Nobel Laureate from MIT discusses poverty reduction strategies
Professor Abhijit Banerjee of the Massachusetts Institute of Technology (MIT) debunked myths related to poverty and discussed poverty reduction strategies in an interview with the New Time program aired on Silk Way TV Channel, reports Kazinform News Agency.
Professor Abhijit Banerjee is a renowned Indian-American economist who, along with Esther Duflo and Michael Kremer, was awarded the Nobel Prize in Economic Sciences in 2019. The trio was recognized for their experimental approach to alleviating global poverty. Banerjee and Duflo, who are both professors at MIT, are also the co-founders of the Abdul Latif Jameel Poverty Action Lab (J-PAL). This global research center uses evidence-based research to address poverty.
Banerjee dispelled a longstanding myth concerning the reliability of impoverished populations receiving financial aid. Contrary to the prevalent belief that financial assistance might foster laziness or misuse of funds for detrimental habits like excessive drinking, the highlighted the absence of evidence supporting these claims.
Instead, a significant body of research contradicts this notion, demonstrating that, rather than squandering aid, financially disadvantaged individuals often utilize it to better their circumstances, such as starting businesses or investing in their children's future.
“I think there is strong evidence that poor people often are depressed and a bit hopeless because they don't have possibilities in their life. As a result, when they get some unexpected benefit, they actually react positively. They try to do something with that money. They try to start a business, invest in their children, or try to improve their lives. There's no evidence that they start abusing the money, and no evidence whatsoever that they stop working,” he said.
Addressing the socioeconomic disparities faced by people from lower-income backgrounds, Banerjee highlighted the significant hurdles encountered by the less privileged.
The financial landscape is particularly unfriendly to the poor, who have limited access to banking services and are more vulnerable to financial risks.
“Banks don't really want to deal with poor people, so they have less access to finance. They are closer to the to the margin of starvation. Taking risks is more costly for them. Because if you take a risk and you fail, for somebody from the middle class, maybe they still have something to fall back on. For very poor people, that's not true,” said the professor.
Banerjee underscored the geographical challenges faced by impoverished individuals, pointing out that establishing a successful business often requires venturing beyond their immediate communities. Limited access to quality education further compounds these difficulties, making it harder for impoverished parents to support their children's academic endeavors.
Poverty creates a complex array of obstacles, making it disproportionately difficult for individuals to pursue entrepreneurial ventures or educational advancement.
“If somebody wants to start a business, and they have access to a bank loan, they have a family who can help them, then it is easier. If you don't have any of those things, then you're always fighting a number of battles that somebody else wouldn't have to fight. In that sense, the idea of the poverty,” he said.
Collaboration between government and scientific community
As an economist with vast experience in science and research, Banerjee stressed the importance of evidence-based policymaking, highlighting the role of research institutions as valuable resources for governments seeking to formulate effective policies. He emphasized the need for clear communication between researchers and policymakers, advocating for a collaborative approach where the government seeks insights and evidence before implementing policies.
By engaging with researchers, governments can gain access to a wealth of knowledge derived from past experiments and efforts, enabling them to make informed decisions.
“We are a resource for government. When governments want to design policies, the ideal is when they make use of the resource - it means doing new experiments. Sometimes it means using the results from old experiments, but it is thinking of it as being one thing you will do before you go ahead with the policy,” he explained.
Middle-income trap
Middle-income trap is a well-known term in economics, referring to a phenomenon where countries achieve a certain level of economic development and income, typically transitioning from low-income to middle-income status, but struggle to further advance their economies to reach high-income levels. Countries experience a slowdown or stagnation in economic growth, failing to make the leap to higher income brackets comparable to those of advanced economies.
“It is not clear that there is a middle-income trap. The fact that growth slows down, we do not actually know whether it is because it is middle income [trap] or because there are all kinds of global factors,” Banerjee said.
“The prices of things change. There is a pandemic. In 2008, there was a great recession. There are just so many things. I am not sure I necessarily buy the diagnosis that there is something that is particularly specific about middle income because some countries have continued to grow,” he added.
He brought the example of China, where the growth has slowed because of a huge demographic challenge.
“It is a country where the fertility rates are low. The young generations are smaller. There is a potential labor supply challenge. These are things that have nothing to do with middle income. It has just to do with the other things that are happening in these countries,” he added.
Recommendations for Kazakhstan
According to Kazakhstan’s Bureau of National Statistics, 5.1% of the country’s 20 million population live below the subsistence level.
Banerjee suggested income transfers as one recommendation for the country.
“If I had to pick one thing, I would say that there is now reassuring evidence that providing some income transfers to the poor works. It makes them richer without creating any perverse effects. If I had to suggest one thing, either an income transfer or an asset transfer, there is a whole literature on whether it should be income or assets, and there are arguments on both sides. (...) It doesn't require designing a whole infrastructure, for example, to improve schools or improving health, these things are long-term infrastructural investments, whereas making transfers is relatively straightforward,” said the professor.
The New Time TV Show on Silk Way TV Channel is live every Friday. The program is broadcast in 118 countries for English-speaking audiences.
