Two of the winners of the Nobel Prize in Economic Sciences, Abhijit Banerjee (second from left) and Esther Duflo (second from right), pose with past winners of the same award, Bengt Holmström (extreme right) and Jean Tirole (extreme left) at the MIT campus in Cambridge, Massachusetts, on Monday. Photo: JOSEPH PREZIOSO / AFP

Months before it was announced that Abhijit Banerjee was to be one of the recipients of the 2019 Nobel Prize in Economic Sciences, he was at the center of a vicious political battle between India’s ruling and principal opposition parties.

Banerjee, who was born in Mumbai, is one of the three American economists – along with Esther Duflo and Michael Kremer – to be awarded this year’s prize for “obtaining reliable answers about the best ways to fight global poverty.” He grew up in Kolkata, a city that has several other Nobel laureates to its name including Rabindranath Tagore, Mother Teresa and CV Raman.

For years Duflo, Banerjee and Kremer carried out extensive field research in India and several countries in Africa to develop policy interventions that can combat poverty.

In March this year, when India was gearing up for its general elections, a cash transfer scheme designed by Banerjee was at the center of a bitter political fight. The Indian National Congress, India’s principal opposition party, promised to implement a scheme to transfer 72,000 rupees (US$1,000) a year to every family if they came into power. The ruling Bharatiya Janta Party (BJP) dismissed it as a drain on public finances and warned that it would lead to higher taxation. The BJP led by prime minister Narendra Modi won a landslide victory and Banerjee’s proposal was forgotten.

But long before Banerjee’s proposal kicked off a political storm in India, his work with Duflo and Kremer was subjected to a more substantive debate that questioned the very reasons they were awarded the Nobel Prize. Several noted economists have been warning for years that their preferred method for research and policy intervention simply did not work.

Controversial intervention

Duflo, Banerjee and Kremer have been proponents of using randomized control trials (RCT), a method borrowed from clinical medical research, to design economic policy interventions that can help alleviate poverty. Duflo, a French-American, was a PhD student of the Indian-American Banerjee before they became colleagues at the Massachusetts Institute of Technology.

The pair began conducting extensive field research together in 2003 and married in 2015. Together, they founded the Abdul Latif Jameel Poverty Action Lab (J-PAL), working in many developing countries to design and implement poverty alleviation programs.

For years economists have been gathering evidence to support their assertion that the key intervention methodology championed by Banerjee and Duflo is deeply flawed. Pranab Bardhan, a professor of economics at the University of California, Berkley, was one of the early critics of their methodology. In an article in the Boston Review published in May 2013, Bardhan pointed out the flaws in their methodology.

Bardhan argued that “within the domain of an RCT, impurities emanate from design, participation, and implementation problems. RCTs face serious challenges to their generalization or external validity. For many important policy issues, RCTs are not very useful and show only the average impact.” He also argued that the “plausible accounts” offered by Duflo and Banerjee “of the processes at work” in the research were, at best, “informed guesses.”

In short, Bardhan was pointing out that many of the interventions suggested by Duflo and Banerjee to combat poverty were too narrow and did not fully encompass the real causes of poverty.

Over the years this criticism has grown.

Jean Dreze, an Indian economist who worked with the economist Amartya Sen, another Nobel laureate for years at gaining an understanding of the issues of hunger and poverty in India, raised similar doubts about RCT as a methodology for designing policy interventions. Dreze’s extensive fieldwork led to the implementation of one of the biggest welfare programs in India. Known as the National Rural Employment Guarantee Act (NREGA), it provided at least 100 days of work to the poor in rural areas.

In many ways, welfare schemes like NREGA contributed to 271 million Indians being lifted out of poverty between 2006 and 2016, according to a study by the United Nations Development Program.

Dreze argued that the “evidence” offered by RCT methodology was far removed from policy. “Just as the meaning of evidence in the term ‘evidence-based policy’ has gone through some healthy revision, it seems to me that the relation between evidence and policy needs further thought. Evidence is about facts, policy is a political decision – in what sense is it to be ‘based’ on evidence?”

Dreze pointed out that RCT could easily misinterpret key data points, leading to faulty interventions simply because it was not designed to understand how political decisions were taken. He cited the example of the mid-day meal schemes in government-run schools across India, pointing out that the introduction of eggs would immediately provide nutritional benefits for children.

However, a policy decision to introduce eggs could be subject to the politics of caste and religion, which RCT could never capture. As a result, the policy intervention – or “nudge’ – would fail. “Any ‘advice’ offered in this charged atmosphere may have serious repercussions, good or bad. A worst-case but not uncommon scenario is that a piece of advice turns out to be counterproductive. Dealing with these choices, conflicts, and dilemmas requires much more than ‘evidence’.”

Dreze and Bardhan belong to a growing number of economists, including Angus Deaton and Nancy Cartwright, who believe RCT is a faulty method for researching, designing and implementing anti-poverty policies. “Neither Banerjee and Duflo nor Karlan and Appel (2011), who cite many RCTs, raise concerns about misleading inference, treating all results as solid,” Deaton and Cartwright argued in a much-acclaimed paper published by Princeton University in 2016.

Listening to the poor

In a country as complex as India, these criticisms remain valid and explain why the best of intentions fail to result in the formulation of policy that actually works. However, the commitment that Duflo and Banerjee have shown to combating poverty cannot be underestimated. Notably, Duflo is the second woman and the youngest person to receive the Nobel Prize in Economic Sciences.

“Stop reducing the poor to cartoon characters and take the time to really understand their lives, in all their complexity and richness,” they argued when they published their seminal book Poor Economics.

The Nobel Foundation noted, “This year’s laureates have introduced a new approach to obtaining reliable answers about the best ways to fight global poverty.” It also pointed out that “as a direct result of one of their studies, more than five million Indian children have benefited from effective programs of remedial tutoring in schools. They have shown that these smaller, more precise, questions are often best answered via carefully designed experiments among the people who are most affected.”

Also read: US trio win Nobel Economics Prize for work on poverty

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