What does Developmental Economics mean to India?

One of the things I find exciting about being in India is the vitality of the Indian economy.  It’s great to live and work in a country where people are optimistic about the future—and have good reason to be.  But although India is a middle income country experiencing rapid growth, there is no question that many Indians are still poor.  Policy-makers in India are very aware that they can’t just wait for growth to eliminate poverty all by itself—they know they need to take steps to ensure that growth is inclusive. One of the places policy-makers look for advice on how to design anti-poverty programs is to the field of development economics. Over the last few decades, though, the policy prescriptions of mainstream development economists have changed several times, reducing the credibility of its practitioners.

Although when I trained as an economist, I never studied development economics, my experience as a diplomat has been entirely in countries that were in lower or middle income categories: Mexico and Gabon are classified as upper middle-income, the Republic of Congo as lower middle income, and Guyana, the Democratic Republic of Congo (DRC), Zambia and Zimbabwe as low income.  These countries are all sometimes referred to as “the developing world.”  (Of course, calling them “developing” is not accurate in every case—the economies of the DRC and Zimbabwe have generally moved in a negative direction over the last twenty years.)  In several countries, I’ve worked closely with colleagues from the U.S. Agency for International Development as they sought to use funds provided by U.S. taxpayers to fight poverty and bring about development.  While I might not have the classroom education, I now have both a strong interest and a great deal of direct experience of development, and underdevelopment, as both conditions and as processes. 

In the last decade, development economists have engaged in a vigorous debate about whether foreign aid is helpful for the elimination of poverty.  Jeffrey Sachs, Bill Easterly, and Paul Collier are the most prominent scholars who have debated each other in books and newspaper columns.  Among the people I’ve discussed this subject with, it seems that most gravitate to one school of thought or another based on their existing inclinations, or recent experience.  Pessimists agree with Easterly (who says large scale development programs funded by donors are generally futile), as do those whose recent experience has been with intractable problems.  Optimists agree with Sachs (who says we can eliminate poverty if we dedicate more resources to foreign aid), as do development workers.  Policy-makers have problems with both, since they don’t have the resources Sachs calls for, but they have a mandate to eliminate poverty, which Easterly says can’t be done by planning.  I’m also in between in many ways: it’s hard to leave Zimbabwe without becoming a pessimist, but I’m an optimist by inclination and India is a very hopeful place.

What works and what doesn’t work in the battle against poverty is something I’ve heard people talk about a lot in Hyderabad.  The pros and cons of micro-finance have been front page news in Andhra Pradesh.  (I discussed visits to women’s self help groups in an earlier blog.)  I’ve also heard discussions of whether NREGA hurts rural private sector employment by driving up wages, or acts as a safety net for the poor.  These are real questions without easy answers. 

I’ve just started reading a book that looks at these questions from a different perspective, and I find it quite exciting.  Abhijit Banerjee and Esther Duflo have written a book called “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty” about their research in development economics and the lessons they’ve learned.  They approach development hypotheses scientifically, with randomized controlled trials, instead of relying on preconceptions. This is radical in a way; development professionals don’t want to withhold from a control group an intervention, like vaccinating children, that they believe saves lives.  But Banerjee and Duflo point out that even providing free vaccination doesn’t necessarily result in high rates of inoculation coverage.  That’s a strong argument for trying different approaches and comparing the results.  I haven’t gotten very far into the book yet, but I’m looking forward to learning more about what works.  I look forward to being able to be pragmatic and optimistic at the same time.