Nobel-winner Esther Duflo on what mainstream economics got wrong

Esther Duflo won a Nobel Prize this year for her work in poor countries. Now, the French-American economist wants to use the limelight to rescue the battered reputation of her profession and restore its role in tackling the problems that are plaguing the rich world.

We meet in London, where Duflo is gracious about the prospect of yet another grilling. “It is busy, but good busy,” she says of the month that has passed since the Nobel award.

With a new book just published (Good Economics for Hard Times , an attempt to show what economics can bring to fraught debates on immigration, trade or rising inequality), she adds, “I could not have asked for better timing.”

The Nobel committee’s choice was in many ways a break with tradition. In the past 20 years, three- quarters of economics laureates have been white American men aged over 55. Duflo, at 47, is the youngest ever winner in her field — and only the second woman. Although she shared the 2019 prize with her husband and fellow MIT professor Abhijit Banerjee and with the Harvard professor Michael Kremer, she has, therefore, drawn much of the attention.

On personal matters, she is somewhat guarded — when I ask about her close working relationship with her husband, she says simply that it is easy, because “we are nerdy and we like what we do”. It is in explaining the methods they have pioneered that she becomes animated.

Just a few minutes into our conversation, we are deep in discussion about whether free bags of lentils, text reminders or village gossip-mongering can do the most to boost vaccination rates. This plunge into detail is no surprise. Duflo has limited patience for those in her profession who seek to answer the “big questions” — the sources of growth or the ultimate cause of poverty — through sweeping theories.

Instead, she has transformed the field of development economics through the painstaking pursuit of practical answers to small questions: how best to persuade teachers in rural India to show up to work; or parents to immunise their children. Lentils, it turned out, help to answer the last of these queries.

An early field study that Duflo and Banerjee conducted showed that vaccination rates tripled when people in rural India had access to mobile clinics with reliable staffing. But the effect was greater in villages where they also received a kilo of lentils for each vaccination — showing the power of small, non-financial incentives in changing behaviour.

This is just one example of the empirical approach pioneered by Kremer, and then institutionalised by Banerjee and Duflo — who founded the J-Pal research centre, which connects a worldwide network of researchers with policymakers and NGOs.

In other experiments, they established that remedial tutoring helped children learn better than cutting class sizes or hiring extra teachers and — controversially — that microcredit schemes made less difference to people’s lives than their proponents claimed. “We were extremely quiet with these results for a long time,” Duflo says. “We felt that it was a really important, super-controversial issue.” It was only when seven evaluations in different countries and contexts showed similar results that they published.

Their use of “randomised control trials” — emulating the clinical trials used to test new drugs — to reach their conclusions has drawn criticism: in particular, the charge that it is impossible to generalise on the basis of a specific, place-based experiment. Yet RCTs have now become the standard tool to test what works in tackling poverty — and they are increasingly being adopted in the developed world too.

Duflo’s drive to spread the use of RCTs reflects her original motivation for entering economics — a deep-seated belief that research can influence policy. She grew up acutely aware of poverty: her mother, a Parisian doctor, had grown up “dirt poor and isolated” in Argentina, after the family migrated for a job that fell through. Later, she spent several weeks each year working in crisis zones with an NGO, and would tell her children, Duflo says, “that our way to help was to let her go”.

At first Duflo, whose undergraduate studies were in history, thought that anything “meaningful” she could do would have to be a sideline. The epiphany came during a year spent as a research assistant in Russia: she saw that when economists such as Jeffrey Sachs arrived in Moscow to offer policy advice, politicians listened. “When I realised that, ‘Oh my God, this is what economists do’ — I wanted to do that too,” she says.

These days, Duflo spends less time in the field herself, travelling largely to India, where family and professional links make it easier to bring her two young children. “They come into the field, they go to the villages, they saw Holi — we bring them to very nice places so they think India is cool,” she says.

One consequence of success is that policymakers are now willing to run trials on a much larger scale. In India, Duflo is testing some of her original ideas for encouraging immunisation on behalf of the government of Haryana — a state with a population of some 25 million. This creates new challenges — one unexpected difficulty was the discovery that it was impractical to store or distribute so many lentils. It took years to agree on an alternative: free phone top-ups.

Despite her focus on testing policy prescriptions, Duflo says critics mischaracterise RCTs when they portray them as a search for a catch-all cure that can be applied in any setting. In a field “sadly bereft of miracle cures”, she argues, the analogy with medicine only goes so far. “With a clinical trial, the idea is to go into production . . . In economics, RCTs play a different role, usually they are much more about trying to understand something totally fundamental about behaviour.”

Duflo believes her research on what drives behaviour in poor countries carries important lessons for governments in the rich world. She also believes strongly that economists need to speak out more — if people distrust experts, it is partly because the best academics, wary of being misinterpreted, are leaving the field to ideologues and pundits.

These are the twin themes of the new book she has written with Banerjee, in which they attempt to describe “how today’s best economists think about the world”, while offering insights from their own work — explaining, for example, why most poor people do not migrate even when they have the option, or why welfare programmes that ignore people’s sense of identity fail.

Duflo and Banerjee contend that, in reality, people do not necessarily move to the best jobs, or invest in the most productive businesses; nor is there any evidence they work less in response to higher taxes. They care about many things — health, self-respect, clean air — more than they do about maximising per capita GDP, an elusive goal that may no longer be the right priority for policymakers in the developed world.

As Duflo says: “The advantage of thinking more broadly like that for politicians is that they cannot change GDP anyway, but those things actually can be changed with carefully done policies.” For her, the priorities in the US would include much more generous support for workers displaced by trade — modelled on the GI Bill programmes that support military veterans — and a huge investment in early-years education, to create high-status jobs “that no robot is ever going to come to take”.

Duflo believes that an excessive faith in financial incentives is one of the big things mainstream economics got wrong. “You can see the long shadow of that misconception in our thinking on trade, in our thinking on taxation . . . in our thinking on social programmes.”

Although a reassessment is now under way, Duflo is critical of her profession’s reluctance to accept evidence that did not fit with accepted theories. She cites the example of Petia Topalova, an IMF economist whose early work at MIT showed poverty reduction was slower in areas of India that were more exposed to trade. Topalova’s conclusion — on the need to compensate losers from globalisation — now seems self-evident. At the time, however, her paper was greeted with near-universal scorn — and she was forced to seek a career outside academia.

“I wish I could say for sure that something like that would not happen again, but it might, with another blind spot,” Duflo says. This failure on the part of economists to question their assumptions reflected cultural problems, she adds — not least the profession’s dismal record on gender diversity.

Although understated in style, Duflo has clearly never struggled to make her way in a male-dominated field. She studied first at the elite École Normale Supérieure in Paris, won tenure at MIT before turning 30 and won the John Bates Clark medal — often a precursor to a Nobel — in 2010. “I don’t think I even realised there was a problem . . . But now I am thinking . . . had she [Topalova] been a feisty boy, not an understated, polite-to-a-fault, extremely well-brought-up young woman, would people have been so dismissive of her? Maybe not.”

Duflo’s main message, though, is that economists — for all their flaws — have something to contribute. “Working in the developing world tends to make you optimistic, because in many ways, things have gotten so much better,” she says, pointing to the steady fall in infant mortality and malaria, and the rise in school enrolment. These trends have occurred both in countries that were lucky with economic growth, and in those where growth remains elusive, she notes. “A focus on the right policies can make an enormous amount of progress. When I feel low, that’s what I think about.”

Delphine Strauss is an FT economics correspondent

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