First, find out what works

Among the most interesting debates in economics today is the dispute between Jeffrey Sachs and William Easterly over how best to help the world’s poor. The discussion is interesting not only because it concerns the most important question in all of economics, but also because Sachs and Easterly happen to be exceptionally good communicators. And like the long time Mets-Yankees rivalry, both happen to be at New York universities: Sachs at Columbia University, and Easterly at New York University.

At stake is the question of whether development economics requires a Big Push or piecemeal reform. In The End of Poverty: Economic Possibilities for Our Time, Sachs argues that the world’s least developed countries are caught in a poverty trap, and that success requires a doubling of foreign aid. In The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good, Easterly contends that much foreign aid has been wasted, and that it would be better to focus on taking modest, deliverable steps to make poor people’s lives better.

Whoever is right (my own view is that the truth lies somewhere between the two), the Sachs-Easterly debate has helped to galvanise a revolution in development economics. Integral to the development economics revolution has been the advent of rigorous randomised trials to find out what works. Long regarded as the “gold standard” in medicine, a spate of randomised trials are taking place across the developing world.

In Kenya, researchers have shown that deworming drugs dramatically reduce school absences, while worm-prevention education programs had no impact whatsoever. In the Philippines, savings incentives have been shown to boost the assets of the poor. And in India, a program that paid teacher bonuses raised student test scores by a significant margin.

The reason randomised trials are so powerful is that they allow us to know the counterfactual: what would have happened if the program was not implemented? Because participants are assigned to the treatment and control groups by the toss of a coin, we can be sure that any systematic differences in outcomes are due to the program itself.

Beyond program evaluation, randomised trials have also been used to help researchers learn more about issues of governance, which have long bedevilled development efforts. In a famous randomised trial in Benin, researcher Leonard Wantchekon persuaded presidential candidates in the 2001 election to randomly alter their campaign strategies: giving high-minded public policy speeches in some villages, and pork-barrelling clientelist speeches in other villages. He found that candidates won more votes when they delivered a clientelist speech, and that male voters tended to be more easily swayed by offers of local patronage than female voters.

More controversially, Marianne Bertrand and co-authors recently followed a group of Indian applicants through the notoriously corrupt process of obtaining a driving licence. One group were offered a financial reward if they obtained their licence fast, while others were not. The researchers found that the payment did indeed lead applicants to get their licences faster, but their skills were no better. Given a surprise driving test afterwards, 69 per cent failed. Evidence from the randomised trial helps understand how corruption in the licensing process operates, and may assist reformers in improving the system.

As the results from these and dozens of other randomised trials begin to pour in, development economists will continue to hone their knowledge about what works best, and whether the kind of grand strategy of Sachs or the more piecemeal approach of Easterly is likely to offer more promise for raising the living standards of those in developing countries.

Yet while randomised policy trials are transforming development economics, it is startling that our home grown development challenge - raising the living standards of Indigenous Australians - has seen so little attention to rigorous evaluation. With Indigenous life expectancy at third world levels, too much of Indigenous policy seems to be driven by instinct, and too little by results.

Instead of digging in behind their favoured solutions, wouldn’t it be better if both sides of politics admitted that most social policies aimed at improving Indigenous living standards have failed? Once we acknowledge how little we know, we might then begin by applying the same gold standard evaluation technique to Indigenous social policies that we apply to new drugs.

A dozen randomised trials of Indigenous social programs would cost comparatively little, but provide valuable new evidence. In health and education, employment and family policies, Indigenous policymaking could do with a little less rhetoric and a little more of the modest searching that characterises the best of development economics today. Think your policy works? Let’s toss a coin and find out.