Overcentralisation of power leads to poverty: Abhijit Banerjee

Overcentralisation breeds unaccountability. This was a key take away when Nobel Laureate Professor Abhijit V Banerjee sat down to talk about "Public policies: what works and what does not" on the occasion of The Business Standard's second anniversary. The session was moderated by Inam Ahmed, editor, The Business Standard, and Dr Zahid Hussain, former lead economist, the World Bank, Dhaka.

The problem with overcentralisation

One problem I have seen, at least in the Indian subcontinent, is overcentralisation. Say, there are votes every five years. That vote determines who will be the person to lead the nation of 10 crore or 22 crore people. But no one will ever be able to improve the lives of 22 crore people. So, they will say that they are doing what they can, but what they are doing is difficult to verify.

If the responsibility of 10,000 people was on one person, one could not as easily say that they tried hard but could not do so. So a core problem is overcentralisation. Overcentralisation drastically reduces accountability.

It is very difficult to move forward without accountability. Accountability isn't the bottom line, but without it, we cannot move forward.

The way, not the will

Yes, people say if there is a will, there will be a way. But there are people who have the will, but there are many obstacles. They may not have enough money, no education, there could be arsenic in the water, perhaps there are no roads in their locality and they have no home in the city. Plus, they could face a scarcity of public health services. Those who can surmount these are extraordinary. But those who can't, I don't blame them. I wouldn't be able to surmount all those challenges.

In terms of political will, we must ask why it shouldn't be there. Politicians know that to win an election, they must give good results. The logic is very simple in a political system. But I have worked for many years on why this logic does not work. This is still a big question for me. A little legitimacy is needed in all systems. Even a very useless government wants some legitimacy. For this they also want to show something.

In the last 20 years, the infant mortality rate in the world has decreased a lot and a large portion of it has been reduced in African countries where democracy may be in name only. If the governments can't do this here, their legitimacy will decrease.

Misallocation of resources and poverty

When it comes to resource misallocation, the first thing we need to know is why it happens. In simple terms, what is misallocation of resources? For instance, someone has productivity, but he does not have wealth. Another person has wealth, but does not have productivity. The result of this is resource misallocation. For instance, someone has a desire to do business, but he does not have the money to do so. Those in poverty often have a lot of productivity. But they cannot make the most use of it. They are often caught up in their day to day struggle. This struggle is so time consuming and hard, they cannot do much else. Among the economically disadvantaged in Bangladesh, there could have been 3,000-4,000 Bill Gates and Warren Buffets, but this could not happen. So, we can say that they have all been misallocated. They did not get the opportunities that they should have gotten. There could be lakhs among them who could have done something to advance society, but they did not get the opportunity. They did not get the educational opportunities, they did not get the skills they needed nor did they get the capital or the motivation. So for various reasons, they could not fully utilise the potential that they had.

So, this is a waste of not only opportunities, but also wealth. One gets more opportunities when you have wealth. We have seen, for instance, that there is a child who is not doing well in school. If his parents are well-off, then they can hire a private tutor for him, but those who are poor cannot do so. Less wealth means that their parents will say that maybe the child isn't fit for education, and they could do something else, like pulling a rickshaw. Apart from that, wealth also means more connections. So the son or daughter of a wealthy person who is not getting a job can rely on his extended family to make a reference for him to secure a position somewhere. Those without wealth cannot do that either.

Plumbing in policy

People often make mistakes as they make policies hurriedly, because something sounds good, they just do it. For policy plumbing (as a metaphor), it is first important to understand where you are doing the plumbing, where is the pipe going, how is the surface, is it wet? There has to be two steps. Research must be done. Is there a lack of what is being provided? Are the beneficiaries saying that if we are given this certain thing then we can advance ourselves? This is understanding the surface. Sometimes, we think that something must be done in a certain way, but we are often wrong. Keeping an openmind and taking experimental approaches are necessary. Sometimes we see that it takes three to four different approaches. It takes time, patience, the ability to ask questions and the capacity to understand the answers.

On school governance and the optimal mix

It is easy to say that education needs to be developed. But doing so is harder. There can be 1,000 different ways. In a World Bank experiment in Indonesia, the salaries of teachers were doubled. Did it improve the standard of education? There was no change whatsoever. I don't know how helpful it is to just increase teacher salaries and not anything else. Improving school sanitation facilities and other randomised trials also did not show improvement in the education standards. One thing that has helped, is improving the method of teaching. The pedagogy does help. But this isn't easy, but it is affordable. You don't need huge computers to teach students. But, focus on the students who aren't doing well. Teach them the basics. But there are challenges to do this, even though it sounds easy: teach the students what they don't know. Teachers say they need to complete the syllabus, while parents worry about how their child will sit for exams or enrol in universities, without completing their syllabus. Of such students, a few will go to university, while others will drop out and get a job. So there are struggles.

Poor people actually pay more for less in healthcare

If I go to a hospital, I know what kind of doctors there are. I can use the internet to find the specialist and know his qualifications. But when I ask people the qualifications of their doctors, many say they don't know. In Rajasthan, we see those who are poor, rush to the doctors when their child falls sick, while those who are more economically advantaged sometimes opt for home remedies, because we understand the gravity of it. But the poor go to the doctor immediately and are often over prescribed antibiotics and other medicines. So, a big reason for why the poor pay more for less is due to the lack of regulation. Even a general store will sell you medicine as long as you have any kind of prescription written by anyone. You will get medicine, no questions asked. This is not right. More regulation is needed.

Cash, but also care

There was a Brac programme with a randomised control trial, focusing on the ultra-poor in Bangladesh and Ghana. A core element of the programme was building and nurturing theirself-confidence. They would be given capital or an asset, but at the same time a person was designated to motivate the beneficiaries. Something that was done to motivate them was to recognise them as human beings. There are many economically disadvantaged persons who have never been motivated and recognised as human beings. This needs to be done.

Tinkering with the small

We have no control over many things. But policy does have a role. We need to focus on the things that we can control. For example, Bangladesh's GDP is rising, so poverty will undoubtedly fall. But I don't believe that a different policy would have yielded wildly different results. Policies have a role, but it is not the most significant.

Policy to eradicate poverty in Bangladesh

We must recognise those who are in poverty. In the BRAC programme, we saw the focus on the ultra-poor. So it depends on who we are focusing on. We must ask why some in society are not advancing economically. Now, there are 100 people, but among those only 4-5 can actually be big entrepreneurs. And there is a way to identify them and they need to be identified. These 4-5 can be given opportunities and they in turn would start businesses and create opportunities for others. But not everyone can be an entrepreneur.