Book Report: The End of Poverty by Jeffery Sachs / by Simmon Li

So I finished Sachs' book. A very nice look at the poverty issue. Decidedly a different tint than the Collier book. The format of this book is slightly different. He first starts by drawing up the global picture of the current (2004) economy. He goes through a brief economic history, where institutions like the IMF and World Bank came from. He then talks about some of the reasons countries failed to prosper as others did (around late 20th C).

Development Pitfalls

He has a less expansive (imo) approach to poverty than Collier does, but again, Sachs is looking at lower income countries across the world, as opposed to focusing in on the most impoverished like Collier does. He describes a few reasons why some of these countries failed to grow. What Sachs talks about is interesting to me. He lists some reasons why countries fell off the horse, but some of the things he lists are related. It's interesting, because Collier's traps fit neatly into boxes, whereas Sachs' ideas are more like a web.

He lists poverty itself as a trap, specifically how the poor lack knowledge to preserve natural capital. He talks about how geography can affect economic development, in the sense that tough geography can prove to be harder to develop. This includes lack of access to sea-trade, mountains, and ecological features such as weather. He does mention that while these geographical features can pose problems, it is nothing that modern technology can not solve.

The fiscal trap is one that he lists very briefly. The government lacks public funds to invest in infrastructure and basic services. Why does the government lack these funds? Well, if net income is 0 (growing crops just to feed your family), there's nothing to tax. Without the ability to tax, the government can't invest in public services. Also, corruption limits the amount of actual funds that do help people.

The governance issue comes up again, with emphasis on making sure that fiscal policy is conducive to trade (trade liberalization). He mentions cultural barriers as well. This topic is interesting, because the focus of a lot of programs (especially in India) has been to make sure that women get education and access to contraception. Another aspect of culture that he mentions, that I never really thought about is discrimination based on caste groups. As the cultures I am familiar with don't really deal with caste groups, it was a bit of an "oh yea!" moment for me.

He makes mention of geopolitical issues, very briefly, and more or less makes a point about how trade partners are important in growth. The next point he makes is an interesting one. He mentions that these fledgling markets lack innovation. It's not something you think about really, because it's so fundamentally true. These markets, for the most part, import technology from the West. But there's always a path of growth, and he mentions it in this point. Moving up the value ladder. He uses a bunch of fancy words like "value added" and what not, but he gives a solid example that makes light of it all. For example, in India, people originally started just manufacturing garments, but eventually the firms got more and more involved with the upper levels of design, and what not. Another aspect of this innovation point is that as countries innovate, they build up a foundation of tech that they can then continue to improve. While these countries can import our tech, it isn't quite as well adapted to the local environment as it could be. (This is jumping a bit ahead, but he advocates later in the book the development of technology solutions that are tailored to certain countries to help them shake off poverty).

The last trap he talks about is the demographic trap. Basically, the trend is the higher the GDP, the lower the fertility rate. I talk about this in my essay as a means of risk management by families. Because of the lack of investment in public health, disease control, etc, the risk of a child dying is very high. To compensate, families have more children. The problem with having many children is that investment in the individual child becomes problematic. Larger families means more mouths to feed. This proves to be a problem because crop yields are generally low (lack of soil nutrients, rain-fall dependent farming). As families try to compensate for the risk of child death, their ability to invest in individual children falls.

Clinical Economies

The next part of the book was a very interesting read for me. He talks about how he developed his methodology for diagnosing and treating economic problems (he calls it differential diagnosis). He goes through 4 case studies in which he applies his method of recovery. The case studies themselves are not really relevant to what I want from the book, but they were interesting non-the-less. Through the case studies, he tackles some of the pitfalls with some of the tools he feels are available to handle these issues. One point that he seems to make a lot is that debt cancellation is a key part of the plan. Of course, there are always policy tools to help get a country back on track. The most interesting case study was the one with Russia. At the time, the cold war had just ended, and the Russians were trying to adopt a free-market system. Basically the point of contention for Sachs was the lack of foreign aid to help stabilize the Russian currency. This delayed important reform, and eventually the reform government was thrown out of power. This case study illustrates to me, the importance of timing. He finishes off the case study portion with an analysis of the African case. While the traps mentioned above do acc0unt for a lot of the things going on in Africa, he also sees disease as a huge influence of African economic stability. The big points are that the solution to the malaria problem is within reach if aid can be provided. The AIDS pandemic received a lot of attention recently, but again, more aid is needed to help mobilize the world against it.

The next step

This part of the book discusses things that I'm not particularly interested in for this essay I'm writing. I did read all of it because I find it fascinating, and quite frankly, it is eye opening. He starts off with looking at how the West has promised to help but failed to follow through. He explores some programs that have been deployed already that are working to help alleviate the problem of poverty. There's a lot of emphasis on the fact that some of these programs are already working. The matter, as far as Sachs is concerned, is that these programs need more scale, which can only happen through assistance.

Of the ending section in this book, there is one chapter that is of particular interest for this essay. It is the chapter on what he feels is needed to end poverty. "Myths and Magic Bullets". In it, he tackles some of the misconceptions about poor countries that are often the cry against more aid. The first point he makes is that there is a mentality that money thrown at the poverty problem just goes down the drain. Sachs breaks it down, and comes up with a figure. In the year 2002, the US spent 30$ per person in sub-Saharan Africa. Sachs postulates that only about 12$ of that 30 actually went to help Africans, with the other 18$ absorbed by administration costs, emergency aid, and debt relief (ie, debt repayments). There is also a deep prejudice against Africa that Sachs describes as appalling, I find them racist. He tells an anecdote regarding a former US official claiming that African people couldn't follow standard time.

The prejudice issue comes up again in his next point, in which a lot of people point to corruption as the reason that Africa has failed to prosper. While this point is true (Kenya recently went poop because of corruption), Sachs argues that poor governance is due partially to the fact that the economy is poor. I think I agree with him, while poor governance does contribute to poverty, poverty contributes to poor governance. He leads naturally into the next criticism, that Africa lacks democracy, or has weak democracy. The next thing he talks about I found interesting. He talks about how these countries have a perceived culture by the West. The whole idea that "the poor are poor because they are lazy" mentality of approaching the problems. It shifts the moral responsibility away from the West onto the Africans, which means we have conveniently tried the best we can to help them. He mentions that this kind of thinking has persuaded in the past with regards to Asian economies, and even India.

He then mentions two things that I find kind of interesting. First, he brings up a study that the WSJ did which drew the conclusion that economies only grow if they are free. It's interesting, because China stands as a contradiction to this point (which Sachs brings up). The other point he brings up is the work of Soto, some guy from Peru. Soto argues that because some poor countries lack titles and deeds, they lack the comprehensive private property rights that the West does. While this is true (the fact that private property isn't as strong), again China stands as an exception. There are a few more misconceptions he breaks, including the fact that Africans must be morally adverse because AIDS is transmitted primarily through sex. But he debunks this handily, and moves on.

The next point he brings up is another that caught my interest. He says that he's often asked "what's the point of making sure these kids are saved only to condemn them to poverty as an adult?" He articulates a response that is long and doesn't really answer the question as directly as I would. (I guess that's why he's getting published, and I'm writing on a blog?). Basically, he talks about how education, and investment in human capital can help to turn the world around one small bit at a time, and that once there is a critical mass of educated, healthy people, growth will start to happen on its own, thus lifting the curse of poverty. He talks about the demographic trap, and how to tackle it as part of the solution to this perception. The second perception he brings up is the fact that globalization often can spill over and help produce growth. He mentions that while this is true, there are practical limitations on how much globalization can help an impoverished nation in the first place.

Finally, the last perception he brings up is one of social Darwinism. It's a little more ideological than the other perceptions so far, and relates to the cultural assumptions perception. Everyone agrees that public goods and the public good is something that we should enjoy. The thinking though, is to see these impoverished nations as free riders.

Conclusion

This book was a good read. I enjoyed it because it was very informative, if a little confusing at times (for me anyway, I am not a trained economist in ANY way). This book was a good read, for me, not as captivating as the Collier one because of the simple fact that Collier set out to write a book that was accessible, while Sachs was just doing his thing. Both very strong cases for the ending of poverty, and both very compelling.