18 Oct 2019 21:28 IST

Development economics back in Nobel limelight

Their approach to solving development problems has been dubbed ‘New Development Economics

This year’s Nobel Prize in economics to Abhijit Banerjee, Esther Duflo and Michael Kremer has brought the field of development economics back into the limelight. The last time the Nobel was awarded to an economist who worked extensively in the field of development economics was in 2015, to Angus Deaton.

It would be no exaggeration to say that Banerjee, his wife Duflo, and Kremer have led a sort of a movement within the discipline of economics. Their approach to researching and solving development problems has also been dubbed as ‘New Development Economics’. Their approach to economics is similar to that of medical sciences with extensive use of randomised control trials or RCTs. This has also been described as evidence-based research or policy-making, though there has been some controversy over that.

Banerjee and Duflo, along with economist Sendhil Mullainathan, co-founded the Abdul Latif Jameel Poverty Action Lab (J-PAL) in Massachusetts Institute of Technology in 2003.

To fight poverty

Speaking to BusinessLine in 2009, Duflo said, “The objective of the Lab is to fight poverty, and, in particular, to ensure that policy decisions are based on scientific evidence. We do that by conducting one specific kind of project evaluation called randomised evaluation, which is similar to clinical trials in pharmacology, and try to ensure that policy decisions are based on results of such evidence.”

She added, “We have three types of activities. One is to conduct such projects in collaboration with various partners. The second is training — we train people on how to conduct this kind of evaluation of development projects. The third is dissemination of our findings to policy-makers.”

The experimental approach

Banerjee further described, in an article published in Mint, an experiment where two ‘random samples’ of people are selected and ‘administered’ a ‘policy dose’ — say, one section of people is given a small amount of cash or food subsidy for bringing their children to the local health centre to get them immunised, and the other group is not given any such subsidy. In this experiment, the researchers will, over a period of time, study whether the subsidy component makes more parents immunise their children vis-à-vis the group that doesn’t get any such subsidy. If the study shows that more children in the ‘subsidy group’ get immunised, then these results would be used to design a more effective immunisation policy.

Michael Kremer of Harvard University, the third recipient, too has a strong Indian connection, though he has done extensive work in Africa as well. As reported in The Hindu, Kremer’s non-profit — Precision Agriculture for Development has worked with cotton and cumin farmers in Gujarat and Karnataka and also paddy farmers in Odisha.

Kremer’s non-profit organisation, through RCT experiments, provided a low-cost, mobile based consulting service, which raised every farmer’s income by ₹7,000 annually.

Prescriptions for the economy

Banerjee has, of course, been quite critical of the way the Indian economy has been handled by the Modi government. He has, in the past, been a severe critic of demonetisation.

His prescriptions for pulling the Indian economy out of its morass: put more money in the hands of people, increase MGNREGA wages, hike farm prices, enhance monetary easing, sell public sector banks instead of trying to fix them, let the rupee slide and, last but not the least, “pray”.

His long-run prescriptions are more interesting. He wants the PMO to stop interfering in decision-making, curb politically motivated cases, increase media transparency, raise investment and, again, — “pray more”.

He has expressed particular concern over the fall in consumption, especially since 2015. Banerjee cited the latest NSSO data to buttress his argument.

At a recent press conference, a video clipping of which was doing the rounds on WhatsApp, a very interesting question was posed to Banerjee. He was asked if, with the backlash against globalisation, global capitalism was at a crossroads.

Banerjee said that during the heydays of globalisation, from the 1980s up until the 2008 financial crisis, most of its ardent advocates celebrated its achievements without paying adequate attention to its ill effects. Globalisation pulled many millions out of poverty, especially in emerging economies such as China and India. But it also led to job losses in developed economies when factories there moved to low-cost locations in Asia and South America. If only the policy-makers had paid more attention to the ‘have-nots’, we probably would not have seen Trump becoming US President, the US-China trade war, and Brexit.

Despite these deep insights, it’s hard to miss the irony. An economist who shared the Nobel for his scientific, evidence-based approach to development is asking us to ‘pray’ and ‘pray more’ for the Indian economy’s revival!