Reviewed by Stan Rowland 3/30/2006
Jeffrey Sachs was a professor of Economics at Harvard for 38 years and was a major consultant for many nations. He now heads the Earth Institute. His views on the causes of poverty are very different than what is normally thought or presented. His book has 18 chapters which are broken down as follows:
Chapters 1-4 present an overview of the problem and overall solutions to poverty.
Chapters 5-10 details Sachs’ experience in working with Bolivia, Poland, Russia, China, India, and Africa, solving major economic problems.
Chapter 11 deals with the Millennium Development Goals and 9/11
Chapter 12 deals with on-the-ground solutions, which in reality is a high priced CHE.
Chapters 13-18 map out the details of his solutions.
Sachs throws out the normal ways of thinking about the causes of poverty in countries, for instance that people are lazy or stupid, or the countries are not democratic, and that corruption is wide-spread. Fifty percent of the world’s population exists on less than one dollar per day. He believes that much of the problem is structural, which can only be dealt with through the help of the rich countries.
Sachs believes, first of all, that all current debt owed by the poor countries should be cancelled. Secondly, if the rich countries would increase their development aid from .2% to .7% there would be enough money available to increase the economic growth so that all countries would no longer be extremely poor.
If MAI is to become known as an agency which teaches a new way of dealing with poverty, then we need to become aware of this book and Sachs understanding and approach to poverty. Chapter Twelve really speaks to CHE.
I have tried to review what has appeared to me to be the most salient points, chapter by chapter. All chapters are not treated equally. I primarily do this exercise for myself to help me understand the key points from the book. If they are of any help to others, then that is a plus.
I have gone into more detail in the other synopsis I have done because of the possible guidance this book can give us for a new paradigm for dealing with poverty individually, locally, nationally and globally (which in reality we are already on the road in doing). Some things are both structural and governmental issues and I am not suggesting that we get involved in these, but change must begin at the village level and then we can scale up our strengths from there.
Chapter One--A Global Family Portrait
Sachs sets the stage for his thesis and book using examples of Malawi, Bangladesh, India, and China to show different levels of poverty. He talks abut the ascending ladder of economic development for countries.
Lowest are those who are too ill, hungry, or destitute to get even a foot on the bottom rung of the development ladder. They make up the bottom 1/6 of the world’s population, or one billion people. They are the poorest of the poor and live on less than $1 a day.
A few rungs up the ladder at the upper end of the low-income countries are another 1.5 billion people. They live just above the subsistence level. These two groups make up 40% of the world’s population. CHE targets both of these groups, and especially with the first group.
Another 2.5 billion include the IT workers of India. Most of them live in the cities and are moderately poor.
One billion or one-sixth of the world come from the rich developed countries.
Sachs says the greatest tragedy of our time is that one-sixth of the world’s population is not even on the first rung of the ladder. A large number of the extremely poor in level one are caught in the poverty trap and cannot escape it. They are trapped by disease, physical isolation, climate stress, environmental degradation, and extreme poverty itself.
He breaks poverty into three levels:
Extreme poverty means households cannot meet basic needs for survival. This only occurs in developing countries. World Bank says their income is less than $1 a day.
Moderate poverty is where needs are generally just barely met. World Bank says this represents countries where their income falls between $1 and $2 per day.
Relative poverty generally describes household income level at being below a given percentage of the average national income. You find this in developed countries.
He then presents the Challenge of our Generation which includes:
Helping the poorest of the poor escape the misery of extreme poverty and help them begin their climb up the ladder of economic development.
Ensuring all who are the world’s poor, including moderately poor, have a chance to climb higher in economic development.
He believes that the following can be done:
Meet the Millennium Development Goals by 2015.
End extreme poverty by 2025.
To ensure well before 2025, that all of the world’s poor countries can make reliable progress up the ladder of economic development.
To accomplish this with modest financial help from the riches countries, which will be more than is now provided per capita.
Chapter Two--The Spread of Economic Prosperity
Sachs uses several graphs in this chapter. I will not go into detail on these, but I will point out some salient points:
All regions of the world were poor in 1820.
All regions experienced economic progress, though some much more than others.
Today’s richest regions experienced by far the greatest economic progress. As an example, Africa has only grown at .7% a year while the USA at 1.7%. This may not seem much, but when compounded year-by-year, it results in the great differences between the two.
The key fact today is not the transfer of income from one region to another, but rather that the overall increase in the world’s income is happening at different rates in different regions.
Until the 1700’s, the world was remarkably poor by today’s standards. A major change was the industrial revolution coming to certain regions and not to others. The steam engine was a decisive turning point because it mobilized the vast store of primary energy which unlocked the mass production of goods and services. Modern energy fueled every aspect of the economic takeoff.
As coal fueled industry, industry fueled political power. Britain’s industrial breakthrough created a huge military and financial advantage. But Britain also had existing individual initiative and social mobility than most other countries of the world. They also had a strengthening of institution and liberty. Britain also had a major geographical advantage--one of isolation and protection of the sea, in addition to access to the oceans for worldwide transportation for their goods and importation of other countries’ goods.
Sachs then goes on to outline what has fostered major economic growth:
Modern economic growth is accompanied by people moving to the cities, or urbanization. This means fewer and fewer people produce the food that is required for the country. Hopefully, food price per farmer decreases as larger plots are farmed more productively. This also means sparsely populated land makes good sense when many farms are needed to grow the crops, but sparse land makes little sense when more and more people are engaged in manufacturing in the cities.
Modern economic growth fostered a revolution in social mobility which affected social ranking of people. A fixed social order depends on status quo and agrarian population.
There is a change in gender roles with economic development. This affects living conditions as well as family structure. The desired number of children decreases.
The division of labor increases. By specializing in one activity instead of many, productivity increases.
The diffusion of economic growth occurred in three main forms:
From Britain to its colonies in North America, Australia and New Zealand. (It was therefore relatively straight-forth to transfer British technologies, food crops and even legal institutions.)
A second diffusion took place within Europe that ran from Western Europe to Eastern Europe, and from Northern Europe to Southern Europe.
The third wave of diffusion was from Europe to Latin America, Africa, and Asia.
Sachs believes that the single most important reason for prosperity spread is the transmission of technology and the ideas underlying it. The technological advances came at different times.
The first wave revolved around the invention of the steam engine which led to factory-producing goods.
The second wave in the 19th century was led by the introduction of the rail and telegraph. It also included the introduction of steam ships instead of sailing ones, and the construction of the Suez Canal.
The third wave was initiated by electrification of industry and urban society. Along with this came the development of the internal combustion engine.
The fourth wave came in the 20th century with the globalization of the world due to new methods of communication starting in Europe.
There came a time of a great rupture which took place with the start of World War I, and sidetracked economic development for awhile. This led to the Great Depression which led to World War II.
A fifth wave took place right after World War II, and in 1991. It began with the massive efforts of reconstruction of Europe and Japan right after World War II. Trade barriers began to come down.
There were three worlds: the first was the developed West, the second was comprised of Socialist countries, and the third was made up of undeveloped countries (which were made up of the old colony countries). The world therefore progressed on three tracks. The problem was that the second and third worlds did not share in economic growth and actually went backward. By closing their economies, they closed themselves off from economic development.
So what did this mean to the poorest of the poor countries?
They did not begin their economic growth until decades later.
They faced geographical barriers of being land-locked
They faced the brutal exploitation of the colonial powers.
They made disastrously bad choices in their national policies.
Chapter Three--Why Some Countries Fail
In this chapter, Sachs looks at the cause of poverty and possible solutions. He first deals with, how a family’s per-capita income might increase:
The first way is through savings-- either in cash or similar assets like animals, etc.
The second way is shifting to crops that bring a higher yield per hectare, and then adding value to the crop (which is what we teach in our PAD training).
The third way is adopting new technology, which improves their productivity.
The fourth way is resource boom, which means to move to a much larger and more fertile farm.
The flip side of increasing their economic growth is by decreasing their per capita income which is more than just the opposite of the above factors:
Lack of savings is of course one way to reduce per capita income.
Lack of trade, meaning that a household hears of the new crop but cannot take advantage of it and stays with what they have.
Technological reversal is when something like HIV hits an area and children lose their parents etc.
Natural resource decline is where the land becomes less and less fertile producing less and less crops.
Adverse Productivity Shock is where a natural disaster hits like a drought, tsunami, earthquake, typhoon, etc.
Population growth lessens per capita income where the father has two hectares of land and it is divided among his five sons at his death.
Now Sachs begins to get into the true heart of poverty on a country level:
The poverty trap itself is where poverty is so extreme that the poor do not have the ability by themselves to get out of the mess.
Physical geography plays a major role where countries are land-locked with poor or no roads, a lack of navigable rivers, or situated in mountain ranges or deserts with an extremely high transportation cost. The low productivity of the land is another factor in the geography.
The fiscal trap is where the government lacks the resources to pay for the necessary infrastructure on which economic growth depends.
Government failure happens when the government is not concentrating on high priority infrastructure and social service projects.
Cultural or religious barriers especially as it relates to gender inequality play a significant role in dampening economic growth.
Geopolitics such as trade barriers can impede economic growth.
Lack of innovation and technology plays a role if people cannot try new things because they cannot risk failure, or because they do not have funds to do so. Sachs believes that over the span of two centuries, the lack of using new technology is why the richest and poorest countries have diverged.
He shows a scatter-gram graph showing there is a demographic trap as well. The higher the fertility rate, the lower rate of economic growth there is in a country. When they have too many children, they cannot invest in education, nutrition, or health, except maybe for the oldest male. One of the best ways to lower the number of children per family is through the education of the girls.
Sachs then goes into detail in putting countries into different classes. He points out that none of the rich countries in North American, Western Europe or East Asia have failed to grow economically. All the problems lie in the developing world where 45 of these countries had a fall in GDP. Not all of these countries are in sub-Saharan Africa. He also points out that the oil-exporting and ex-Soviet countries, all high income countries, did not increase their economic growth evenly, primarily because of their authoritarian political structure.
He also points out that the most important factor is agriculture. Those countries that used high yield cereals per hectare and that used high levels of fertilizers are the poor countries that tended to experience economic growth. In Africa, the land is much less densely populated but they use neither high yield cereals nor fertilizers and they had falling food production per capita. But they also have far less roads for transporting extra crops to markets and they depend on rainfall which is generally more erratic than high-producing agricultural countries.
He also goes on to point out the following:
Economic growth is rarely uniformly distributed across a country.
Governments also fail in their role in allowing growth that might enrich the rich households, while the poorest living in the same area seldom seem to benefit.
Another detriment to growth can be culture especially as it relates to women inequality.
Chapter Four--Clinical Economics (CE)
Sachs compares clinical economics to clinical medicine. He lays out five parameters for Clinical Economics:
CE is made up of complex systems. The failure in one system can lead to cascades of failures in other parts of the economy. You therefore need to deal with very broad and multiple issues.
CE practitioners need to learn the art of clinical diagnosis. The CE practitioner must hone-in on the key underlying causes of economic distress and prescribe appropriate remedies that are tailor-made to each country’s condition.
Treatment needs to be viewed in family terms, not individual terms. The entire world is part of each country’s family. If countries work together they can have far more impact than working in isolation.
Good CE practice requires monitoring and evaluation. More than just asking if the goals are being achieved, but also asking “why?” and “why not?”
The development community lacks the requisite ethical and professional standards. Economic development does not take its work with the sense of responsibility that the task requires. It demands that honest advice be given.
He points out where economic development practice has gone wrong:
The rich countries say, “Poverty is your own fault. Be like us, have a free market, be entrepreneurial, fiscally responsible and your problems will be gone”.
The IMF period of structural adjustment which supposedly dealt with the four maladies of poor governance, excessive government intervention in the markets, excessive government spending, and too much state ownership were not solved by the IMF prescription of belt tightening, privatization, liberalization, and good governance.
The responsibility for poverty reduction was assumed to lie entirely with poor countries themselves.
He then lays out his differential diagnosis for poverty reduction. He believes the Millennium Development Goal (MDG) goes a long way in reducing poverty. Once the diagnosis is completed, a proper treatment regime must be carried out. In doing differential diagnosis, questions must be asked in each one of the following areas:
Identify and map the extent of extreme poverty-- from the household level all the way up through the community to the country to the state-- in all areas of life.
The second set of questions deals with the economic policy framework.
The third set deals with the fiscal framework.
Fourth deals with physical geography and human ecology.
Fifth, the questions deal with the patterns of governance. History has shown that democracy is not a prerequisite for economic development.
Sixth are questions which deal with cultural barriers that hinder economic development.
The last are questions that are related to geopolitics which involves a country’s security and relationship with the rest of the world.
The next six chapters, five through ten, deal with specific countries that have gone through this process, and their results. His results are quite impressive. I will not deal much with each country, but an individual chapter might be of interest to the RC involved if he is interested in such things.
Chapter Five--Bolivia’s High Rate of Inflation
A hyperinflation rate of 3000% (30 times) between July 1984 and July 1985 with a longer term hyperinflation rate of 24,000%.
Stabilization is a complex process. Ending a large budget deficit may be the first step but controlling the underlying forces that cause the budget deficit is much more complex.
Macroeconomics tools are limited in their power.
Successful change requires a combination of technocratic knowledge, bold political leadership, and broad social participation.
Success requires not only bold reforms at home, but also financial help from abroad.
Poor countries must demand their due.
Chapter Six--Poland’s Return to Europe
By the end of 1989, Poland had partially suspended its international debt payments. The economy was suffering from high rate of rising inflation and there was a deepening political crisis.
Sachs’ approach in Poland, as in other countries, was built on five pillars:
Stabilization--ending the high rate of inflation, establishing stability and convertible currency.
Liberalization--allowing markets to function by legalizing private economic activity (ending price controls and establishing necessary laws).
Privatization-- identifying private owners for assets currently held by the state.
Social net--pensions and other benefits for the elderly and poor were established.
Institutional Harmonization--adopting, step-by-step, the economic laws, procedures, and institutions.
He learned how a country’s fate is crucially determined by its specific linkages to the rest of the world.
Again the importance of the basic guidance concept for broad-based economic transformation, not to stand alone with separate solutions.
Saw again the practical possibilities of large-scale thinking
He learned not to take “no” for an answer, press on with your guidance.
By the time a country has fallen into deep crisis, it requires some external help to get back on track.
This help may be in the form of getting the basics right which includes debt cancellation and help to bolster confidence in the reforms.
Chapter Seven--Russia’s Struggle for Normalcy
The Soviet Union relied almost entirely on its oil and gas exports to earn foreign exchange, and on its use of oil and gas to run its industrial economy. In the mid- 1980’s, the price of oil and gas plummeted and the Soviet Union’s oil production began to fall.
Sachs suggested three actions of the West (but generally they were ignored by the West):
A stabilization fund for the ruble.
Immediate suspension of debt repayment followed by cancellation of their debts.
A new aid program for transformation focusing on the most vulnerable sectors of the Russian economy.
Despite much turmoil and rejection much went right so that eventually Russia became a lopsided market economy, still focused on oil and gas.
Russia has a gigantic land mass which causes it to have few linkages with other nations of the world.
Their population densities are low and agrarian and food production per hectare remains low. Over history, 90% of the population has been rural, with cities few and far between. This hinders economic growth.
Without adequate aid, the political consensus around the reforms was deeply undermined, thereby compromising the reform process.
Chapter Eight--China Catching Up after a Half Millennium Being Isolated
China lost its economic and cultural lead that it had in its early history. Sachs points out five dates which caused this:
1434 China had been the technological superpower. This year Emperor Ming closed China to the rest of the world and stopped their advanced ship fleets from going out to the world.
1839 China finally ended its economic isolation.
1898 Several young reformers tried to gain power and were stopped.
1911 Ching Dynasty collapsed and by 1916 China was falling into civil unrest. Their military took control of the empire.
1949 the rise of the Maoist Movement.
He then compares China to Russia:
The Soviet Union and Eastern Europe had massive foreign debt while China did not.
China had the benefit of large off-shore Chinese business communities which acted as foreign investors, while Russia and Eastern Europe did not.
The Soviet was experiencing a drastic decline on their main export product, oil and gas.
The Soviet Union had gone further down the industrialization road than China.
Chapter Nine--India Market Reform Which Was the Triumph of Hope Over Fear
India was controlled by a business, British East India Company, which was driven by greed, and it did everything to maximize profit for the company at the expense of the country. Though India’s population throughout history has been Hindu, vast numbers of Muslims and Christians lived in and sometimes dominated the land. India had poor political and social structures because the land was broken into many small kingdoms governed by many different leaders. In addition, India has the caste-system of stratification of peoples.
With independence from the British in 1947, Nehru looked for a path to self- sufficiency and democratic socialism. The Green Revolution had a major impact on the country as high yield crops were introduced. By 1994, India now faced four major challenges:
Reforms needed to be extended especially in liberalization and the development of new and better systems.
India needed to invest heavily in infrastructure
India needed to invest more in health and education of its people, especially the lower castes.
India needed to figure out how to pay for the needed infrastructure.
The 21st century is likely to be the era when this poor country’s economic development is substantially reversed.
The country has announced electricity for all as well as essential health services and drinking water for everyone. These are achievable goals and the basis for much-needed investment.
The Hindus did not stifle growth. The Green Revolution and then market reforms overrode the rigidness of the caste-system and the slow growth of the 1950’s and 1960’s.
India has become increasingly urbanized, thereby further weakening the caste-system.
Democracy is wearing away age-old social hierarchies.
India has grabbed the potential of the internet and IT and is leading the way for developing nations in this regard.
India’s varied geography and its miles and miles of shoreline fosters its market position for the manufacture of products.
Chapter Ten--Africa and the Dying
Three centuries of slave trade were followed by a century of colonial rule which left Africa bereft of educated citizens and leaders, basic infrastructure, and public health facilities. The borders followed arbitrary lines, not historic tribal lines which now divided former empires, ethnic groups, ecosystems, watersheds, and resource deposits.
The West was not willing to invest in African economic development. Corruption was not the central cause for their economic failure as he showed. In the 1980’s, HIV became the worse killer of mankind. In 2001, life expectancy stood at 47 years, while East Asia stood at 69 years, and developed countries at 78 years.
Sachs spends time looking at the major diseases of malaria, TB, diarrhea, and HIV. He says poverty causes disease and disease causes poverty.
Good governance and market reform alone are not sufficient to generate growth if a country is in a poverty trap.
Geography has conspired with economics to give Africa a particularly weak hand. Africa lacks navigable rivers with access to the ocean for easy transport and trade.
Africa lacks irrigation and depends on rainfall for their crops.
Farmers lack access roads, markets, and fertilizers, while soils have been long depleted of their nutrients.
Chapter Eleven--The Millennium, 9/11, and the United Nations.
The beginning part of this chapter deals with the Millennium Development Goals. Sachs says that the goals and commitment to reach them by 2015 convey the hope that extreme poverty, disease, and environmental degradation could be alleviated with the wealth, the new technologies, and global awareness with which we entered the 21st century. He says the first seven goals call for sharp cuts in poverty, disease, and environmental degradation, while the eighth goal is essentially a commitment to global partnership. Because you have all seen them, I am not including them here.
Regarding 9/11, he says we need to keep it in perspective. On 9/11, 3000 people died for once and for all, but 10,000 people die each day from diseases that are preventable.
He believes we need to address the deeper roots of terrorism of which extreme poverty is an important element. The rich world needs to turn its efforts to a much greater extent from military strategies to economic development. President Franklin Delano Roosevelt spoke of freedoms we were fighting for in WWII and for which we still should be attempting to accomplish:
Freedom of speech and expression everywhere in the world.
Freedom for every person to worship God in his own way everywhere in the world.
Freedom from want which translates into economic development.
Freedom from fear which translates into a worldwide reduction in armament, a reduction to such a point that no nation will be in a position to commit an act of physical aggression against any neighbor.
One major thing he is suggesting is that the rich countries elevate their giving to .7% of their GNP from the average of .2% it is today. The rest of the chapter is about President Bush and the USA policies and actions.
This chapter is really talking about CHE, but Sachs does not realize it. He says that the world’s challenge is not to overcome laziness and corruption but rather to take on geographic isolation, disease, vulnerability to climate shocks, etc. with new systems of political responsibility that can get the job done.
He talks about a village of less than 1,000 in western Kenya, in a Sauri sub-location (in Siaya district in Nyanza province) that he visited, which opened his eyes. He found what we find place after place-- that they are impoverished, but they are capable and resourceful. Though struggling to survive, presently they are not dispirited but determined to improve their situation. He then goes on to describe the needs of a rural African community, the same type of community that we deal with every day, as shown in the abundance of applications we receive for CHE. A major problem, he feels, is that the farmers do not have the money to buy fertilizer that would impact their crop productivity drastically. Also they have no school or clinic.
He then begins to calculate what it would cost per person to bring a school and teachers, simple clinic and staff, medicines, agriculture inputs such as seed and fertilizer, safe drinking water and simple sanitation, and power transport and communication services. The total cost for Sauri is about $350,000 a year, which converts to $70 a person per year, which could revolutionize the community. If he did CHE, the total cost and per person cost would be greatly reduced. He then goes ahead and extrapolates this up for the country of Kenya to $1.5 billion.
At the same time he points out that Kenya’s debt service is $600 million a year and that it needs to be cancelled. But one problem that donors talk about is corruption needing to be eliminated. If countries do not eliminate corruption, they would not be eligible for relief. Also, a budget and management system need to be designed that will reach the villages and be monitorable, governable, and scalable--a set of interventions to ensure good governance on such a historic project. The key to this is to empower village-based community organizations to oversee village services.
Most of what he says in this chapter sounds like CHE to me, but we can do it at even a lower cost and we have the experience to implement it. That is why I said earlier that we need to talk to Sachs about CHE.
He then goes on with this theme but changes the venue from rural to urban in Mumbai, India in a slum community built smack up against the railroad tracks, one-house deep. He points out the outstanding needs are not latrines, running water, nor safety from trains, but empowerment so they can negotiate with the government. He then mentions that several groups have been found and empowered to do this in this community. Again sounds like CHE for urban poor.
Sachs says what this community needs is investments in the individual and basic infra-structure that can empower people to be healthier, better educated, and more productive in the work force. CHE deals with the individual side of the equation.
He ends this chapter by discussing the problem of scale. He says everything must start with the basic village. The key is connecting these basic units together into a global network that reaches from impoverished communities to the very centers of power and back again. This, too, is what we are talking about when we describe scaling-up and creating a movement and then forming it into councils and collaborative groups.
He believes the rich world would readily provide the missing finances but they will wonder how to ensure that the money made available would really reach the poor and that there would be results. He says we need a strategy for scaling up the investments that will end poverty, including governance that empowers the poor while holding them accountable. I believe CHE fits his prescription.
Chapter Thirteen--Making the Investments Needed to End Poverty
Sachs says the extreme poor lack six kinds of capital:
Human Capital: health, nutrition, and skills needed for each person to be productive.
Business Capital: the machinery, facilities, and motorized transport used in agriculture, industry and services.
Infrastructure Capital: water and sanitation, airports and sea ports, and telecommunications systems that are critical inputs for business productivity.
Natural Capital: arable land, healthy soils, biodiversity, and well- functioning ecosystems that provide the environmental services need by human society.
Public Institutional Capital: commercial law, judicial systems, government services, and policing, that underpin the peaceful and prosperous division of labor.
Knowledge Capital: the scientific and technological know-how that raises productivity in business output and the promotion of physical and natural capital.
He spends several pages on charts showing income flow. He also uses the example of child survival and how it applies to the six kinds of capital. He makes the point that even in the poorest societies, primary education alone is no longer sufficient. He says all youth should have a minimum of 9 years of education. He says technical capacity must be in the whole of society from the bottom up. He talks about trained community health workers and the role they can play. Villages around the world should be helped in adult education involving life and death issues such as HIV.
The main challenges now is NOT to show what works in small villages or districts but rather to scale up what works to encompass a whole country, even the world. Again sounds like CHE and where we are going.
He goes through several examples where major diseases are being dealt with such as malaria, river blindness, and polio, as well as spread of family planning. He also briefly talks about the cell phone revolution by the poor in Bangladesh and how East Asia has established Export Processing Zones, all of which are improving the life of the poorest of poor nations.
Chapter Fourteen--A Global Compact to End Poverty
He says the poorest countries themselves must take seriously the problem of ending poverty and need to devote a greater share of their national resources to accomplish this. Many poor countries pretend to reform while rich countries pretend to help them. The chronic lack of donor financing robs the poor countries of their poverty-fighting zeal. We are stuck in a show play that is not real.
There are two sides in a compact. In this compact, there should be the commitment in the rich countries to help all poor countries where the collective will to be responsible partners in the endeavor is present. For the other poor countries where authoritarian or corrupt regimes hold sway, the consequences for the population are likely to be tragic but the rich countries have their limits also.
He spends time looking at several countries that have Poverty Reduction Strategies where some are working and some not. Ghana is a star in his book.
He says a true MDG-based poverty reduction strategy would have five parts:
A Differential Diagnosis which includes identifying policies and investments that the country needs to achieve the MDGs.
An Investment Plan which shows the size, timing and costs of the required investments.
A Financial Plan to fund the Investment Plan, including the calculation of the MDG financing gap, the portion of the financial needs that donors will have to fill.
A Donor Plan which gives multi-year commitments from donors for meeting the MDGs.
A Public Management Plan that outlines the mechanisms of governance and public administration that will help implement the expanded public investment plan.
During the 1980’s and 1990’s, the IMF forced Structural Readjustment on the poor countries which did not work. The poor were asked to pay all the expenses for new services. They then moved to a compromise called Social Marketing where the poor were asked to pay a portion of the expense. But neither plan worked because the poor did not have enough even to eat, much less pay for electricity.
He says a sound management plan should include the following:
Decentralize. Investments are needed in all the villages and the details for what is needed needs to be established at the village level through local committees, not the national capitol or Washington DC.
Training. The public sector lacks the talent to oversee the scaling up process. Training programs for capacity building should be part of the strategy.
Information Technology. The use of information technology--computers, e-mail and mobile phones-- needs to increase drastically because of the dramatic increase of knowledge that needs to be transmitted.
Measurable Benchmarks. Every MDG based poverty reduction strategy should be supported by quantitative benchmarks tailored to national conditions, needs, and data availability.
Audits. No country should receive greater funding unless the money can be audited.
Monitoring and Evaluation. Each country must prepare to have investments monitored and evaluated.
He then goes through the following Global Policies for Poverty Reduction:
The Debt Crisis. The poorest countries are unable to repay their debt, let alone carry the interest. Therefore, for each country that agrees to the guidelines noted previously, their debt must be cancelled if there is to be true poverty reduction.
Global trade Policy. Poor countries need to increase their exports to the rich countries and thereby earn foreign exchange in order to import capital goods from the rich countries. Yet trade is not enough. The policy must include both aid and trade. The end of agriculture subsidies is not enough for this to happen.
Science for Development. The poor are likely to be ignored by the international scientific community unless special effort is made to include things that help the poor. It is more critical to identify the priority needs for scientific research in relation to the poor than to mobilize the donor community to spur that research forward. That would include research in tropical agriculture, energy systems, climate forecasting, water management, and sustainable management of ecosystems.
Environmental stewardship. The poorest of poor nations are generally innocent victims of major long-term ecosystem degradation. The rich countries must live up to the ecology agreements they have signed. The rich countries will have to give added financial assistance to the poor countries to enable them to deal with the ecosystem problems. The rich countries will have to invest more in climate research.
Chapter Fifteen--Can The Rich Afford to Help the Poor?
He asks the question “Can the rich countries help the poor?”, and his answer is “Can they afford not to do so?” He gives five reasons that show that the current effort is so modest.
The numbers of extremely poor have declined close to 50% two generations ago to 33% a generation ago to 20% today.
The goal is to end extreme poverty, not all poverty, and to close the gap between the rich and the poor.
Success in ending the poverty trap will be much easier than it appears. Too little has been done to identify specific, proven, low-cost interventions that can make a difference in living standards and economic growth (CHE does this).
The rich world is vastly rich. What seemed out of reach a generation or two ago is now such a small fraction of the vastly expanded income of the rich world.
Our tools are more powerful than ever, including computers, internet, mobile phones, etc.
He then spends time in doing calculations to show how this can be accomplished. First he starts with the World Bank. They estimate that meeting basic needs requires $1.08 per person per day. Currently, the average income of the extremely poor is 77 cents per day, creating a shortfall of 31 cents per day or $113 per person per year. He then shows that this represents only .6% of a nation’s GNP. The MDG target which many countries have agreed to is .7% of their GNP. Later on, he shows that the USA is only spending .15% for aid to the world.
Sachs then spends time on a six-step process to do a needs assessment to come up with the real number needed:
Identify the package of basic needs.
Identify for each country the current unmet needs of the population.
Calculate the costs of meeting the unmet needs through investments, taking into account future population growth.
Calculate the part of the investments that can’t be financed by the country itself.
Calculate the MDG financing gap that must be covered by donors.
Assess the size of the donor contribution relative to donor income.
He proposes that interventions are required to meet the following basic needs:
Primary education for all children with a designated target ratio of pupils to teachers.
Nutrition program for all vulnerable populations.
Universal access to anti-malarial bed nets for all households in regions of malaria transmission.
Access to safe drinking water and sanitation.
One-half kilometer of paved roads for every thousand population.
Access to modern cooking fuels and improved cooking stoves to decrease indoor air pollution.
He states extreme poverty (a lack of access to basic needs) is very different from relative poverty (occupying a place at the bottom of the ladder of income distribution) within rich countries, and goes through a more detailed approach of implementing the six steps.
He points out that not all donor assistance is for development. Much is used for emergency relief, care for resettlement of refugees, geopolitical support of particular governments, and help for middle-income countries that have largely ended extreme poverty in their country. Also, only a small portion of development aid actually helps to finance the intervention package. Much of it goes for technical assistance which is not part of the MDG numbers.
He spends time on the question, “Can the USA afford the .7% of their GNP?” He responds with a deafening “Yes!” He does this in multiple ways, one of which is to show that the increase is only .55%, which would be hardly noticed in the US’s average 1.9% increase year-by-year of its GNP.
Chapter Sixteen--Myths and Magic Bullets
This is an interesting chapter because Sachs shoots down commonly held beliefs concerning the causes and solutions for poverty. He uses Africa as his case to do so:.
Contrary to popular conception, Africa has not received great amounts of aid. They receive $30 per person per year but only $12 of that actually went to be used in development in Africa. $5 went to consultants of donor countries, $3 went to food and emergency relief, $4 for servicing Africa’s debt and $5 for debt relief. In reality, in 2002, only six cents per person went to development.
Corruption is the problem which leads to poor governance. By any standard of measure Africa’s governance is low, but not due to corruption. African countries’ governance is no different than other poor countries in the rest of the world. Governance improves as the people become more literate and more affluent. Secondly, a more affluent country can afford to invest more in governance.
There is a democracy deficit. This is also not true. In 2003, 11 countries in Africa were considered free, with 20 more partially free, and 16 not free. This is the same as is found in other regions of the world. Democracy does not translate into faster economic growth.
Lack of modern values. Again, this is also false. Virtually every society that was once poor has been castigated for being unworthy until its citizens became rich and then their new wealth was explained by their industriousness. He traces this trend in multiple countries. One major factor that does cause change is the change in women’s position in society as their economic situation improves, which accelerates the growth.
The need for economic freedom is not fully true. Generally market societies out perform centrally planned economies. This leads to the thought that all is needed is that the people must have the will to liberalize and privatize which is too simplistic. He shows that there is no correlation between the Economic Freedom Index and annual growth rate of GDP.
The single idea of Mystery of Capital put forth by Hernando de Soto which relates to the security of private property including the ability to borrow against it is also incorrect. Most poor hold their assets such as housing and land.
There is a shortfall of morals which is thought to be the main cause of HIV in Africa. A study shows that Africa men are no different in the average number of sexual partners they have than any other part of the world.
Saving children only to become hungry adults leads to population explosion. Actually it has been shown that the best way to reduce the fertility rate is to increase the economic status. In all parts of the world (except the Middle East) where the fertility rate is over 5 children, those countries are the poorest ones. As children survive, the parents feel less of a need to have more children which is a result of improved economic conditions.
A rising tide lifts all boats. This means extreme poverty will take care of itself because economic development will pull all countries along to improvement. A rising improvement does not reach the hinder lands or mountain tops.
Nature red in tooth and claw means that economic improvement is based on survival of the fittest and those who cannot compete fall behind. This is a Darwin thought which seems to still prevail throughout the world. Competition and struggle are but one side of the coin which has the other side of trust, cooperation, and collective action.
He rejects the doomsayers who saying that ending poverty is impossible. He believes he has identified specific interventions that are needed as well as found ways to plan and implement them at an affordable rate.
Chapter Seventeen--Why We Should Do It
There are several fallacies which affect the USA’s giving:
The American public greatly overestimates the amount of federal funds spent on foreign aid. The US public believes that the government is providing massive amounts of aid. A 2001 survey by the University of Maryland showed that people felt that US aid accounted for 20% of the federal budget versus the actual of .15%. That is 24 times smaller than the actual figure.
The American public believes that the US military can achieve security for Americans in the absence of a stable world. This has been proven untrue especially with 9/11.
There is a fallacy in belief that there is a war of cultures. For many, this relates to Biblical prophesy of Armageddon and end times.
The problem in the US is not opposition to increased foreign aid but a lack of political leadership to inform the public how little the US does supply, and then asking the US public to supply more.
Hard evidence has established a strong linkage between extreme poverty abroad and threats to national security. As a general proposition, economic failure (an economy stuck in a poverty trap, banking crisis, debt default or hyper-inflation) often leads to a state failure. A CIA Task force looked at state failures between 1954 and 1994 and found that the following three factors were most significant in state failure:
Very high infant mortality rate suggested that overall low levels of material well-being are a significant factor in state failure.
Openness of the economy showed the more economic linkages a country had with the rest of the world, the lower chance of state failure.
Democratic countries showed fewer propensities to state failure than authoritarian regimes.
He then reviews what the US government has committed to since 9/11:
Provide resources to aid countries that have met national reform.
Improve effectiveness of the World Bank and other development banks in raising living standards.
Insist on measurable results to ensure that development assistance is actually making a difference in the lives of the world’s poor.
Increase the amount of development assistance that is provided in the form of grants, not loans.
Since trade and investment are the real engines of economic growth, open societies to commerce and investment.
Secure public health.
Continue to aid agricultural development.
In reality, little progress has been done by the US to the accomplishment of these goals. But he does spend time discussing where plans were established and that funds were flowing where massive amounts of aid were provided by the USA:
End of World War II with the Marshall Plan which revitalized Europe and Japan.
Jubilee 2000 Drop the Debt Campaign started slow but ended up with large amount of national debt being cancelled in the poorest of countries.
The Emergency Plan for HIV is providing $15 billion to fight this pandemic.
The bottom line of this chapter is, “OK, USA and other rich countries, you are saying good things, now step-up to the plate and do what you have agreed to do.”
Chapter Eighteen--Our Generation’s Challenge
Our generation is heir to two and a half centuries of economic progress. We can realistically envision a world without extreme poverty by the year 2025 because of technological progress which enables us to meet basic needs on a global scale. We can also achieve a margin above basic needs unprecedented in history. Until the Industrial Revolution, humanity had known only unending struggles against famine, pandemic disease, and extreme poverty--all compounded by cycles of war, and political despotism.
At the same time, Enlightenment thinkers began to envision the possibility of sustained social progress in which science and technology could be harnessed to achieve sustained improvements in the organization of social, political, and economic life. He proposes four thinkers which led this movement:
Thomas Jefferson and other founders of the American Republic led the thought that political institutions could be fashioned consciously to meet the needs of society through a human-made political system.
Adam Smith believed that the economic system could similarly be shaped to meet human need and his economic design runs parallel to Jefferson’s political designs.
Immanuel Kant called for an appropriate global system of governance to end the age-old scourge of war.
Science and technology, fueled by human reason can be a sustained force for social improvement and human betterment led by Francis Bacon and Marie-Jean-Antoine Condorcet. Condorcet put much emphasis on public education to accomplish the goals.
One of the most abiding commitments of the Enlightenment was the idea that social progress should be universal and not restricted to a corner of Western Europe. He said now it is our generation’s turn to help foster the following:
Political systems that promote human well-being
Economic systems that spread the benefits of science, technology, and division of labor to all parts of the world.
International cooperation in order to secure a perpetual peace.
Science and technology, grounded in human rationality, to fuel the continued prospects for improving the human condition.
He then spends three or four pages discussing the good and bad points of the Anti-globalization Movement which is taking place. He also spends time discussing three movements which made these kind of changes in the world in their time:
The end of Slavery
The end of Colonization
The Civil Rights and Anti-Apartheid Movement
He closes with discussing the next steps which are:
Commit to ending poverty
Adopt a plan of action built around the Millennium Development Goals
Raise the voice of the poor
Redeem the role of the United States in the world
Rescue the IMF and World Bank
Strengthen the United Nations
Harness global science
Promote sustainable development
Make a personal commitment to become involved
This is an interesting book with new perspectives for me, and which is beginning to be taken seriously by the world. I believe, as stated earlier, that MAI’s role is on-the-ground solutions for ending poverty through CHE which is spelled out in Chapter 12. But, as also noted, we can do it at a far lower cost than he estimates because of our commitment to empowering people to do things on their own and primarily with their own funds.