3 Takeaways - Learn Why A Nobel Prize Winning Economist Says Extreme Global Poverty Is “Entirely Solvable” (#147)

Episode Date: May 30, 2023

Now for some good news: According to Abhijit Banerjee, a Nobel Prize winner for his work fighting poverty, extreme global poverty is “entirely solvable.” Hear what this practical visionary says about the necessity and limitations of aid, why the poor often end up with harmful healthcare, and the surprising optimism of many who are impoverished.

Welcome to the Three Takeaways podcast, which features short, memorable conversations with the world's best thinkers, business leaders, writers, politicians, scientists, and other newsmakers. Each episode ends with the three key takeaways that person has learned over their lives and their careers. And now your host and board member of schools at Harvard, Princeton, and Columbia, Lynn Thoman. Hi, everyone. It's Lynn Thoman. Welcome to another Three Takeaways episode. Today, I'm excited to be with Abhijit Banerjee, an MIT professor, head of MIT's Jameel Poverty Action Lab, and a winner of the Nobel Prize for his work on poverty.

I'm excited to learn more about his radical rethinking of the ways to fight poverty. As Abhijit says in his wonderful book, Poor Economics, and I quote, the field of anti-poverty policy is littered with a detritus of instant miracles that proved less than miraculous. To progress, we have to abandon the habit of reducing the poor to carbon characters and take the time to really understand their lives in all their complexity and richness, unquote. Welcome, Abhishek, and thank you for joining Three Takeaways today. Thank you for having me. It is my pleasure. How did growing up near the slums in Calcutta, India affect you? I think the one thing you learn living near people who have had really new opportunities that people are both optimistic, energetic, and inventive, even when they don't have many opportunities. Now, given the lack of

opportunities, sometimes that inventiveness doesn't get you very far. Sometimes it even misdirects you. But it is not for lack of liveliness or creativity or the willingness to look in unexpected places that the poor are lacking. What would surprise people about poverty? The fact that many, many, many people don't necessarily accept that they are doomed to be poor, the degree of optimism, I think, probably. You talk to so many people, and even though their life has been hard and they haven't particularly gone anywhere, you don't feel that that puts entirely a pall on the proceedings.

You talk to people and they are still, you know, they're willing to take a chance. They're willing to think about something that might be nice. The sense of pleasure, the sense of optimism, despite having very hard lives, is always, to me, is both gratifying and surprising. How do you understand poverty? So I've always said that poverty is like cancer in exactly the same sense of being many different problems. And there's no particular reason to think of it as, I don't think we gain by thinking of it as a single problem. It's a statistically convenient designation. We can

say that people who have this or that level of income are poor, and it's not useless to say that. But when you come to the individual, some people, you feel they are sort of afflicted by their lack of a proper education. Others, it seems like they lost out on help. Yet others just don't know the right people or don't have the right connections or have the right access to finance. There are different problems which shape the lives around them. In that sense, they are all things one could imagine someone responding to them with different instruments, with different understandings, rather than trying to solve quote-unquote poverty.

You have said that the poor often lack critical pieces of information and can believe things that aren't true. Can you explain and give some examples? For example, in healthcare, you see that there is a willingness to consume healthcare kind of indiscriminately, at least among the poor, in where we have studied it in India, also in China, that there's a sense in which, you know, the qualifications of the provider or the validity of the treatment, people seem insufficiently, you know, it's not that they're not suspicious, but their suspicion is based on so little information that it's very hard for the suspicion to be well-directed. They often feel that the doctor might be cheating them, but they don't know in which direction and why.

And, for example, they complain a lot about this doctor is not good. He gave me a pill. He didn't give me an injectable. That, to me, is often a sign that the doctor isn't actually trying to cheat them because injectables are dangerous and mostly unnecessary. But I think people have their own theories of how health care works. And, for example, this idea that you put things in the blood, it works. If you have a pill, you're just putting it in your stomach. And how could that possibly have the same effect as putting in the blood. So that's the kind of thing that they're theorizing healthcare.

And we did a study where we asked people, which of these conditions would you go to the witch doctor for rather than the hospital? And it's often striking that for some of the most frightening and chronic conditions, they will actually go to the witch doctor. They have a theory of what is it that they should do. It's not that it's untheorized or that they haven't thought about it, but based on that, just these things are complicated and I don't blame them, but I do see that they often have theories that are at least prima facie wrong. Then you could say that, look, you know, maybe they don't believe that they can get better from tuberculosis.

So going to the witch doctor is OK because maybe it gives them some psychological comfort. But I mean, I don't know that they can't get better. I mean, tuberculosis is curable. So it's a subtle question in that sense because you always wonder if their stated motives are the real motives or not. But when you ask them those questions, the answers you get are often factually incorrect. Then you could say that actually there's some deeper thought there about their economic options and all that, and it's actually less false than it sounds. But that's one place where I've seen that time and again. You have found that the poor bear responsibility for more aspects

of their lives than the middle class. Can you explain that? That's something that I think is obvious once pointed out, which is that at least a middle class person in a developing country has running water. Take that example. So if you want to have a bath, you can turn on the tap. If you want to get drinking water, you can boil it. Maybe if you want to be safe and then drink it. For most poor people, they don't, I mean, increasing numbers, but still most poor people don't have running water. If you don't have running water, then it's really a matter of being mindful of that whole thing.

It's not a matter of turning on the tap. It's a matter of thinking of the time it's going to take to go collect the water, bring it back, maybe store it in the right place, make sure that the storage is such that it doesn't leak or your child doesn't knock it over or something. There's a whole set of thoughts that you have to think to protect that. There's a thing that most middle class people will take as given, which is that when you want water, you get it from the tap. And that's something that if you're poor, you don't take as given.

And it's likewise for the very poor, you don't have access to, for example, to electricity unless you have charged your solar battery. These days, a lot of solar batteries. But if it doesn't charge, if you made sure that you charge and not discharge it too much, and if it were not sunny for the last few days, then how do you preserve it? And every one of those requires planning, judgment, focus. And richer people generally have more correct or right decisions that are made for them? I would say people who have, for example, organized sector jobs have a lot of those made for them. They have a retirement account and a lot of their savings are garnished for that already from this salary. And they might even have some kind of

social security account where the government actually takes a part of their income and puts it away for them. And they might have an employer provided health insurance. These are not choices you have to make. You often have them as the default. You have your savings, your healthcare, your, maybe even in many places, your housing, your factory might have some housing that is provided. So all of these decisions don't have to be made. If you're a poor person coming to a city to find a job, you have none of those are guaranteed. Do the children of the poor either go to schools that are weaker or do they learn less in school for some reason? Certainly they learn less in school.

And a lot of it is because the schools, I think they are both probably less good. And of course, the schools my children go to are really excellent. And I assume that that's part of the problem. But I think it's also the case that, especially in developing countries, a lot of the parents are really not very confident of what they have learned in school. They may not have gone more than fourth grade, fifth grade. And therefore, school systems that are very demanding of children, the demand that they go home and they supplement what they learn in class by what they learn at home, which is sort of, you know, my children suddenly learn to read at home before they went to school, or at least before they learned in school.

That is so much harder for some parents who are not in a position to teach their children or don't feel the confidence to teach their children. And therefore, the school systems, you would think, would have adjusted to that, but they don't. In a sense, the school systems, and I've seen this in many countries, are remarkably rigid. They have a curriculum, they deliver that. Rather than saying, look, half the class is already behind. So let's slow down, let's finish the curriculum. Only if everyone is able to catch up.

That's not what school systems typically do. And when you do that, they catch up, actually. So that's the good news. The bad news is that it's not organic in most school systems. Why do the poor often end up with health care that does more harm than good? Often, they have their own theories, but partly I think they have too much authority, but too much agency. Actually, when I look for treatment, I don't actually have any agency. And partly because I understand the complexity of the issue, I don't want agency. And that comes

from some sort of epistemological sense that I have learned science and science says that diseases are complicated and that there's a regulatory process which goes through randomized controlled trials, which backs up the way diseases are treated. It's not because I personally understand why a particular treatment works, that I am inclined to that treatment rather than something else. Mostly, I just trust the doctor and the doctor tells me, this has been known to work and you should take it twice a day for 10 days and stop. And I do it. It's not because I have personal knowledge, but I trust the regulatory system and the system of care. When you're in a place where you, first, you don't understand the basis of the regulatory system. You are often suspicious of other government policies, which are bad, and you've seen them and you feel that,

okay, how do I know that this is what I should do rather than that? And finally, you have no sense of what are effective forms of certification. I think one of the things that's really striking, both in India and in China, actually, and in Pakistan and in Bangladesh and many other countries, Vietnam, is this self-certified doctors, people who call themselves doctors and who have no qualifications.

In India, it's the majority, the vast majority of the healthcare poor get from people who have no official medical qualifications. People say I'm a doctor. Other people call them a doctor. How would I know? What is the certification? How do I check the certification of someone? So I think that makes it, of course, easy for just about anybody to practice healthcare. And I think we have evidence showing that the care they provide is substantially worse than someone who is better qualified. People seem to be in one of two camps on aid, believing either that aid helps and that we

need much more of it, or believing that aid makes everything worse. How do you see aid? And can you explain why? I think less and less people in the latter camp. I think part of it is this idea that, and it's not entirely untrue, there are countries where there might be too much dependence on aid.

But in a sense, you take the volume of aid, it's tiny. And for most countries, it's just nothing. I don't mean India-sized countries. I mean, even a country the size of Togo or something. It's just not, aid is just a very small part of their budget. It can allow them to do something specific, but not much else. And so in that sense, I don't believe that this idea of massive aid dependence, we fund everything through aid and therefore we have no incentive to go collect taxes or something. This seems to me to be mostly a fiction.

Just empirically, it's just a fiction. So that's one of the arguments people make. And I don't believe it. It simply doesn't seem to be true that I think most countries have a massive aid dependence. There are countries, very small countries, very small, very poor countries, where that's much more likely to be the case. But there's a ton of countries where there's lots of poverty. In fact, most of the poverty in the world are in countries like Bangladesh, India, Pakistan,

or even Afghanistan, which are massive. None of these are massively aid dependent countries. Aid is a very, very small part, which are massive. None of these are massively aid-dependent countries. Aid is a very, very small part of the annual budget. So I don't think one way or the other. So the only role of aid, which I do think is positive, is when it allows either a certain amount of flexibility. Right now, there are people in the Horn of Africa who are starving to death and getting aid to people is difficult. But if you can get, I'm a board member of Save the Children USA.

And one of the things we struggle with is how to get help to people. But I think I do believe that there are extreme situations where aid literally saves lives. That's, I think, number one. And number two is it allows a space that often policymakers don't have, which is of trying out something different and trying something that eventually might become a policy. Abhishit, what are the three takeaways you'd like to leave the audience with today? I think first that the problem of poverty is, at least of extreme poverty, is entirely solved. We live in a rich enough world and it's a lack of imagination combined with a lack of generosity that's stopping us. But it's really not a lot of money that could

be critical in solving this problem. Of course, it will require the right investments and the right thoughts and the right institutions. I think to say that, well, I don't know how it's going to happen and then sit on your hands, I don't think there's any justification for it. That's the first one. The second one is that, of course, there are places where Sudan right now, it's very hard to imagine doing anything other than maybe emergency relief work. So there are government or political situations which are disastrous, but mostly there are situations where there is scope for improvement. And I think often because the policies in place are held in place by ideology, ignorance, or inertia. And for that reason, there is scope to push for something else, to ask why you're doing this. And so I think

bringing an intellectual effort into it, bringing some kind of evidentiary base into these questions, I think can have huge effects. And the last one is we should be optimistic. The world has reduced extreme poverty in massive numbers. And not just extreme poverty, the correlates of extreme poverty have maybe gone down even more, like, for example, infant mortality, maternal mortality. And this is happening everywhere in the world, not just in a few prominent examples like China, India, et cetera. It's happening in Africa. It's happening in the rest of Asia. There is lots of progress that's happened, partly because policies have changed. For example, I think on malaria, the fact that for a long time we were unwilling to give away medicated bed nets, and now there is a general consensus that if that's what it takes, we'll do it.

It saves an enormous number of children's lives. So I think there's things we can do, things we have done. They do work. So I think we should be optimistic. Abhishek, thank you. Thank you for the time, for three takeaways, and thank you for all your work to reduce poverty in the world. Thank you. For anyone who's interested, we have two great related episodes. The first is why having too little makes people perform worse and become moreient, Impulsive, and Careless.

That's with Princeton psychology professor Eldar Shafir, episode number 24. And the second, The Good Life Unpacked, Discovering What Makes Us Thrive with the Heads of Harvard's 80-Year Study. That's episode 127. See you soon on Three Takeaways.com is with the number 3. 3 is not spelled out. See you soon at 3takeaways.com.