Book club: Poor Economics

Finbarr Bermingham enjoys an engrossing dive into the economic plight of the world's most deprived people

Poor Economics

By Abhijit V. Banerjee and Esther Duflo

Penguin Economics, 2012

After the Japanese tsunami and subsequent Fukushima nuclear disaster last year, influential Reuters blogger Felix Salmon ruffled a few feathers by calling for people to hold back on their donations. It was a reiteration of a plea he made following the Haitian earthquake in 2010, when he claimed that campaign-based donations often result in "a mess of uncoordinated NGOs parachuting in to emergency areas with lots of good intentions, where a strategic official sector response would be much more effective". The crux of Salmon's argument is that philanthropy is often misplaced due to a lack of understanding of the requirements of its intended destination and of its recipients. Too often, we're sucked in by a compelling advert or an ambitious appeal (think "make poverty history"), without giving a thought to how it might be accomplished.

Poor Economics is an attempt at moving away from such top-down approaches to eradicating poverty. The authors - both professors at Massachusetts Institute of Technology - go even further than Salmon by encouraging us to steer clear of macroeconomics and instead focus on the finer details of development. Rather than debating the generalist "does aid work?" in plush Genevan office spaces ad nauseam, the west should look at the lives of those surviving on less than $1 per day, and ask: "What can be done to improve this individual's life?" In their lengthy, painstakingly detailed research, Banerjee and Duflo have done exactly this, using a data set of 18 countries. In trying to understand the machinations of the economics of being poor, they have presented eye-opening, fascinating results.

In one illuminating passage, the authors turn their attention to teenage pregnancies in rural Kenya, where all efforts in educating schoolgirls on the dangers of HIV and early pregnancy seemed to have fallen on deaf ears. Researchers found, however, that if given a school uniform, girls were likely to stay in education and that "for every three girls who stayed in school because of the free uniform, two delayed their first pregnancy".

The girls were fully aware of the dangers and results of unprotected sex - but having left school, many of them saw prospective fathers as a means of survival. Rather than being foolish and carefree, the poorest people often make calculated economic decisions to ensure their futures that might initially seem baffling to those on the outside. But by figuring out why they're doing it, perhaps governments or NGOs can provide them with alternative options. It's this message which resonates throughout the book.

Poor Economics' greatest success is the length to which it goes to bridging the gap between the perceived personality of rich and poor. It's almost certainly unintentional, but many in the developed world are guilty of adopting an "us and them" attitude to the poor - a fact, arguably, compounded by the almost taxonomical term "the poor" itself. Poor Economics' presents**those featured in the research with characters we almost certainly recognise in ourselves - sometimes frustrating, but often inspiring. Just as we suffer from lapses in self-control (just one chocolate bar... one more pint), so too can somebody in sub-Saharan Africa, who instead of paying for a vaccination for a child - the benefit of which may not be visible in their own lifetime - buys some extra rice or tea. Short-termism is not exclusively a western trait; the difference is, we can get away with pandering to our immediate desires a lot more than somebody who lives on less than $1 per day.

Our lives, too, are governed by a host of invisible structures, but some potentially life-altering choices have been taken centrally on our behalf that the poor have to take themselves on a daily basis. When did you last wake up in the middle of the night and, without thought, pour yourself a glass of water? For someone in parts of, say, Indonesia or Nicaragua, they must beforehand have taken the decision to purchase chlorine to add to the water (not to mention have lugged the water back from the well). New parents in Britain are legally obliged to have their babies inoculated and a few years later, send them to school. In developing countries, there are no such obligations and quite often, there's a lack or distrust of facilities (public sector services in the poorest regions come in for particularly strong criticism over the course of the book) that might ordinarily help them climb the social ladder.

Banerjee and Duflo almost relentlessly present evidence of such structural failings and lack of social safety nets in the developing world - along with ignorance on the part of those well-intentioned people trying to help. Until global institutions readdress their own tack and focus on the minutiae, "poverty traps" may continue to paralyse many. But from the comfort of our living rooms, it is still possible to make a difference. This book will, if nothing else, inspire you to do a little digging before you make a donation decision. Don't always go for the heartbreaking image, the flavour-of-the-month appeal or the catchall sloganeering. Look for those charities and NGOs with clearly articulated, defined and proven methodologies and missions. The success of much of the research explained by Poor Economics shows that empiricism should always trump fleeting sympathy.