Five Key Change Lessons from Poor Economics by Banerjee and Duflo


Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit Banerjee and Esther Duflo is full of fact-based insights on the lives of 865 millions people living on less than $0.99, and how to improve them. The authors work on the premise that if we know how to remedy poverty, we have the moral obligation to remedy it, stating, “there is no reason to tolerate the waste of lives and talent that poverty brings with it.”
The power of the book is not in its moral appeal but in its rational and empirical exposition, combining psychology, social science and the hard science of experimentation via randomized trials to reveal the root cause behaviors and systems that perpetuate poverty. This is done through concise and compelling stories. The authors do this so that we can apply countermeasures, or “the proper levels and composition of aid”.

The book attempts to provide a comprehensive understanding of the workings of poverty so that we can do the maximum good with the minimum necessary inputs and aid efforts. The authors argue that we must “attend to the details, understand how people decide, and be willing to experiment”. This spirit and practical application of the scientific method in service of society is familiar territory to those who study and practice kaizen and Lean management.

The authors state in their conclusion that “we have no magic bullets to eradicate poverty” but “we do know a number of things about how to improve the lives of the poor”. Paraphrasing their five points, the poor:

1. Lack information or have false beliefs that perpetuate their poverty,
2. Bear responsibility for too many basic aspects of their lives which the non-poor have taken care of for them,
3. Have no access to certain services such as banking and insurance that prevent poverty for the rest of us due to economies of scale do not reach down to the income and spending levels,
4. Live within regimes or local governments with failing or well-intentioned but not fact-based policies, and
5. Are caught within a vicious cycle of an expectation of failure, giving up or having others give up on them after failures, creating a false belief that poverty is an intractable problem.

What struck me about these five insights is their parallel to the reasons a typical organization remains in a state of poor performance, unable to open a book, study best practices, apply them and learn through trial and error. Similar root causes surely plague people, organization and society at various levels.

Specific to the organization failing to rise out of “performance poverty” and stuck in a cycle of failed attempts to improve processes and results, we can find the following five parallel challenges:

1. Lack of information and the presence of false beliefs. Lean requires curiosity, fact-based decisions, replacement of false beliefs and paradigms with testable outcomes, and insistence on continuous learning. There is almost no way for an organization that remains ignorant of Lean or does not believe that they can learn and apply it successfully to succeed at becoming world class.

2. Trying to be responsible for too much. The book illustrates that the poor who struggle to fetch clean water every day are held back in their goal to rise out of poverty, while the rest of the world turns on the tap and gets on with their day. Similarly organizations that fail to establish basic and clear lines of roles and responsibility, foundational stability in material and information flow, reliable equipment and facility infrastructure, and narrow strategic focus to a vital few objectives, will struggle needlessly to improve performance.

3. Trapped in perceived economies of scale. While the poor are trapped in poverty by a system that often does not provide them with right-sized options for banking, insurance, healthcare, education or consumption of goods, ironically organizations that are providers trap themselves in lower performance by taking economies for scale for granted. Market-disrupting innovations often are ignorant of accepted limitations of economies of scale or find technical solutions to real ones, removing their root causes and doing business profitably in areas where competitors cannot. Much of the genesis of Lean a.k.a. the Toyota Production System can be found in the challenging of the mass production model and it’s apparent economies of scale.

4. Not going to the site to check facts, not tempering belief with statistics. Policy without PDCA is dogma, left to chance and doomed to be wrong at least half of the time. I am amazed at the decisions we allow our elected officials to make for us in near complete absence of statistically valid evidence, because we agree with their general beliefs or like them more personally than the opposing politician. We would never purchase an automobile from these smiling, well-dressed people who we know have and do lie to us, yet we entrust a quarter to half of our incomes to their spending decisions in education, environment, defense and economic policies. Organizations striving towards Lean management lie somewhere in between our willingness to let big decisions be made for us and our unwillingness to be sold a lemon. We should always check the vehicle history, take a test drive and believe what we see and not only what we hear.

5. Setting appointments for the meeting with the expectation of failure. The single greatest thing a leader can do to unleash creativity is to establish a culture in which failed experiments are celebrated. Fear of failure and its personal consequences are what prevent behavior change in the 4 areas above. When we reward those who succeed and punish those who fail, we are often rewarding luck and punishing learning. Thus organizations build performance history on a foundation of sand. Failures are hidden, and our valuable learning along with them. A safe environment within which to try, fail, learn and try again is essential to finding solutions to our daily and strategic challenges. Bringing this into the day-to-day culture remains the biggest challenge of organizations pursuing effective change.

Many times people use the expression “we’re not trying to end world hunger here” or “don’t go for world peace” within a project planning or review session when wishing to communicate that we should not expand the scope or over-commit. These are unfortunate expressions because they reinforce #5, our expectation that attempts at these things are doomed to failure. They will not fail if we have a long-term step-wise plan, grasp the situation and apply the proper countermeasures at the root causes. We just need to think long-term. I have hope that the book Poor Economics is the start of a beautiful relationship between good intentions and good methods, compassion and continuous improvement.
Here is the authors’ excellent website that complements and furthers the mission of the book.