Abhijit Banerjee, Esther Duflo interview: ‘If we want to end extreme poverty…' | Latest News India - Hindustan Times
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‘If we want to remove extreme poverty... we must match it with financing’

Jan 01, 2024 11:08 AM IST

In an interview, Abhijit Banerjee and Esther Duflo spoke about the welfare debate, working with the government on policy and the state of the global economy

Twenty years ago, Nobel laureates Abhijit Banerjee and Esther Duflo set up The Abdul Latif Jameel Poverty Action Lab, or J-PAL, credited with significant interventions across countries in development, economic policy and academic research. In an exclusive interview, Banerjee (AB) and Duflo (ED) spoke to HT about the welfare debate, working with the government on policy and the state of the global economy. Edited excerpts:

Economists Abhijit Banerjee and Esther Duflo. (AFP) PREMIUM
Economists Abhijit Banerjee and Esther Duflo. (AFP)

How do you look back at the 20-year journey at J-PAL? More than four years after you received the Nobel Prize, are there any unfulfilled academic ambitions?

AB: I don’t think it’s necessarily a useful distinction to think of academic versus non-academic because, in some sense, part of what the Nobel Prize recognized is that we managed to somehow get a movement going. In that sense, our ambition is always J-PAL’s ambition. It is academic in the sense that it has managed to change the entire discourse in development economics, towards one that focused on testable propositions, hard evidence and useful insights that can be used for policy choices. There we do have much more of a sense of where we would like to go. I would let Esther finish that thought.

ED: For most academics, academic ambitions are never fulfilled. Academic research is like walking on the edge of a ball, and when you are finished, you’d want to add a layer on that edge. When you are finished, the ball is a little bit bigger. The more you progress, the more there is to discover. It doesn’t have to be fulfilled but there is no frustration involved in this pursuit. Also, in our case, it is a collective enterprise. That’s the beauty of J-PAL. When we received the Nobel prize, we said that it was not just for the three of us. It was a whole movement which got built around the idea of better design and implementation. There is a lot left to do there.

I am sure, the number of RCTs being conducted by J-PAL have increased significantly over this period. As pioneers of this project, have there been macro learnings for the two of you from this entire process? Over and above what the RCTs themselves seek to achieve?

ED: Depends what you call macro learning. There is certainly much learning that takes place beyond every project. One of the comparisons we have used from time to time is that it is like a point-by-point painting where each RCT is a dot of colour and progressively your whole canvas gets filled, revealing something bigger than every single RCT. It depends a little bit from domain to domain. We at least have a sense of some coherent lessons. If you take education for example, we have a much better sense of the difficulties in the education sector across the board and not just whether this intervention works or not. For example, the big issue with primary education not just in India but the entire world, including even the developed world including France, is that the education system is one-size-fits-all and this fits nobody. The teachers are being given a curriculum that is inappropriate for a vast majority of the children. This system is inherited from the colonial era and has been passed from generation to generation without much adaptation. As a result, kids get lost very early on, teachers are a bit at a loss as to what they should do. The system is broken for that reason. It is not that parents are not enthusiastic; it is not that the teachers are not willing to teach or children cannot learn. It is really a problem of inadequacy of pedagogy for whoever is in the classroom. That gives you the solution. For example, Pratham’s efforts to teach at the right level in India. It is one of the most key successful education sector interventions around the world.

J-PAL’s work requires it to work closely with governments at various levels across the world. Have you faced pushback because of the work you do? There must have been experiments and findings which must have ruffled feathers of the powers that be.

AB: You know, interestingly, almost never. I would not have said this if you asked me 20 years ago whether we would get pushback or not. I would not say that we got a lot of push back. It is different. Governments are always in a place to just ignore. Where we are often frustrated is that after we spend three years and say here is the problem and here is the solution, the government brings in McKinsey to give them some advice based on knowing nothing; then they spend a lot of money, first on McKinsey and then on implementing their advice and there is no evaluation, so we cannot tell them it is not working. But then often what happens is that after a few years they go back to the kinds of things we were talking about. It’s often easier for governments to ignore rather than pushback.

Your critics argue that RCTs have become hegemonic in a bad way. If I were to use a provocative analogy, they accuse RCTs of being like an invasive species which has displaced all other, often necessary, discourses in development economics. How would you respond to this?

ED: I don’t know. First of all, they (RCTs) have grown for sure. And this is something we are proud of at J-PAL that we have not just completed 20 years but there is an increasing reliance on the use of these methods. A lot of people and governments who were not interested earlier are now doing it. It is still a very small minority when it comes to different kinds of evaluations being run in the world. We have to face the reality that the vast majority of evaluation of public policies that are being conducted are kind of old fashioned and not particularly informative, necessarily. So, we are pretty far from hegemonic. In the world of policy evaluation, we are still in the business-as-usual. Maybe in academia, it has become a reference. If you cannot do an RCT, whatever other methods you propose to do impact evaluation has to at least compare to an RCT. That I actually think is useful because it forces people to be more rigorous in their application of other methods. So, I don’t think it has displaced other methods but it certainly raises the bar.

AB: I think that is exactly right. Yes, it has displaced a certain amount of, you know, hot-air talk. Correlations based on so little data that you would not even trust it as a correlation. The development discourse, I think, needed to have a degree of, let’s say, humility and I think to a certain extent, it has. I don’t think it is necessarily just RCTs, but may be a broader sense that lots of magic solutions didn’t work and there is a certain amount of maybe general humility that goes beyond us. But I think it’s good to know that many-many things that people said were based on very little evidence and at least we should have a standard of judging that evidence and a culture which is receptive to the nuances of the difference between good and bad evidence. It is true that a certain amount of what I would call pontificating without much basis is restrained by it; too little to be honest.

Having said that, I would say that one of the great advantages of what has happened in development economics is that it has become cool. There are many more people who are doing all kinds of non-RCT methods of different kinds. If you look at what is happening in macroeconomics, there is much more interest in developing countries, in building models of developing countries. Partly because there is some data from RCTs that they can use. I think there is actually, compared to the mid-80s, when I was a grad student, when we really thought of countries being units of some kind. I think now people are past that. The broad attitude has changed. There is general awareness that a country is not a person and a country has many elements within it.

J-PAL came into being in the pre global financial crisis era. Global economy is very different today compared to what it was back then. In fact, one can argue that the biggest questions being debated today; desirability and efficacy of industrial policy, profit inflation, climate finance, global debt etc., cannot be addressed by something like RCTs.

AB: Why do you believe that? Let me disagree with you there.

ED: When we started, the questions were Washington Consensus, Flexible Exchange Rates, deficit, openness to trade. The questions we got were how can you say anything about these with RCTs? There is no doubt that some questions are macro questions, but when you go into the detail of these macro questions, it is very difficult to address them with any degree of rigour without understanding the micro mechanism that are underlying them. For example, how could you know whether you should do industrial policy without looking for whether firms would make good use of subsidies or whether there would be network externalities that would happen if you finance some firms and not others. These are questions which have been addressed with RCTs. There are macro RCTs being conducted now. Macro(economics) is moving in an interesting RCT dimension as well.

AB: Even in climate, there are lots of RCTs in climate finance. Tradable permits are very RCT-able. In fact, beyond the theoretical argument, the proof of concept really comes from RCTs. If you think of finance, there is actually an explosion of RCTs showing basically that small and medium firms have inadequate access to finance. I read today that Uday Kotak said that big corporations should stop taking bank finance. We have been saying that based on not RCT, but careful micro evidence for 20 years now. The RCT evidence has been very useful in showing that there are many things that are wrong with finance but one of them is that it pours into specific places thinking of them as secure sectors and then they do not turn out to be secure. Even the business people should be paying attention to the fact that it is possible to do better lending profitably. There is evidence of that. We often think that the only problem with finance is at the global level, but there is strong evidence that the distribution of finance inside countries is a huge problem. Some of these learnings are from RCT-like natural experiments. It’s not just our work, many people are actually doing this work.

Let us come to India now. ‘Freebies’ are a big political economy debate today. You earlier said that governments like to go to the McKinseys of the world to decide policies. Do we also have a problem where political parties and governments might be spending money to win elections unaware of whether or not that money is being well-spent?

ED: Let us remove for a minute the clause in order to win elections and think about just the idea of giving cash to people. In India, for example, during Covid, all governments, including central government and state governments did that, as did most of the world that could afford it. All around the world, in poor countries, until about 15 years ago, there were relatively few social protection programmes taking the form of cash transfers. Most of the social programmes were in the form of food-for-work programmes or energy subsidies. What you are seeing all over the world and not just India is that the use of cash-transfer programmes has proliferated. In fact, when we look at evidence in support of these programmes, there is lots of it. Money is well spent; people are not wasting it and it does not lead to a decline in labour supply or people being lazy and so on. We do not think that the entire government apparatus should be converted into a cash transfer programme. But the fact that it is one legitimate tool that the government has, has strong evidence.

AB: Having said all of that, I think it is also important to say that the problem is not redistribution but the funding of redistribution. The funding of redistribution is a real issue. India is a country where the implementation of GST has been relatively successful and tax capacity has risen a little bit. But in many countries, it is not rising. Using the tax system as giveaways to the middle classes and raising the cut-off for income taxes, is a practice in many-many countries. The real issue that you are highlighting is, which I think is important, is the political will to match the giveaways. I don’t think the giveaways are a problem and the amount of inequality we have in India is unacceptable. But you have to fund it and you cannot fund it lazily. You cannot fund it by just borrowing. I do think that the amount of wealth there is that is asking to be taxed is enormous, including in India. It is not about this government or the previous government. A concerted attempt to tax the rich has not been taken on. If we have an ambition to remove extreme poverty, which seems to me to be a completely defensible social goal, we need to match it with some financing. The financing needs to come not from more GST, because that’s really taxing the middle classes and the poor, we need to have progressive taxation. It is really important to go back and say that it’s not the spending that is the problem but the financing that is the problem. When we talk about giveaways, we actually do large giveaways to the rich. We never call them freebies. But they are freebies to the rich. A huge part of our political economy operates by giving freebies to the rich. This is a pervasive problem across the world.

How do you see the prospects of the Indian economy in 2024?

AB: I don’t think we have anything particularly to add to the answer we have given in the past which is that mostly these predictions are so bad and based on extrapolations.

ED: We have had a very successful career not predicting these things.

AB: We have no expertise but no reason to believe that whatever people are saying is worth taking very seriously.

Because we are doing this interview at the end of the year, can you both tell us which was your favourite book in 2023?

AB: What I have just finished and liked very much is The Age of Vice by Deepti Kapoor.

ED: What comes to mind and what I really enjoyed is both a novel and a movie. The movie is called All the Beauty and the Bloodshed, which is about the opioid crisis in the US. The book is Rebecca Makkai’s novel The Great Believers which is about how the AIDS crisis affected the gay community in the US.

How is J-PAL going to celebrate its 20 years in India?

AB: In some ways, it is hard to encapsulate J-PAL’s work in any specific thing because there are 800 professors which are part of J-PAL now and at least 1600 RCTs. One of the things we are trying to do is, in Delhi’s Bikaner House, we are putting up a small exhibition where we are trying to highlight what has been learnt for not just academics but everybody.

ED: One thing we did not say but I think should be captured in this exhibition is how diverse the work that goes under the umbrella of RCT is.

Are you two working on a new book?

AB: No. But we have worked on a long introduction to Poor Economics. We wrote the book in 2010 or something and we want to have a new introduction with a long-long introduction.

ED: What will be released at the exhibition first in Hindi, and later on in English, is that I have written a series of 10 children’s books with illustrations in Hindi.

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