Book Club

The Chair read for you Repenser la pauvreté by Abhijit Banerjee and Esther Duflo

Published on 23 November 2021

Repenser la pauvreté [1] by Abhijit Banerjee and Esther Duflo is the result of several years of fieldwork in the most remote and poorest areas of the world. It relates the daily life of millions of poor people. Through these stories, the authors teach us about the economic life of the poor. In other words, what is it like to live on less than a dollar in purchasing power parity per day? This book provides, or at least proposes, the beginning of an answer to the failure of official development assistance. Indeed, they start from the observation that after several decades of official development assistance, the number of people living in extreme poverty is still very high. Several empirical studies show that there is no difference in terms of economic growth between poor countries that receive official development assistance and those that do not. The debate on the effectiveness of official aid over the last two decades has been divided into two sides: the optimists and the sceptics. For the optimists, led by Jeffrey Sachs, the poor are trapped in poverty and need a push to put them on the path to prosperity. In contrast, Dambisa Moyo and William Easterly argue that public aid is rather fatal. They argue that aid not only fails to reach the poor, but that it fosters corruption and conflict. For Banerjee and Duflo, economists have long treated the issue of poverty alleviation from the wrong angle, and this would explain the ineffectiveness of official development assistance.

They propose an innovative approach that puts the poor at the center of the debate and uses rigorous scientific approaches (i.e., randomized experiments borrowed from medicine) to provide concrete answers to simple questions such as: Why do the poor spend so much on frivolous items that do not improve their lives (i.e., funeral expenses in South Africa, DVDs, satellite dishes, television)? Why don’t poor people buy impregnated mosquito nets that guarantee their health and thus their ability to generate income? Why don’t poor farmers buy fertilizer when this can increase their yields and thus their income? These are questions that seem simple to us, but whose answers are not so obvious. Thus, for these authors, understanding how the poor make their economic decisions is crucial to effectively fighting poverty. Without this sharp understanding of the poor, any intervention is doomed to fail.

Throughout the first part of the book, the authors discuss the factors that keep the poor in the poverty trap. By poverty trap, we must understand the set of mechanisms that keep the poor in poverty.  First, they analyze the link between hunger and poverty. They show that while the poor generally have access to enough food, the nutritional contribution of this food remains very low. This nutritional deficiency is one of many causes of health problems among the poor. It not only weakens the immune system of the poor but also limits their productivity. The health of the poor is another part of the poverty trap analysis. They show that, contrary to popular belief, the poor do spend a significant amount of money on health. However, the paradox is that the poor seem to prefer to treat themselves rather than to prevent. They also show that the poor place very little trust in public health services. They generally prefer to use the services of (often unqualified) doctors in private hospitals at very high fees. It seems, therefore, that the poor underestimate the real benefits of cheap preventive care and place more emphasis on the present. To reverse this trend, it is important to educate the poor about the real benefits of preventive solutions. The authors also believe that the low level of education of the poor is a key factor in analysis of the poverty trap.  Indeed, the poor invest very little in the education of their children. It is this lack of investment in human capital that maintains the intergenerational transmission of poverty. Thus, to break this chain of transmission, the authors stress the importance of offering a basic, quality education to all children, without any exclusion. Finally, they return to the high fertility rate of women in poor countries and show that when poor people do not have access to social safety nets, having many children remains the only alternative for parents to insure themselves against their old age. The analysis in this first part highlights the multidimensional nature of poverty. Poverty can manifest itself in many forms through limited access to quality food, poor health, and low human capital development, etc.

In the second part of the book, the authors analyze simple solutions that could significantly improve the living conditions of the poor. First, they highlight, for example, the role that microfinance could play in helping the poor invest in income-generating activities. Studies show, for example, that households that take out a microcredit are more likely to start an income-generating activity. However, they emphasize that while microfinance is not a panacea for poverty, financial solutions tailored to the needs of the poor can make a big difference. Second, they emphasize the need to insure the poor. Indeed, the poor are exposed to several hazards. For example, health problems or a poor harvest due to reduced rainfall can push the poor into the poverty trap. It is therefore up to governments to provide the necessary incentives or subsidies to encourage the poor to take out insurance. Finally, Banerjee and Duflo argue that major institutional reforms are needed to effectively combat poverty. Along with these reforms, they emphasize that local actions can have significant results.

All in all, this book teaches us that poverty is very complex and that there is no magic solution, and that understanding how the poor make their economic decisions is a first step towards finding effective solutions. 

Mamadou Saliou Barry Research Fellow Essays on Access to Electricity in Sub-Saharan Africa.

[1] Abhijit Banerjee and Esther Duflo, « Repenser la pauvreté », Ed. SEUIL, Les livres du nouveau monde, 2012. 432p.