Friday, April 27, 2012

Poor Economics

In Poor Economics (2011), Abhijit Banerjee and Esther Duflo claim to have discovered a radical new way to fight global poverty. Given the magnitude of the problem and the dismal failure of many previous "solutions", this is a significant claim. But does it have any merit?

Well, Banerjee and Duflo's fundamental idea of using randomised field trials to test various public policy alternatives is far as it goes. Unfortunately, it doesn't go very far. It basically looks at lots of small-scale public policy problems and questions and investigates them rigorously, from the scientific perspective. Which is fine. I can't argue with good science. The trouble is this: Is this small-scale, bottom-up, micro-level approach really THE answer to global poverty? I don't think so. All the existing evidence from all the countries that have ever "developed" indicates that the answer must involve large-scale, top-down, macro-level policy solutions. Micro-level solutions are little more than palliatives.

Banerjee and Duflo neatly (and self-servingly) portray all existing thinking on economic development as falling into two opposing camps, pro-aid and anti-aid, and then claim that there is currently no definitive evidence to prove or disprove either of these camps. A rather convenient characterisation. Naturally, their work on randomised evaluations provides the brave new third way. Evidence-based, of course.

I understand their argument about a lack of evidence. The only problem is it happens to be factually and historically incorrect. Consider the case of Germany, East and West. Or Korea, North and South. Or even Zambia, pre-1991 and post-1991. These cases (and numerous others) provide ample controlled evidence of what really works and doesn't work in economic development.

But perhaps what's most disturbing about Banerjee and Duflo's work are its implicitly (and no doubt unintentional) racist assumptions. How come other countries (from the West, East and increasingly the global South) have been able to develop without the interventions of external do-gooders like Banerjee and Duflo? Why does the world suddenly need a different formula without which the countries of Africa and other underdeveloped parts of the world will be doomed to perpetual poverty?

Poor economics indeed.

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