Such Optimism, Jeffrey Sachs

None comes bigger or more ambitious than Jeffrey Sachs. He was once a first-rate applied economist, modest and solid in his writings, for example on stagflation with Michael Bruno. He was spectacularly wrong in advising East European economies to go for a “Big Bang” in their transition. Undaunted, he became a development economist and hit pay dirt. He is the UN’s favourite economist for curing poverty, and has now come up with an even more ambitious book trying to solve the major global economic problems.

Sachs has three major propositions. The world is growing fast and there may be convergence in per capita income between the rich and the poor countries. Here, he mainly relies on a model of Barro which naively predicts that growth of any economy would be proportional to the gap between its income and the US income. The poorer you are, the faster you will grow. Tell that to the sub-Saharan African countries! The second challenge is population growth which he hopes can be confined to 8 billion by 2050 rather than the more “alarming” projections of 9.5 billion. Last, he hopes the environment would be made sustainable despite growth.

He applauds the Millennium Declaration whereby countries proposed Millennium Development Goals to reduce poverty, infant mortality, etc. He lists the UN conferences and resolutions with naive faith. While he is aware of the imperfections of the market and knowledgeable about the poverty of nations, he is blissfully uncritical of UN and national efforts. His book is full of information about the myriad programmes and initiatives to combat poverty. He costs the tasks of meeting the major challenges — population limits 0.5 per cent of world GDP, environmental solution 1 per cent and poverty reduction another 1 per cent, etc.

Sachs is relentlessly optimistic. He fails to notice the growth of the trade in drugs and armaments or human trafficking, noting only the positives of growth. He blames Darfur on desertification but misses out on the ethnic conflict between Christians and Muslims. He puts his money on public action but fails to point out the abysmal state of governance in the many failed African states and elsewhere.

Sachs trusts the UN and the donor countries to solve the problems but again does not tell us why the UN failed in Rwanda and Congo as it is failing in Darfur. He is critical of George Bush but still does not tell us why even under Clinton and all the preceding US presidents US aid to developing countries has been so low. The UN target of 0.7 per cent of GDP for foreign aid has been missed by most OECD countries except for the Scandinavian nations. The UN had Development Decades in the ’60s, ’70s and ’80s and still the poverty situation remains dire. Why should we hope that the MDGs would be met just because the UN has passed a resolution to that end?

Sachs is optimistic about growth and convergence mainly because of the spectacular upsurge in Asia, especially China and India which have benefited from globalisation. Yet, the Asian experience is not typical of all poor countries. Indeed, in sub-Saharan Africa, decades after the end of colonial rule, per capita GDP has been declining in many countries. The most intriguing question for me is why Asia has done so well in the last 25 years and Africa so badly.

The answer, in my view, lies not in the standard economic argument as between the State and the Market but in the quality of politics. There is no abstract State as there is no textbook Market. In reality, it is governments driven by politics that operate, and if the politics is such that ordinary people are ignored, then despite much aid growth will not occur. The issue is not democracy or dictatorship but responsive government as against an elitist one. Thus, in Asia, there is no less corruption than anywhere else and some governments are democratic but others are authoritarian. Yet Asian leaders deliver growth to their people while African rulers indulge in capital flight and ethnic cleansing. The contrast is less stark than I am making it out to be but not by much.

Debates conducted by the UN, World Bank and IMF cannot speak of politics, so they hide behind words like governance and civil society and transparency. The truth is that the political cultures of different countries need to be looked at in detail to see why some countries do better than others. In India, we know this since different states do better or worse than others, Kerala vs UP or Assam vs Tamil Nadu. To understand the contrast we have to know the history and political culture of these states. The roots of the difference go back far in the past.

Finally, Sachs and many policy-makers forget that development is not what governments or institutions do. Development happens because ordinary families make decisions to better themselves. They migrate, educate their children, change the cropping pattern or use fertilisers. It is their collective efforts which generate growth. Governments, even when they are well-meaning, often constitute obstacles the people have to overcome. Indians should know. The government has been a major obstacle in many poor families’ way to help themselves. Indians know how many Garibi Hatao programmes have merely enriched the babus and their netas.
Sachs is entitled to his faith in the UN and corporate bodies. I will place my bets on the power of ordinary people to develop despite the “help” from their so-called friends.