top down social programs that rely simultaneously on donor funds and recipient compliance. The poor are consumers like everyone else, the demand wallahs posit, and as a result, “solutions” have the greatest chance of success when they fulfill a particular need or desire. 
Yet when Banerjee and Duflo examine whether poor people are truly trapped, or whether they are truly served by grass roots market-driven models, they consistently find that these traps are not as simple to define or eradicate as Sachs originally described nor is demand as easy to identify and unpack.  There is no doubt that the poor suffer from poor health and have little access to good healthcare, and that the quality of the education they receive is usually low. But these realities don’t fully cause or explain the persistence of poverty. Banerjee and Duflo explore in-depth studies and experiments they and their peers have conducted on health, education, family size, financial access and other subjects. From this rich and varied source of evidence they consistently show that both the demand wallahs and the supply wallahs simplify the real problems, trade-offs and decisions that the poor face.
Take health. The poor suffer disproportionately from ill health, and Health Trap thinking argues that the problem is that the poor lack money to visit a doctor and lack medical facilities close to where they live, which causes small health problems to become big health problems. Money and access are certainly challenges but Banerjee and Duflo show that they are not the full story:

Some [health] technologies are so cheap that everyone, even the very poor,
should be able to afford them. Breast-feeding, for example, costs nothing at all. And yet
fewer than 40 percent of the world’s infants are breast-fed exclusively for six months, the
WHO recommendation…Chlorin (a brand of chlorine distributed by the social marketing
organization Population Services International [PSI]) costs 800 kwachas ($0.18 US PPP)
and lasts a month. This can reduce diarrhea in children by up to 48 percent…Yet only
10 percent of the population actually uses bleach to treat their water…Demand is similarly
low for bed nets.

The chapter then draws from a variety of studies on health interventions, from bed nets to vaccinations, to illuminate the fact that that people are consistently…well…inconsistent. Pregnant women in Kenya happily accept bed nets for free and use them as intended, yet mothers in India need a push to get their kids vaccinated.

Contradictions arise across all the development sectors. Having too many children is often cited as a poverty trap, yet families with fewer children do not seem better off than their more procreative peers; telling Kenyan girls that older men are more likely to be HIV positive than their young peers decreases teen dropout rates and pregnancy, but teaching Kenyan girls about HIV prevention has no effect. Cumulatively, these facts rarely add up to a rational model of human behavior, and Banerjee and Duflo’s willingness to follow the path of these contradictions makes for chapters that twist and turn with no head of steam to build toward a final, clear conclusion. This windy path they follow is dictated by the real actions and needs of the poor, and it’s antithetical to Big Ideas.

Banerjee and Duflo do not go so far as to say that traps do not exist, nor that demand-based development is bound to fail, but they do argue that the solutions borne of Big Ideas consistently miss the mark. In their words, “The ladders to get out of the poverty trap exist but are not always in the right place, and people do not seem to know how to stop onto them or even want to do so.”

From reproductive choice to vaccinating children, people have to step on the ladders available to them, and very few of them do. Many poor pregnant women will admit that their pregnancy is unwanted, yet they will not seek out reproductive counseling if it is offered in the presence of their husbands. Poor villagers rarely bring their children to the health clinic for a full round of routine vaccinations, even when the clinics are regularly staffed and the shots are free. These are complex and confusing problems, and Banerjee and Duflo do not claim to have all the answers. But the successes they highlight involve, without exception, small adjustments or encouragements, “nudges,” that help people do what is in their own best interest.

Banerjee and Duflo write exceptionally well, and given that there are two of them, the voice is surprisingly singular. But the real surprise in this book is its humility. Both the authors and the material they pull from are truly formidable, yet Banerjee and Duflo are not really out to make a hard pitch, least of all to die-hard Big Idealists who disagree with them. As such, there is nothing directly confrontational about Poor Economics. They are peeling the onion, not hacking it to pieces. Such meticulousness brings them to the eventual conclusion that framing the challenges of development through Big Ideas such as poverty traps, or indeed the Millennium Development Goals, generates Big Solutions that are cumbersome, expensive, top-down, and ultimately fail to consider the one critical success factor for any development initiative: the people.

Editor’s Note: Our review of Dean Karlan’s and Jacob Appel’s book More than Good Intentions is here.


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