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Thursday, March 1, 2007

The End of Poverty: Economic Possibilities for Our Time

Penguin Press • 2005/2006 • 396 pages •  $27.95 hardcover; $16.00 paperback

In the mid-nineteenth century Baptist preacher William Miller predicted the second coming of Christ on March 21, 1843, or between that date and March 21, 1844. When Christ failed to show, Miller “discovered” that the actual date of arrival was October 22 of that same year. This day came and went with nary a hint of Christ’s arrival. Undeterred, Miller awaited Christ’s return until his death in 1849. As Miller was to write in his memoir, “Were I to live my life over again, with the same evidence that I then had, to be honest with God and man, I should have to do as I have done.”

I was reminded of this tragically comic event as I read Jeffery Sachs’s The End of Poverty: Economic Possibilities for Our Time, a purported “blueprint” to solve global poverty. In clear, concise, and at times convincing prose, Sachs shames the world for not doing more to promote development in poor countries and argues for an increase in foreign aid to jump-start the growth process. His obdurate faith in foreign aid contradicts the majority of empirical evidence gathered over foreign aid’s 60-year modern history. Undeterred, Sachs forges ahead with a flawed strategy.

Sachs uses as his blueprint the United Nations Millennium Project, which, among other things, seeks to halve the number of individuals living on less than $1 a day and reduce by two-thirds the mortality rate for those under 5 by 2015. Ambitious stuff, no doubt. After a couple of hundred pages of autobiographical ruminations, Sachs finally outlines his course for reaching these goals: money, money, money. Rich countries, writes Sachs, have consistently shorted the developing world in foreign aid. Accordingly, he called on the U.S. government and their Western counterparts to increase “Official Development Assistance” to 0.44 percent of GDP in 2006 and to 0.54 percent by 2015. Approximately $7 billion needs to be spent by 2015 on scientific research to address climate change, energy production, and health care in poor countries, Sachs writes.

For people familiar with the history of foreign aid, this simply sounds like more of the same failed policy that development “experts” have been pushing for decades. Since 1960 Africa has been the constant recipient of development aid from the West, but standards of living are no better than before. There are now several governmental and quasigovernmental agencies specifically tasked with helping lift poor countries out of poverty. The U.S. government alone has spent over $500 billion in development aid. Sadly, there’s little evidence that any of these international welfare programs have done anything for sick and hungry people. As economist Peter Boone concluded, “Aid does not significantly increase investment and growth, nor benefit the poor as measured by improvements in human development indicators, but it does increase the size of government.”

If foreign aid fails to bring about growth, what will? According to MIT economists Daron Acemoglu and Simon Johnson and Berkeley political scientist James Robinson, “Economic institutions encouraging economic growth emerge when political institutions allocate power to groups with interests in broad-based property rights enforcement, when they create effective constraints on power-holders, and when there are relatively few rents to be captured by power-holders.” Douglass North made much the same point in his 1993 Nobel Prize lecture: “Institutions form the incentive structure of a society and the political and economic institutions, in consequence, are the underlying determinant of economic performance.” In short, a constitutionally limited government that respects property rights and promotes the rule of law is the best foundation for economic growth.

Unsurprisingly, the world’s poorest countries fail to provide these basic functions. Law, instead of being a tool that provides security and reliability, is arbitrary and selectively enforced. The right of property is nonexistent, and trade, often the engine of growth, is tightly controlled by the state. In much of Africa, for example, high barriers to trade are the norm. As one World Bank study found, “African tariffs are more than three times higher than those in the developing countries with the highest growth rates and more than five times higher than those in OECD countries.”

With all the book’s failings, however, the optimistic message should not be discarded. Sachs is correct that we have the tools and the knowledge to end extreme poverty. But the world’s leaders—and one of its better-known economists—are not interested in the one proven recipe for economic progress. Instead of heeding Sachs’s advice, policymakers would do better with that of Adam Smith, who in 1755 wrote that “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”

  • The Foundation for Economic Education, founded 1946, works for a free and prosperous world.