Can we cure world poverty for $150 billion a year?

Jeff Sachs says yes.  Daniel Drezner offers excellent links, background, and context.  Here is one summary of Sachs’s view:

through no fault of its own, is trapped. Held back by geographical
impediments like climate, disease and isolation, it cannot lift itself
out of poverty. What Africa needs, then, is not more scolding from the
West. It needs a ”big push” — a flood of foreign aid — to boost its
prospects and carry it into the developed world.

Sachs’s article in this week’s Time is maddeningly vague — "Commit to the Task" and "Adopt a Plan of Action" count among the policy recommendations.  But how far will $150 billion go?  By Sachs’s own count, over one billion people live in extreme poverty; the next billion up would count as very poor under any Western standard.  Round down grossly to a billion and you have about $150 per head per year to play with.

My take: No way.

I’ll start with two admissions.  I have been an admirer of Sachs, and I don’t think all foreign aid fails.  But $150 billion a year won’t get us very far.

Let’s say you had ten years’ worth of contributions upfront, and invested the whole $1500.  You would be very very lucky to reap 10% a year.  That is a flow of $150 in yearly living standards.  It will buy some fertilizer and mosquito nets but it probably won’t up returns above the ten percent level. When the East Asian countries made beneficial social investments they grew at about ten percent per annum and that is a best case scenario. 

Then come the traditional problems of foreign aid.  Not only is there wastage in aid administration and poor spending patterns, but many essential services simply are not there to be purchased.  Infrastructure requires complementary goods — tractors need roads, and vice versa — which means that the early stages of growth are slow and cumbersome.  Furthermore very poor communities often try to convert their aid into consumption by refusing to perform maintenance on the new capital stock.

I’ll count per capita income of $1000 a year (roughly Guatemala or Morocco) as "no longer very poor."   Given this number, I’ll guesstimate that Sachs’s plan would eliminate severe poverty for about five to ten percent of the one billion very poor, provided the money is spent in concentrated fashion. 

Should I be reminded of James Glassman’s Dow 36,000?  Sooner or later the claim will likely be true.  With (or without?) an extra $150 per capita per year, most poverty will someday end.  But when?

OK, you can’t judge a whole book by a Time magazine summary, especially not when it is by a thinker of Sachs’s caliber.  So I’ve ordered The End of Poverty, and I will pass along any further impressions once it arrives.  In the meantime, it looks as if Sachs is overselling on behalf of a noble cause. 

Whatever we are going to spend fighting international poverty, I would spend on freer immigration, keeping in mind that ongoing remittances will kick in over time.  We also could send a small military mission to Darfur, and focus our aid on one "doable" country or region.  I am a believer in demonstration effects; get it right once, and the world will beat a path to your door.

Addendum: Matt Yglesias offers his views, and William Easterly’s review is very critical of Sach’s policy suggestions.


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