Nobel prize award puts focus on tackling poverty with economics

It amounts to a recognition that we have reached an important turning point in the history of those parts of the world where populations are very young, economies are transforming and environments are stressed. We will all feel the impact of the disruptive changes likely to impact these societies in the next couple of decades.

The award of the economics prize to the Indian-born Abhijit Banerjee, his wife, French-born Esther Duflo and Harvard University professor Michael Kremer has attracted particular attention, not least because Ms Duflo, at 46, is the youngest winner of the prize.

The three are credited with having taken the study economics out of academia and taking it into the field where scientific methods have been applied to what are social experiments.

Michael Kremer, in particular, pioneered what is known as “randomised evaluations” in Kenya during the 1990s.

They are keen to dispel the myth that economics is a dry discipline best suited to mathematicians lacking in emotion.

As professor Kremer put it, last week, “a lot of people go into economics because they care about poverty and about practical problems”.

The Peace Award has over the years been conferred on a rather mixed bunch of people. In 1973, US secretary of state Henry Kissinger received the prize along with his North Vietnamese counterpart, Le Duc Tho. Some eyebrows were raised after that announcement. Other winners include Ireland’s former foreign minister Sean MacBride and ex-US president Barack Obama.

Ethiopia is one of Africa’s mega states. It has been a byword for famine and war. Its economy grew rapidly in the 1990s and 2000s. The country has sustained a huge level of investment, much of it in energy, mainly hydropower, transport and communications. China is now a major player, though the country has close ties to the US.

Mr Abiy has certainly hit the ground running since April last year when he became premier, sealing a peace deal with its neighbor, Eritrea, after a decades-long military conflict. Mr Abiy has assembled an economic management team of technocrats, many of them from the diaspora.

Aged just 43, he is the 13th child of a Muslim father and the son of an Orthodox Christian mother. Ethiopia is unusual in that it was never colonised and is a major cradle of Christian civilization. The country could be a major anchor in the troubled region near the Horn of Africa.

In an effort to tackle the country’s high debt levels and attract investment, Mr Abiy has embarked on a privatisation programme in an effort to shake up the economy.

He faces formidable obstacles including ethnic tensions. Some months ago, he narrowly survived a coup attempt, in which his loyal army chief of staff died.

The three amigos of economics have been on a different but not unrelated journey. Professor Banerjee was born in India which produced another winner of the Economics Nobel Prize, Amartya Sen, who made his name studying the relationship between poverty and famines.

As a small child, he witnessed the huge loss of life in the Bengal famine of 1943. He later concluded that many of the deaths could have been avoided if food distribution had been better and poor people had been allocated more money. Mr Sen’s work led to the creation of the UN’s Human Development Report which ranks country according to a variety of economic and social indicators.

The key motto of the three researchers is: Don’t Assume — Test. The three went on to found the Abdul Jamad Poverty Action Lab which is based at the Massachusetts Institute of Technology where Mr Duflo and Mr Banerjee are employed as academics.

Mr Kremer reached the conclusion that “just because peoples’ lives improved after they received a form of aid it does not mean that this aid made all the difference”.

A core principle is that the money available for aid projects is finite. Spend it the wrong way and much of the expenditure is wasted.

This lesson has been learned the hard way since the 1950s. Ms Duflo outlined some of the approaches followed by the AJ Lab group which oversees hundreds of research teams working in the field.

She addressed a series of important topics. Take immunisation — “the cheapest way to save a child’s life”. Why is it that at least 25 million children gounimmunised, while 900,000, mostlythe under-fives, die from malaria? A treated bed net costs €9, yet only a quarter of people sleep under a net.

“What if one half slept under a net? The other half would also benefit because of reduced contagion,” according to the group. It carried out an experiment in the Indian state of Rajasthan and came up with solution of setting up immunisation camps.

Immunisation rates among children soared. And when free bags of lentils were offered as an incentive, the rate jumped again.

The group also tested propositions around providing nets for free.

It emerged that people who got free nets were willing to purchase replacements at around €1.80. Primary education has been a particular focus for the group which has assessed, through field experiments, the effectiveness of different supports. It turns out that one of the most effective means of encouraging pupils to extend their schooling is to treat them for worm infestation.

Ms Duflo says from “when you start with a big problem, you cut it into smaller questions”. She adds: “Youcannot helicopter people out of poverty. You start small. It is a very slow process. There is no other way.”