MAG is a FREE publication product by AEG Corporation Limited Uk – International Advice.
MAG can be downloaded for free in PDF.
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2019 (commonly known as the Nobel Prize for Economics) has been awarded to Abhijit Banerjee, Esther Duflo and Michael Kremer “for their experimental approach to alleviating global poverty”. Through the award, the Nobel committee recognised both the significance of development economics in the world today and the innovative approaches developed by these three economists.
Global poverty continues to be a massive challenge. The award follows Angus Deaton, who received it in 2015 for his contributions to development economics – the field that studies the causes of global poverty and how best to combat it – particularly, his emphasis on people’s consumption choices and the measurement of well-being, especially the well-being of the poor.
Well-developed theory can highlight what causes poverty and, based on this, suggest policies to combat it. But it cannot tell us exactly how powerful specific policy measures will be in practice. This is precisely where the contributions of Banerjee, Duflo and Kremer lie. The Nobel citation gives several examples of their impact, including how their research has helped education, health and access to credit for many in the developing world, most famously in India and Kenya.
Consider, for example, child mortality and health – issues of immense significance in the developing world. Theory can tell us that women’s empowerment is important for child health and mortality outcomes, but cannot tell us which policy will be most effective in combating this. It could be a focus on educating mothers, or access to healthcare, or electoral representation, or marital age legislation.
Perhaps, more importantly, theory cannot tell us how large and significant the impact will be of these various policies. And this is where the significance of the Nobel Prize this year comes in.
The fundamental contribution of Banerjee, Duflo and Kremer was to develop an experimental approach to development economics. They built a scientific framework and used hard data to identify causes of poverty, estimate the effects of different policies and then evaluate their cost effectiveness. Specifically, they developed randomised control trials (RCTs) to do this. They used these to study different policies in action and to promote those that were most effective.
Starting in the mid-1990s, Kremer and co-authors started a series of RCTs on schooling in Kenya, designing field experiments to evaluate the impact of specific policies on improving outcomes. This approach was revolutionary. The experiments showed that neither more textbooks nor free school meals made any real difference to learning outcomes. Instead, it was the way that teaching was carried out that was the biggest factor.
Studies by Banerjee and Duflo, often together with Kremer and others, followed. They initially focused on education, and then expanded into other areas, including health, credit and agriculture.
Banerjee and Duflo were able to use these studies to explain why some businesses and people in less developed countries do not take advantage of the best available technologies. They highlighted the significance of market imperfections and government failures. By devising policies to specifically address the root of problems, they have helped make possible real contributions to alleviating poverty in these countries.
Banerjee, Duflo and Kremer also took significant steps towards applying specific findings to different contexts. This brought economic theories of incentives closer to direct application, fundamentally transforming the practice of development economics, by using practical, verifiable and quantitative knowledge to isolate causes of poverty and to devise adequate policy based on behavioural responses.
The impact of these developments upon real world development outcomes are immensely significant. Their work, and substantial amounts of research that followed it, established evidence on fighting poverty in many developing countries. And they are continuously expanding their horizon of contributions, which now also includes climate and environmental policy, social networks and cognitive science.
The 2019 Nobel Prize for Economics is also significant for reasons of inclusivity. The impact generated by Banerjee, Duflo and Kremer’s approach has come about very quickly – actually, in less than two decades. This explains why, at the age of 47, Duflo is the youngest-ever recipient of the economics Nobel. She is also only the second woman to be awarded the prize (after Elinor Ostrom in 2009). Banerjee, who is also her husband, is the third ever non-white recipient (after Arthur Lewis in 1979 and Amartya Sen in 1998).
In a recent issue of the journal Nature, Göran Hansson, head of the Royal Swedish Academy of Sciences that awards the Nobel, highlighted measures to address the imbalance in gender and ethnicity among winners. He said “we are making sure to elect women to the academy” from which the prize-awarding committees for the chemistry, physics and economics Nobels are drawn.
The pipeline to this achievement is important. The first woman to win the John Bates Clark Medal for top economists under 40, an important indicator of who will be awarded the economics Nobel in the future, Susan Athey, only did so in 2007. Esther Duflo was the second winner in 2010. Since then, women winners of the Clark medal have been more frequent. Of course, award decisions are made strictly on significance of contributions. But, based on this evidence, perhaps Athey, Amy Finkelstein (who won the medal in 2012) and Emi Nakamura (who won it in 2019) will not be far behind.
The Apollo project gave us the astonishing spectacle of a blue marble rising over the sterile surface of the moon. Of course, the moon was already known to be uninhabitable. But being shown something in high-resolution colour photography makes a stronger impression than being told it by the experts. Our planet appeared in the photos as a small, vulnerable object amid surroundings utterly inimical to life. They showed, in a way that no scientific report could, the importance of keeping the Earth habitable, boosting the environmental movement.
But the moon landings affected many people in precisely the opposite way. No other public project has been such a spectacular success. The aim was so simple and concrete that everyone could immediately grasp it. Kennedy’s commitment to “landing a man on the moon and returning him safely to the Earth” was made before the US had even put a man into orbit. Yet it was achieved just eight years later – barely half the time it takes nowadays to build a new railway across London. “Top that,” the Americans can easily say. Fifty years on, no one has.
The trouble with spectacular successes is that they breed complacency. The moon landings reinforced the belief that technology will always be able to solve our problems. Everyone knows the saying, “If we can put a man on the moon, surely we can…” All we need is the will to do it. And a lot of money, of course. But not as much as you might think: the entire Apollo programme, over 12 years, cost about £120 billion in today’s money. That’s how much the US spends on its military in 11 weeks (and Britain in three years). If technology can do that, what can it not do?
This faith in technology has given us a false sense of security. Every day we hear urgent warnings about antibiotic resistance, soil depletion, deforestation, loss of biodiversity and of course climate change. These imminent catastrophes are the result of our own behaviour. The obvious solution is to change that behaviour: to stop abusing antibiotics, destroying tropical forests, burning fossil fuels, and so on. Yet we don’t.
Part of the reason we don’t is the expectation that technology will save us. If we can put a man on the moon, surely we can develop new antibiotics, replenish the soil and restore the tropical forests. We can stop climate change by building machines to remove greenhouse gases from the atmosphere. (And anyway, we can build walls to keep out the rising seas.) All we need is better politicians.
This sense of security is unwarranted. Technology cannot do everything. Once an ecosystem has been completely destroyed or a species has gone extinct, nothing can bring it back. No new Apollo programme will ever enable us to raise the dead after they have turned to dust. Some things are simply impossible – not for lack of money or technical know-how, but because of the laws of nature.
And just as our sense of security overestimates the power of technology, it underestimates the political obstacles. It’s not just that large public science projects are out of fashion. The moon landings had the advantage of drawing on national pride: they served to demonstrate the superiority of the US over other countries – the Soviet Union in particular.
Combating antibiotic resistance, deforestation, and climate change, by contrast, requires all countries to work together. And these projects are unlike the moon landings in being essentially altruistic: one country’s expenditure benefits all inhabitants of the planet equally, whether or not they have contributed themselves. The selfish can get a free ride.
A further obstacle is that solving problems we have created for ourselves is not the sort of thing that easily inspires greatness. No one likes cleaning up after the party. It was easy to excite people about the first moon landing because it was such a great spectacle. We could watch it on TV in real time, from blast-off to splashdown. Like a good mini-series, it lasted just eight days. Averting catastrophe is not like that – especially when the problem cannot be shown in a simple stunning image.
Saving the planet doesn’t make compelling TV. There is no dramatic start or end point. And if the mission succeeds, the result will be only more of the same: the absence of catastrophe. What could be more boring? In democratic societies at least, addressing global problems will always be a hard sell. That’s why Kennedy’s contemporary heirs have done so little.
The success of the moon landings is no reason to expect technology to save us from ourselves. I fear it will make catastrophe more likely. Technology can help, but we need to know its limits. We’d be better off forgetting about rocketry and remembering the image of our planet as a tiny oasis in an inhospitable universe.