# The End of Poverty, by Jeffrey Sachs


I had the good fortune to listen to Sachs speak at the biannual CIDA
conference in Ottawa last year. Although I had read things about him
before the meeting describing him as some sort of “economic hitman”, I
was impressed by his presentation. Now I just finished reading his book
End of Poverty, Economic Possibilities for Our Times; a sort of global
manifesto for reaching the Millenium Development Goals, and eradicating
extreme poverty in the world by 2025.

It is important to note that Sachs talks about eradicating extreme
poverty, not all poverty. He is not talking about how we can make all
countries as wealthy as Norway or Canada - although that might be a long
term goal - but how we can provide everyone with basic access to food,
shelter, education and medical care. Less ambitious perhaps, but
considering the proportions of people affected by extreme poverty today,
certainly a very worth undertaking.

He starts off by chronicling the history of global economic growth (with
the industrial revolution in England, etc), and clearly subscribes to
the modernization theory of development, in hoping that all developing
countries could get on the path to growth as well; and describing free
trade as the most important way to achieve this. He then tries to asses
why so many countries have not grown as rapidly as the Western ones.

He starts off by discussing growth in capital stock. Basically, an
agricultural family’s income per capita can increase in the following
ways: Saving (eating less of the corn grown, and selling it for money -
using the money to invest in more livestock or capital equipment); Trade
(specializing in a cash crop, using the money to buy more of the produce
they used to produce); Technology (green revolution?); Resource boom
(government controlling malaria enables household to move to higher
yielding area). However, the same factors can lead to a decrease in
household income: Lack of saving (leading to capital depreciation, lower
yields in agriculture); Absence of trade (high opportunity cost of lack
in communication, infrastructure (for taking produce to market),
regulation, etc); Technological reversal (mother and father died by
AIDS, orphans without technical farming knowledge produce less than the
whole family could before); Natural resource decline (environmental
decline - depreciation in nature?); Adverse productivity shock (natural
disaster, etc); Population growth (more mouths to feed, but same amount
of land).

The idea he harps over and over is that countries need to invest to grow
(according to our class in political economy, you typically need to
invest 5% of GDP to get a 1% increase in GDP - but that increase is
beneficial every year, not just the year you achieve it). He mentions
eight cateogries that can cause an economy to stagnate or decline: The
poverty trap (people are so poor that no saving is viable, and it just
gets worse); Physical geography (see below); Fiscal trap (no government
money for infrastructure, health, education etc. Especially because of
debt servicing); Governance Failures, Cultural barriers (traditional
cultures? but also impediments to women working, caste systems,
minorities disadvantaged etc. Failure to exploit full potential of
population); Geopolitics (trade barriers by foreign countries); Lack of
innovation (not enough local R&D, foreign R&D might not be appropriate.
No funding, lack of IP legislation, etc); The demographic trap
(population growth).

Those are many categories, but he does not by any means think that they
are equally important. He talks a lot about geographical trade barriers
- especially for land-locked countries (of which Africa has 15 - by far
the most of any continent), or mountainous countries with little access
to rivers etc. It is not strange, he says, that most booming centers of
commerce are near major waterways. Or that Eastern China, close to the
rest of Asia, or Europe/North America by ship, is doing well, while
Western China, close to the steppes of Central Asia, and Afghanistan,
are less prosperous. This does not mean that all is lost, but it needs
to be taken into consideration.

He further discusses the problems of disease, especially in the African
context. He makes reference to the excellent book Guns, Germs and Steel
in stating that all continents were not born equal in terms of climate,
domesticable animals or diseases. There is clearly something extra
difficult within the African context, and it’s multitude of diseases is
slowing down development. In fact Sachs was one of the first to suggest
that it was economically profitable for a developing country to invest
in public health (and he has been much criticized for this in the public
health movement, for turning lives into numbers - but in a sense; if
that is what it takes to raise investment, then maybe it is necessary).
He came up with the idea for the Global AIDS, TB and Malaria fund, and
believes that this is crucial to further Africa’s chances of
development.

But finally, he thinks the most important aspect is simply the poverty
trap. He debunks the myth of consistent huge transfers of funding to the
poorest countries; in fact, most of it went to middle-income countries,
and if you remove the percentage that was cancelling debts (nice, but
those debts weren’t being serviced anyway, so the countries did not gain
any extra income), paying for foreign experts (mostly wasted, but even
the useful part did not help in adding to the investment stock of a
country), you see that the real amounts were tiny. If you remove the
money paid for debt servicing, the net flow was often negative.

He talks about clinical economics, as a parellell to clinical medicine;
one needs to take symptoms, rule out different problems, and understand
the whole system holistically. (I know critics of modern medicine who
would not subscribe to this idealization of clinical medicine, but let’s
roll with it). He criticizes the World Bank for employing very
simplistic rules of thumb about growth and inflation, applied by
economists that have very little local understanding of the regions they
are dealing with. He is also skeptical to the thesis that the problem
with Africa is governance, he posits that all countries in the world
have governance problems, and that there is a certain relationship with
the level of problems and the lack of resources. Fundamentally, Africa
needs huge amounts of foreign aid, and when this is turned into
investment and growth, the countries will become less corrupt. This does
not mean that one should not try to counteract corruption, but one
should not use this as an excuse for not investing in them.

He spends extensive time talking about his own role in stabilizing
Bolivia and Poland, and in failing to do so with Russia; very
interesting chapters, which I will not discuss here.

Five structural differences between China and Russia (partly explaining
the former’s success and the latter’s lack of such): Soviets and Eastern
Europe had massive foreign debts, China didn’t; China had a large
coast-line that promoted export-led growth; China had the benefit of
overseas Chinese promoting investment with cultural understanding;
Soviet Union was experiencing drastic decline in oil production at
outset of reforms, China wasn’t; Soviet Union had gone down further in
the path of industrialization using technologies incompatible with
Western standards, China hadn’t.

He gives an extensive example of the poverty trap and how to invest
yourself out of it, positing that a family that makes 300\$ a year can
barely survive on it, and cannot save anything. Because of depreciation,
it will only become poorer. However, through raising the income to
600, *t**h**e**y**c**a**n**s**a**v**e*300 and invest this; which means
that after that their income will be able to grow steadily. (I am
simplifying enormously). Fundamentally he is making a case for why
development aid would enable people to live autonomously (after a number
of years); this is not the case of committing to eternal charity and
social service.

I could go on, and on. The book is quite amazing in that it is
simultaneously packed with information, models for understanding
development and concrete ideas, but also personal anecdotes (from a very
interesting life) written in a very legible style. I highly recommend
this book to anyone who wants to understand global economic development,
and receive a little bit of optimism. After all, if development is
impossible, we might as well give up. If it *is* possible, but we are
not doing it; then we need to hold our governments responsible. I don’t
agree with all that he says, but I found myself agreeing to a surprising
amount.

Stian