In October, MIT economists Esther Duflo PhD ’99 and Abhijit Banerjee were named co-winners, with Harvard University economist Michael Kremer, of the 2019 Nobel Prize in Economics for their groundbreaking research on combatting global poverty. The duo co-directs MIT’s Abdul Latif Jameel Poverty Action Lab. Duflo holds the Abdul Latif Jameel Professorship of Poverty Alleviation and Development Economics, and Banerjee is the Ford Foundation International Professor of Economics. Last fall, they released a new book, Good Economics for Hard Times (PublicAffairs, 2019), in which they explain how and why intelligent interventions can reap societal benefits.
[Creating successful policies to fight poverty] is patient work; spending money by itself does not necessarily deliver real education or good health. But the good news is that… [while we do not always know how to foster growth,] we know how to make progress here. One big advantage of focusing on clearly defined interventions is that these policies have measurable objectives and therefore can be directly evaluated. We can experiment with them, abandon the ones that do not work, and improve the ones with potential.
The recent history of malaria is a good example. Malaria is one of the biggest killers of small children and a disease preventable by avoiding mosquito bites. Since the 1980s, the number of malaria deaths had been rising every year. At the peak in 2004 there were 1.8 million deaths from malaria. Then in 2005 there was a dramatic turning point. Between 2005 and 2016, the number of deaths from malaria declined by 75 percent.
Many factors probably contributed to the decrease in the number of malaria deaths, but the widespread distribution of insecticide-treated bed nets almost surely played a key role. Overall, the benefits of nets are well established. In 2004, a review of the evidence from 22 carefully done randomized controlled trials [RCTs] found that, on average, 1,000 more nets distributed contributed to a reduction of 5.5 deaths per year. As we described in Poor Economics [PublicAffairs, 2011], however, there was a big debate at the time on whether nets should be sold to beneficiaries (at a subsidized price) or given for free. But an RCT by Pascaline Dupas and Jessica Cohen, replicated since then by several other studies, established that free nets are in fact used just as much as nets that are paid for, and free distribution achieves a much higher effective coverage than cost sharing.
Since Poor Economics was published in 2011, this evidence eventually convinced the key players that massive distribution was the most effective way to fight malaria. Between 2014 and 2016, a total of 582 million insecticide-treated mosquito nets were delivered globally. Of these, 505 million were delivered in sub-Saharan Africa, and 75 percent were distributed through mass distribution campaigns of free bed nets. The magazine Nature concluded that insecticide-treated net distributions averted 450 million malaria cases between 2000 and 2015.
The accumulation of evidence took some time, but it worked. Even the skeptics were convinced. Bill Easterly, who in 2011 was an outspoken critic of free bed net distribution, gracefully acknowledged in a tweet that his nemesis Jeff Sachs was more right than he was on this particular issue. The right policy choices were made, leading to tremendous progress against a terrible scourge.
The bottom line is that despite the best efforts of generations of economists, the deep mechanisms of persistent economic growth remain elusive. No one knows if growth will pick up again in rich countries, or what to do to make it more likely. The good news is that we do have things to do in the meantime; there is a lot that both poor and rich countries could do to get rid of the most egregious sources of waste in their economies. While these things may not propel countries to permanently faster growth, they could dramatically improve the welfare of their citizens.
Investing in human capital
Moreover, while we do not know when the growth locomotive will start, if and when it does, the poor will be more likely to hop onto that train if they are in decent health, can read and write, and can think beyond their immediate circumstances. It may not be an accident that many of the winners of globalization were ex-communist countries that had invested heavily in the human capital of their populations in the communist years (China, Vietnam) or countries threatened with communism that had pursued similar policies for that reason (Taiwan, South Korea). The best bet, therefore, for a country like India is to attempt to do things that can make the quality of life better for its citizens with the resources it already has: improving education, health, and the functioning of the courts and the banks, and building better infrastructure (better roads and more livable cities, for example).
For the world of policy makers, this perspective suggests that a clear focus on the well-being of the poorest offers the possibility of transforming millions of lives much more profoundly than we could by finding the recipe to increase growth from 2 percent to 2.3 percent in the rich countries…It may even be better for the world if we did not find that recipe.