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The End of Poverty

August 15th, 2005

Over the fold, my draft review of Jeffrey Sachs The End of Poverty. Comments appreciated.

There are really two fundamental issues in development. The first, and biggest, is to determine what policies lead poor countries on to a path of self-sustaining growth, and how other countries can assist in this process. More than two hundred years after Adam Smith wrote The Wealth of Nations and fifty years after development economics became a recognised area of specialisation within economics, this question has not been answered.

There has been some progress. One analysis of the problem, arguably the most popular at the outset has been fairly conclusively refuted. This analysis drew on the seemingly successful experience of the Soviet Union and on concerns about the terms of trade for primary products to conclude that the optimal policy was a combination of autarky (no trade with other countries, or at least no trade with capitalist countries) and central planning.

The autarkist analysis has been turned on its head: the standard path to development, modelled on that of Japan, is now seen as beginning with labour-intensive export industries, such as light manufactured goods and tourism, followed by a climb up the skill ladder to more complex goods and services, based on imported technology, and then to domestically generated technological innovation.

A corollary of this has been general agreement of the importance of education, which was rechristened as investment in human capital in the early 1960s. By contrast, concerns about accumulation of physical capital have been downplayed. In part this is because the early stages of rapid growth are commonly characterised by high savings rates (contrary to what economic theory would predict) and in part because the standard path involves importing capital equipment in its early stages, by contrast with the Soviet Path in which the capital goods industry was the main initial focus.

A final point, obvious enough in retrospect, but not initially recognised is the benefits arising from the rule of law, and, conversely, the damaging effects of civil conflict. This point can be overstated, particularly in the work of writers like Hernando de Soto who focus almost exclusively on property rights and the ownership of capital. Nevertheless, in the absence of reasonable levels of security for people and property, there is less benefit in undertaking economically productive activity, than in seeking to appropriate wealth through the seizure of political power. Under such conditions, sustained growth is difficult to achieve.

All of this is significant progress, but it leaves fundamental questions unanswered. From an initial position of a poor economy, primarily reliant on subsistence agriculture, how does the process of growth get started? Should export-oriented industries be assisted, or is it better to adhere to a purist free trade policy? Should capital markets be more or less regulated than in developed countries? What role should governments play in health and education? Can wealthy countries help the process and if so, how?

There are no generally agreed answers to these questions. In particular, there is no generally accepted recipe according to which modest amounts of aid from rich countries can reliably generate self-sustaining economic growth. As a result, discussions of aid are commonly tinged with an air of hopelessness.

It seems more useful to focus on a second question, less intellectually ambitious, but more directly pressing. What can be done to alleviate, and if possible end, the suffering associated with extreme poverty, from famine to epidemic disease to chronic hunger and malnutrition?

In The End of Poverty, Jeffrey Sachs argues that extreme poverty can be ended in this generation, and that a feasible strategy to achieve this goal already exists, and needs only funding and political will to be implemented.

Before considering the arguments in detail, it is worth attempting to look at the problem in quantitative terms. The standard statistical measure of extreme poverty is an income per person of less than $1 US per day, as estimated using the Purchasing Power Parity method of the World Bank to compare incomes in different currencies and countries. An income between $1 and $2 per day is defined as moderate poverty.

People in extreme poverty are chronically hungry and lack access to basic health services and to elementary education. Under these conditions, the achievement of self-sustaining growth is almost impossible.

Of the world’s population of 6 billion, about 1.1 billion are estimated to live in extreme poverty, and about 1.6 billion in moderate poverty. While these numbers are huge, it is a striking fact that, for the first time in human history, the majority of people in the world are not, by these standards, poor, and only about one in six is extremely poor. This has profound implications for the feasibility of the task of ending extreme poverty.

Consider the total amount of additional income that must either be generated by poor people, or transferred to them by others, to lift them out of extreme poverty. To get an upper bound estimate, let’s ignore their existing income altogether. One dollar per day for 1.1 billion people is about $400 billion per year, a bit less than the US defence budget, and about 1 per cent of the income of the world as a whole.

Even this modest number overstates the difficulty of the task facing the wealthy countries of the world. Although poverty in East and South Asia has declined rapidly, a majority of the world’s extreme poor are still found there, with hundreds of millions in both India and China.

These countries are now wealthy enough, and growing rapidly enough to address the problem of extreme poverty primarily with their own resources (India will need modest assistance), though so far these growing incomes have been very unequally distributed. The defeat of the BJP government in the Indian elections of 2004 reflected the demands of India’s rural poor for a fairer share of the benefits of economic progress. China’s leaders will eventually have to respond to similar pressures. The main obligation of the wealth countries here is to resist pressure for protection against the exports of goods and services that are driving growth in East and South Asia

The more intractable core of the problem of poverty is in Sub-Saharan Africa and affects between 300 million and 500 million people. To raise the incomes of all these people out of extreme poverty requires additional income totalling no more than $200 billion per year. Sachs quotes the estimates of the Global Millennium project to suggest that the amount required from wealthy country donors is closer $100 billion per year, and could be achieved by gradually increasing aid between now and 2015, until the total contribution was about 0.7 per cent of GDP, an amount long-promised, but never delivered, by the rich countries.

To mobilise public opinion in favor of such a policy, it is necessary to overcome the well-known counter-arguments. These are, first, that large-scale aid programs have failed in the past, and second that aid is necessarily ineffectual because corrupt and dictatorial governments, particularly in Africa, will capture all the benefits.

As anyone who has followed the debate knows, the first argument is based on a false premise, namely that large amounts of aid have been spent with the aim of alleviating extreme poverty). Americans in particular are prone to the belief (which was in fact true during the Marshall Plan years immediately following World War II) that their government spends large amounts of money on foreign aid.

Sachs quotes a 2001 survey indicating that Americans, on average, believe that 20 per cent of the US government budget is spent on foreign aid (the actual figure is less than 1 per cent). The total amount of aid going to Africa from all sources is around $12 per person per year, and much of this is tied in ways that reduce its effectiveness. It’s scarcely surprising that there’s not much evidence of past aid efforts: how much evidence could we expect to see?

On the second point, Sachs offers a number of counterarguments. Corruption and ineffective government are almost inevitable in a poor country, but Sachs points to empirical evidence suggesting that, taking account of poverty levels, African countries are no more corrupt than others. In this context, it’s important to distinguish between the routine corruption and inefficiency that affects all governments to a greater or lesser extent and the extreme cases (for example, Sudan and Zimbabwe) where governments are, in effect, waging war against their own citizens. In the worst cases of civil war or brutal dictatorship, it may be impossible to implement aid programs at all, or it may be necessary to provide aid in ways that bypass governments altogether. But such extreme cases are the exception rather than the rule.

More generally, although governments may suffer from corruption and inefficiency, this does not constitute a reason for doing nothing. Even significant losses to corruption, and other problems like high transport costs, are not sufficient to offset the startling differences in the costs of effective medical interventions in poor and rich countries. A standard estimate for the cost of a marginal health intervention that would yield one extra year of life for one person in a rich country is $US50 000. The same amount spent in a poor country would yield health benefits hundreds of times greater.

The total expenditure required of the rich countries to finance the Millennium project is minimal in relation to other public priorities. An obvious comparison is the Iraq war, which has already cost $US300 billion. Even more striking is Sachs’ observation that the United States could finance its own contribution simply by repealing tax cuts recently granted to taxpayers with incomes in excess of $US 500 000 per year.

Ours is the first generation in which most people in the world are not poor. We can be, if we choose, the first in which no-one lives in extreme poverty. Sachs makes a compelling case for action. It remains to be seen whether governments, and the voters who elect them, will listen.

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  1. August 15th, 2005 at 16:33 | #1

    John, incisive stuff as always. My only thought would be to spend a bit more time at the end talking about what kinds of aid might work best (I found Easterley’s “The Elusive Quest for Growth” better than Sachs’ book on this point). Also, I’ve never before heard your explanation for the BJP’s defeat, but perhaps it’s commonly accepted.

  2. jquiggin
    August 15th, 2005 at 17:08 | #2

    Thanks Andrew. My line on the BJP is, I think, conventional wisdom, though I don’t have a source to hand.

    I’ll see if I can work in something about Easterley: I certainly had him in mind when writing the piece.

  3. Razor
    August 15th, 2005 at 17:41 | #3

    I don’t think I want to have my tax dollars spent on Aid to countries that have invested in developing nuclear weapons and developing a space program. I am even less inclined to have my tax dollars spent on countries run by corrupt governments.

    Why the continued comparisons with the US’s defence spending? – what about a comparison with EU countries Welfare spending? Or, is the US of A the only country that is obviuosly at fault?

    I’ve always felt Singapore is an excellent example of a developing country that is largely ignored, probably because it is too right-wing.

  4. abb1
    August 15th, 2005 at 18:15 | #4

    Simple aid could be a temporary solution to the extreme poverty problem. Regardless, these nations, seems to me, will have to undergo the industrial revolution, there’s no way around it. And no matter how it’s done, it’s a very painful process. No to mention that Western corporations and governments robbing them blind doesn’t help either, see Confessions of an Economic Hit Man, for example.

  5. Factory
    August 15th, 2005 at 19:46 | #5

    Article:
    ” These are, first, that large-scale aid programs have failed in the past,”
    “As anyone who has followed the debate knows, the first argument is based on a false premise, namely that large amounts of aid have been spent with the aim of alleviating extreme poverty)”

    Hmm the critisism is of large-scale aid programs, not overall spending on foreign aid.

    Razor:
    “I’ve always felt Singapore is an excellent example of a developing country that is largely ignored, probably because it is too right-wing.”
    Singapore is wierd in many ways which make it very hard to draw lessons from. “Have a non-correupt dictatorship” is not a very good plan of action.

  6. Terje
    August 15th, 2005 at 21:46 | #6

    I agree that too much emphasis is placed on the notion that African governments are corrupt. It is more accurate to characterise them as inept.

    For starters they tend to tax their people way too hard. Much harder than in Australia or anywhere pleasant. Whilst the headline tax rates generally look like pretty reasonable stuff, a little digging usually reveals some horrors.

    In Niger if you earn more than A$16 per week your income tax rate is 50%. Its very hard to accumulate capital or trade with your neighbours in such an enviroment. Placing a 100% tariff on trade between domenstic players is very poor policy.

    In Ethiopia a farmer that earns more than US$4000pa is subject to a marginal tax rate of 89%. There is almost no incentive to produce a surplus once the production risks are factored in. And without a surplus there is no opportunity to reinvest.

    Africa has a fiscal policy problem.

    However in some places it also has monetary problems. I have communicated with an Economist in Ghana for a few years now. Whilst their central bank is trying to tame inflation it is embarrising to review the amount of new currency they print each year.

    The IMF has not helped Africa either. A standard IMF package includes:-

    a) Austerity – ie higher taxes.
    b) Currency devaluation – ie more inflation

    Privatisations and open trade with the rest of the world is no remedy when the tariff on trade between citizens is the subject of punitive tariffs. Such policies almost guarantee that subsistence will remain the dominate form of production.

    Africas problems are about govenance. However corruption is not the major component.

  7. Brian Bahnisch
    August 15th, 2005 at 23:49 | #7

    Terje, according to The CIA World Factbook Niger has a GDP of $9.7 billion for their 11.6 million people with government budget revenues of $320 million of which $134 million comes from external sources. I suspect the problem is that with much of the economy based on subsistence agriculture there is not much economic activity to tax. The country is better described as destitute rather than poor.

    It’s one of those that Sachs was talking about in his Mother Jones interview (highly recommended) where he says:

    The main arguments of the Millennium Project Report, and the main argument of my book is that there are certain places on the planet that, because of various circumstances—geographical isolation, burden of disease, climate, or soil—these countries just can’t quite get started. So it’s a matter of helping them get started, whether to grow more food or to fight malaria or to handle recurring droughts. Then, once they’re on the first rung of the ladder of development, they’ll start climbing just like the rest of the world.

    One of the reasons Sachs keeps talking about The Millenium Project (the MD Goals are here) is that he has been working with a bunch of experts to develop a program of action on the MD Goals for Kofi Annan. The 2005 report is here (pdf file). It looks interesting, but I haven’t read it yet. The key recommendations are here.

    Of particular importance, I think, are the “Quick wins” in Recommendation 5. Things like malaria nets, school lunches and from there to basic health, education and fertilizer to grow food. By the time you’ve done that you’re on the way to having a bit of cash circulating; educating girls helps to curb the birthrate automatically etc.

    Sachs’ practicality and down to earth approach is shown in these recommendations. I’d recommend the Time Magazine special on him (pdf file) as an introduction to his work on poverty generally as well as illustrating the way he gets out in the field himself.

    John, I was very interested in your review. It puts it nicely in a wide context, clearly and with the authority as only an economist of your achievement can. Also it is respectful and appreciative. Too often reviewers seem to need to show how smart they are. I think there was a lot of that in an otherwise interesting article by Anthony Barnett “Me Tarzan. Me save Africa.� Jeffrey Sachs, the G8 and poverty
    .

  8. Brian Bahnisch
    August 15th, 2005 at 23:54 | #8

    Oops the first link doesn’t work. The CIA World Factbook item should be here.

  9. John M
    August 16th, 2005 at 01:19 | #9

    Terje’s comments on the standard Fund package are misleading. (NB: I am not a Fund staff member) The easier issue is the devaluation. The Fund in fact says nothing about the nominal rate (pegged to the Euro) in the 15 franc zone African countries for political reasons. In other countries (eg, the oil producers outside the franc zone, such as Nigeria and Angola) domestic inflation and the efforts of the local authorities to maintain the import purchasing power of the elites lead inevitably to overvaluation; hence the Fund is right to recommend a devaluation in such circumstances. In other countries (Ghana is mentioned in one of the other posts) monetary expansion (eg, to finance the deficits of public companies), at the same time as the authorities try to defend a nominal rate that is too high, lead to the same response from the Fund. So I don’t think the Fund can be criticised on technical grounds in those instances, though the politics of the franc zone are another question.

    On the tax question, countries like Niger, which raise at best 10% of GDP as tax revenue, are regularly confronted with unsustainable deficits. Hence they depend on aid to finance their deficits and/or must constantly peck around for additional domestic revenue. Since the tax base is very narrow any additional levies do not fall on the great majority of the rural poor (who pay no income tax and only limited VAT and import duties becasue they consume so little), but on the business class. This produces very high marginal rates of taxation on the business class. Here, Terje’s critique of the Fund is more appropriate, but the only solutions are: (i) cut spending, whcih is difficult because so much goes for primary health and education; (ii) widen the tax base, which is very slow going; and (iii) more aid. What combination of those does Terje recommend ?

  10. Tim Dymond
    August 16th, 2005 at 09:55 | #10

    ‘I’ve always felt Singapore is an excellent example of a developing country that is largely ignored, probably because it is too right-wing.’

    The ruling Singapore People’s Action Party actually started as a left-wing nationalist party and a member of the Socialist International. After it was expelled from that organisation for its human rights record it published a defence of its policies in government entitled ‘Socialism that Works’. It probably wouldn’t use that phrase today but it hardly owes its success to the invisible hand of the market. As a city-state major trading port its development experience probably isn’t applicable to, say, Niger.

  11. still working it out
    August 16th, 2005 at 10:26 | #11

    “Why the continued comparisons with the US’s defence spending?”

    I take your point, but I think the comparison is apt because defence spending is basically aimed at killing and destruction while aid is aimed at saving lives and increasing material well being. Obviously it is not really like that in practice, but at some level defence and aid are opposite forms of government spending.

    And if you’re going to contrast aid and defence spending the US defence budget is a convenient yard stick. Its around the ballpark amounts that serious aid needs to consist of.

  12. August 16th, 2005 at 10:30 | #12

    Migration and Trade are ways I’ve seen an economy get kick-started. In Malaysia, it’s pretty rare to find a Chinese who doesn’t have a relative working extra-legally in another country. In fact, most Chinese settlers in Malaysia came to the then Malaya without travel documents.

    The same happens in South America where the undocumented folks are sending money from US back home, acting as seed capital to start off small businesses.

    This is not all one-way traffic. The middle-class in Malaysia then hires Indonesians and Bangladeshis. Some working as house-maids, builder-labourers and others in IT.

    Some of the more enterprising establish trade with their new country. A guy in my hometown is a newly minted millionaire selling chilli sauces to Denmark.

    A more liberal immigration policy can benefit a lot of third world countries. It’s pure silliness Australia is locking up people while fruits are spoiling on trees because there’s no one to pick them. The “illegal” tag only stigmatizes people who are already different because of their skin-colour. Modern society has ditched tags like “illegitimate” children, it’s time to do the same with temporary migrant workers.

  13. August 16th, 2005 at 11:44 | #13

    The dollar per day poverty line is, I think, 1 US dollar per day in 1985 prices (subsequently and cross-nationally adjusted according to PPP). So your calculation of the cost will be an under-estimate – not that this changes your point. I’m afraid a quick search didn’t turn up the current value.

  14. August 17th, 2005 at 00:45 | #14

    John,

    An interesting and good piece as always. I agree with all Andrew Leigh’s comments.

    I read your review a bit quickly, so maybe I missed it, but I wouldn’t have picked that you had Easterly in mind. Easterly’s main point is that there are huge limits to thinking about this as a technical problem (as Sachs does instinctively). Your reivew implies – perhaps unintentionally – some sympathy to that position in reporting Sachs’ arguments.

    Easterly suggests we proceed piecemeal. Sach’s accuses him of meaning ‘slowly’. But Easterly claims that he means ‘learning as we go’. Despite Sach’s idea of ‘clinical economics’ there’s very little of Easterly’sidea of learning as we go – and very little idea that Sachs knows the literature too well or – more importantly – what experiences of success and failures are.

    The other comment I’d make is that I think the review is a bit unbalanced in that the stuff you have at the outset – autarchy versus export orientation, free versus regulated capital markets etc – seems to me to belong to a set of considerations that are a little different to tackling extreme poverty – where the focus is rightly on more micro-institutional reforms, health care, clean water etc. Though you might be thinking about those questions, to some extent the latter considerations are antecedent.

    One further comment has occured to me. You may not care to do this, but someone reading your review won’t really know that the book is an odd combination of polemics for development policies and autobiographical sketches on how Jeff was called in as superstar economist to fix some economic patient in dire straights. If you want it to conform to the genre of the book review, and I don’t know if you do, maybe this should get more of a mention.

  15. Andrew Reynolds
    August 17th, 2005 at 00:51 | #15

    PrQ,
    Africa is not all parade of basket cases, although there are quite a few. I would be interested to hear your take on the African countries that have largely succeeded in eliminating extreme poverty and have (largely non-corrupt) stable government, such as Botswana. What Sachs said about them would also be interesting.
    While not strictly part of a review of your draft, IMHO, one other thing that may help is ending the agricultural subsidies in rich countries that depress the price for the output of many of the world’s poorer farmers.
    A simple re-deployment of the expenditure into assisting the extremely poor would result in a double effect – increase the value of their output and help them feed their kids. A drop in defence expenditure would not have this effect and may even encourage some of the tinpot dictators to believe that no-one can harm them.
    The only real issue would be the likely (short term) effect – an increased birth and survival rate. In most of sub-saharan Africa the population density is not too high, so the likely massive growth in population should not be too much of an issue, but careful planning for this may be useful.

  16. Terje
    August 17th, 2005 at 06:15 | #16

    I suspect the problem is that with much of the economy based on subsistence agriculture there is not much economic activity to tax. The country is better described as destitute rather than poor.

    High taxes ensure that people stay within a subsistence lifestyle. Taxes act as a tariff on interhousehold trade. When the tariff is excessive trade stops and people produce everything at home. The tax/tariff robs them of the benefits that would flow from specialisation and trade. And income tax of 50% is like a tariff of 100%. Add in the other taxes (ie 17% VAT) and you are ensuring that subsistence remains the dominant means of production.

    QUOTE:The easier issue is the devaluation. The Fund in fact says nothing about the nominal rate (pegged to the Euro) in the 15 franc zone African countries for political reasons.

    The EURO peg is an example of monetary policy that actually works. All the countries involved have very low inflation as a result. Compare inflation in Ghana that does not have the peg with its near neighbours that do.

    QUOTE: Here, Terje’s critique of the Fund is more appropriate, but the only solutions are: (i) cut spending, whcih is difficult because so much goes for primary health and education; (ii) widen the tax base, which is very slow going; and (iii) more aid. What combination of those does Terje recommend ?

    In Niger they could stop income tax and it would be self funding due to the fact that the cost of collection would now be zero (assuming you sack the tax collectors). Its an unproductive tax in every sence of the word.

    If the nation has borrowing capacity then tax cuts are a sound investment if they deliver growth. In Niger they would. However as with all borrowing discipline is needed.

    And finally nations that want to give aid in a truely effective manner would give it to the government of Niger on the proviso that tax rates were cut. This is where the IMF and world bank could do some good.

    ~~

    Domestic trade is perhaps the most important development factor in a nation. Its why Australia federated. What gets missed in all the analysis so often is that domestic taxes are the biggest tariffs in the world today in terms of tariff percentage and number of trade transactions effected. Our obsession if global free trade seems to have blinded us to the need for a dose of domestic free trade (or at least trade that is more free). Countries like Niger and Ethiopia need it more urgently that the rest of us.

  17. StephenL
    August 17th, 2005 at 17:31 | #17

    Terje: In Niger they could stop income tax and it would be self funding due to the fact that the cost of collection would now be zero (assuming you sack the tax collectors). Its an unproductive tax in every sence of the word.

    Are you saying that the cost of paying the tax collectors is equal to the taxes raised? If so then this really is a mad tax, but I’d be interested to see the source.

    “If the nation has borrowing capacity then tax cuts are a sound investment if they deliver growth. In Niger they would. However as with all borrowing discipline is needed.”

    Surely this is only true if the amount of growth is high enough, and the interest on the money borrowed is manageably low. I’ve no expertise here, but so far it looks to me like Bushes claims that the the budget deficit is not a problem becuase tax cuts will produce growth are rather shaky. Some growth? yes, enough? highly doubtful.

    I imagine that tax cuts in Niger would produce more growth (dollar for dollar) than in the US, but the rate of borrowing might also be a lot higher. I’m not saying you’re wrong, just curious as to how you know it will work in this case.

  18. jquiggin
    August 17th, 2005 at 17:52 | #18

    Nicholas,

    I agree it isn’t really a book review. Beyond a sentence like the one you suggest I didn’t know what to say about the first part of the book.

    The two-part structure of the paper was meant as a response to Easterley and similar writers. The idea is to concede that we don’t have a recipe for development and look instead at the more modest (but still v ambitious) goal of ending extreme poverty.

  19. Terje
    August 17th, 2005 at 21:21 | #19

    Here is an interesting news article on Niger.

    http://news.bbc.co.uk/2/hi/africa/4352349.stm

    EXTRACT:-

    Thousands of protesters in Niger have demonstrated outside parliament against rising prices – some calling for the president’s resignation.
    They were complaining about tax increases of nearly 20% imposed in January on basic commodities.

    The BBC’s Idy Barou in Niamey says the rally ended in violence, with shops looted and streetlights smashed.

  20. August 20th, 2005 at 04:49 | #20

    Rather than increased aid to pursue Sachs’ neoliberal model of development at a faster pace, it might be worthwhile to consider a fundamentally different version of free market reform.

    The biggest step in such reform, rather than aid, would be for western governments to STOP the kinds of existing intervention on behalf of TNCs that is pumping money out of the Third World. Further intervention, to correct the ill effects of existing pro-corporate intervention, is a little too much like one of those Rube Goldberg drawings.

    For starters, that means a different approach to “privatization” of property. Most importantly, it means a just basis for property titles–legally recognizing and restoring the rights of peasant proprietors, rooted in traditional rules of tenure. A great deal of present starvation results from peasants having their traditional land rights annulled in the interest of corrupt landlord oligarchies, and in collusion with Western agribusiness. It’s a modern replay of what happened to the English peasantry from the 17th century on.

    “Privatization” of state assets should follow the pattern suggested by the left-Rothbardians: treat the present clients and/or labor force as owners, according to the Lockean homestead principle. E.g., turn water utilities into consumer co-ops directly responsible to the rate-payers, and so forth. That would certainly be a more genuine form of private property rights than what the neoliberals propose: auctioning them off at fire-sale prices to politically connected financial elites, even virtually paying them to take them off the state’s hands (followed by systematic asset stripping, of course). Much of that state-owned infrastructure was originally created via World Bank loans to make western capital investments profitable, and the debt was then used as a form of discipline to impose “structural adjustment” on the countries so the same assets would be sold to the elites who benefited from them in the first place. It’s called LOOTING.

    While we’re at it, let’s eliminate the international patent monopolies that give Western capital a permanent deadlock on modern production technology, and relegate Third World countries to supplying hewers of wood and drawers of water for sweatshop employers.

    A decentralist/cooperative model of development is also worth considering. A nation of subsistence farmers using the most advanced biointensive techniques, integrating intermediate technology into village economies, and financing small-scale industrial development through mutual banks, holds much more promise for improving the average standard of living. It’s also probably more sustainable in a genuine free market than the giant corporations that depend on state subsidies and mercantilist intervention for their profits. When all costs are fully internalized, such a cooperative village economy is probably more efficient and competitive in the marketplace.

  21. jquiggin
    August 20th, 2005 at 07:07 | #21

    Kevin, you make some good points regarding traditional title and the negative effects of IP. I’ll try to write more about this some time.

  22. Terje
    August 20th, 2005 at 15:40 | #22

    “Privatization� of state assets should follow the pattern suggested by the left-Rothbardians: treat the present clients and/or labor force as owners, according to the Lockean homestead principle.

    I am all for a better model for privatisation. And you propose a good one.

  23. gordon
    August 20th, 2005 at 21:51 | #23

    An important implication of K.Carson’s comment is that the Sachs proposals must be evaluated in their context. This includes debt reduction initiatives (see http://larvatusprodeo.redrag.net/2005/07/01/debt-relief-and-poverty-reduction/#more-515) and OECD-Government trade and investment initiatives (see http://www.monbiot.com/archives/2005/07/09/africas-new-best-friends/). How the context will impact Sachs’ particular recommendations is important. I’m not sure that this has received the attention it deserves.

  24. August 22nd, 2005 at 07:50 | #24

    “I take your point, but I think the comparison is apt because defence spending is basically aimed at killing and destruction…”

    Let’s see…let’s suppose that the Soviet Union had dramatically outspent the U.S. in military spending in the time period from the end of WWII to the 1970s. Such that the Soviet Union would have had the military might to occupy Western Europe (in addition to Eastern Europe). And let’s throw in Japan, too.

    Considering the relative position of Eastern Europe to Western Europe regarding life expectancy (at the time of the collapse of the Soviet Union), it seems to me that U.S. defense spending saved quite a number of premature deaths.

    http://bmj.bmjjournals.com/cgi/content/full/323/7320/1051

    “The policies pursued by the Soviet Union and its satellites in central and eastern Europe have had profound implications for health. 1 2 By 1990 the probability of people dying before the age of 65 in the Soviet Union was twice that for western Europe, and for the communist countries of central and eastern Europe it was 70% higher compared with western Europe.3″

  25. Louise Crossley
    August 22nd, 2005 at 18:28 | #25

    Interesting comments – I have read Sachs but not Easterley and can’t find it one any search engine. Can anyone give me a more precise reference please?

  26. John M
    August 23rd, 2005 at 02:34 | #26

    The reference is

    William Easterly, The Elusive Quest for Growth: Economists’ adventures and misadventures in the Tropics, MIT, 2001

    It comes up first when you search for “Easterly” on Amazon.com under “Books”.

  27. gordon
    August 27th, 2005 at 11:16 | #27

    The recent UN report “The Inequality Predicament” is available at
    http://www.un.org/esa/socdev/rwss/media 05/cd-docs/media.htm
    (click on the picture of the report cover).

    By the way, after Russia, why is anybody interested in what Jeffery Sachs says?

  28. Ian Gould
    August 27th, 2005 at 15:30 | #28

    I haven’t read the UN report yet. My initial question is, if as the authors says inequality is rising is this due to an increase in absolute poverty or because the living standards of the poor are improving more slowly than those of the rich?

    I agree that relative poverty is a problem but absolute poverty is a much greater one.

  29. Ian Gould
    August 27th, 2005 at 15:38 | #29

    I just glanced at the executive summary. This sentence stands out:

    >The proportion of the world’s population living in extreme poverty declined from 40 to 21 per cent between 1981 and 2001.

    Undoubtedly there’s much more to be done and there are many aspects of current development strategies that could be imporved but the incredible good news contained in that sentence seems to be ignored in the rest of the report and in much of the media coverage of it.

  30. August 27th, 2005 at 15:43 | #30

    What good news? That sentence, in isolation, doesn’t say whether the news is good or bad. We need to know if he adjusted for survivor bias. The thing is, there are two ways people can cease to live in extreme poverty – one good but not always very good, and one very bad indeed. Both affect that simplistic statistic. Did their lot improve, or did they die or get forced out of the area into even worse conditions elsewhere or something? That needs to be brought out one way or another.

  31. Ian Gould
    August 27th, 2005 at 19:35 | #31

    19% of the world’s population was approximately 1,000,000,000 in 1980 and 1.2 billion in 2005 – I think we would have noticed death on that scale. (also you have to then assume that the net population growth of 2-2.5 billion over the period was after this mystery die-back.)

    and the “area” in question is the Earth – I think we might also have noticed the massive wave of alien abductions.

  32. August 29th, 2005 at 11:34 | #32

    You misunderstand me. I was not asserting death etc. on a massive scale, I was pointing out the leaping to a conclusion involved in using that statistic to get to that conclusion. You just can’t do it without bringing in some other information. As it happens, since ethics are not a mere matter of arithmetic, even if the “net” effect were an improvement, any material harm would make it bad news – even if it were wholly incidental, like the human suffering in the Highland Clearances.

    But I was mainly drawing attention to the gap in the chain of logic.

  33. jquiggin
    August 31st, 2005 at 06:35 | #33

    PML, I think we can take as read your objection to the description of any event as “good news”.

  34. August 31st, 2005 at 13:22 | #34

    The problem with that is, you won’t actually look at the argument once you start to filter my own views out. Besides which, as and when I agree with an optimist, it is not my habit to jump in with an “I agree”.

    Would you like to address the material I put forward, rather than register the fact that I am out of step with the consensu around here? You are drifting close to playing the man if you don’t.

    I even left out the point that the money numbers don’t reflect what happens to people moving out of subsistence lifestyles, I only addressed the meaning of the single statistic in isolation.

    For what it’s worth, I would expect that statistic to conceal a large proportion of what just got called “good news” – but, also, a small proportion of real suffering as people got squeezed even worse, falling out of the statistical base and maybe even dying. So, what I was complaining about wasn’t the “good” or “bad”, but the failure to look more deeply into the statistic. And, of course, the full picture still needs an understanding that a subsistence peasant with $1 pw is better off than a slum dweller on $5 pw – but as I said, that’s outside this statistical measure anyway.

  35. jquiggin
    September 1st, 2005 at 01:06 | #35

    PML, I thought the response from Ian Gould covered the substantive issues pretty well. You can’t fall out of the statistical base of “the world’s population”. And it’s obvious from the numbers that the decline in extreme poverty hasn’t been caused by increased mortality.

    I agree that you need to look carefully at the purchasing power of money, but there’s no strong reason to suppose that there’s a bias to overstatement.

  36. September 1st, 2005 at 20:13 | #36

    I see that I shall have to provide a full and organised reply to this whole thread.

    But for now, yes you can drop out of the statistical base of the world’s population, in two ways. One, by dying. And two, from the fact that the idealised “world population” is not being counted; when peolple are driven into slum dwelling extremes, for instance, they become much harder to count directly. That means that you have to use estimating techniques to adjust them, if you are using them to bring out the answers to questions like this one.

    For a current example, consider what the statistics will show about the poor people among the victims of Hurricane Katrina. Some will indeed be dead (and make the statics look better). Some will fall off the map and slip between the cracks. Given US approaches, some will wind up in jail after many vicissitudes, and although they will show up under some category or other, they won’t be classed as “extreme poor” any more.

    Now, all this should illustrate the underlying philosophical point I was trying to bring out, that the extreme poverty count is not itself a final result we can use as is to come up with firm conclusions like “good news”. I expect there is a lot of good news within there – but not unalloyed. Which is what I meant, that the statistic itself doesn’t tell the story.

    JQ, you were willing enough to accept that GDP doesn’t tell a whole story; why assume that this statistic does tell the whole story in its area? Particularly when we know that natural disasters do indeed shove poor people out of the system (as they do rich people, but they aren’t in this count anyway).

  37. September 4th, 2005 at 04:35 | #37

    As PML says, GDP figures don’t mean much by themselves. A nominal increase in GDP may simply reflect monetization of previously un-monetized activity.

    Driving people from the subsistence/gift/barter economy into the money economy may cause a significant jump in GDP, while reducing real standard of living. As I’ve pointed out elsewhere, when the Brits seized the best 20% of land in Kenya for settlers and drove off the native subsistence farmers, and used a poll tax to force other subsistence farmers into the wage labor market, the GDP probably went through the roof. Conversely, if sweatshop laborers homesteaded land currently used to produce cash crops for Cargill, and took to direct exchange through LETS systems and mutual banks, nominal GDP would probably go down considerably–even though real quality of life would soar.

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