Improvements at the margin

Narayana Murthy and Nandan Nilekani, despite their degrees from the ultra-prestigious Indian Institute of Technology, could not get a loan to start Infosys because the banker objected that there was no inventory to lend against, recount Abhijit V. Banerjee and Esther Duflo in ‘Poor Economics: A radical rethinking of the way to fight global poverty' ( www.landmarkonthenet.com ).

Reminding that Infosys today is one of the largest software firms in the world, the authors note that there are a lot more people like these entrepreneurs but who just could not make it because they did not get the right financing at the right time. Narrating this in the context of financing, the authors note that a 10 per cent increase in loans to the ‘priority sector' has led to an increase in profits of 9 per cent, after repaying the loan. “This is a fantastic rate of return. However, the fashion nowadays is very much to eliminate this kind of mandatory lending, in part because banks complain that lending to these firms is expensive and too risky.”

The section on education concedes that good teachers are hard to find whereas information technology is getting better and cheaper by the day. However, on the point whether IT helps in teaching, the authors present the experience of the developed and the developing countries. In the former, the alternative to being taught by the computer is, to a large extent, being taught by a well-trained and motivated teacher, but in the case of poor countries the results reported in the book are of interest.

The authors did an evaluation of a computer-assisted learning program run in collaboration with Pratham in the government schools in Vadodara in the early 2000s. “The program was simple. Pairs of third- and fourth-graders got to play a game on the computer. The game involved solving progressively difficult math problems; success in solving them gave the winner a chance to shoot some garbage into outer space (this was a very politically correct game).”

So, what were the results? Despite the fact that the students only got to play for two hours a week, the gains from the program in terms of math scores were as large as those of some of the most successful education interventions that have been tried in various contexts over the years, the authors observe.

One other reassuring tech tale is from Brazil, where voters are provided useful information about candidates. Since 2003, every month, sixty municipalities are drawn at random in a televised lottery, and their accounts are audited; and these audit results are made public through the Internet and the local media, one learns. “Being audited hurts corrupt incumbents. In the 2004 election, they were 12 percentage points less likely to be elected if their audit was revealed before the election. Honest incumbents, on the other hand, were 13 percentage points more likely to be elected if their audit results were revealed just before an election.”

The authors opine that policies and politics can and must be improved at the margin, and that seemingly minor interventions can make a significant difference. The philosophy of attending to the details, understanding how people decide, and being willing to experiment applies as much to politics as it does to everything else, they aver.

Imperative addition to your study list.

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