Esther Duflo, who was awarded the 2019 Sveriges Riksbank Prize on Economics in memory of Alfred Nobel, along with Abhijit Banerjee and Michael Kremer, talks to Outlook on Skype.
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00:00 Hello and welcome to Outlook's Biblio program.
00:03 Today we are talking to a Nobel laureate across the seas on Skype.
00:08 We have with us Ms. Esther Duflo, who got this year's
00:14 Swearenges Riksbank Prize in Economics, which was started in the memory of Alfred Nobel.
00:21 She shares this prize with Abhijit Banerjee, who happens to be her husband,
00:28 and colleague Michael Cramer.
00:31 Thank you Ms. Duflo for joining us on the program.
00:44 Thank you.
00:45 I just want to start with a very common question.
00:49 Your first choice in life was learning history.
00:53 How did you choose economics?
00:55 In the course of studying history I realized that although I did like history very much,
01:04 it left me frustrated because it didn't make me able to do something in the real world,
01:12 to have an impact on the real world.
01:15 So I decided that I was going to spend one year in Russia, take one year off,
01:21 to realize what's the next move.
01:23 And there in Russia I had a chance to work for economists,
01:27 and I realized that economists have the best of both worlds because
01:31 they can be in academia and have the luxury of thinking slowly about problems,
01:36 and at the same time they can also work on issues that have a direct impact on the world
01:42 and have an influence on economic policy.
01:44 So I figured that's for me.
01:47 That's good because economics is called the dismal science,
01:51 and I suppose you are happy with your choice.
01:55 Yes, that turned out to be a wise move.
01:58 I would like to know that since you and Abhijeet Banerjee have written this book,
02:06 which is Good Economics for Hard Times,
02:09 do you think the world is going through hard times, or India at least, is it going through hard times?
02:14 The world is going through hard times.
02:17 India, I know that there is a lot of soul searching now,
02:22 but on balance I think it has had such good times that on balance for over the last 20 years,
02:28 India is actually a huge success story.
02:32 So India is going to live a bit less good times.
02:38 But many countries, but certainly it's going to some soul searching now,
02:44 and I think it's going to continue in the next few months at least.
02:50 Other countries like countries in Western Europe and the US are going to genuinely have them.
02:58 But you see, the last quarter we had a very sharp fall in GDP.
03:05 Yes.
03:06 And other indicators are showing that there are problems with many sectors of the economy.
03:12 What's your take on this? What's your reading on this?
03:16 So interestingly in the book, we wrote the book when India was still growing fast,
03:22 and we wrote a segment of the book saying India should fear complacency,
03:27 because there are many reasons why you would expect the very good growth that India has known since the 1980s to slow down,
03:35 for structural reasons, not for any mistakes that India is making,
03:39 but just for the fact that there was a lot of low hanging fruit, and those low hanging fruits have been picked.
03:45 And now, you know, India is a mature economy that needs to face the challenge of a mature economy.
03:50 That's one. Number two, of course, there is the worldwide junctures that all the countries are going through hard times right now in terms of the growth,
04:00 even China, and has been for some time.
04:02 And that also engulfs India as part of a globalized world.
04:07 So when we wrote the draft, when we wrote the book, we wrote this and say, well, what does India need to do now?
04:15 And we didn't realize how prescient we were. We were not very used to do economic forecasts.
04:22 So we were quite, I mean, we were not happily surprised.
04:27 We were very sad to be proven right. But it has been the case.
04:32 I think that the important thing that India needs to keep in mind now is just keeps India should keep cool.
04:39 OK, it's not nice that growth is going down. It would be better if it was continued.
04:45 But it is nobody's fault. It is not something.
04:50 And the corollary of that is that it's not something that can that we know how to address.
04:56 So you're saying there will be a turn around.
05:02 You shouldn't listen to them.
05:05 Nobody has any idea. Economists, the best economists have no idea how to engineer course.
05:11 In that sense, it is still this much science.
05:14 What we do need to do now is to say, well, no matter what happens,
05:18 what are the things that we need to preserve in order to not make a bad situation worse?
05:24 And that's what India needs to focus on now. And that's what we try to explain in the book.
05:29 You must have noticed that one of the senior ministers in the government, Mr. P.S.
05:33 Goyal, has called Abhijit Banerjee as a leftist economist trying to dismiss his work and yours by corollary.
05:41 What do you have to say to that?
05:44 You know, people will say what they have to say.
05:48 Our work in Nepal is actually, I think, completely transcends politics.
05:53 We've been working in India for years now with governments, you know, under very different governments.
06:01 And we've always found good relationships.
06:06 And in particular, we work in the states. We work in the ground in the states.
06:11 Currently, we have collaboration going on with the state of Haryana on one end of the spectrum
06:18 and West Bengal on the other end of the spectrum and pretty much anybody in between.
06:23 And politics has never been an issue because if there is one area, I think, where everybody agrees,
06:32 left, right, center, you know, is that one needs to have the most effective policies to help poverty,
06:43 even conditional on the amount of money that one is willing to spend.
06:49 That might vary from one government to the other.
06:52 But the idea that that money has to be spent in a good way, in an efficient way,
06:57 and that we need to try to have the programs that are going to make meaningful differences in the lives of the poor,
07:06 that I think is not something that is, you know, tainted by any politics.
07:14 So, of course, I am not even Indian. So how would I have an opinion on the politics of India?
07:20 I'm leaving that aside.
07:24 We have many, many people in the grounds in J-PAL, and they have nothing to do with politics.
07:29 We are talking to people in the ground, in civil society, in NGO, in businesses, in government, in administrations,
07:40 to help them, you know, achieve their objectives better and work better.
07:45 So I think one person says one thing, whatever, you know.
07:49 Okay. How do you think that the central government, if it was to use your work in India,
07:55 how can society benefit out of that?
07:59 So I think there are many policies that touch the poor that are done at the level of the states.
08:09 But there are some that are done at the level of the center.
08:12 For example, it is the center that is pushing the financial inclusion and direct benefit transfers.
08:22 And there we have learned a few things that the government can, that we could have useful,
08:31 we in fact are having a useful conversation with the central government.
08:35 So there are many schemes that also the central government, for example, is spending a lot of money on health,
08:42 to the national health missions.
08:44 And although that is being done in the states, the government has influence,
08:48 the central government has influence and say on what this money goes to and how it is spent.
08:54 So there are some lessons that we have already gained that can be shared.
08:59 And also there is a lot of work to be done, to be done together.
09:03 Your contribution to economics has also been the randomized clinical trial,
09:10 which you extensively write about and you have written many books on it.
09:15 I was seeing some criticism by economists, some economists saying that randomized RCTs work very well with medicine.
09:23 But in poverty it may not work because a small area where you have the trials may not reflect what is happening in a larger area.
09:32 How do you react to that?
09:34 So that is a good question, but that is an empirical question, which is not something we need to decide a priori.
09:41 It could be the case, or it could be the case that in fact medicine generalizes.
09:46 So when we were first starting doing this kind of work, we did not know.
09:50 And when people ask me this question, do you think something that you are finding in Udaipur will generalize to Jaipur,
09:56 and beyond Jaipur, Kolkata, and beyond Kolkata, Africa, I always answer, I don't know.
10:02 One has to find out.
10:06 And I think over the last 15 years we have found out that there is actually a fair amount that does generalize quite well.
10:15 For example, one program that is called the Targeting Ultra Poor Program is a program that gives people an asset,
10:29 ultra poor persons, the poorest person in a village, productive assets, and then some hand-holding to take care of the assets.
10:39 So that program was evaluated originally in Bangladesh where it was started, and it showed good results there.
10:47 But then what happened is that this experiment was replicated in eight countries, including India,
10:54 and to see whether it does work in India as well.
10:59 And it is only after we got evidence of very, very positive effect and long-term effect when we replicated the program with Bandhan in India
11:10 and we evaluated there that we felt confident to say this is a program that can be actually extended
11:15 because it didn't work just in one place. It worked in eight different countries.
11:21 So then it got expanded in several states in India, and interestingly there are experiments going along with that.
11:30 So you can continue learning whether it is still working in this different context,
11:34 and also whether changing the rules makes it, for example, easier to administer, or on the contrary, it doesn't work.
11:42 You both have generalizability on the geographic dimension, which is the one you talked about,
11:48 but also on the details of the implementation. If the details of the implementation vary from place to place,
11:53 you always have the question of will it work in a slightly different way.
11:57 And I think the way you answer this question is by continuing to experiment. You're never done.
12:02 There's no silver bullet like, oh, you've evaluated one thing, one place.
12:06 You're ready to generalize everywhere from Antarctica to the North Pole.
12:14 You're talking about there's no one silver bullet, but most of the Western countries have removed poverty
12:21 or at least reduced it to a very acceptable level by some basic issues, rule of law, constitutional guarantee,
12:29 freedom of economics, allowing producers to have freedom to produce.
12:36 So there is certain agreement among economics that this thing works. Don't you agree?
12:43 I think there is some agreement among economists that there are some things to avoid.
12:48 Hyperinflation is not a good idea. Complete anarchy in economic relationship is not a good idea.
12:58 Even I would say too much shackles on economic activity like complete directivism is not a great idea.
13:09 So at that basic level, I think there is agreement.
13:14 Where there is no agreement, no, is and then what?
13:20 And that's where the interesting puzzles come through because what you're describing India has.
13:28 And then India is quite successful. China has and China is even more successful.
13:35 But then you take a country like Tanzania, they have it too.
13:41 And they are less successful. They could be even more successful than they are.
13:45 So that's what we don't know. And what it could macroeconomists now,
13:52 the one consensus that they agree on is what we don't know is what, you know, what?
13:58 Once you have this very, very basic level of functioning institution in place, what's the next step?
14:05 And some of the things you said, I don't even know whether there is consensus.
14:10 Some people are more, you know, some countries have gone very different routes to where they are.
14:16 For example, you said China. For example, Korea, you know, heavy industry and policy.
14:22 And the US, of course, never had that. And they are both rich economies today.
14:27 Is Korea rich because of industrial policy or despite it? We have no idea.
14:33 And I don't think it's a revolutionary thing to say for economists.
14:38 I think most economists agree with that. Maybe they won't say it in public because that makes the science look a little bit useless.
14:44 But I think there is actually agreement on that.
14:48 You mentioned China. China doesn't have one basic ingredient is freedom of the political freedom.
14:57 And yet it has been economically successful.
15:01 So that means that China has some amount of economic freedom and in fact did take off under Deng Xiaoping
15:11 when they replaced complete derisism on the economic side with a household responsibility system
15:19 and the right to establish some industries.
15:23 So I think China does qualify under your category of basic economic freedom,
15:29 but it doesn't have political freedom.
15:32 On the other hand, you have some very successful countries that have political freedom.
15:36 So maybe political freedoms are not an ingredient of growth. We don't know.
15:40 That doesn't mean it's something good to have.
15:42 Like the point is also another important thing to remember.
15:46 And that's something which we really insist on in the book is that one should not be too obsessed about growth per se.
15:55 What we should care about is the level of welfare, the level of economic well-being,
16:02 and even more importantly perhaps, the level of economic and social well-being of the most unfortunate in a particular society.
16:14 In my opinion, that's what one should care about.
16:17 What's your opinion on universal basic income in a country like India, which as you know,
16:24 the fiscal deficit of India is not in a very good shape?
16:29 It can be termed as a poor country.
16:33 Does UBI or universal basic income work in a country like this?
16:37 So let me say one more thing on the fiscal deficit,
16:43 which is something that we do know, that macroeconomists do know.
16:47 It's not about growth, it's about conjuncture, is that you don't try to cut the deficit in the middle of a crisis.
16:53 So this is something that one might need to address structurally.
16:59 And I think India will need to think structurally about how it can raise more tax revenues,
17:07 because it really has a tax revenue to GDP that is quite low relative to country of its income level,
17:15 and relative to China for example.
17:17 But of course you don't raise taxes in the middle of a crisis, so that's not something you do today.
17:22 But you also don't try to slash or even control deficit in the middle of a crisis,
17:28 because one needs to avoid demand-induced tailspin cycles.
17:34 That's point number one.
17:37 On the UBI, I think the way to think about it is, and that's what we talk about in the book, is ultra basic income.
17:45 At least that's our impression, is that you don't necessarily try to reach a system where you have,
18:00 where everybody has a large amount of money to live on, or a substantial amount of money to live on,
18:09 because that would cost a lot of money.
18:12 So that would involve slashing everything else, which might not be a good idea.
18:16 For example, health services still need education, etc. That needs to be supported still.
18:22 And that would also be of course involve enormous fiscal expenditure,
18:28 which would involve the ability to raise more taxes, which is difficult to achieve in the short term.
18:34 On the other hand, if you had a very small basic income,
18:38 and one that would be so small that for most people it would not be worthwhile even claiming it,
18:46 especially if claiming it would require actually applying for it and a little hassle,
18:52 then that might not cost that much money, because it's not that much money per person and not everybody would get it.
18:58 But the effect of having a guaranteed minimal level of knowing that no matter what happens,
19:06 no matter how bad it gets, you will never starve,
19:09 I think could have an enormous amount of beneficial impact on people's willingness to take on some risks in their lives,
19:21 and therefore to improve their well-being.
19:25 For example, a farmer today might think, "Well, I'm not going to switch to a higher revenue crop,
19:32 or to put more modern seeds and things like that, because what I'm doing works pretty well,
19:41 even if it uses too much water and it's not that much productive,
19:48 at least I know that whatever happens I'll have a minimum standard of living for my family."
19:54 You won't starve.
19:56 They also know that if they don't have the minimum standard, they are not sure that they will be supported.
20:03 On the other hand, if there was an ultra-basic income, they could say, "Well, let me try something different,
20:09 because if it doesn't work out, I always can pull back on that, and we will not starve,
20:16 and we will continue to keep the kids in school, etc."
20:19 So I think a system like that would actually have potentially enormous leverage on people's well-being at the bottom,
20:26 and on their economic fortunes.
20:29 You have mentioned in your book several places about immigration.
20:33 You say immigration is generally a win-win game.
20:38 So in that context, you know in Assam, which you have also talked about,
20:44 the government is trying to disenfranchise almost 2 million people.
20:49 What would you say as an economist to the central government over here,
20:53 keeping in view what is being aimed at?
20:57 Well, once again, it's not an India problem only.
21:02 It's a worldwide problem, but I'm talking in Indian context.
21:05 But it's worth putting in perspective that it seems to be a worldwide fear of migration.
21:13 And I think the government is doing that because they are responding to this fear.
21:25 And if you're looking at what's happening in France or what's happening in the US,
21:29 there is the same effort of trying to show that we are doing something against migration, legal or illegal.
21:37 And that's unfortunate because people's fear of migration is actually unfounded.
21:50 In reality, migrants are not competing with locals for jobs.
21:55 In reality, they bring in the migrants that do come,
21:59 the people who do make the choice to move to Assam or to the US or to France.
22:06 They are people who are actually selected for their drive, their ambition and their willingness to succeed.
22:13 And they typically would bring strength to an economy.
22:19 They typically would bring...
22:21 They come with their own energy and they come with their own demand
22:25 and they are willing to do jobs that nobody else is willing to do, etc.
22:30 And one could change the discourse and show strength and leadership
22:37 and show we can be a strong country with the help of the migrant coming in.
22:45 I'm not saying this is an easy switch in the political rhetoric to implement
22:55 because it goes against the grain of much public opinion everywhere.
23:03 But it is something that could help us, I think,
23:14 overcome the type of situations that we are finding ourselves in the US,
23:21 with the border in Europe, with camps in Calais or something like that,
23:31 and the immigrants who died in the lorry in England and in India with the crisis in Assam.
23:40 My last question is basically, you mentioned in your book that the world,
23:46 the Western world is going through a problem almost Dickensian, like the days of Dickens.
23:54 Isn't that an exaggeration on your part?
23:57 Because after all, look at the high capital income,
24:00 look at the amount of money that is in the Western world compared to the poor world, the third world.
24:09 And you said it's almost similar kind of fears are being expressed in both areas.
24:15 Wouldn't that be a little bit of an exaggeration on your part?
24:19 I think what is Dickensian in the Western world today
24:25 is the amount of fear of dislocation and disruptions.
24:33 And the period of Dickens is in a sense a period of positive transformation in the economy
24:41 which led to the huge increase in per capita income that we're experiencing,
24:47 but at the cost of extremely hard lives for people, for the poor.
24:54 And it took decades for people who lost their jobs when they were replaced by machines
25:01 to have a better, for their wages to increase, improve.
25:07 And now what we're experiencing in the West is you're right that the per capita income are high,
25:12 but over the last many, many decades, median wages and median income have completely stagnated.
25:21 So the growth in per capita income in the Western world has been completely captured by the very, very rich.
25:29 What has happened in developing countries is that, and in particular in China and India,
25:35 is that at least until recently, the growth has not only benefited the rich, it's also benefited the poor.
25:43 The poverty rates have been slashed in India.
25:47 That doesn't mean that we should be happy. It's not enough.
25:50 Of course, there are still many poor people,
25:52 and one needs to continue to really focus our attention to what's happening to the poor in poor countries,
26:01 in India in particular, and to make sure in particular in the current economic slowdown
26:07 that it doesn't disproportionately hit the poor.
26:10 But in a sense, when you're looking at the geopolitical situation,
26:16 what happened in China and India, and to some extent in African countries as well,
26:22 is the one bright spot over the last 30 years.
26:25 Things have gone badly for 90% of the population in Western Europe and in the US,
26:32 even as they went beautifully for the top 10% and amazingly beautifully for the top 1%.
26:41 In India, it has been different because although inequality has increased,
26:48 and rich people have done very, very well, poverty has also decreased.
26:54 And I think we need to hold on to that as something that is a success
27:01 and as something that we need to continue living with.
27:04 Because once the growth slows down, if nothing is done to make sure to preserve the share of the bottom,
27:13 then you're going to get Dickensian Square in India,
27:17 where the situation for the poor could not only stop improving but potentially reverse back.
27:27 And there are already some signs in official statistics that poverty rate might actually go up.
27:35 So we do need to...
27:37 So I think as society, again, it's not political in my opinion.
27:43 It's just standard common sense.
27:47 As a society that is now doing generally better off,
27:52 can we accept that the progress made for the poor would reverse
27:59 when they are still living in such difficult circumstances?
28:02 I don't think anybody would agree with that.
28:06 So I think that there can be a national consensus absolutely regardless of political stripes
28:14 that in the current circumstances, focusing on the welfare of the poor should be a priority.
28:20 And the good thing is that I think it takes a willingness not to slash public expenditures,
28:26 but even more important, it takes a willingness to spend the available money as efficiently as possible.
28:32 And again, who would disagree with that?
28:34 The advantage also is, contrary to growth that we don't know how to make happen,
28:39 better public program is something that we do know how to make happen.
28:43 There is evidence already and we can build so much more.
28:47 Ms. Duflo, thank you very much for spending time with us.
28:51 It was a great pleasure to talk to you.
28:54 Great pleasure. Thank you so much.
28:56 Good night. I realize it's late for you guys.
28:58 Bye. Thank you.
28:59 Bye.
29:00 [Music]