2019 Economic Science Nobel for Humankind

2019 Economic Science Nobel for Humankind

Shashank Vikram Pratap Singh

Ph.D. Scholar

Department of Commerce

Delhi school of Economics

ssvikrampratap@gmail.com

Over the last two decades, the power of economic growth has resulted into many noticeable changes in favor of humankind. The standards of living have significantly improved almost everywhere in the world. The economic well-being, measured by GDP per capita, doubled in the poor countries. Child mortality have halved relative to 1990s, proportion of children attending school has increased from 56 percent to 80 percent globally, people having low human development fell from 3 billion to 926 million or from 60 percent of world population to 12 percent of population, people having high and very high human development rise from 1.3 billion to 3.8 billion or from 24 percent of global population to 51 per cent of population.

Despite this progress, the gigantic challenges of humankind still remain intact. More than 700 million people still subsist on extremely low incomes. In developing nation one in ten people still live on less than $1.90 a day, in sub-Saharan Africa that proportion rise to 42 percent. The number of hungry people has risen to 822 million. Every year around 5 million children still dies under the age of five due to diseases that could have prevented or cured with inexpensive treatments. Half of the world`s children still leave school without basic literacy and numerical skills (or lacking proficiency in reading, writing, and mathematics). Such conditions of people are highly alarming and disturbing and raising big questions on humanity. Where is the concrete outcome of global effort being made since last many decades?

Now the enquiry for, how to effectively reduce the global poverty became the most pressing question of humankind. Its also the biggest issue in the economics discipline since its inception. Even WB 2008 report said that nothing besides long-term high economic growth can solve the problem of global poverty. But the result is before us. So, this year Svergies Risksbank Prize in Economic Science (known as Nobel in Economic Science) awarded to Abhijit Banerjee, his wife Esther Duflo and Michael Kremer for their pioneer approach which we called experimental approach to alleviating global poverty or how to effectively help least well-off or ill-being through best strategy. This approach has transformed the development economics, a field that studies the causes of global poverty and how best to combat it.

So basically, their noble approach works on two powerful ideas, one is empirical micro-level studies, based on economic theory and then provide insights for policy for effectively alleviating poverty and other is frequently conducting randomize controlled field trails (RCTs). We cannot deny the fact that theory is crucial for exploring the possible mechanism behind any construct and help the research for effective way to establish casual relation. But that’s not enough to guide and formulate effective policies.  For example, theory cannot give the answer of whether temporarily employing additional contract teacher with the possibility of re-employment is a more cost-effective way to raise quality of education than reducing class size. Neither can it tell us whether microfinance program effectively encourage entrepreneurship among poor. Nor does it reveal that subsidized health care product raise poor people`s investment in their own health. Although knowing these vital questions are highly critical and important for enhancing human capital, increasing income, improving health status and many more dimensions of human well-being. The technique for answering these questions require people to do filed experiment having interventions and find out the causal effects. That’s exactly what this year laureates have been doing since last twenty years. The effort first started by Kremer in mid-1990s by introducing randomize control trail in the schools of Kenya. It was the cornerstone for the modern approach to development economics.

The technique that they use is called randomized controlled trails (RCTs) - a technique to estimate cause and effect relationship of certain intervention, program or policy on randomly selected samples. So, RCTs is a randomized experiment- randomly selecting two or more groups from the appropriate population and then divide the group into treatment group (those who get the interventions or program) and control group (those who do not receive interventions). Finally, the impact of interventions or program, statistically tested on treatment group vis-a-vis control group which provides significant practical insights to researcher and policy makers. This is exactly what they have done by using broader interventions like education, health, microfinance etc. on elected group of poor in many parts of the world.  As a result of their noble work, world have witnessed a large number of concrete results on poverty and specific program or intervention to alleviate it. Like on school, the evidence show that employment of contract teachers is generally cost-effective way to improve students learning, while the impact of reduced class size is mixed. On health, poor people are very sensitive to the price of health care product. Thus, if prices are high, they (poor people) are less reluctant to make investment on health care product which is highly disturbing to any nation who aspire to be in category of prosperous nation. Hence, such crucial things should be highly subsidized. On credit, evidence show that microfinance programs do not have the development effects. In India Abhijeet and Duflo conducted the study as a result of it, more than 5 million Indian Children have benefited from effective program of remedial tutoring in schools. 

So, the thinking behind their pioneer work is to divide the poverty issues into several manageable question and then experiment with some program or intervention and bring effectiveness in them. The beauty of the logic is, they did not perceive the problem of poverty with the single prism. They have come up with altogether new approaches keeping in mind the dimensions of human behavior and human well-being. It’s quite plausible and evident that quality of education, skill and health constitute high level of human capital which further leads to overall development of people. There is saying Swasth Sharir mei Swasth Masthisk ka Niwash Hota hai. And Vidya Dadatee Vinayam, Vinayaadh Yaatee Patrataam. Patratwata dhamanpraptnoti danat dharmam tatah Sukham; that means knowledge gives discipline, from discipline comes worthiness, from worthiness one gets wealth, from wealth one does good deeds, from that comes joy.  So, the ultimate aim of human life is to be happy in which poverty is one of the biggest obstacles. Even Indian mythology advocates for the same which is quite evident in our sayings; Bhukhe Bhajan Na Hoy Gopala or empty sacks will never stand upright. Economics Nobel Laureate Angus Deaton too championed the idea of well-being of people specially well-being of poor through fight against poverty. So, eliminating poverty becomes the most challenging task for humankind. Efforts are being made for many decades. Over the period of time, ways of doing/handing this issue got changed, but it does not mean the earlier efforts were worthless or directionless. They were the best at that time. The focus of economics discipline has changed tremendously over the period of time. If we hypothesize the Nobel prize as a parameter for same, then the result is quite evident before us. So, let’s compare the First five and last five economic Nobel prize which will help us to clearly visualize the contrasting differences in the approaches over the period of time. Nobel for economic science started in year 1969 and given to Ragnar Frisch and Jan Tinbergen for developing applied dynamic model for economic analysis. In 1970 it was awarded to Paul Samuelson for his static and dynamic economic theory, in 1971 to Simon Kuznets for pioneer work in GDP, in 1972 to John Hicks and Kenneth Arrow for general economic equilibrium theory and in 1973 to Wassily Leontief for input output method. Last five, in 2015 to Angus Deaton for consumption, poverty and welfare, in 2016 to Oliver Hart and Bengh Holmstrom for contract theory, in 2017 to Richard Thaler for behavior economics, in 2018 to Willion Nordhous and Paul Romer for integrating climate changes and technological innovation for long run macro-economic analysis and in 2019 to Abhijit Banerjee, Esther Duflo and Michael Kremer for experimental approach to alleviate poverty.

Now look at the journey and see how the focus has shifted from econometric model that badly failed in 2008 to human centric approaches. Are we really moving towards human well-being approaches? Or is this year prize reflect that we have already moved towards human well-being? Are there any differences between what constitute well-being and what this year laureates have been doing? Or it’s just a linguistic accident? We have to wait till further pioneering approaches and writings.