Defeating Global Poverty

If you don't have time to read Jeffrey Sachs book "The End of Poverty", here is an interview on "Can we end global poverty?" with John Cassidy of The New Yorker where he lays out some of his arguments.

Labels: poverty, sachs

Probably the best chapter in Jeffrey Sachs’ book, The End of Poverty, is Chapter 16: Myths and Magic Bullets describing the myths which perpetuate our apathy towards aid to Africa. Here’s his intro:

“Everything up to this point [in the book] is fine and good, except for one matter: it ignores the human factor. Take the case of Africa. Africa needs around $30 billion per year in aid in order to escape from poverty. But if we actually gave that aid, where would it go? Right down the drain if the past is any guide. Sad to say, Africa’s education levels are so low that even programs that work elsewhere would fail in Africa. Africa is corrupt and riddled with authoritarianism. It lacks modern values and the institutions of a free market economy needed to achieve success. In fact, Africa’s morals are so broken down that it is no surprise AIDS has run out of control. And here is the bleakest truth: Suppose that our aid saved Africa’s children. What then? There would be a population explosion, and a lot more hungry adults. We would have solved nothing.”

“If your head was just nodding yes, please read this chapter with special care. The paragraph above repeats conventional rich-world wisdom about Africa, and to a lesser extent, other poor regions. While common, these assertions are incorrect. Yet they have been repeatedly publicly for so long, or whispered in private, that they have become accepted as truth by the broad public as well as much of the development community, particularly by people who have never worked in Africa.” (p. 309, bold is mine)

Sachs goes on to challenge each of these assertions with a fair-minded and fact-based response. He proposes the truth as follows:

• Money spent in Africa is not all “down the drain”
• Well-designed aid programs are not destined to fail in Africa
• Corruption is not the main culprit/enemy of aid effectiveness
• Lack of full democracy does not necessarily prevent aid from being effective (think: China)
• Africa doesn’t have core values that are much different than the rest of the world
• Fully free markets are not the panacea for poverty elimination
• Mature property rights and laws are not a pre-requisite for economic development (in South America, it has been documented that property rights improvements only became a priority after wealth had increased)
• Africa’s sexual morals are not statistically that much different than other regions
• Reducing poverty reduces population growth through accompanying lower fertility rates
• A “rising tide” of economic development doesn’t automatically reach all citizens
• Unregulated “survival of the fittest” has not been the history of successful economic development

I think this chapter is worth the price of the book for those who want to be able to make decisions based on the facts.

Labels: africa, international aid, poverty, sachs

Jeffrey Sachs, in his book, The End of Poverty, argues that the UN (specifically the UN Development Program) is the most capable and best suited to effectively operate the distribution of aid for eliminating poverty in developing countries. He argues that having this done on a coordinated basis by one dedicated UN entity vs. the typical large number of bilaterals and NGO’s all dealing directly with the various national and local governments is much more efficient. He says that the effort to negotiate and administrate all of these agreements with various agencies is a huge resource drain on the recipient countries as well as a factor in delaying implementation. He notes that the UN needs to make organizational and mandate changes in order to do this more effectively coordinating IMF, World Bank, UNICEF, WHO, CMH and others.

I know that many people have critiqued the UN for its lack of efficiency. Most recently there have been headlines of bribes/fraud in the food-for-oil program and sexual misconduct on the part of UN peacekeepers. The question is not whether there is corruption, ineptitude or mismanagement in the UN (as there is in every governmental organization of their size), but whether the mission can be achieved by the UN despite its inherent weaknesses with a reasonable level of accountability.

Some people have suggested that NGOs should have a large role in aid distribution. I think that many of the kinds of investments which Sachs is recommending are infrastructure projects vs. survival/relief-type projects. My observation is that NGOs are generally more skilled at relief and less about significant public works projects and other projects of very large size which are best run and managed by expert for-profit entities (think: Bectel). So, while NGOs should be considered as sub-contractors for some activities, I’m not convinced that they are suited for a major role in developing human and physical capital. Remember that the goal here is create enough capital infrastructure to enable ongoing sustainable economic growth.

By nature, I have a lot of skepticism in big governmental bureaucracies especially when the leadership is appointed vs. directly elected. While I don't fully have confidence in the UN, I remember someone who once challenged me "what better alternative do you have?" I do believe that perfection is the enemy of good enough. And inaction results in no progress which has a severe moral cost of justice. So, until someone proposes an alternative, I’m supportive of Sachs’ general approach.

Labels: international aid, poverty, sachs

Here are some interesting historical insights from Jeffrey Sachs' book, The End of Poverty.

• There was no discernible rise in living standards on a global scale from 0 A.D. through 1000 A.D. as population rose from 230m to 270m
• There was approx. 50% increase in per capita income between 1000 A.D. thr 1800 A.D. as population rose from 270m to 900m
• Since 1800, global population has risen 6-fold to 6.1b while per capita income rose 9-fold with USA per capita income rising 25-fold and European 15-fold
• Total worldwide food production more than kept up with the population growth
• Gross world product rose 49-fold in the past 180 years
• Every region in the world has had a growth in GNP in the past 180 years ... so every nation has gotten wealthier in absolute terms
• In 1820, the biggest gap between the wealthiest nation (UK) and the poorest (Africa) was 4:1 in per capita income
• In 1998, the gap between the wealthiest (USA) and poorest (Africa) was 20:1 per capita income
• This gap is a result of USA GNP growing at an average of 1% more per year (1.7% for USA vs. 0.7% for Africa) over 180 years [the power of compound growth at work!]
• Modern (last 200 years) economic growth is accompanied first and foremost by urbanization. As agricultural productivity rises, nations need fewer farmers, food prices fall, inducing farmers and especially their children to seek employment in nonfarm activities. There is also an advantage to high-density urban life for most nonfarm activities especially for commerce and services sector.
• Probably the single largest contributor to prosperity growth is the transmission of technologies and the ideas underlying them driven by science-based ideas of ways to organize production. Ideas are considered nonrival as one person's use of an idea does not diminish the ability of others to use it as well.
• In the year 2000, the 400 richest Americans had income totalling $69 billion (yes, billion) averaging $174m for each taxpayer. The combined income of Botswana, Nigeria, Senegal & Uganda in 2000 was $57b (161m people at per capita of $350).

Labels: poverty, poverty stats, sachs

I just finished reading Jeffrey Sach's book, The End of Poverty: Economic Possibilities for Our Time. This is probably the best book that I've read so far which seeks to lay out the facts -- both historical and present -- on the state of global poverty and with concrete recommendations about how to move forward.

Here are a few facts:

• world population -- about 6.1 billion
• extreme poor (< $1 income/day) -- 1 billion -- live at subsistence without core basics
• poor ($1 - $2/day) -- 1.5 billion -- above subsistence (survival ok), but hard to meet ends meet
• middle-income (few $1,000's/year) -- 2.5 billion -- most live in cities, have housing and maybe indoor plumbing, children go to school, nutrition and clothing are adequate -- but not like USA middle-class
• high-income -- 1 billion

He advocates two goals by 2025: (1) End extreme poverty; and (2) Enable all poor a place on the economic development ladder. He demonstrates how a modest 0.5% of GNP provided as as official development assistance (ODP) by the developed countries through 2015 would be adequate to achieve the UN Millenium Development Goals (MDG) which target reducing extreme poverty by 50% from 1990 levels. Since Sachs was one of the key contributors to MDG, he provides details into why these goals were chosen and how they can produce these (seemingly) dramatic results. He then declares a 2025 goal to extend MDG objectives for 10 more years at a decreasing % of rich country GDP investment level to finish off the task. Why a decreasing investment level? Because with fewer poor people, growing GNP in poor countries and continued growth of overall GDP in developed countries, the cost for ODP is simply lower.

One thing that stuck out to me is the lack of follow-through that the USA has had towards promised aid to developing nations. The US has publicly committed (signed multiple documents) that it will make "concrete efforts" to contribute 0.7% of GNP to ODA. Our current level is about 0.2%. We spend all told about $15B on aid per year (vs. $450B on military.) And of the $15B, more than half is on activities other than ODA (e.g. paying USA consultants.) For the USA to reach 0.7% of GNP as ODA here is what it would take ... "With the U.S. per capita GNP rising by around 1.9% per year, the extra amount represents less than one third of a single year's growth in GNP. So, if the U.S. were on track to reach a $40,000 disposable income by, say, January 1, 2010, it would instead reach the same income on May 1, 2010, one third of a year later." (p. 304)

I have additional topics I'll cover in separate posts.

Labels: book reviews, poverty, poverty stats, sachs