Book Review: “Poor Economics” by Abhijit Banerjee and Esther Duflo

by Evan Pye

Abhijit Banerjee and Esther Duflo, both professors of Economics at MIT, released their book Poor Economics in 2011. It is the best book on poverty that I have read, because it relies entirely on evidence that the two authors have discovered themselves through the use of randomized controlled trials (RCTs). They do not rely on sweeping theories of poverty and development, but they point out many other authors who do – Jeffrey Sachs, Paul Collier, and William Easterly in particular. They breakdown many of the myths and theories surrounding poverty alleviation and usually offer an RCT that has either proven them, disproven them, or exposed some previously-unappreciated nuance to them.

Because their background is in economics, they tackle questions of poverty as generalists, covering health, education, finance, entrepreneurship, and governance. The book gives the reader a sense of the holistic nature of poverty as a challenge, and the myriad of solutions that must be understood and implemented in order to combat poverty. I have experience in global health, but it was really good to learn about interventions and strategies to help the poor when it comes to health insurance and financial services. Furthermore, the authors explain what lucrative businesses there are in the developing world if people can figure out how to provide health insurance or provide loans for medium-sized enterprises (the ones too big for microfinance, but too small for traditional banks.)

The book ends with five overarching lessons that I’ll list and describe here.

  1. “The poor often lack critical pieces of information and believe things that are not true”
    1. Ex: benefits of immunizing children, the value of early education, how much fertilizer to use, the easiest way to get infected with HIV, activities of their politicians.
  2. “The poor bear responsibility for too many aspects of their lives”
    1. Ex: Unlike many rich communities, they worry about purifying their water, supplementing their children’s food with nutrients, saving money without a bank system
  3. “There are good reasons that some markets are missing for the poor”
    1. Ex: loans have very high interest rates, no market for health insurance
  4. “Poor countries are not doomed to failure because they are poor”
    1. Ex: There are small interventions that can improve conditions
  5. “Expectations about what people are able or unable to do all too often end up turning into self-fulfilling prophecies”
    1. Children give up in school when they are told they are not smart; fruit sellers don’t pay back debt because they believe they will soon fall back into debt; nurses stop coming to work because no one expects them to be there

Haiti’s History

By Evan Pye

This week I began to prepare for a trip I am planning to Haiti at the end of June by studying the country’s history. I have been interested in Haiti for a long time, having read Mountains Beyond Mountains by Tracy Kidder and Haiti: After the Earthquake by Paul Farmer. Most people probably associate Haiti with a high level of poverty and the earthquake that caused so much destruction in 2010. Yet, its history has been extremely rich and intriguing since before it even became a country in 1804. It’s a story full of violence, accomplishment, and misfortune; and it is very much in the middle of its own history today. My sources of information this week were Haiti: After the Earthquake, a BBC timeline, and a long article written by Paul Farmer in 2004.

To start with the present day, Haiti is in the midst of an election cycle which will have taken over a year to complete. President Michel Martelly completed his term in February 2016, but the first round of presidential elections in the previous October had been marred by fraud and corruption. He therefore was unable to welcome the new president and Haiti has appointed an interim President until they are able to re-do the contested elections, which are now scheduled for October 2016.

Haiti’s encounters with Europe began as early as 1492, when Christopher Columbus landed on the island of Hispaniola during his first expedition to the Americas. The island was inhabited by a native people known as the Taino. The first European settlement in the Americas was the city of Santo Domingo in what is now Dominican Republic, a city which I have visited without realizing its historical significance. After only 100 years, all of the Taino people were wiped out by disease or violence, both on account of the European settlers. Spain controlled all of Hispaniola (little Spain), but ceded the western third of the island to France in 1697. France called this colony Saint Domingue, which would later come to be known as Haiti. France wasted no time bringing over slaves from Africa and had transported 30,000 of them via the Columbian Exchange by 1540. As a result, Haiti became an extremely brutal, efficient, and productive colony for France. It provided ⅓ of the tropical products to Europe and was the world’s leading exporter of coffee and sugar, making it more valuable to France than all of its other colonies combined.

In 1791, a freed slave named Touissant L’Ouverture led a rebellion that conquered the country that was 85% slaves by the point and declared himself ruler over all of Hispaniola. In response, Napoleon sent his brother-in-law Charles LeClerc with an armada of 40,000 troops to quell the uprising. L’Ouverture had already been captured and taken to France, where he died in prison. But Jean-Jacques Dessalines replaced him as leader of the rebellion, defeated Napoleon’s army, and declared Haiti an independent nation on January 1st, 1804.

Although Haiti had succeeded in freeing itself from France, the country was surrounded by hostile Caribbean colonies of European superpowers and America, which was afraid of the influence the slave revolt would have on the South. America wouldn’t recognize Haiti’s sovereignty until the 1860s. In 1825, France demanded reparations from Haiti for its lost land and property (meaning the slaves) of 150 million Francs. With its Navy surrounding Haiti’s water to threaten recapture, Haiti had to comply and begin paying the debt, which they would continue to pay until the 1950s. The total in today’s dollars would become $21 billion, and severely limit their their economic growth for more than a century.

In 1915, the United States invaded Haiti and occupied the country for 19 years, after disbanding the Haitian military and seizing control of the treasury. America’s reasoning for these actions were fears over the conflict between Haitian blacks in the North and mulattoes in the South. The US removed their troops from Haiti in 1934, but maintained fiscal control until 1947. It wasn’t long before more poor leadership would seize power in the form of a voodoo physician named Francois Duvalier, known as “Papa Doc”, in 1957. Duvalier was a corrupt and oppressive ruler. He was succeeded after his death in 1971 by his 19-year-old son, known as “Baby Doc.” Haiti finally kicked the Duvaliers out of power in 1986, and immediately drafted a new Constitution with changes such as making Creole the country’s official language.

After several failed and corrupt elections, Jean-Bertrand Aristide won the country’s first free and peaceful elections in 1990. He was ousted in a coup just one year later, but he would return in 2000 and be elected as president once more. He took over for Rene Preval, who served peacefully between 1995-2000. Aristide was a very pro-poor, socialist leader who President and Bush did not approve of. Bush decreased development aid to Haiti’s government and got the rest of the world to do the same. Haiti’s budget shrunk, leaving their education, health, and security systems to suffer. There was an increase in gangs and crimes, and Aristide was exiled in 2004 with the help of the Americans and the French. Aristide claims he was kidnapped by these foreign powers, who airlifted him to the former French colony, the Central African Republic. The rest of the 2000s were marked by gang violence, several contested elections, and deadly natural disasters. Rene Preval became president again in 2006, and was replaced by Michel Martelly in 2011. In January of 2010, the 7.0-magnitude earthquake killed nearly 300,000 people and led to an international pledge of $5.3 billion in aid money, most of which has not arrived or not been well-spent.

“The Pursuit of Development” by Ian Goldin

A Lecture on Youtube from the Oxford Martin School

By Evan Pye

This week I watched a video lecture by Professor Ian Goldin from the Oxford Martin School’s Youtube channel. Ian Goldin has recently published a book called The Pursuit of Development: Economic Growth, Social Change, and Ideas. I haven’t read the book, but I watched this lecture where he summarizes its contents and engages in a discussion with the audience. Goldin claims that the book is useful to beginners as well as those experienced with the idea of development. He begins by defining development as it relates to human, social, and economic progress. Previously, development was measured primarily by GDP, but now new, more comprehensive measurement tools have emerged, including the UNDP’s Human Development Index, the Happiness Index, and the Social Progress Index. Although wealth is becoming a lesser component of what is known as “development,” it is still worth noting that 900 million people currently live in extreme poverty, which has recently been re-defined by the World Bank as $1.90 per day.

After defining “development,” Ian Goldin discussed the past several decades of the aid industry and the mistakes it has made. He suggests that many people have a bad impression of aid, because so many projects have turned out to be failures in the past. Nevertheless, he argues that the international community has learned many lessons in the midst of these failures and that aid today is better spent than ever before. In fact, aid per capita from rich countries is apparently half of what it was in the 1980s, because of the improvements in donating, receiving, and tracking aid money. That’s not to say that rich countries shouldn’t be giving more money. The United Kingdom is the world’s only country that has committed by law 0.7% of its GDP to official development assistance, and it is one of only three countries that gives that large a portion of its GDP.

Goldin jumps around to a lot of different topics in this lecture because he only had 45 minutes to speak about his book, so I’ll highlight a mix of some of his points that stuck with me. First, he used Ghana and South Korea as an example of how rapidly development can change a country’s economy. In 1960, those two nations had the same average income levels. Today, South Korea is 11 times richer than Ghana. On the flip side, Argentina was the world’s 7th richest country 100 years ago – today it is the 56th richest country. China has doubled its average income per capita every 10 years for the past 35 years. To demonstrate the levels of intra-national economic disparity, Goldin points to the fact that some states in India have average per capita incomes of $10,000, while others have incomes of just $500. In terms of global inequities, he points to the migrant crisis, climate change, and the vulnerability of the poor as important issues to consider. Finally, he brought up the “resource curse,” explaining how some (but not all) countries with considerable resources, such as oil or minerals, have been exploited and forced to suffer from violent conflicts. Goldin says that “conflict is development in reverse,” because it tears down everything development aims to accomplish.

This lecture was a really good overview of a lot of topics surrounding sustainable development, and it made me very interested in reading The Pursuit of Development and other books by Ian Goldin. I would also highly suggest subscribing to the Oxford Martin School’s Youtube channel, which is full of lectures by experts and professors in the most interesting fields (technology, climate change, health, poverty, etc).