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Saturday, August 27, 2005

Ending Extreme Poverty

Jeffrey Sachs of Columbia University, director of the United Nations Millenium Project, discusses ending extreme poverty, something he believes is possible by 2025:

Can Extreme Poverty Be Eliminated?, Jeffrey Sachs, SciAm:  Almost everyone who ever lived was wretchedly poor. Famine, death from childbirth, infectious disease and countless other hazards were the norm for most of history. Humanity’s sad plight started to change with the Industrial Revolution, beginning around 1750. …. Two and a half centuries later more than five billion of the world’s 6.5 billion people can reliably meet their basic living ... One out of six inhabitants of this planet, however, still struggles daily to meet some or all of such critical requirements as adequate nutrition, uncontaminated drinking water, safe shelter and sanitation as well as access to basic health care. ... Every day more than 20,000 die of dire poverty, for want of … essential needs. 

For the first time in history, global economic prosperity, brought on by continuing scientific and technological progress and the self-reinforcing accumulation of wealth, has placed the world within reach of eliminating extreme poverty altogether.  This prospect will seem fanciful to some, but the dramatic economic progress made by China, India and other low-income parts of Asia over the past 25 years demonstrates that it is realistic.

Moreover, the predicted stabilization of the world’s population toward the middle of this century will help by easing pressures on Earth’s climate, ecosystems and natural resources … that might otherwise undo economic gains. Although economic growth has shown a remarkable capacity to lift vast numbers of people out of extreme poverty ... Market forces and free trade are not enough. Many of the poorest regions are ensnared in a poverty trap: they lack the financial means to make the necessary investments in infrastructure, education, health care systems and other vital needs. Yet the end of such poverty is feasible if a concerted global effort is undertaken ... In my recent book, The End of Poverty, I argue that a large-scale and targeted public investment effort could in fact eliminate this problem by 2025, much as smallpox was eradicated globally. This hypothesis is controversial, so I am pleased to have the opportunity to clarify…

Economists have learned a great deal during the past few years about how countries develop and what roadblocks can stand in their way. ... Public opinion in affluent countries often attributes extreme poverty to faults with the poor themselves—or at least with their governments. Race was once thought the deciding factor. Then it was culture: religious divisions and taboos, caste systems, a lack of entrepreneurship, gender inequities. Such theories have waned as societies of an ever widening range of religions and cultures have achieved relative prosperity. ... Most recently, commentators have zeroed in on “poor governance,” often code words for corruption. ... Development assistance efforts have become largely a series of good governance lectures. The … data … indicates that governance makes a difference but is not the sole determinant of economic growth. ... Geography—including natural resources, climate, topography, and proximity to trade routes and major markets—is at least as important as good governance. ... Other geographic features, such as the heavy disease burden of the tropics, also interfere. ... The good news is that geographic factors shape, but do not decide, a country’s economic fate. Technology can offset them: drought can be fought with irrigation systems, isolation with roads and mobile telephones, diseases with preventive and therapeutic measures. The other major insight is that … a rising tide does not necessarily lift all boats. Average income can rise, but if the income is distributed unevenly the poor may benefit little, and pockets of extreme poverty may persist ... Moreover, growth is not simply a free-market phenomenon. It requires basic government services: infrastructure, health, education, and scientific and technological innovation. Thus, many of the recommendations of the past two decades emanating from Washington—that governments in low-income countries should cut back on their spending to make room for the private sector—miss the point. Government spending, directed at investment in critical areas, is itself a vital spur to growth, especially if its effects are to reach the poorest of the poor. 

So what do these insights tell us about the region most afflicted by poverty today, Africa? Fifty years ago tropical Africa was roughly as rich as subtropical and tropical Asia. As Asia boomed, Africa stagnated. Special geographic factors have played a crucial role. Foremost among these is the existence of the Himalaya Mountains, which produce southern Asia’s monsoon climate and vast river systems. Well-watered farmlands served as the starting points for Asia’s rapid escape from extreme poverty during the past five decades. ... Africa did not experience a green revolution. Tropical Africa lacks the massive floodplains that facilitate the large-scale and low-cost irrigation found in Asia. Also, its rainfall is highly variable, and impoverished farmers have been unable to purchase fertilizer. The initial Green Revolution research featured crops, especially paddy rice and wheat, not widely grown in Africa ... The continent’s food production per person has actually been falling, and Africans’ caloric intake is the lowest in the world … Its labor force has remained tethered to subsistence agriculture.  Compounding its agricultural woes, Africa bears an overwhelming burden of tropical diseases. … malaria is more intensively transmitted in Africa than anywhere else. And high transport costs isolate Africa economically. In East Africa, for example, the rainfall is greatest in the interior of the continent, so most people live there, far from ports and international trade routes. Much the same situation applies to other impoverished parts of the world, notably the Andean and Central American highlands and the landlocked countries of Central Asia. ... Rural areas therefore remain stuck in a vicious cycle of poverty, hunger, illness and illiteracy. Impoverished areas lack adequate internal savings to make the needed investments because most households live hand to mouth. The few high-income families, who do accumulate savings, park them overseas rather than at home. This capital flight includes not only financial capital but also the human variety, in the form of skilled workers—doctors, nurses, scientists and engineers, who frequently leave in search of improved economic opportunities abroad. The poorest countries are often, perversely, net exporters of capital.

The technology to overcome these handicaps and jump-start economic development exists. Malaria can be controlled ... Drought-prone countries in Africa with nutrient depleted soils can benefit enormously from drip irrigation and greater use of fertilizers. Landlocked countries can be connected by paved highway networks, airports and fiber-optic cables. All these projects cost money, of course. Many larger countries, such as China, have prosperous regions that can help support their own lagging areas. ... Most of today’s successfully developing countries, especially smaller ones, received at least some backing from external donors at crucial times. ... We in the U.N. Millennium Project have … estimated … the “financing gap” that international donors need to make up. ... Adding it all up, the total requirement for assistance across the globe is around $160 billion a year, double the current rich-country aid budget of $80 billion. ... Other organizations, including the International Monetary Fund, the World Bank and the British government, have reached much the same conclusion. We believe these investments would enable the poorest countries to cut poverty by half by 2015 and, if continued, to eliminate it altogether by 2025.

They would not be “welfare payments” from rich to poor ... We would be giving a billion people a hand up instead of a handout. If rich nations fail to make these investments, they will be called on to provide emergency assistance more or less indefinitely. They will face famine, epidemics, regional conflicts and the spread of terrorist havens. ... The debate is now shifting from the basic diagnosis of extreme poverty and the calculations of financing needs to the practical matter of how assistance can best be delivered. ... When pollsters ask Americans how much foreign aid they think the U.S. gives, they greatly overestimate the amount—by as much as 30 times. Believing that so much money has been donated and so little has been done with it, the public concludes that these programs have “failed.” The reality is rather different. ... A second common misunderstanding concerns the extent to which corruption is likely to eat up the donated money. Some foreign aid in the past has indeed ended up in the equivalent of Swiss bank accounts. That happened when the funds were provided for geopolitical reasons rather than development ... When assistance has been targeted at development rather than political goals, the outcomes have been favorable, ranging from the Green Revolution to the eradication of smallpox and the recent near-eradication of polio. The aid package we advocate would be directed toward those countries with a reasonable degree of good governance and operational transparency. In Africa, these countries include Ethiopia, Ghana, Mali, Mozambique, Senegal and Tanzania. The money would not be merely thrown at them. ... All these programs should be closely audited. Western society tends to think of foreign aid as money lost. But if supplied properly, it is an investment that will one day yield huge returns, much as U.S. assistance to western Europe and East Asia after World War II ... As U.N. Secretary-General Kofi Annan wrote earlier this year: “There will be no development without security, and no security without development.”

On population growth, see here.  See also this Time Magazine article (the first three graphs are from the Time article, the last is from SciAm).

    Posted by on Saturday, August 27, 2005 at 02:34 AM in Economics, Income Distribution | Permalink  TrackBack (1)  Comments (14)


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    It is currently fashionable to say that poor countries are caught in a poverty trap; and that a big push involving aid and investment would lift them onto a virtuous circle of faster growth and rising prosperity. This is used (eg by Jeff Sachs, Gordo... [Read More]

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