I don’t know a whole lot about economics but it seems to me significant that the economics Nobel has been awarded to three professors for their work on poverty alleviation.
Muhammad Yunus, the Bangladeshi social entrepreneur, banker and economist, was honoured with a Nobel for founding the Grameen Bank and pioneering the concepts of microcredit and microfinance. But he didn’t get an economics Nobel. He won the Peace Prize.
The Sveriges Riksbank Prize in Economic Sciences isn’t really a Nobel but is awarded in memory of Alfred Nobel. It certainly has stature and it does send a message.
That is why the 2018 award to William Nordhaus and Paul Romer was considered a sign of the times. Professor Nordhaus of Yale is a proponent of a carbon tax. Professor Romer of NYU has worked on government policy successfully driving technological change, notably reduced emissions of ozone-depleting chlorofluorocarbons. The shared economics Nobel was considered a sign of the increasing seriousness with which climate change is viewed by every institution everywhere (except for the Donald Trump-commandeered US federal government).
This year’s prize – shared by professors, Abhijit Banerjee and Esther Duflo, both of MIT, and Michael Kremer of Harvard – feels similarly significant. It focusses attention on poverty reduction, but perhaps in a more significant fashion than one might have expected.
By that I mean the different-strokes-for-different-folks approach.
When Ms Duflo and her longtime collaborator and partner Abhijit Banerjee brought out their book, ‘Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty,’ they argued for development as an “accumulation of small steps, each well thought out, carefully tested and judiciously implemented”.
They also offered some important truths for those who don’t really understand how poor people make decisions – about housing, healthcare, hygiene products even.
For instance, why there are so many half-built houses in developing countries? Answer: the poor save brick by brick.
Why do the poor spend so much on private doctors rather than stay with small, continuous preventative care? They don’t know enough to do what needs to be done.
I don’t know if Professors Banerjee and Duflo write about sachet hygiene, but the success of the shampoo sachet in Indian villages is surely another example of poor people’s micro-spending approach to personal care.
Anyway, the pair take a nuanced and compassionate view of poverty, arguing that the rich have a multitude of nudges – small prompts to behaviour – laid on for them but the poor do not. Change to the state of poverty, they say, is prevented by the three ‘I’s: Ignorance, ideology and inertia. That their work has been recognised in this way has to be significant. Especially as it comes just days ahead of the UN’s International Day for the Eradication of Poverty, a rather anodyne designation.