The paternalism of behavioral economics

G. Sampath has written a trenchant critique of behavioral economics in The Hindu that’s worth a read if you do work related to this field.  I’m not fully in agreement with it, but he raises some important points.

Behavioural economics uses insights from psychology, anthropology, sociology and the cognitive sciences to come up with more realistic models of how people think and make decisions. Where these decisions tend to be flawed from an economic point of view, governments can intervene with policies aimed at ‘nudging’ the targeted citizens towards the right decision.

All this seems fairly unobjectionable. However, things change when behavioural economists focus their attention exclusively on the behaviour of the poor. Till date, there is no evidence that monitoring and ‘nudging’ the behaviour of the world’s poor is a better route to alleviate poverty than, say, monitoring and ‘nudging’ the behaviour of the financial elite. Surely the latter cannot be deemed as altogether rational economic agents — not after the 2008 crisis?

And:

The report states in all earnestness that poverty “shapes mindsets”. From here, it is a hop, skip, and jump to holding, as the leading behavioural economists of the day do, that the poor are poor because their poverty prevents them from thinking and acting in ways that can take them out of poverty.

Thus the focus as well as the burden/responsibility of poverty-alleviation would shift from the state — from macroeconomic policy, from having to provide employment, health and education — to changing the behaviour of the poor. The structural causes of poverty — rising inequality and unemployment — as well as the behaviour of the owners of capital are evicted from the poverty debate, and no longer need be the focus of public policy.

The point about paternalism here is well-taken.  I don’t think the nudges he references here are harmful or problematic, since they tend to be things like offering people lentils or cash transfers in exchange for vaccinating their children, but it’s also true that these are programs designed by privileged academics and carried out on the bodies of poor people.  This is always, inherently, something to think carefully and critically about.

That said, there are several points on which I would disagree.  The first is that this academic focus on micro-behaviors has somehow silenced conversations on macro-level policies about unemployment and inequality.  There are huge English-language academic literatures on both of these topics in low income countries.  From the policy side, one could also point to the rapid spread of cash transfer programs which are meant to reduce inequality.  These have grown largely on the strength of the microeconomic evidence that people tend to use the money well.  (For two good overviews of this topic, check out the World Bank’s State of Social Safety Nets 2015, and James Ferguson’s Give a Man a Fish: Reflections on the New Politics of Distribution.)

The second issue is Sampath’s reading of the causal links between behaviors related to poverty (like high discount rates) and the incidence of poverty itself.  As indicated by the example of the Indian sugarcane farmers, there’s plenty of evidence that living in extreme poverty is very stressful, and tends to change the way that people think and act.  This is quite different to saying that people stay poor because they think and act a certain way.  Severe poverty of the type found in low income countries persists because of market failures, bad institutions, and (in some places) the absence of the type of stable elite bargains which constrain outright war.   Even if you were a benevolent dictator and could nudge people into making lots of small behavioral changes, like saving more and vaccinating their children, this wouldn’t touch most of the structural causes of poverty.  I don’t think any behavioral economist would disagree with this statement.

So why, then, do people keep studying the behavioral correlates of poverty?  For many researchers, I think the goal of their studies is not actually to reduce poverty rates, but rather to find low-cost interventions that can make life slightly easier for people who are still poor.  The goal is to nudge people into having less debt, or vaccinating their children against the most common diseases, or buying weather insurance for their crops.  None of these things, individually or together, is going to pull a family living on less than US$1.25 per day above that poverty line.  But they are still steps towards a slightly better life – and from a policy perspective, they’re often more feasible than making sustained, multi-million dollar investments in electrical and transport infrastructure, or bringing a civil war to a durable close.  These latter two topics are also active areas of research, but we still know very little about how to solve these complex types of coordination problems.

Returning to the second point, though, I’d also differ with the way that Sampath read the study about the sugarcane farmers in particular.  I should say first that I completely understand why he was so offended by it.  IQ research is always politically charged, and concluding that “poor people are stupid” is a recipe for terrible policies that strip people of their agency (which is very different to nudging them to save a bit more).  The only reason I differ here is because I saw Sendhil Mullainathan present this work at PacDev last year, and his interpretation ran in the opposite direction entirely.  The main finding of the study was that the cognitive stress of extreme poverty is considerable, equivalent to experiencing a 10-point drop in IQ, or pulling all-nighters for days on end.  But Sendhil’s point was not that poor people shouldn’t be allowed to make major decisions or anything similar.  Instead, it was a call to empathy.  He pointed out that most people are trying as best they can to provide good lives for their families, and asked his audience of privileged Northern academics to think seriously through the challenges of doing that if you started each day feeling like you hadn’t slept at all.  The interpretation, then, was not that “poor people are stupid” but “poor people are highly stressed,” which seems to me like it would lead to a different set of policy prescriptions aimed at giving reducing that stress by giving people higher and more stable incomes.

More books on development for the interested generalist

I’ve read quite a few fine books on on international development since I last wrote about books on development for the interested generalist.  I still stand by books 1 -4 and 6 on that list.  I suspect that 5, 7 and 8 may now be outdated.  Here’s what I would add to the list.  Please send your suggestions in as well!

  1. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, by Douglass North, Jim Wallis and Barry Weingast.  A succinct and compelling discussion of why some states become rich and stay rich over the long run, while most remain relatively poor.  Does a great job getting past arguments focused on geography or technology to look at the politics of economic growth.
  2. Scarcity: Why Having Too Little Means so Much, by Sendhil Mullainathan.  A fascinating look at the cognitive effects of poverty, which are considerable.  The brief version of the argument is that people who face constant stress about whether they can afford to meet their basic needs often find it difficult to focus on making longer-term investments, such as making sure their children attend school regularly.  Could be read along with James Scott’s Weapons of the Weak as a short course on why behaviors that might look confusing to outside observers are often quite rational.
  3. Seeing Like a State: How Certain Schemes to Improve the Human Condition have Failed, by James Scott.  Essentially a treatise on standardization (of names, languages, railway gauges, what have you) and the role that this has played in many ambitiously large but ultimately unsuccessful development schemes.  Scott is a wonderful writer, and he has a gift for taking topics that might be dull in the hands of a lesser writer (like the standardization of basket sizes for paying grain taxes in medieval Europe) and finding the human drama within them.
  4. More than Good Intentions: Improving the Ways the World’s Poor Borrow, Save, Farm and Stay Healthy, by Dean Karlan & Jacob Appel, and Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, by Esther Duflo & Abhijit Banerjee.  Both books offer a great introduction to a new type of research in economics aimed at finding effective policies to reduce poverty.  What I appreciate about this type of research is that it represents to me a type of hopeful pragmatism.  It isn’t geared toward identifying the type of big push policies that might lift a whole country out of poverty in a generation (which few states besides China have the capacity to carry out anyway), but it takes an experimental, iterative approach to finding new products and services that are useful to ordinary people in low income countries.
  5. Montaillou: The Promised Land of Error, by Emmanuel Le Roy Ladurie.  A truly remarkable book about daily life in a small town in the mountains of southern France in the early 14th century.  Many people in the town held Albigensian beliefs, and were subject to an inquisition by the Catholic Church, which produced exhaustive records of their interactions with their neighbors and with visiting Albigensian holy men.  Le Roy Ladurie used these records to reconstruct a richly detailed portrait of personal, political and economic life in rural France nearly 700 years ago.  It’s a poignant reminder that even today’s high income countries were once basically just as poor as anywhere else – but also that poverty doesn’t inherently have to mean isolation, deprivation, or constant unhappiness.
  6. The Zenith, by Duong Thu Huong.  A fantastic recent novel by one of Vietnam’s leading authors.  It’s an imaginative retelling of the end of Ho Chi Minh’s life in an isolated mountain villa, and how it comes to intersect with the daily lives of the people living in the small towns nearby.  Rather like Montaillou, this is a much more complex, interesting, and deeply felt portrayal of rural life in a low income country than people from high income countries are usually exposed to.

On trial & error in development policy

Chris Blattman had an excellent post recently on the importance of trial and error in creating effective development policies.  It’s worth quoting at length:

One trouble I have is that I think even very smart and experienced people are profoundly bad at knowing what the problems are in the economy, where the political winds are blowing, and what will work. This needs to be said out loud as well.

To take an example from a smaller scale: I spend a lot of time studying local labor markets in Africa, especially when people opt for crime or mercenary work rather than farming and business. I try to figure out what holds back legal work and test programs that deliver those things: skills, capital, socialization, and so on. And I get it wrong almost every time.

What I mean is that the experiments never end like I expect them to. Even (maybe especially) when they work out. I was blindsided by how frequently the poorest young men in slums of Nairobi have a home robbery or theft, meaning it’s almost impossible to accumulate capital. I was amazed that, yes, with a little skills and capital that a young woman can become the 183rd tailor in her community and turn a good profit.

This isn’t a defeatist point of view. I’d make a different point: the way I’ve learned how things operate is to work with a government or organization to try out a policy and succeed or fail. …  This sounds like a good way to figure out the way your world works (your model), and then to reform. A lot of people would say this is China’s secret to success: informal experimentation on a grand scale. The problem, as I see it, is that most governments and aid organizations I’ve worked with are really, really bad at this. They don’t use the lessons from past failures to try again a different, better way. They don’t throw out bad programs.

The key point:

To me the important question is not “what is the right policy?”, but “what is the process for generating good policies over time?”.

Why don’t African governments invest more in infrastructure?

Brian Klass has shared some interesting speculation on this question at Good Governance Africa.  He makes several good points, but I don’t think this is the whole story.  From his article:

Only 16% of roads in sub-Saharan Africa are paved—the world’s lowest rate by a wide margin (58% of South Asia’s roads are paved), according to the World Bank.

African governments have not built needed roads or maintained existing ones. This sluggishness runs against strong evidence that financing infrastructure is a valuable long-term investment that creates almost immediate payoffs. Every $1 of public infrastructure spending can contribute up to $0.25 in annual GDP, according to a 2012 World Economic Forum study. This means that savvy investments can pay for themselves in as little as four years.

So why do African governments neglect infrastructure while claiming to search for ways to lift their economies? Two major reasons: constituencies and a penchant for grand projects.

First, “development funding is driven by constituencies,” explained Todd Moss, a senior fellow at the Center for Global Development, a Washington, DC-based think-tank, in a 2013 report on donor aid efficacy. “There’s a strong constituency for health and education funding but there’s no constituency for infrastructure.” It is hard to imagine a TV ad in the US asking for money to pave a road in rural Mozambique the same way it might plead for funds to sponsor a sick child in Somalia. Similarly, when a road is built, statistics cannot back up its impact the way that a public health NGO might showcase the number of vaccinations it has provided. …

Second, government investment in infrastructure—and foreign donor support—is disproportionately skewed towards “big ticket” items rather than smaller projects and ongoing maintenance. Whether it is an African government or a donor-led aid programme, both entities benefit more from grabbing headlines by funding a massive new dam than upgrading a network of roads lost in the hinterland.

While I’m sure both of these things contribute to underinvestment in infrastructure, this can’t possibly explain all of it.  One point here is that there should be an obvious domestic constituency pushing for better roads – business owners.  Even if most businesses are state-owned, no enterprise benefits from high shipping costs and late deliveries, so you don’t need an independent middle class of small business owners for this prediction to work.

The other point is that construction is a great tool for patronage.  Most countries produce the materials that go into roads (cement, gravel, etc.) domestically, since they’re bulky and low-value.  Setting up a political ally with a cement firm and a paving contract seems like a really defensible way of promoting local industry and improving infrastructure while also reinforcing one’s patronage network.  I can’t find the citation now, but I’ve heard that Japan has proportionately more roads than other countries because construction contracts are such a mainstay of patronage there.

What else do you think might lead to underinvestment in infrastructure?

Why I’m not doing “fieldwork”

I’m approaching the end of the second year in my PhD program, and the topic of dissertation research comes up in conversation constantly.  “Are you doing any fieldwork this summer?”  “How long do you think you’ll be in the field?”  “How many field sites will you have?”  And the answer is that while I do hope I’ll be spending part of the summer in Africa, I won’t be going to “the field,” because I think that phrase reflects a lot of odd things about how researchers and development workers interact with places in the global South.  (It’s not confined to Northerners working in the South, either; I’ve met plenty of people from large cities in Africa who would use similar language about going to rural areas in their own country.)

What strikes me here is that if you’re going to the field, you have to be coming from somewhere else.  Particularly among people who work in Africa, the field is often discussed as a place of opportunity – all that data to be collected, all those programs to be run! – but also of great challenge – poor infrastructure, corruption, the risk of disease, and so forth.  Semantically, saying that you’re going to the field doesn’t just mean that you’re physically coming from another location, but also implicitly sets up that location as one which doesn’t suffer from those problems.  You’re coming from a different type of place, off in search of knowledge.  Just think about whether you would use the phrase “field visit” to describe both a trip to rural DRC and to the colonial archives or an NGO’s headquarters in Belgium.  The latter being in the North, I think most researchers or development workers wouldn’t call that “the field” even if they had to travel from another country to get there.  But functionally, what’s the difference?  You’re coming from a different place, off in search of knowledge.  (In many ways this echoes the expat vs immigrant debate.)

The problem I see here is that using “the field” like this essentializes low-income countries (and particularly rural or conflict-affected areas within them) as places that are fundamentally different to anywhere else.  They’re not places where people live or work or go on holiday like any other; they’re sites of research and development programming, because they’re poor and they have all these problems that need to be fixed.  They are defined by their poverty and its associated challenges before anything else.  And when you start conceptualizing a place primarily in terms of absence – of health, of security, of good roads – you’re likely to miss a great deal of what’s actually present.  Moreover, and perhaps more essentially, this strikes me as disrespectful.  No one wants to be seen primarily as a problem to be solved, be it in international development or in interpersonal relationships.  I think being respectful is about trying to look at people as individuals instead, with their own stories and their own inherent worth.

It’s a very small thing, to avoid saying “the field,” and obviously it doesn’t change any of the other unequal power dynamics between development workers and the intended subjects of development.  But language has power, and I think it’s important to avoid these semantic shortcuts which suggest that people in certain places are fundamentally different to those elsewhere.  So no, I’m not going to the field this summer, and I haven’t got any research subjects.  I’m going to Kinshasa, or Nairobi, or Kampala (research plans still clearly up in the air!), and I’ll be doing interviews or piloting survey questions with people who are polite enough to take time out of their work days and talk to an inquisitive foreigner.

(If you want some additional takes on the idea of the field, a number of other development bloggers have written about this recently as well.  Check out these reflections from J., Tobias Denskus, Duncan Green, and Dave Algoso, who has my favorite title of the lot – “everyone’s office is someone else’s field.”)

Was Singapore’s growth really exceptional?

The success of the Asian Tiger economies has always posed an interesting question for African economic policy: if these post-colonial countries could grow so rapidly, why haven’t most others?  Strong authoritarian leadership and favorable geography are generally thought to explain some of the difference, but the rest is usually attributed to poor industrial policy on the part of African leaders.

Since the death of Lee Kuan Yew earlier this week, I’ve seen a number of articles questioning this narrative of Singapore’s exceptional growth.  Kevin Lees notes that Lee’s own policy ideas weren’t always very good – the disasterous federation with Malaya being prime among them – and that he was supported by capable finance ministers who might have achieved good outcomes even under a different leader.  More importantly, however, both Singapore and Hong Kong benefited greatly as destinations for overseas investment from China.  As Lees writes, “The obvious inference is that, though British colonial rule of Hong Kong through 1997 may not have been democratic, liberal freedoms didn’t especially hinder the same kind of economic ‘miracle’ there.”

Tom Pepinsky points out that Singapore’s per capita GDP was already fairly high at independence.  In his words,

Already by the 1970s, Singaporean GDP per capita actually exceeded that of the UK. But the main point to take away … is that Singapore entered the community of independent states as a prosperous country, at least by the standards of the time. That Singapore has progressed tremendously since independence is true, but not a story of turning the “Third World” into the first. If anything, it is a story of how to escape the middle income trap.

In another post, Tom shared a video that makes a similar point: the Singapore of 1957 looked more similar to the Singapore of today than one might have expected.

While not directly related to economic growth, I also found Emmanuel Yujuico’s post on the establishment of the Singaporean military fascinating.  Lacking the domestic capability to build a strong army quickly, Lee solicited help from Israel, and the strong military relationship between the two countries persists to this day.

Five myths about governance and development

The World Bank’s People, Spaces, Deliberation blog recently ran a post that questioned pretty much all the conventional wisdom about making Northern-style good governance the centerpiece of development efforts.  All five  points are worth a read.  Here are the first two:

1. Good governance is important for development. If this means that a large set of worthy ideals – including transparency in public affairs, accountability of power-holders to citizens, ability of citizens to make demands, absence of corruption, freedom of enterprise, secure property rights and rule of law – are necessary conditions for development success, the answer is clearly no.

The history of human progress, from 17th century England to 21st century China and Vietnam, is completely clear on this point: governance ideals are realised over time on the back of economic progress, not the other way round.

2. Governance-improvement is a good entry-point for developmental reform. This corollary might appear more defensible, but it isn’t. All experience tells us that institutions and social norms change slowly at best. Aid-supported institutional change has a well-documented tendency to produce either ‘capability traps’ or purely cosmetic improvements. History, especially the last half-century in Asia, shows that very significant gains in economic transformation and human well-being can be achieved within highly dysfunctional systems. Reform initiatives should surely aim to repeat those gains by whatever means are to hand.

As Matt Andrews and his colleagues have been arguing, reforms should be problem-driven and oriented to finding appropriate solutions. There is increasing evidence that problem-solving, adaptive methods can work, even when governments are largely unwilling partners in change. In contrast, donor ‘governance programmes’ contradict the idea of problem-driven reform almost by definition: even in the best of cases, their solutions are set out in advance.