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"The End of Poverty: Economic Possibilities for Our
Time," by Jeffrey D. Sachs. Penguin Press, 2005, 397 pages.
World Poverty Ended! by Jane S. Shaw
Jeffrey D. Sachs, the economist who now heads Columbia
University's Earth Institute, has some important successes to his credit. In
1985, he advised the government of Bolivia to stabilize its currency and open its
markets, thus preventing hyperinflation. In 1989, he helped the government of
Poland shift from socialism to a market economy, using what came later to be
known as "shock therapy." But Sachs has had failures, too, the most notable of
which was a celebrated but futile attempt to turn Russia into a market
economy.
| | Jane S.
Shaw is a Senior Associate of PERC — The Center for Free Market
Environmentalism in Bozeman, Mont. |
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"The End of Poverty" is Sachs' attempt to achieve fame one more time. He
argues that it will be possible to end extreme poverty by transferring funds from
rich countries to the Third World. The book outlines Sachs' grand scheme and
argues why the West should take on this task. Trouble is, the task is naively
conceived. It ignores incentives, treating people as chess pieces, assuming that
if the First World provides sufficient funds for investment in infrastructure and
health care and other major categories, deep poverty will end. Rather than
considering how massive increases in funding would affect the decisions of
government officials or operate in practice, he devotes lengthy passages to
explaining why the West should feel guilty about not giving enough aid,
especially to Africa. In spite of his international experience and expertise,
Sachs seems to be groping for ideas that failed in the 1960s. Indeed, for
all his strong support of global trade, Sachs has been hijacked by the Left. Some
of the signs: He ignores DDT as a way to reduce the 3 million deaths from malaria
(giving this successful but politically incorrect chemical one brief reference,
outside his main discussion of malaria); he adores powerful patrons such as Kofi
Annan ("whom I consider the world's finest statesman"); and he dismisses Hernando
de Soto's plea for recognition of property rights. While discussing aid to the
Third World, he slips into an environmental agenda as
well. |
| Sachs' chatter along
these lines made me think of another war on poverty — Lyndon
Johnson's. |
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The early part of the book includes a personal history and commentary on
countries whose governments he has advised or in which he has lectured. Only when
he starts to build his ambitious proposal does he really go off track.
Sachs claims that impoverished countries need major interventions, primarily
investments in "the Big Five" (p. 254): agriculture, health, education,
infrastructure, and water and sanitation. Certainly, they do. He contends that in
the poorest countries these investments must come from what he calls "official
development assistance," not private investment. He doesn't seem to consider
private nonprofit organizations as potential investors, either, although in
specific instances he has high praise for the work of the Gates and Lenfest
Foundations. "[T]he poorest counties cannot really be expected to receive
large inflows of private capital," explains Sachs, "because they lack the basic
infrastructure and human capital that can attract international and even domestic
private investments" (217). They are caught in a "poverty trap," which he
illustrates with a diagram of a hypothetical household, showing that the family's
capital declines when it consumes all its income rather than saving some of
it. Sachs' chatter along these lines made me think of another war on
poverty — Lyndon Johnson's. In 1964, the Economic Report of the President
(written by economists, no less), said: "Conquest of poverty is well within our
power. About $11 billion a year would bring all poor families up to the $3,000
income level we have taken to be the minimum for a decent life." Sachs
does a parallel calculation for the world's poor, concluding that "a transfer of
0.5 percent of donor income, amounting to $124 billion, would in theory raise all
1.1 billion of the world's extreme poor to the basic-needs level" (290). He then
says that giving this money to families would fill the "consumption gap" but not
extricate them from the "poverty trap." That will require infrastructure
investment. But hasn't the West been providing capital for investment to
poor countries? According to Sachs, the aid has been minuscule. He illustrates
his point by saying that the average amount of aid per sub-Saharan African in
2002 was $30. All but $12 of this went to things that he considers irrelevant
— donor consultants, emergency aid, servicing Africa's debts, or debt
relief. This makes an appealing statement, but how relevant is it? According to a
recent Milken Institute Review article, about half the budget of the national
government of Ghana comes from foreign aid.
| Sachs writes as though
he were the first person ever to think of a massive infusion of aid to Africa,
and that it is certain to work if only it is tried.
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Sachs does not give us any information about how much aid was provided by the
West in the past. He does comment on colonialism. He says that it "left Africa
bereft of educated citizens and leaders, basic infrastructure, and public health
facilities" (189). This critique may have some merit but it certainly does not
comport with the views of say, Peter Bauer, who points out that Great Britain
built railways and roads and introduced exports to Africa. West Africa produced
virtually no cocoa until the British encouraged it as an export crop, says Bauer,
who quotes Nobel laureate Arthur Lewis as saying that "the tropics were
transformed during the period 1830 to 1913" and that sub-Saharan Africa's exports
grew from 6.2 percent of tropical trade in 1913 to 13.3 percent in 1937.
To Sachs, capital investment through international loans from the World Bank and
other agencies isn't even worth comment. One of his themes is that all debt by
poor countries should be forgiven because it puts an intolerable burden on those
nations. Sachs supports his argument by quoting John Maynard Keynes' opposition
to the punitive debt required of Germany after its defeat in the First World War.
The reader can decide whether this is an apt comparison, but in any case Sachs
never explores how poor countries used past loans or why debtors have not been
able to service them. At the very least, if those investments were failures, we
should be cautious about starting a new round of investments, however
well-intended they may be. But Sachs would view even the raising of such
questions — asking for some information about past aid and investment and
its consequences — as a sign of prejudice. He devotes an entire chapter to
confronting what he considers biased (or, at best, uninformed) views about
Africa. He reports on studies that he and his colleagues conducted showing that
corruption is no worse in Africa than in other equally poor regions. They found,
however, that whatever the quality of governance, African countries are growing
more slowly than their counterparts. Sachs blames inherent geographical factors,
such as the fact that many African nations are landlocked and that transportation
is difficult across the continent. He dismisses or ignores evidence that
excessive government control is highly correlated with a low standard of
living. Perhaps the eeriest part of this book is the fact that Sachs
writes with such confidence, as though he were the first person ever to think of
a massive infusion of aid to Africa, and that it is certain to work if only it is
tried. "Getting from here to there is a matter of routine planning, not heroics"
(274). And then he gets down to the serious business of castigating people who
live in the West for not being generous enough. If only it were so simple!
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