Nobel Prize Winner Duflo Rallies Students for More Taxation

Nobel laureate Esther Duflo called on HEC Paris students to do their part as a lobbying and political force in creating an international taxation system to finance the fight against climate change. Speaking via a hologram from her base at MIT– a first for HEC - the senior economist insisted on a global change of Western policies and citizen behavior because “climate change is hurting the poor who are not responsible for it.” 

Describing the challenges posed by climate warming as “a political problem from hell,” Esther Duflo did justice to her reputation as a no-nonsense and prosaic advocate for change. In addressing what the United Nations portrays as “catastrophic global warming” (leading our planet to at least a 2.5 degrees increase), Duflo underlined a fundamental injustice: “The people who are the most responsible for climate change are not the people who are the most affected by climate change.” During her March 9 HEC Talks, the MIT professor pointed the finger squarely at the world’s 10% wealthiest, responsible for 50% of global emissions: “It’s pretty easy to remember what’s called the 50-10 rule by calculating how much you contribute to the climate change and your position in the income distribution of the world,” Duflo noted, describing the consequences for poorer nations: “The cost of temperature on human health and on the ability to produce food is not linear. There is something quite dramatic that happens above 32°C when regions becomes unlivable, especially in humid zones.”

Duflo has built an impressive reputation in development economics despite focusing on the field only after graduating in history from Ecole Normale Supérieure in 1994. Remarkably, she became the youngest ever Nobel prize winner 25 years later. It rewarded her experimental research methodology and a fieldwork approach designed to alleviate poverty. 

The French American academic focuses her research on micro-economic issues like household behavior, education, access to finance and health in developing countries. At present, the 50-year-old, heralded by Le Monde as France’s best young economist in 2005, runs the Abdul Latif Jameel Poverty Action Lab (J-PAL for short) she cofounded with her husband and fellow Nobel laureate, Abhijit Banerjee, in 2003. This network of over 750 researchers conducts evaluations and builds partnerships with NGOs, donors and governments in its fight against poverty.

Taxing Corporations

Despite 30 years of engagement, Duflo appeared just as combative and impassioned during her remote exchange as when she was advising US President Barak Obama on development affairs in his first mandate. In front of over 5,000 HEC students and academics, gathered in the Blondeau Auditorium or online, she seemed to reinvent the school’s motto or at least revise its chronological order : no longer “Think, Teach,” then “Act”, but “Think, Act,” then Teach” before “Thinking” again, a circular approach which seems to constantly renew itself. Shrouded in an outsize chair in Boston, her 20-minute presentation meandered pleasantly between calls to change citizen behavior and governmental policies, and a repeated demand to instigate a new international taxation system for corporations: “There was already an international agreement to have corporations be taxed at no less than 15% in all countries, but it turned out all the countries kept the money for themselves. I’ve suggested to the board of the IMF that by collecting these taxes we could finance programs like a loss and damage fund for developing countries. They didn’t seem to find the idea crazy,” she said with a wry smile. 

Duflo went on to suggest taxes could have an incentive effect on the behavior of corporations: “If the taxes were related to the carbon footprint or carbon mitigation behavior of the firms – or if we had accurate accounting of the carbon impact of farms – well, we could persuade them to join the call for increased taxes.”

The co-author of the seminal “Good Economy for Hard Times” was in confident mood as she shared several examples of how poor nations can ideate innovative solutions to fight climate change by learning from errors in richer countries. “They can leapfrog the bad infrastructure if they have the money to do so. For example, money can compensate farmers who own forests to persuade them not to replace the rainforests with palm oil. Governments can regulate such policy with enforcement teams.” Duflo then turned her attention to the devastation wreaked by air conditioning: “Older generation air conditioning emits HFCs into the atmosphere which is terrible for global warming. There was an agreement to phase out these machines but China and India managed to postpone these adjustments until 2024. This is ridiculous, it means that until 2024 these harmful machines will be sold and are going to stay in people’s homes for years, contributing to the problem.”

Call to Arms

Duflo concluded by dwelling on the lack of knowledge that plagues the debate over global warming: “The climate sector is dominated by a lot of magical thinking and terrible ignorance. The idea that technological solutions can dig us out of the hole without a change of behavior is one. We need to explore how to change people’s comportment. We need to find technology which is really effective in the field. We need to help each country develop their own innovative solutions to protect their own citizens. This is an issue that is going to define our generation, not just for the distant future but, frankly, as far as the life of the poor in the world is concerned, in the immediate 10 or 20 years to come. So, we need to get going and I count on your energy to be part of this.” 

That energy was reflected by the questions and comments made in the following hour of Q&A with the audience. From the floor came questions on the randomized evaluations and control trials which are at the heart of J-PAL’s policies: “Designing good incentives is costly and it’s also a tedious war,” commented one of the student organizers. “Is it the right way to tackle a crisis that requires urgent action?” Duflo warmed to the issue: “Against poverty we are so much more cost effective than in our fight against climate change. There’s a huge waste of money in the latter, because the world is so behind in terms of what to do to change behavior and it’s high time we catch up.” Another student fired back: “You talk of changing behavior and say we should not entirely rely on technology. But you also warn us that the poorest countries need energy-intensive technologies. In their effort to repair the damages done to poor countries, should rich countries invest heavily in low carbon adaptation technologies to prevent the trade-off between mitigation and adaptation?” Duflo broke down her answer: “Africa contributes nothing to climate change, a drop in the bucket. So, yes, we might as well invest, say in the electric grid to make sure that it’s not based on charcoal in order to leapfrog the costly technology. India, meanwhile (which has been at the heart of much of Duflo’s research, ed.) is in an interesting middle position, as a middle-income nation. The technologies are very inefficient there and it’s responsible for a lot of climate change, for example because of its poor air conditioning. The Kigali agreement several years ago was designed to phase it out but the money wasn’t invested and the opportunity was missed.”

Mea Culpa

In her response to some of the dozens of questions sent in, the professor for poverty alleviation at MIT also suggested helping countries to build hydroelectric dams or solar plants, financed through loans. She denounced the greenwashing and “pure manipulation” of accounting and ESG. She called for “proper” regulatory frameworks to push the corporate sector to work in a way that is better for society and climate. And she decried the fact populations are losing trust in their governments, both in rich and poor countries. “I think my profession shares some blame for this mistrust,” she admitted, “because there’s nothing economists like better than government bashing. And I think that’s unfair, because getting a government to deal with very difficult problems like trying to convince firms to do things they don’t want to do or people to act in ways they don’t want to act is tough. And it’s really dangerous because this has contributed to this general difficulty in getting anything done, including enforcing their own regulations.”

The HEC Talks with Professor Esther Duflo is available on LinkedIn, Youtube and Meta.