Thursday, April 26, 2012

Poor economics

Book : Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty 
By - Abhijit Banerjee and Esther Duflo
Wikipedia - http://en.wikipedia.org/wiki/Poor_Economics
Official site - http://pooreconomics.com/


Poor Economics was April's book for Bangalore politically inspired book club. I enjoyed reading it. Here is my review -

Poor Economics talks about various steps taken by institutions to eradicate poverty. They first describe the approach taken in detail and then go about analyzing its impact. They bring the idea of randomized trials into economic development to assess whether the approach is actually making a positive impact and by how much.  The idea of randomized trial is that people are divided into groups randomly and given different degrees of help, this data is then analyzed over a period of time to see if things have actually improved or not. In contrast, previously people were just given help but there was no ways to measure whether the help provided was useful or not.  So, theirs is a more scientific process and based on these experiments, they come up with conclusions and these conclusions are quite startling.

The book along the process analyzes things under the two realms of economic thought - demand-wallahs and supply-wallahs. The Demand-wallahs argue that there should be no need to provide anything until there is a demand for it. For example - there should be no need to provide education in a poor village if the people living there do not demand it. On the other hand, the supply-wallahs claim that people generally do not have an idea on how things can help them, so first we supply and then demand would follow. For example - In Africa, where people are dying because of malaria, if we supply mosquito nets, fewer people would die and people will start buying them automatically creating demand. To the education argument, the supply-wallah claim that lets educate people, then they will realize that their standard of education has improved by education and hence they will demand for it in future.

Indeed, i found both the arguments to be very convincing. Before i jump into my thoughts, i would like to talk more about the book conclusions. The book takes several cases and sometimes it justifies the demand-wallah's argument and sometimes the other one. So, the book (or the authors) claim that every situation is different and so is every solution. To summarize the book - it says (a) that the economics of poor is very different than what we think, so before we take any solution, we should understand the ground reality very well. (b) It also argues that there is no universal solution to the same problem. Solutions are very contextual, hence policies which are global tend to fail. So, there are cases when demand-wallahs win and there are cases when supply-wallahs win. (c) Lastly the book emphasize that every solution should be studies by the methods of these randomized trials to test its efficacy. Blindly putting solutions is a waste of time, money and efforts and mostly ends up in disaster.

My thoughts -
I was very impressed by the description of demand-wallah and supply-wallah line of reasoning. I had thought like that at some point or another but was never able to put it so precisely. My thinking is that if this would have been an ideal world, i would go with the demand-wallahs. And i base this based on my reading of tribal people. Tribal people, be the ones that i heard at Coonoor, or the ones that are living in Africa or the north east tribes, these people had lived very close to nature, they have their own medical practice, their own systems and cultures. These tribes have survived so far and hence as Darwin said "survival of the fittest", these tribes are fit to live on their own and hence require no outside intervention unless  they desire for it.
But we live in today's world where we are pretty much growing at the expense of nature. The very same nature which in my tribal example is the livelihood of tribal people. So land is taken away, water is going and there is climate change all around us. So, in today's world one needs to understand how to survive and one has to adapt in order to survive (Again darwin theory). And thus there are two  options that i see -
Option 1: The demand-wallah would argue that the adaptability would come by itself. If people can not adapt, they will perish, those who survive will be better off.
Option 2: We all need to survive together, we need to help others to survive. We need to share whatever we know off so far to survive, and hence this is the supply-wallah's argument which enforces/provides certain things.

In light of the two options above, i think we are increasingly going with option 2, so that most of us will survive. When we say that we need to educate poor, all we are saying is that they should understand the world we live in and hence should have a say in it. Otherwise, it will be a plunder (as it is already happening) and the poor will be trampled. In order to avoid it, we need supply-wallah.


As a disclaimer, having said the above, i would like to clarify that i do agree that contextual solutions are still the way to go forward. The case of supply-wallah is not applicable for every argument, because many a times, there is a capitalistic greed behind them. So, one needs to be astute enough to apply/follow them.

But as a general theory, i only support supply-wallah(wherever applicable) just so that everybody is on equal standing and can contribute to the future. For example, i support education to poor but when it comes to health care, i think it should be either (a) optional or (b) demand driven. I feel very sorry for the tribal people who had no idea what has just happened in last century and how suddenly they are living in a different world altogether.


About the meetup -
The meetup was ok. Total attendance was up to three, so yay! but the two people other than me came without reading the book which was a let down as then there was not much of a meaningful discussion. But nothing to get discouraged. We shall persist, the next month's book is equally interesting - The God delusion by richard dawkins.   I, being an atheist, am having just too much fun reading it !

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