Nepal | May 28, 2020

Nobel Prize in Economics: Way to alleviate poverty

Jiba Raj Pokharel
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What is enigmatic about this award is that it does not address questions like what causes poverty or how foreign aid can bring about its reduction. Instead it focusses on specific sectors and specific problems of poverty

Illustration: Ratna Sagar Shrestha/THT

The Nobel Prize for Economics was awarded to the trinity, of India-born Dr Abhijeet Banerjee, Esther Duflo and Michael Kremer this year for their experimental approach to alleviating poverty.

Their approach is so simple and small in scale that it was criticised as being microeconomic in an article published by the Wall Street Journal recently.

What is more enigmatic about this award is that it does not address questions like what causes poverty, how foreign aid can bring about its reduction, something that is thought of normally when deliberating about poverty. It, in turn, focusses on specific sectors and specific problems of poverty.

A simple example will make it crystal clear. If the Nepali government were to introduce a vaccination programme in a village, it would just have medical and administrative staff with the required vaccine in a building.

The triumvirate instead would make a study of what per cent of the people would come to a vaccination centre that is dominated by the absence of the necessary staff, which is so rife in Nepal.

They would then proceed forward to know the percentage of increase of the people coming to the centre with the best services, for example, presence of the staff round the office hours.

What makes the trio’s work unique is that they would not take a rest here but again look at the percentage of the people visiting the centre when some incentive like free rice or lentils are given along with the best of services.

It was found in a research carried out in rural Udayapur, India that only 6.2 per cent of the people turned to the conventional centre while it shot up to 16.6 per cent in the second.

In the third one, it ballooned to 36.6 per cent. This research indicates that the vaccination centre should deliver the best of services accompanied by some incentive if it is to succeed.  This is what the trio call the Randomised Controlled Trial (RCT).

As health has a direct correlation with poverty, this study contributes to its alleviation.

Poverty alleviation programmes are being implemented by governments round the globe. In India, it began with the Garibi Hatao Programme, initiated by Indira Gandhi in the early seventies.

India’s tale of poverty alleviation is very spectacular as it lifted 271 million people out of poverty in a decade beginning from 2006, according to the United Nations.

China’s campaign of poverty alleviation is also phenomenal in the wake of the removal of the stigmatic poverty tag from the life of 700 million people in 40 years’ time beginning from 1978.

Nepal embarked on poverty alleviation much later, from the period of the Ninth Five-Year Plan (1997-2002), with 42 per cent poverty in the country, despite the beginning of its First Five-Year Development Plan way back in 1956.  The objective was to reduce it to 10 per cent by the end of the Twelfth Five-Year Plan. But it faced resistance from the Maoist rebellion for its accomplishment. A Comprehensive Peace Accord was signed between the State and the Maoists in 2006, and consequently there was a paradigmatic shift in the thematic objectives of Nepal’s development plans after the Tenth Five-Year Plan.

Poverty was relegated to something like the ribs from the spinal position that it held till the Eleventh Development Plan.

Still, several poverty alleviation programmes, such as subsidised ration and fertiliser distribution to the poor, Food for Work and Bisheswar with the Poor have been implemented, including the World Bank-supported Poverty Alleviation Fund in Nepal. Despite this, the poverty reduction has been far from desired. The percentage of people living below the poverty level is still hovering at 25 per cent.

There are several reasons leading to this disappointing state of affairs, but one of them again is the absence of evidence-based policies. Though the two-thirds majority government in its first Plan and Programme showed commitment to evidence- based governance, these were merely in words and not in deed.

It is obvious from the miniscule expenditure of Nepal in research, which has remained unaltered from an embarrassingly low of 0.38 per cent of Gross Domestic Product, despite change in governments of diagonally different ideologies. China, in stark contrast, has been spending 2.5 per cent of GDP.

As a result, China has been steadily climbing up the ladder of the Global Innovation Index from 20th and 17th in 2017 and 2018 to 14th this year. India has also been showing a steady upward trend by attaining 52nd position this year from 57th and 60th in the last two years. Nepal, in turn, has been swinging like a pendulum between 108th and 109th since the last three years.

Egypt has shown how an increase in investment can bring about a sea change by climbing to 95th position in 2018 from 105th position in 2017.

Like a sugar-coated pill that envelopes a bitter drug, simplicity appears on the surface of what is otherwise a rigorous, painstaking as well as time-consuming RCT that forms the heart of the Nobel Prize winning research. This research of the triad should be an eye opener to the Nepali policy-makers also regarding how programmes should be implemented only after making an evidence-based research to ensure its success.


A version of this article appears in print on October 22, 2019 of The Himalayan Times.


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