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Poor Economics: Barefoot Hedge-fund Managers, Reluctant Entrepreneurs and the Surprising Truth about Life on less than $1 a Day

March 27, 2012

Last evening, Abhijit Banerjee gave a talk at the LSE drawing on his most recent work, Poor Economics (co-authored with Esther Duflo), which we reviewed here

The title of the talk (and the post!) is slightly misleading since he didn’t focus solely on entrepreneurship, which is Chapter 9 in the book. Instead he spoke more broadly about topics in development framing the talk with anecdotes and examples from the book to illustrate different hypotheses.

Some notes from the talk:

  • Poor Economics is about how ‘not’ to think about development economics. We mostly think of the poor in stereotypical ways and the book invites you to rethink those notions and assumptions.
  • Food subsidies are often thought to be a measure to alleviate poverty and malnourishment. However, evidence shows that giving subsidized food to the poor means they will spend less on that particular item & substitute it by buying more expensive food, which may not even improve their caloric requirements. (He gave the example of the effects of a rice subsidy in India)
  • Children in school in India are not learning because the school system is not catered to ‘who’ is doing the learning. You have an education system from the colonial times that was designed to create an elite of few educated people. If you transpose that model into a system designed to achieve universal education, you have a disaster at hand.
  • Banerjee related an anecdote of meeting a man in Morocco (if I remember correctly), who was asked what would you do if you had more money, he said buy more food. When he was asked the same question a second time, he gave an identical response. His responses reflected that he must be a starving man. However, upon entering his house, they saw a TV and a DVD player. The man claimed TV is more important than food, which indicates that pleasure matters more to the poor than we think it does.
  • Prejudices (in voting) are sustained by the fact that the political system doesn’t deliver.
  • In developing countries, majority of parents would still prefer their children to work in the public sector rather than start a business. In OECD countries, roughly 12% of the population will be self-employed. In developing countries, that percentage is much higher but it’s a myth that the poor ‘want’ to be entrepreneurial, instead they simply have to be.
  • We don’t need to do an RCT on every puzzle in development. Yes, RCTs are expensive to conduct but so is the cost of bad policies. Policy mistakes are hugely expensive.
  • If you asked economists in the 1980s, they could not have predicted China’s meteoric economic growth. There was 14% growth in China’s savings rate due to the one child policy. Countries should not be directly aiming to follow China’s growth trajectory but perhaps try and understand the conditions that led to China’s rise.
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