- Academics qho have moved away from the neoliberal framework
Trickle-down economics did not really bear fruits towards either lowering income inequality or denting poverty, in any sustained way. In fact, with the help of deepening financialization of economies, and lowering of overall government intervention or regulation, at the back of Neoliberal assault since the start of the 1980s, it resulted in a phenomenal increase in the income and wealth of a small section of people, at the cost of the rest of the people in the society.
For the most, they did not have access to financial markets to earn proportionally higher returns than on traditional saving instruments, especially at the back of stagnating and even falling wages for many years now, in both the developed and developing countries. Development economics or economics, in general, did not seem to have an answer to this phenomenon. It took the Global Financial Crisis of 2007/08– otherwise called the ‘Great Recession’– to jolt many countries virtually blindly following the one-size-fits-all kind of Washington-styled policies, to re-think the neoliberal policy framework.
Traditional policies to fight poverty have not worked that well, and it is therefore time for developing countries like Pakistan, along with World Bank, and other multilateral and bilateral development agencies, to learn from these new, innovative, and hands-on approaches to denting poverty
In this regard, over time, a broader, more focused, and creative approach adopted by policy makers to deal with poverty issues, in a very contextual way; one that was based on hard-core evidence rather than influenced by intuition. For this, political economics, and influenced by it, heterodox approaches were tapped into, especially in areas that challenged the neoclassical assumptions; including realizing, among others, the unbounded rationality of economic agents, the role of transaction costs, and in turn greater role of institutions, governments, and regulation, in the functioning of economic exchanges in organizations and markets.
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2019, therefore, makes a lot of sense to be (jointly) awarded to three poverty economists– Abhijit Banerjee, Esther Duflo, and Michael Kremer– ‘for their experimental approach to alleviating global poverty’; where Banerjee and Duflo work at the Massachusetts Institute of Technology (MIT), while Kremer works at the Harvard University.
The Prize will indeed help the work on poverty economics move forward with even more renewed energy. This is very important since according to the press release accompanying the announcement of the award, ‘More than 700 million people still subsist on extremely low incomes. Every year, around five million children under the age of five still die of diseases that could often have been prevented or cured with inexpensive treatments. Half of the world’s children still leave school without basic literacy and numeracy skills’. Having said that, in a statement made by Duflo soon after the announcement of the award indicated that among the bad news with regard to rising overall poverty levels and income inequality, a significant number of people have come out of extreme poverty in many countries during recent years.
Through applying innovative techniques to tackling poverty worldwide, whereby a new approach was adopted by the three scholars– while working in collaboration for many years now– to ‘obtaining reliable answers about the best ways to fight global poverty. In brief, it involves dividing this issue into smaller, more manageable, questions– for example, the most effective interventions for improving educational outcomes or child health. They have shown that these smaller, more precise, questions are often best answered via carefully designed experiments among the people who are most affected’.
Over time, their experimental approach has dominated the field of development economics; whereby more practical approaches have been reached to tackling poverty, in both its common and unique dimensions prevalent worldwide; in turn, highlighting two important policy lessons for IMF (International Monetary Fund) programmes, and which are to move away significantly economic orthodoxy, and one-size-fits-all kind of policies.
As Prime Minister Imran Khan looks to tackle the substantial issue of poverty in Pakistan, his government should learn from the policy-related work of these three scholars on poverty, which among other achievements has benefited ‘more than five million Indian children… from effective programmes of remedial tutoring in schools. Another example is the heavy subsidies for preventive healthcare that have been introduced in many countries’.
In fact, the Pakistani government should learn from the whole movement of the fight against poverty at the ‘Abdul Latif Poverty Action Plan’ (J-PAL) at the MIT, mainly led by the three professors– where Banerjee and Duflo were the co-founders of J-PAL, while Kremer has remained their long-time J-PAL affiliate– who have spent a significant portion of their lives working in J-PAL; where ‘the Abdul Latif Jameel Poverty Action Lab (J-PAL) is a global research centre working to reduce poverty by ensuring that policy is informed by scientific evidence. Anchored by a network of 181 affiliated professors at universities around the world, J-PAL conducts randomized impact evaluations to answer critical questions in the fight against poverty’.
Traditional policies to fight poverty have not worked that well, and it is therefore time for developing countries like Pakistan, along with World Bank, and other multilateral and bilateral development agencies, to learn from these new, innovative, and hands-on approaches to denting poverty.