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Ideas & Debate

Anti-poverty work wins trio Nobel prize in economics

Abhijit Banerjee, Esther Duflo
Abhijit Banerjee (left), Esther Duflo (centre) and Michael Kremer. PHOTO | NOBEL 

What is poverty? Why are some people, families, regions, countries and continents poorer than others? Can poverty be significantly reduced or eliminated altogether?

These are some of the questions that economists and political economists have been grappling with since the emergence of income inequality as a reality in human society.

Three of the economists who have been grappling with these questions were Monday awarded the Nobel Prize for Economics, also known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Abhijit Vinayak Banerjee, an American with roots in India, was one of the recipients, together with his co-researcher and wife, Esther Duflo, a French American scholar and professor at the Massachusets Institute of Technology.

The third, Michael Kremer, has studied the effect of better healthcare and cheaper drugs in poor countries.

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Both Banerjee and Duflo have been seeking to understand how poverty can be measured, how the poor live and how they behave in the economy, including how they spend their hard-earned money.

These questions are important considering the controversy that surrounds the classification of the poor as individuals who live on less than a dollar a day. They have also been seeking to understand for how long one can live like this before one can be officially declared poor.

"We... assume that the people we are describing as the poor are long-term poor, in the sense that their permanent income is actually close to their observed consumption," the two write in The Economic Lives of the Poor, one of their publications, and which was originally published in the Journal of Economic Perspectives.

"If the poor people we observe are just making a brief transition through poverty, then some of the behaviours that we will observe (such as lack of savings) would be less puzzling, and others (like the lack of assets) would be much more so."

Banerjee and Duflo, who have conducted research on poverty in Tanzania, South Africa and Cote d'Ivore, among other countries, then go ahead to profile a poor family, characterising it as one that has a large number of children (typically seven or eight children), their average age distribution and the difference in family size between the urban and rural poor, all this critical information for planners and policy makers in countries like Kenya where about 36 percent of the population is classified as living below the poverty line.

"Historically," they write, “poverty lines in many countries were originally set to capture this definition of poverty — the budget needed to buy a certain amount of calories, plus some other indispensable purchases (such as housing). A ‘poor’ person was essentially defined as someone without enough to eat."

They then map how the poor plan their budgets, examining what they spend on food, alcohol, tobacco and festivals — which are some of the most pressing demands on the money that the poor earn.

Sorry, medicine and education do not feature as prominently.

The poor, they argue, have a tendency to forget when they or their dependents needed medical attention or were indisposed. And they spend very little on education.

"The poor generally do not complain about their health — but then they also do not complainabout life in general, either," they observe.

The two also found that the poor are most likely to earn their money from selling foodstuffs to each other although many poor people also engage in unskilled labour to supplement this income. In their studies, they found tailoring to be among the most "skilled" labour among the poor.

"A pattern seems to emerge," they argue. "Poor families do seek out economic opportunities, but they tend not to become too specialised. They do some agriculture, but not to the point where it would afford them a full living (for example, by buying/renting/sharecropping more land). They also work outside, but only in short bursts, and they do not move permanently to their place of occupation."

Although, as a rule, economists are more likely to frame questions rather than give answer, such insight can help governments to address the root causes of poverty.

WEDNESDAY: We review the work done by Michael Kremer, the third joint winner of the prize.

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