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revolutionizing development economics

Monday 11 July, 2011

The Chicago Council on Global Affairs hosted a lunch for Esther Duflo of MIT who is Revolutionizing Development Economics.  She’s written a book about how she’s seeking to understand how the poor function & how to design effective policy to help alleviate poverty & check it’s effectiveness.  The debate on aid & poverty is how broad & general should it be?  The US has no solutions & only creates problems which are difficult to resolve.  Africa received lots of aid during the 1960’s & still has little GDP growth today.  They still don’t have many good alternatives.  We’re obsessed with aid because we only see it dispersed from here, but only a small percentage is actually spent.  The real question is “How can aid monies be spent more effectively?”

There is a fair amount of ineffective policies that adhere to the 3 i’s:  ideology, show ignorance of reality, & can’t overcome existing inertia.  Where are the levers?  How do we lead the charge?  What constitutes success?  There are no new products or markets to tell us.  Social policies operate where markets are missing.  When social value exceeds private value, it leads to subsidies.  Assuming schools are a given means they won’t change unless they are private.  Randomized control trials create comparable results.

Esther has uncovered a number of surprises in her research.  The poor are actually not hungry.  Indians are eating less & less, but rice is only subsidized 10%.  If it becomes any cheaper, they will eat anything but rice.  There is a nutrition problem:  ½ of poor women are anemic.  Poor people still make rational conscious decisions.

We can improve education by removing the best students, which is good for everyone.  In Kenya, the educational system was biased towards the elites & tended not to change.  Parents are only interested when their students are doing well.  Classes that were heterogeneous made teaching become more focused.

Many are entrepreneurs, but they don’t want to be.  They are simply resilient.  80% of parents say their children should become civil servants.  Entrepreneurs move up to close the “Missing Middle” but there’s still a growth gap.  They’re invested in moving up but can’t lift themselves out of poverty.  The objective of microcredit is not to lift people out of poverty because it will never grow big enough to bridge the gap.

People don’t like women politicians, but they’re more reluctant to change.  After they’re exposed to women leaders, the biases disappear.  Women are good leaders who take fewer bribes, but men rate them lowest.  Politics matter, but there is still slack to do better.  We need to aspire to better than leading good institutions with bad policies (the 3 i’s).  Improving the lives of the poor may or may not spur economic growth, but poverty is everybody’s problem.

Q&A

  • Randomized control trials are easy to explain & a good way to get the ear of politicians.  Esther encourages experimentation, asking-not telling, & leaving behind a monitoring ability.
  • The role of for-profits needs to be “spaced” adequately with non-profits.  For example, there’s no money in immunization because the money is in vaccines, so identify what’s missing to find opportunity.  Not everything can be solved by for-profits:  use the right tool for each problem.
  • Modifying existing food like sweet potatoes to be more nutritious makes more sense than promoting macronutrients.
  • Corruption is a result of institutions which needs to be fought with sets of rules that make the population more incumbent.
  • The new leaders of South Sudan shouldn’t listen to the elevator pitches of all the experts, rather they should subscribe to a plan & learn what will work for them.  They do need to legitimize themselves from early on.

 

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