A friend of mine who frequently travels to Africa lent me a copy of The End of Poverty, a popular economics book by Jeffrey Sachs. Sachs’s thesis is that if we come up with $250 billion/year to hand over to the poorest of the world’s poor, mostly in Africa, that they will be able to invest and grow their way out of extreme poverty.
In the first half of the book, we follow Sachs around the world as he works with top officials to accomplish heroic deeds of currency stabilization in Bolivia, Poland, and other countries. The second half of the book lays out Sachs’s thesis that it is an obligation of rich countries to supply enough aid to solve worldwide poverty and that a solution is practical.
Sachs proceeds from the assumption that every human being on the planet, in virtue of having been born, has a fundamental right to clean water, food, clothing, housing, health care and education, even if neither he nor his parents ever make any attempt to work. He then says that if we ensure that everyone on the planet has all of these things, they will naturally save enough, and therefore invest enough, to grow their local economies. He notes with dismay that most rich countries have given up on aid to the extreme poor, saying “trade not aid” and generally pinching pennies.
One reason this 396-page book isn’t more convincing is that Sachs cannot come up with a single example of a country that has been lifted out of poverty by foreign aid. He talks about saving Russia with financial engineering, but Russia’s clever people were making jet fighters, atomic bombs, and helicopters long before they ever met Sachs. He talks about the Marshall Plan for post-WWII Germany, but Germany didn’t suffer from overpopulation and the lack of education that plague modern poor countries; investing in folks that had conquered France in six weeks probably did not seem very risky, particularly when one aim was to build up Germany’s power as a bulwark against the Soviets.
Sachs tries to address some of his critics. People going back as far as Malthus have argued that if you provide a human population with extra food and other resources, they will tend to have more children until the new food supply is exhausted. Sachs just says that this isn’t so and cites countries that have had falling birthrates as their economies have developed. One flaw in this argument is that the falling birthrates are in countries that have developed through internal efforts, not through inputs from foreigners. There are actually a few places on this Earth where people have an guaranteed right to all of the things that Sachs believes are universal human rights, even if they do no work, and with the resources coming from some source other than work. One is Saudi Arabia. The money comes up out of the ground, a gift from the dinosaurs and Western oil company technology. A citizen of Saudi Arabia need only be born in order to tap into a reasonable comfortable lifestyle. What’s the population growth rate? At least 3%, with the average woman having close to 6 children (source). The Palestinians are in a similar situation, though the money mostly comes from the U.N., the U.S., and the European Union (i.e., from taxpayers in Western countries). They have a population growth rate of 3.5%, one of the highest in the world (the worldwide average is 1.2% growth). Sachs fails to note that the experiment of giving a not-necessarily-working human population the universal rights that he posits has actually been done in at least a few places and the result is a lot of kids.
The most serious flaw with the book, in my opinion, is that Sachs fails to devote even one sentence to the modern fact that labor is mobile and global. Transportation and communication costs fall every decade. An ambitious, hard-working, intelligent, and well-educated person has never had an easier time moving from a poor country to a rich country. This has been a serious problem in African health care, according to Paul Theroux. If an African achieves the standards of a First World nurse, he or she can easily emigrate to Europe or the U.K. where such skills are in high demand. The emigre enjoys a much more comfortable lifestyle in the rich country, can make free voice calls to friends and family back in Africa, and can fly home in 8 hours on a discount airline. Educated and productive people are the biggest assets of most countries and, more so than ever, they can simply choose to walk away. Sachs talks about building medical schools in Africa so that doctors and nurses will be plentiful, not noting that the U.S. has jobs for perhaps 200,000 more doctors than U.S. medical schools are going to graduate in the next decade or so (source). If Sachs is going to pay doctors in poor countries a U.S. doctor’s salary, his program to deliver high quality health care to every poor person is going to cost a lot more $250 billion/year. If he isn’t going to pay a competitive salary, why wouldn’t these smart educated folks simply emigrate to where the good jobs are?
In a modern world, a surprising percent of economic growth is generated by a comparative handful of people. Before film, there were a lot of stage actors, the range of audience members reached by each one was relatively narrow and consequently their salaries fell into a relatively narrow band. Before television, the earnings of professional athletes were inconsequential. Harvard and MIT would like you to believe that it is a small number of their graduates that have kept Massachusetts humming while other rust belt states have collapsed economically (compare Boston to Buffalo). The percentage of Americans who’ve gone to Harvard or MIT and then founded a company is much smaller than the percentage of people who have elected to emigrate from very poor countries. Sachs never asks “What if the people who have left and are leaving are the ones who would have generated the economic growth?”
Sachs provides some convincing answers to the question of “Why are some countries so rich and some so poor?” He has apparently managed to convince some of the world’s truly rich, e.g., Bill Gates and Warren Buffett, to pony up much of the necessary dough to fund his answer to the question “What should we do to eliminate poverty?”. I don’t think that his plea for more $$ from taxpayers will prove convincing to politicians or the average taxpayer unless and until he takes one country and applies the full Sachs treatment: $1/day in walking around money for every person, roads constructed, medical schools built, anti-malaria tools delivered (e.g., bed nets), etc. If that country gets on the road to sustained growth and off the dole, I would expect the middle class taxpayers in developed countries to open their purses and try to repeat that success with the remainder.
The New York Times story “Polish Labor Is Scarce As Workers Go West” coincidentally appeared at the same time as this weblog entry.
Excerpt:
This is the “second” Poland, a diaspora of 800,000 Poles estimated by officials here to have left the country since it joined the European Union in May 2004. The exodus is believed to be one of the largest migrations by Europeans since the 1950s, when a wave of Irish crossed the Atlantic to escape poverty.
But in Poland, this huge movement of people has created a labor shortage so severe that the government may not be able to spend the money that is due to begin arriving in January from the European Union for projects like improving roads and the water supply.
Another perspective on foreign aid: Nicholas Kristof reviews William Easterly, “The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good”, in the New York Review of Books. To sum up, the correlation between aid and economic growth is murky at best; but Kristof also notes that aid can and does save people’s lives.
This brings to mind the successes of microfinance/microcredit institutes, not only loaning money to the very poor but providing wrap around servies for example health care, maternal child health care, family planning, literacy and financial community stability. “A hand up not a hand out” microcredit provides people the means of staying in their homeland and yes maybe even bringing about global trade.
$250B/year sounds like a lot of money. And it is. Except when you compare it to what is spent in developed countries. Sach’s is advocating that expenditure for 1B people; Canada spends almost half that amount ($100B or so) providing healthcare for 35M people; the UK almost 2/3rd of that amount ($170B) for 65M people. Except in a few very very small countries aid can never be such a significant portion of the budget as to affect change directly. Certainly, much aid money is wasted, or spent in well-intentioned but ineffective ways on Western consultants. And pouring money into a corrupt regime makes many situations worse. But at least Sachs sketched out a plan.
Throwing money at a problem is seldom the answer. I’m amazed at the number of people who think that all the world’s problems can be solved by spending more money. The UN is a perfect example of the more money you give to it, the worse it gets. I think that most areas that have “extreme” poverty are areas where repressive regimes exist, either formal goverment or loosely run organizations such as the various warlords around the world. The one constant seems to be an oppressed uneducated populace. What is the answer? I believe the start is education. Education of the masses, teaching people to think for themselves, giving them the tools (mentally) to find a way to a better life and instilling a sense of moral justice where oppression will not be accepted. Could this be accomplished without spending money? Of course not, but any money would be better spent if it is looked upon as a tool to be used versus an answer to all our problems. “Give me a fish, I eat for a day, teach me to fish, I eat for a lifetime.”
The problem with economics is that past performance rarely has much to say about future results: you have to judge each case on its own merits. Sachs may be a smart guy and all but (based admittedly on reviews of his books rather than the books themselves) he reminds me of a magic-bullet IT consultant: “Just use and all your software development problems will disappear”. We want to believe there is a magic bullet, so we keep hiring magic-bullet consultants. At least with IT, the basic technologies are portable: if you can build a database-driven website for a bank in Kansas, you can probably do the same thing for an accordion shop in Angola. I don’t think economics generalizes nearly as well as economists, motivated by the need to justify their teaching positions, claim it does. As in any social science, the big theories are only reliable when they’re pointing out the obvious.
On the other hand, the problem of progress in the third world is similar to the IT problem of deploying a new-and-improved technology, in the sense that both are chicken-and-egg problems. To educate the people, you need to lose the dictator; to lose the dictator, you need to educate the people. To sell your new collaborative social networking service, you need to demonstrate that lots of people are using it. Yet somehow, with the aid of money and incremental deployment, these chicken-and-egg problems do get solved, sometimes.
It is true that the mobility of labor is a major factor in the standards of economic development in one place, but it is not the only factor, nor the defining factor. Sachs does not mention it in his book because he is talking about the defining factors, those that create absolute burdens on the societies, like basic health, basic nutrition, basic education. At the point faced by Africa today, labor mobility is not that much of a problem because they face such high burdens on so many other fronts. There is no doubt that labor mobility and “brain drain” would become larger problems when Africa is able to solve its most basic needs.
But also, Sachs does not argue that aid itself brings countries out of poverty. No one I know of thinks that you would flood some area with so much aid that they would no longer be poor. But he is saying that aid helps build the conditions for a country to bring itself out of poverty. And he does discuss this in his book when he talks about the “green revolution” and basically discusses the need for World Bank type projects to bring countries out of the “poverty trap”. It is not a matter of aid bring people out of poverty, but of making it easier for people to bring themselves out of poverty.
I already checked mr. Jeffrey D. Sachs book, I believe that Profesor Sachs explanation about the possible solutions to end with poverty are kind of “utopian”, I believe the solutions are not in the shoulders of rich countries. But I agree.. The mobility of labor is a major factor in the standards of economic development “Ceteris paribus”. We should put attention in other variabilities. What about globalization and world trade? Remember Marx work!