An article this weekend on Salon.com reviews economist Jeffrey Sachs’s recent book on how to end global poverty. This book joins the frustrating queue of volumes to be read as soon as Serenity Valley and I return to the United States (end of August). After all, a Spanish translation of the book might well show up in a local librería within a year or two—or we could pay the surprisingly high cost to have the book sent to us in Perú. But we just don’t really have the funds to do that. So, it goes on the list…
However, the Salon.com review presents the central proposal of the book in an interesting light. Sachs apparently suggests that a large but manageable initial investment by wealthy countries would allow poor countries to develop the workable capitalist economies necessary to end extreme poverty and misery during this generation. Lack of infrastructure, disease, and related problems create what economists sometimes call a “poverty trap,” i.e., a situation in which individuals lack the resources necessary to actually earn any money whatsoever, thereby dooming themselves and their
descendents to continued extreme poverty.
But wealthy countries could break the poverty trap everywhere it exists. We could fund a sufficient effort to eliminate AIDS, build roads, schools, and houses, fix drainage systems to provide irrigation and defeat malaria, and all at a reasonable cost! Sachs estimates that the whole project could be funded by passing a 5% tax on Americans with an annual income above $200,000. We could call it the “Save the World” fund…
After this initial investment, Sachs believes that open-market economics will be sufficient to end extreme poverty. He makes this argument pointing to successes in China and India, where open-market economic policy has decreased overall levels of extreme poverty. During the 1990s, switches to such policy were the global trend. More recently, a counter-trend seems to be emerging in Latin America, where most of the recent elections have brought leftists who are skeptical of unlimited free-market policy to power. Let’s take a look at some data to try to understand why this might be true.
This plot shows the evolution of real median wages in each of 14 Latin American countries. For the non-social scientists in the room, a few points of clarification. These data come from CEPAL, the United Nations economic mission in Latin America. First, median wages means we’re not talking about the average amount of money that a person in the country makes; averages can be thrown off by a few exceptionally wealthy or exceptionally poor people. Instead, we’re looking at the amount that an average person makes. If you line people up from richest to poorest, we’re looking at the yearly wage of the person in the middle of the line.
Second, when we say we’re looking at real wages, that means we’re correcting for inflation. If the bare minimum cost of living is $100 this year and $200 next year, and my wages also double, I’ve obviously only just barely kept up. Using real wages fixes this problem.
Third, each country’s data series has been set so that it equals 100 in the year 1995. This means we aren’t comparing the absolute wealth of average people in different countries to each other; instead, we’re comparing the rate at which average people get richer or poorer. This is a chart about progress, not about where you start from.
Okay, all clarifications are now out of the way. This chart really calls our attention to three countries, where the median individual has gotten much worse off. These are Nicaragua, Perú, and Venezuela. In Perú, the biggest losses came during the 1980s, when then-president Alan García tried an unsuccessful state-centralized economic experiment. Market-oriented economic policies in the 1990s stopped the free-fall but did not rebuild prosperity for the average Peruvian. Hence, it is perhaps unsurprising that a great deal of uncertainty exists about the direction Perú’s leadership will take in next year’s presidential election.
Nicaragua’s biggest losses came under the Marxist government of the Sandinistas. While the US-sponsored war of military and economic destabilization against that country may be partially to blame for these bad results, Nicaraguan voters seem to have drawn the reasonable conclusion that Marxist economic policy is also undesirable; since 1990, they have consistently elected free-market governments. Furthermore, some economic progress for average Nicaraguans is in evidence—although the progress to date does not come even close to making up the ground lost during the 1980s.
Finally, Venezuela’s median-individual economic collapse came partly under a mixed economy with a strong state presence during the 1980s, and partly during a free-market reform effort during the late 1980s and early 1990s. Given this track record, we should not be surprised to see the Venezuelan electorate support an increasingly radically anti-free-market president in Hugo Chávez.
Clearing these worst-case countries out of the way, the following version of the chart allows us to look a little bit more closely at the remaining countries.
Bolivia, Chile, Colombia, and Guatemala have obviously done very well for their average individuals during the 21 years depicted in this chart. But, if you look closely, you can see that this period, which was marked by an extensive turn to free-market economic policy through the region, has not given most people in most of these countries much that they didn’t have before. Other than the four big winners just mentioned, most countries end the chart only a few points ahead of where they started. An entire generation’s working life gone by with only about 10% economic progress! Given that most of these people were deeply unsatisfied with their economic situations in 1980 (see the massive wave of regime changes under popular pressure during the early 1980s), this rate of progress can hardly seem satisfactory. Is it any wonder that these people have become somewhat disenchanted with free-market economics?
Of course, the solution is not necessarily for them to abandon the free market. (Economic conditions for the poor in Venezuela have not exactly improved since Chávez’s election in 1998, state largesse with oil money not withstanding.) But this does make clear that Sachs’s proposal needs to be supplemented; it’s not enough to just get countries out of the poverty trap and started on economic development. We also have to make sure that subsequent development actually helps the poor noticeably over a human time-frame. That might require an expansion of Sachs’s aid proposal to include job-training programs and credit assistance for the poor after economic development begins. We might also want to try some programs like that back home in the USA, while we’re at it!
Now, email messages that I’ve received since I started this blog have made it clear to me that there are some controversial issues for many Latter-day Saints in these proposals. I’m going to list them without comment below. Let’s have a rip-roaring discussion of them in the comments forum for this post!
1) Is it morally justified to finance ending global poverty through taxation, or is this unjust
2) Is it reasonable or even desirable to think about ending global poverty through an effort that is not led by the priesthood?
3) Is it God’s plan that there be widespread, extreme poverty, misery, and starvation? If so, might it not be wicked to try to end these conditions?
Finally, my personal addition to the list.
4) If there is an economically feasible proposal on the table for ending global poverty without endangering overall economic progress, can we ignore that proposal without getting blood on our garments?