Why "Trade, Not Aid" Isn't Enough

Jeffrey Sachs gained world fame in the 1980s and '90s advising the governments of such countries as Bolivia, Poland, and Russia to implement economic shock therapy. These days, Sachs is better known as one of the world's most influential theorists on the causes and remedies for extreme poverty. As a consultant to the U.N. Development Program, he has undertaken ambitious studies to identify the root causes of such problems as disease epidemics and what must be done to address them. He just moved to New York to head the Earth Institute at Columbia University.

In a wide-ranging conversation with BusinessWeek editors, Sachs recently reflected on the evolution of his thinking on globalization, how to solve the challenges facing poor nations, and what the industrialized world should to help. Following are edited excerpts of that conversation:

Q: Please explain your current work on poverty.

A: I was asked by the U.N. Secretary General [Kofi Annan] to become a special adviser to help elaborate a strategy for actually achieving the Millennium Goals on global poverty and development.... He asked me to work with the head of the U.N. Development Program, Mark Malloch Brown, to organize a comprehensive strategy for achieving eight goals [the first is eliminating economic poverty and hunger] and 18 targets.

These eight goals are...are pretty ambitious, and we have failed to meet all of them in the past.... My intention is to try to [get them to be taken seriously]. Part of this is trying to work out the costs. I'm a big believer that it will take quite a lot of money from the rich countries to make this all work. That isn't a message that many in the U.S. like to hear.

Q: Why do you think support will be more serious now?

A: I think we're at a turning point in the globalization debate. There was an...ideological belief for about 20 years that, wherever you are, if you just do the right thing, things will get good for you.... The saying was, "Trade, not aid." [The thinking was] "We don't really have to do much more beyond sending IMF and World Bank missions to help you privatize your sugar factory or dismantle your marketing board."

That idea is probably correct for about two-thirds of the world -- but grossly inadequate for about one-fifth of the world. We have come to realize there are 1 billion to 2 billion people in the world that aren't going to naturally make it on their own.

There are enough foreign-policy reasons in this country, and enough pressures in the world, to actually make this work. If you can get some better analysis, we can probably get something done, if you push hard and in the right places.

Q: What do you say to skeptics who argue that this will never work? They point out that we've poured many billions into developing nations for five decades and set all of these goals before.

A: There always is a battle between the optimists and the pessimists.

I'm banking on one fundamental thing: that the next few years will be different from the past 20 years. That we have turned the corner on the structural-adjustment era, which was: "We're not going to give you any help. You have to repay those debts. And by the way, the next IMF mission is coming next week. And that's how you're going to get out of this." That went on for 20 years and didn't do any good. Almost everyone now acknowledges there has to be a new approach, and I think we are putting that approach into place.

Q: The U.S. has had a lot of poverty, too. Why not assume these countries will grow out of it?

A: We don't have poverty that kills, with people dying because they can't get a $1 dose of quinine on time. The life expectancy of sub-Saharan Africa is dropping quite dramatically. You have mass malnutrition and stunting. You have wasting, pandemic disease.... You do not find that kind of poverty in any of the rich countries.... What we have is relative poverty.

Second, by and large the countries that have gotten out of absolute poverty have had some advantages that the ones that haven't gotten out lacked.... [The really difficult places are] Central Asia, the Andean Plateau, some of the highlands of Central America, tropical sub-Saharan Africa.

I guess I'm also saying -- which is very painful -- there will still be places where it will be damn hard to get development going.... It's very hard to say politically. I don't mean to write them off, but it's not an accident that Rwanda or Burundi are the toughest places in the world. Afghanistan isn't where it is because of the Soviets and the Taliban. The Soviets and the Taliban were there because Afghanistan was what it was.

Q: Why can't countries in these regions pull themselves out?

A: One characteristic of the historically poorer performers is they're farther away from the major markets, so they don't have market forces pulling them. So Mexico is better than Central America, and Central America is better than central South America. Central Asia does much worse than coastal Asia.

For a lot of the poorest places, I don't think we have an economic theory for getting a lot of growth going. I challenge anyone to debate me on how you are going to make Mongolia prosper. I've been there many times, and I haven't had a good idea yet. It's basically 1,500 kilometers away from big population centers and has a few million people.

Half of the people live in yurts. Their connectivity is low. They have no viable industry right now. They sell some camel hair but can't process it because they get a higher price by selling it to China, which processes it at much lower costs and gets it out of the ports cheaper than they can do by having a knitting factory in Ulan Bator. The real economic answer for Mongolians is to leave. But that's not the answer for Mongolia.

That's an extreme example. But let me put the positive side on that. No Mongolians need to die of extreme deprivation. Africans do not need to die of these pandemic diseases. Everyone should be able to have a basic education. But in some places, it can't all be paid for out of local resources. And my belief is that we ought to have a global system that enables a Burkina Faso or a Mongolia to have a shot at the future, rather than dying.

Q: What are the parts of Africa that can develop?

A: My lead candidates for development in Africa are the big coastal cities, like Dakar, Senegal, Abidjan in Cote d'Ivoire, Accra in Ghana, Dar es Salaam in Tanzania, Maputo in Mozambique, and Mombasa in Kenya. All of these cities have relatively low transportation costs. They have at least a million people. I'm quite clear in my mind about how you get these places going. You can have light manufacturing, an export-processing zone.

What's missing? Well first all, Dar es Salaam has a lot of malaria, so people don't like to set up factories there. Tanzania also has a lot of AIDS and major educational issues.... They faced bad advice from the World Bank and IMF, which told them not to set up export-processing zones.... They've had a major debt crisis.

Still, when you look at it, they are on the coast, they have a good harbor, shipping costs to Europe are not high. They are peaceful, they are democratic. There's nothing really intrinsically wrong. But there are obstacles that can be overcome.

Q: Wouldn't you agree that corruption is a major reason why these countries haven't gone anywhere?

A: That's too casual a metric. I would argue that corruption and talent have been pretty well distributed around the world through history, but the pockets of poverty are rather systemically distributed. There's a huge difference between being a corrupt country one day's shipping distance from a major market and a corrupt country 27 days shipping distance.

Q: You'd have to agree that some countries are so badly governed that you really can't do much for them.

A: There are some countries I wouldn't set foot in, like Liberia or Zimbabwe. But we don't have to take the very hardest cases. I don't tend to work in the worst places, because I don't like to get shot at, for one. Second, I don't really like dealing with thugs too much.

But there aren't really that many countries like that. There are [at least] 10 countries in Africa that are pretty well-governed but are desperate and dying. I like to deal with governments that are struggling to do something. But these countries don't get any more help than anyone else. So to me this governance argument doesn't ring true.... Botswana is a terrifically well-governed place. But it's a desert sitting on diamonds and still has a 40% AIDS prevalence.

We've gotten into a discourse about development that [says] "It's all their fault." And it's a lot more complicated than that.... We would have a lot more success if we helped some of these countries.

Q: Some people say digital technologies will solve the problem by bridging these geographical gaps.

A: If I am Burkina Faso and I want to be a technology center [and see tech] as the answer to my problems, that's very, very tough. You have to realize that in Africa, there's no fiber-optic cable that connects to the Internet backbone. It's all by satellite, and that's very expensive. Except for a new fiber-optic cable that was recently installed in South Africa, nobody has had the incentive to invest in one.

Q: Is the West now doing enough to help these countries?

A: Twenty-one years into the AIDS pandemic, the U.S. government so far has not paid for one human being in a developing country to get antiretroviral treatment. There are 28 million AIDS-infected people in Africa. These are cheap lives to save. But there are very few people on treatment. It's terribly frustrating. For the first time, we are just starting to organize a global fund to fight malaria.

Q: It certainly seems that U.S. Treasury Security Paul O'Neill has gotten more active since his trip to Africa in May. How would you rate his efforts?

A: In Africa, O'Neill went into a hospital and was shocked that mothers weren't getting treated. He let loose a gasket. I told him about that [situation] personally at least five times in the last year. Then he saw it with his own eyes.... It's really hard to look a human being who is dying in the eye when you know the pills are there. But so far, we still have not been able to get the money we need from the Office of Management & Budget.

We need $10 billion a year to solve AIDS. So far, donor countries have pledged $2 billion to the global fund. Only $500 million of that is in hand, of which the U.S. has contributed half.

Later, Baby

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