Founded in 2016, Ceteris Paribus is A student-led economics and finance publication at Davidson College.

Book Review: The End of Poverty by Jeffrey Sachs

by Gareth Hill

 

As a student born and raised in the U.S., I had never heard of the Millennium Development Goals until I arrived at the University of Cape Town last semester. These goals, which meant nothing to me before arriving in South Africa, are mentioned 203 times in Jeffrey Sachs’ book, The End of Poverty: Economic Possibilities for Our Time. They came up countless times in lectures at UCT, and for good reason. Their achievement would mark one of the most significant accomplishments in human history. But as my ignorance to these goals can attest, many developed countries simply do not care about the plight of countries in distant continents. I am not the only one who did not know about the MDGs—not a single one of the dozen or so Americans I asked had heard of them before going to South Africa. Hunger and poverty are issues that people in the U.S. rarely talk about and almost never take action to prevent. There is an awareness that other countries are struggling, but the extent and severity of this struggle is extremely underrepresented and no one mentions the U.S.’s failed commitment to meeting the MDG’s.

Jeffery Sachs is unreserved in his critique of the developed world’s attempt at meeting the goals they established with the Millennium Development Goals (MDGs). According to Sachs, writing in 2005, the goals are ambitious, but not unreachable. Furthermore, if we do not reach them, he says, it will not be the fault of the developing countries but of the developed countries that pledged their support.

As Sachs acknowledges, in the United States, the general mindset goes something like this: ‘If a country is poor, it’s their own fault. Whatever caused their current economic problems could have been avoided if they had done as good of a job as the U.S. did. We avoided obstacles in our path, why can’t they?’ This mindset is arguably the biggest barrier to development in places of extreme poverty. Without support from the developed world, they are unable to escape the fiscal trap caused by their extreme poverty.

Sachs talks in great depth about the concept of economic development as a ladder. I found this to be a very apt analogy, and one that describes the plight of the extremely underdeveloped countries well. For countries with decent infrastructure, education, health services, and nutrition, and employment opportunities, they find themselves on the ladder of economic development. From here, it is a simple process to climb higher. Employment in the formal sector provides taxable income, feeding money into public goods and services, improving well-being, and allowing for innovation and improvement of quality of life. Thus, economic development, once begun, feeds off itself in a positive feedback loop. However, Sachs estimates about one-sixth of the world’s population is unable to get onto the first rung of the ladder. This can be true for an array of reasons (often more than one). Whatever the reason—disease, malnutrition, geographical barriers, poor food supply, rapidly expanding populations—the country is unable to escape the fiscal trap without intervention. It’s comparable to a simple law of physics: an object at rest will stay at rest unless acted on by an external force.

The force needed to get these poorest countries off the ground can only come from foreign aid. Sachs acknowledges that foreign aid has been poorly administered in the past. The International Monetary Fund, or the IMF, schedules budget tightening austerity measures in exchange for grants, but Sachs argues (in a somewhat smug fashion) that the IMF officials are not serving the developing world as well as they should. Sachs vehemently opposes their textbook, one-size-fits-all approach to policy making. He says we need to look at the underlying causes of debt and economic stagnation and put our aid money directly towards that, rather than forcing governments to cut spending on already-weak public sector.

Last year, I wrote a paper on why the U.S. should scale back its foreign aid. How ironic, then, that I am now writing in favor of the opposite. Before reading The End of Poverty, I was caught in the typical mindset of the U.S. citizen. Foreign aid is a burden on the American taxpayer, an investment that shows no returns for us, props up corrupt and inefficient governments, and is ineffective and unfixable. These views based on flawed logic and misinformation are exactly what Sachs identified as the reasons we may not reach the MDGs.

The one thing that I still believe is accurate from the aforementioned anti-aid paper is that foreign aid has been ineffective. Sachs acknowledges this too, claiming that the IMF’s policies seem ignorant to the true issues at hand and that “by the start of the twenty-first century Africa was poorer than during the late 1960s, when the IMF and World Bank had first arrived on the African scene, with disease, population growth, and environmental degradation spiraling out of control.” 

In opposition to the IMF’s approach, Sachs attacks the questions of poverty today through a strategy he calls “clinical economics”. The benefit of this approach is that it emphasizes diagnosing the problem in a similar fashion as one would in medicine, rather than just treating the symptoms. Really, the concept is not especially revolutionary, but it is important for him to mention because very often, economists breeze over the ‘observe and diagnose’ step and jump right into treatments that don’t address the core problems. He believes it is crucial to address the underlying causes of poverty and debt, rather than providing lump sums of money and forcing austerity measures onto struggling governments.

Despite The End of Poverty’s successes, I believe Sachs does not do enough to address how we can get wealthy countries and the IMF to stay true to their promises of achieving the MDGs. He thoroughly convinces the reader that the goals could be achieved, but it would take a serious commitment from the world’s economic powerhouses. Sachs outlines everything except the most crucial element of foreign aid: actually getting donation money from reluctant nations.

I firmly believe that if everyone in the U.S. had read this book when the MDGs were set, we would be looking at a very different global picture today. But you cannot expect everyone to read his book. How will we raise awareness and popular support for international aid? There is certainly a lot of work to be done, especially in the United States. Not everyone sees the world as the harmonious family that Sachs has come to feel a part of. Most people are isolated in their small social bubble, without a care in the world other than for themselves. As far as international politics go, most Americans see it as a dog-eat-dog world where any money we spend on foreign aid is money that we could have invested in improvements at home. For Sachs to think that this attitude is so inconsequential makes me believe he has spent so much time studying the poorest 1/6th of countries that he has forgotten how the richest 1/6th of countries think.

It is not impossible to build support for foreign aid. It has been done before. In 1948, Europe lay in ruin, decimated by the second world war. In response, the U.S. approved the Marshall Plan, one of the largest foreign aid interventions in the history of the country. Secretary of State George Marshall said the following in a 1947 address:

“Aside from the demoralizing effect on the world at large and the possibilities of disturbances arising as a result of the desperation of the people concerned, the consequences to the economy of the United States should be apparent to all. It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health to the world, without which there can be no political stability and no assured peace. Our policy is not directed against any country, but against hunger, poverty, desperation and chaos. Any government that is willing to assist in recovery will find full co-operation on the part of the USA. Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.”

An aid package currently valued at $130 billion was sent to Europe in the Marshall Plan, resulting in one of the most successful foreign aid investments ever. It seems odd to me that today, we do not provide this same amount of support to nations living in extreme poverty. Some of these countries are in far worse conditions than even the most war-torn country in Europe was after World War II. Furthermore, when the U.S. does provide aid, we do not follow this simple approach to developing a poverty reduction plan. Instead, we continue to cut budget proposals until any semblance of a poverty reduction plan has been reduced to scraps of what it once was. Sachs vehemently opposes this aid-trimming process, saying that we need a more cohesive approach if we are serious about meeting the Millennium Development Goals.

The problem as I see it is that the IMF does not have enough power. By that, I mean power to meet the Millennium Development Goals, and power over the wealthy countries that have failed to hold up their end of the bargain. This is the case for two reasons. Firstly, it is a self-serving organization. Its board of governors is dominated by the countries with the most voting shares, and since voting shares are determined by contribution towards the IMF’s quota, the wealthiest countries essentially run the IMF. Secondly, the IMF is unable to enforce their will over these powerful countries. As Sachs notes, the U.S. is vastly under contributing to the MDGs, despite its contract to donate 0.7% of GDP annually. If the IMF were operated by unbiased economic analysts with the ability to set countries’ quota levels as they saw fit, I would have a hard time imagining a situation where the MDGs would not be met.

If the IMF was established to “foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world,” then surely it has failed those in extreme poverty. It has not achieved many of its goals and, and Sachs points out, knows that it will not fulfill the lofty promises it has made. Public announcements reaffirm their commitment to the goals, but in The End of Poverty, Sachs exposes the fact that the message is much different behind closed doors. Today’s leaders are not serious about their commitments to the severely impoverished, but they need to be because eradicating extreme poverty and hunger will not come easily. It will not come without effort and sacrifice. But it is possible. 

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