Presentation Speech by Professor Tore Ellingsen, Foreign Member of the Royal Swedish Academy of Sciences, Chairman of the Committee for the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 10 december 2015.
Your Majesties, Your Royal Highnesses, Esteemed Nobel Laureates, Ladies and Gentlemen,
Immanuel Nobel was born on March 24, 1801. We know very little about his childhood, except that his schooling was short – at least to begin with. This was how most people in Sweden lived at that time, provided they were lucky enough to be among the sixty-five per cent who survived long enough to start school.
But Immanuel possessed exceptional technical talent and soon became an engineer and inventor. At the age of thirty, he was already a successful entrepreneur, married, with two children and his own house on the isle of Långholmen in Stockholm.
But his luck turned. Immanuel lost three barges filled with valuable cargo.The family’s house burned to the ground. When a third son was born on October 21, 1833, his father’s company had already gone bankrupt. Weak and sickly, Alfred Nobel arrived in a poor household. His gloomy childhood experiences marked him for life. Perhaps this is why, as a celebrated inventor and wealthy industrialist, Alfred later became a close friend of author Victor Hugo, portrayer of the unfortunate and poor – Les Miserables.
Through Hugo’s tales of human adversities, those of us who are more fortunate can also begin to grasp the plight of the poor. But where the task of the writer ends, that of the researcher begins. Only by using the tools of science can we estimate the scale of poverty and understand how we can best fight it.
Scientific insights are rarely obvious, except in retrospect. How do you measure a poor person’s income and living standard? What is typical of most genuinely poor people is the absence of ordinary employment and a steady recorded income. They live in an informal economy, characterized by subsistence living and barter. The life stories of poor people leave few traces in the national accounts.
Angus Deaton realised that material poverty is much better described from the expenditure side than from the income side. What do people eat, how much and how often? What is their housing like? How many children do they have? What clothes, sanitary conditions and health services are available to them? Thanks to decades of extensive household surveys, which Deaton helped design and analyse, today we can provide a scientific answer to the big question: Is material poverty around the world increasing or decreasing? The answer is that the percentage of the world’s population living in deep misery is decreasing. Why? One important reason is that economic growth in the world’s most populous countries, India and China, has improved living conditions even among the poorest.
But not all the findings from these household surveys are equally uplifting. People’s living standard increases more slowly than recorded production. National accounts overestimate growth, since they ignore the fact that the informal sector shrinks as poverty falls.
One consistent theme runs through Deaton’s research contributions. It is wrong to believe that people’s various expenditures are strictly proportional to their income and wealth. Low income earners often consume entirely different goods than high income earners. Both save for the future, but the poorest save for partly other reasons than the richest. In many places today – as in the Sweden of 1833 – the availability of safety nets, loans and credits is smallest when the need is greatest. If we want to understand what is happening at the macro level – in a local community, in a country or in the whole world – it is thus not enough to view the micro level as if it were an average or typical individual. Instead, Angus Deaton teaches us to carefully study how individuals living in a risky environment, like Immanuel Nobel, adapt to their different and constantly changing material conditions. Only then can we explain the interaction between consumption, saving and income in society as a whole. Only then can we understand how reforms affect the poor and the rich.
Dear Professor Deaton:
Your research spans innumerable aspects of consumption, great and small. Yet it is unified. You build new theories and discover unrecognized predictions of old ones, you master every detail of existing data, and you invent additional data through new measures and measurements.
You are an optimist, a skeptic, and a humanist. And above all, you are an empiricist – always determined to confront what we believe with what we can know. Just like Alfred Nobel.
It is an honor and a privilege for me to convey to you, on behalf of the Royal Swedish Academy of Sciences, our warmest congratulations. May I now please ask you to step forward and receive your prize from His Majesty the King.