Rich World, Poor World

The End of Poverty: Economic Possibilities for Our Time
by Jeffrey D. Sachs, foreword by Bono (Penguin Books, 416 pages, $27.95)

The Global Class War: How America's Bipartisan Elite Lost Our Future -- And What It Will Take to Win It Back by Jeff Faux (Wiley, 304 pages, $27.95)

Jeff Sachs is in many ways the Mother Teresa of the economics profession. Like her, he has dedicated his life to the poor. Like her, he is a darling of the compassionate rich. And like hers, his methods engender, among close and thoughtful critics, a certain degree of unease.

In The End of Poverty, Sachs makes his case that extreme global poverty can be ended within a generation, raising nutritional standards, health outcomes, and life expectancies; reducing birth rates; and otherwise creating conditions for tolerable life throughout Africa, South Asia, and the most forlorn parts of South and Central America. It can be done, he contends, at a modest cost and in ways compatible with the inexorable spread of market capitalism and globalization. It can be done, mainly, by the actions of the rich, for the poor. Sachs asks: “Will we have the good judgment to use our wealth wisely, to heal a divided planet, to end the suffering of those still trapped by poverty, and to forge a common bond of humanity, security, and shared purpose across cultures and regions?” (emphasis added)

The path of wisdom Sachs charts is intensely personal. It is illuminated by the experience of his monumental advisory work, from Bolivia to Poland to Russia to Africa, with firsthand observations also on India, China, and Bangladesh. After his debut as a Harvard wunderkind, Sachs has now spent more than a quarter-century on the road, traveling more than perhaps any economist in all history; his authority rests heavily on the fact that he was there and you were not. From this perspective, The End of Poverty is a thoroughly intimidating book.

Sachs' conceptual inspiration is also partly personal: It comes from his wife's pediatric practice. He devotes a chapter to “Clinical Economics,” suggesting (very sensibly) that an economist should be prepared to accept complexity, to diagnose differentially, to adapt the treatment to the setting, and to monitor the patient's progress. The problem of extreme poverty is that some countries “fail to thrive.” Consciously or otherwise, the metaphor colors his approach. Thus we have Sachs as the traveling doctor: The governments he deals with are anxious parents; the economy is the patient, frightened and hurting, yet capable of recovery if only the proper treatment can be devised and the right medicines delivered on time.

Bolivia's 1986 hyperinflation was the first medical adventure; the cure was found in debt default and in raising the price of fuel, on which the government's tax revenues were based. In Poland in 1989, Sachs championed a fast transition to market prices and again, cancellation of debts. These steps took audacity, and, on the whole, they worked out. (To be clear, Bolivia remained poor, but the hyperinflation stopped in a week.)

Russia was a different story, though. Sachs places the blame on the first Bush administration and on Bill Clinton's unnamed advisers (Strobe Talbot, Lawrence Summers) who supported the corrupt “loans for shares” privatization, in 1995–96. Sachs does name his Harvard colleague Andrei Shleifer, whose self-dealing while a United States Agency for International Development contractor in Russia was “unquestionably a breach of basic professional ethics,” but doesn't mention the induced ecological calamity of Mongolia that followed livestock privatization there. In Mongolia, the patient unfortunately died.

As the discussion moves on to China and India, an essential problem surfaces: The doctor doesn't follow his own advice. Differential diagnosis and treatment are forgotten. Sachs's formula worked a few times, and now he wants to apply it everywhere, and to see its controlling hand in every successful case. Thus, he describes the Chinese agricultural reforms of 1979 as “shock therapy par excellence,” unaware that these were largely a return to practices instituted by Deng Xiaoping in 1961–62, and repressed by Mao Tse-tung at the start of the Cultural Revolution. The real shock therapies in China were the Cultural Revolution and earlier the Great Leap Forward, both disasters.

In India, Sachs cheers for the “reform” process initiated in 1991–92, which has led to a decade of continued growth but also to sharply rising inequalities in one of the world's most unequal countries. Facts that assail the senses of any visitor to modern India -- the vast disparities; the catastrophic neglect of roads, rails, and airports; the filth and human chaos of the cities; the power outages and dirty water -- all seem secondary in these pages. Like many Indians, Sachs sees salvation in a Great Leap Up to information technology, made possible by communications links that do not require costly physical investments. He does not linger over the thought that cyberdevelopment may be a lousy substitute for the real thing.

This brings us to Africa, to which Sachs turned his attention in 1995. Sachs endorses the “Millennium Development Goals,” but as a down payment on an even grander compact to end extreme poverty by 2025. In Africa, this would work mainly by channeling aid and basic technical assistance to villages.

Here, medical and economic considerations merge. As Sachs sees it, Africa's problem lies first of all in the need for capacity to deal with diseases, the most important being malaria and aids. And here, in his eyes, the failures of the international donor community are paramount. Of a Malawian proposal to save 300,000 from aids, he writes:

Yet international processes are cruel. The donor governments ... told Malawi to scale back its proposal sharply ... the draft was cut back to a mere hundred thousand on treatment at the end of five years. Even that was too much. ... After a long struggle, Malawi received funding to save just twenty-five thousand at the end of five years -- a death warrant from the international community for the people of this country.

It's maddening, it's heartrending. But it also raises a question: Is Jeff Sachs on a fool's errand? Does the path toward human development really lie through Davos, the boardrooms of the international financial institutions, and the legislative halls? Is it really, mainly, a problem of charity, a few affordable offerings leaving the structures of global finance undisturbed? And if that were so, why, then, has inequality worsened and the plight of the poor grown worse in so many countries that opened themselves to international capital? Can it be that charity has a price, which is playing the game by the global rules? And can it be that these rules -- which force poor countries to open markets, cut social and health budgets, privatize power and water, and starve their public investment -- in general create more poverty than charity can cure?

One has to ask: Are the problems really so simple, especially in the most unstable, conflict-ridden, desperate continent on earth? Or does development require not only resources but also organization, security, discipline, and the determined use of power? What if, just for example, the armies of “barefoot doctors” Sachs would like to create don't stick around? Absenteeism is a big problem in rural development; successful experiences -- in China, in Cuba -- teach that the window for “exit” must somehow be closed. Yet Albert Hirschman, who eloquently addressed such issues years ago, isn't in the index to Sachs' book.

Critics of Jeff Sachs fall into two broad groups. Some, like Janine Wedel, whose powerful book, Collision and Collusion, documents the Harvard scandals in Russia, doubt his sincerity. Many others see in him a false-flag neoliberal, a good-cop front man for the International Monetary Fund (IMF). As one who admired the young Sachs for scourging the creditors during the Latin debt crisis in the 1980s and the IMF during the Asian crisis of the 1990s, I take a third view: There's a tough Sachs, who sides with debtors against their bankers and with the sick against the drug companies, and he's here in these pages; there's also a soft Sachs, who sells to celebrities, and he's here, too. I believe he did well in Bolivia and Poland, fell into dark company in Russia, and that he does not understand China because it does not fit his theory. As for Africa, I'd judge that the soft Sachs wrote most of that part of the book.

One can only admire The End to Poverty for its energy and high aspirations. There is a fine optimism here. There is a powerful appeal to generosity. But to persuade, a book on this scale requires more than faith in the dedication of the traveling doctor. It requires also confidence in his judgments, a careful treatment of the medical theory to which he subscribes, and serious consideration of critics, of skeptics, and of people who really are expert on the economies and histories of each region. It requires a confidence that, in the end, the personal stories, sweeping generalizations, and soaring exhortations of this book do not inspire.

* * *

Jeff faux has written a less ambitious book with a harder edge. Though he titled it The Global Class War, Faux is a regionalist. He is focused on a country, Mexico, that Sachs barely mentions and on an institution, the North American Free Trade Agreement (NAFTA), that Sachs does not mention at all. If Sachs is Mother Teresa, Faux brings to mind Saul Alinsky, with an entirely bracing conviction that the rich are the problem, not the solution, for working people.

NAFTA was a debacle for America's left, as the fight to stop it exposed the higher loyalty of the Clinton administration to Wall Street. In the face of defeat on free trade itself, labor and the environmentalists settled unhappily for “side agreements” that they knew would have little effect. Faux was a prime mover on the losing side, and here he details the struggle and exacts a measure of revenge, well-earned with a decade's hindsight, on those who advanced the cause of NAFTA behind dishonest arguments, especially relating to the large-scale creation of American jobs. Of course, that issue was argued heatedly on both sides. It turns out that U.S. jobs are mostly made or lost at home, and there is very little evidence, 10 years later, that NAFTA made any substantial difference to American employment either way.

NAFTA was not forced on Mexico; as Faux notes, it was largely a Mexican idea. NAFTA helped the neoliberal leadership of Mexico's then-permanent ruling party, the Institutional Revolutionary Party, or pri, to cast off its historic coalition with labor and the peasantry. In so doing, they brutally destabilized Mexican farmers, forcing large-scale migration to the cities and, of course, to the United States.

From this evidence, Faux constructs his larger charge: that the world is run these days not by national political coalitions but by an international consortium of finance capital -- the Party of Davos -- whose writ knows no boundaries. The U.S. elites supported Carlos Salinas, he writes, because he was “one of us” -- Harvard-educated and a member of the club.

Faux has well understood the new global culture of the bankers and corporate chiefs -- though he overestimates their enduring power, which is already under sharp attack in Latin America (including Mexico, which may this year elect a leftist government), Russia, and much of the Islamic world. And yet Faux's argument also shows why NAFTA was the wrong fight. For, given that it served the purposes of Mexico's neoliberal elite, almost every important aspect of NAFTA could have been imposed unilaterally, even if the agreement had never been negotiated. Tariffs for Mexican manufactures flowing north were already low. NAFTA mainly reduced Mexican tariffs on machinery and barriers to the importation of American grain. Salinas could have done this on his own, completing a process that Miguel de la Madrid had started in 1986, by bringing Mexico into the General Agreement on Tariffs and Trade.

So why did Salinas need NAFTA? Apart from political cover, the main reasons were financial and macroeconomic. In 1982, in the face of a devastating crisis, Mexico could not secure adequate U.S. assistance to cope with its inability to service its debt. Years of severe depression resulted -- bad for business. The Mexican elites saw that if they were in a free-trade agreement, they would become “too big to fail.” In 1995, this judgment was proved correct. And while Mexico still suffered a severe currency crisis, and while the bailout definitely helped the American creditors, stabilization and recovery were nevertheless much more rapid after 1995 than after 1982. This was not a bad thing. Without NAFTA there would still have been a crisis, and the U.S. reaction to it would have been worse.

Now, for Faux as for Mexico, the NAFTA moment has passed, and the new challenge to workers comes from China. Faux writes that in China, “wages are suppressed with bayonets,” but this claim would surprise workers in Guangdong or Shanghai, who went there for wages far higher than paid anywhere else in the country. Faux also does not seem to realize that though the best Chinese wages may be one-twentieth of ours in dollar terms, urban workers do not live at one-twentieth of American working-class standards. For they pay far lower prices for everything: food, clothing, housing, education, and medical care, and they enjoy booming cities that are not slums. It's outside these regions that extreme poverty persists in China, though almost everywhere it's lower than it was a generation back. All in all, the country is a huge exception to the rule of stagnant living standards for ordinary workers. It is cheered by globophiles, hated by globophobes, and understood by neither.

What is the Chinese secret? The other day, the distinguished Russian economist S. Menshikov put it to me this way, “Well, it's because they are communists, you see.”

More precisely, China has adopted markets without capitalism; it has not had broadly open, speculative markets for capital assets and land. The result is that you usually have to make something in order to get rich. So companies produce and produce, flood the markets with goods, accept low profit margins, improve quality, and hope to strike gold by exporting to the West. If they have losses, as they often do, these may be covered by borrowing from China's rotten, state-owned banks, protected by capital control. Workers thrive on the glutted market for goods. Meanwhile, the richer local governments finance themselves with land rent and spend the proceeds on infrastructure at an incredible pace. The system looks like capitalism to the naked eye. But it is not capitalism; it's an outgrowth of what was there before. What was communism has become, one might almost say, Galbraithian -- private affluence, with much less public squalor than one finds elsewhere in the Third World.

In an important closing, Faux realizes that North American integration is irreversible. He therefore argues that North America should now aim for a deeper union -- something approaching the European model. He looks at modern Europe through rose-colored glasses, seeing there a bastion of social democracy and solidarity that the average resident of, say, the Paris suburbs would not recognize. But the point is correct: A United States of North America, with its openness to expansionary budgets and easy money, and with 69 million Mexican voters, would very likely be more democratic and more prosperous than the present-day European Union, and also not more corrupt than the current crowd in Washington, D.C. Moreover, two aspects of the European model -- free migration and a common currency -- would help solve many of Mexico's deepest development problems, as the euro and low interest rates have done, remarkably quickly, for Spain.

Of course, to go that far, one would have to protect the interests and address the sensibilities of our neighbors to the north. And to do that, I have long favored naming the new North American money along the lines chosen in Europe. With special deference to our friends in Quebec, it should be called the Amer.

James K. Galbraith holds the Lloyd M. Bentsen Jr. Chair in Government/Business Relations at the University of Texas at Austin's Lyndon B. Johnson School of Public Affairs.

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