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The Trouble with Africa book review

February 10th, 2007

The Trouble With Africa: Why Foreign Aid Isn’t Working

by Robert Calderisi

If you care about a hopeful future of Africa, you’ll want to read different perspectives to make sure that you’re getting the whole story. Calderisi tells about his experience working for much of his 30+ years in international development (mostly in Africa and mostly with the World Bank) and provides an insider perspective on why we are attaining so little results from our aid investments and makes some very specific recommendations on how we should re-direct international aid efforts.

The book is organized more into personal stories and observations which are helpful illustrations but make the book less organized that it could be. Calderisi finishes up with 10 recommendations which I thought could have been made earlier and then expounded on in more detail. Maybe that’s his next book ;-)

No cash to tyrants. Calderisi has a very different perspective than Jeffrey Sachs who has recently gained popularity with Tony Blair, Bono, Clinton and others with his End of Poverty ideas/book. Sachs advocates primarily for increasing the international aid budgets to help Africa out of what he calls its poverty trap (read Easterly’s critique of this theory). Calderisi argues that the international community (including donors) have to play hardball with the rampant corruption of government thugs in Africa who are more interested in flying first class and depositing ill-gotten cash overseas than in truly helping their countries build a better future for their citizenry. He goes into detailed stories of how these various thugs have ruled Africa and how most African countries are still ruled by thugs — even those considered democracies. He says we need to declare that the holiday is over for African tyrants.

Africa needs to move from victim to ownership. Calderisi argues that “slavery, colonialism, the Cold War, international institutions, high debt, geography, the large number of countries and population pressures all have had an effect on Africa. But none of these can explain why the continent has been going backward for the last 30 years.” He goes into specifics about how Africa’s cultural norms and lack of willingness to address widespread petty (and large-scale) corruption are also major issues. He also states that international donors are so often more interested in being politically correct in their public commentary on Africa than they are in telling the truth about what’s really going on in Africa. This “correctness” does no help to Africa despite its helpful intention.

The international trade large sucking sound. One of the most interesting topic Calderisi raises is the massive economic loss that Africa has experienced from its loss of export markets. He states that Africa in the past 30 years has lost over $70 billion a year (in 1990 dollars) in GDP related to exports (mostly to Asia) due to severe neglect by governments in managing their economies. He explains that this is equivalent of $700 per family per year which means that the current international aid budget at the equivalent of $40 per family per year is a pittance and even a doubling of aid would have little economic impact vs. these loss of exports. Calderisi says that accusations that Africa has suffered more than others from international trade rules (globalization) are just not true. If it were true, then we could simply lift all remaining foreign trade barriers and provide an immediate boost to Africa’s fortunes. Unfortunately, Africa has refused to concern itself with foreign markets and must reverse this approach to be in a position to benefit from international trade.

Good intentions are just that. A story about the trouble with foreign aid … “in the northeast corner of the Ivory Coast, the United Nations Development Programme (UNDP) spent $900,000 over three years trying, unsuccessfully, to show farmers how to grow onions. Just 90 miles away, in the neighboring country of Burkina Faso, farmers were growing onions in similar agricultural conditions quite profitably — with aid.” Sad, but not an isolated story of the results from paternalistic aid projects.

The complexity of aid. You might ask, does Calderisi actually care about African people and creating a better future? Is he saying that all aid is wasteful? He demonstrably does care. His stories of personally breaking ranks with traditional international aid approaches and connecting with common people to listen to them and help them are genuine and admirable. Calderisi states that the difficulty of providing effective aid is not a reason for not trying. He illustrates the complexity of aid though through a quote from the economist P.T. Bauer: “The argument that aid is indispensable for development runs into an inescapable dilemma. If the conditions for development other than capital are present, the capital required will either be generated locally or be available commercially from abroad to governments or to businesses. If the required conditions are not present, then aid will be ineffective and wasted.” This is a real dilemma.

His recommendations for international aid priorities:

  1. Introduce mechanisms for tracing and recovering public funds
  2. Require all heads of state, ministers, and senior officials to open their bank accounts to public scrutiny.
  3. Cut direct aid to individual countries in half (instead focus on regional initiatives).
  4. Focus direct aid on 4-5 countries that are serious about reducing poverty (he suggests Uganda, Ghana, Mozambique, Tanzania and perhaps Mali).
  5. Require all countries (receiving aid) to hold internationally-supervised elections.
  6. Promote other aspects of democracy including a free press and an independent judiciary.
  7. Supervise the running of Africa’s schools and HIV/AIDS programs.
  8. Establish citizen review groups to oversee government policy and aid agreements.
  9. Put more emphasis on infrastructure and regional links.
  10. Merge the World Bank, IMG and UN development programme.

Bold recommendations indeed! But I think many of them are right on. What do you think?

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In Defense of Globalization book review

September 18th, 2006

In Defense of Globalization

by Jagdish Bhagwati

Jagdish Bhagwati, an economist specializing in international trade and a professor at Columbia University, has written a very indepth book arguing that economic globalization overall has (and is having) a tremendous positive impact on the poor. He looks closely at the many critiques and perceptions of globalization and provides responses to many of them.

He notes the ironic fact that “anti-globalization sentiments are more prevalent in the rich countries of the North, while pluralities of policy makers and the public in the poor countries of the South see globalization instead as a positive force.” (p.8)

In commenting on anti-capital sentiments he notes, “I often wonder … how many of the young skeptics of capitalism are aware that socialist planning in countries such as India, by replacing markets systemwide with bureaucratically determined rations of goods and services, worsened rather than improved unequal access because socialism meant queues that the well-connected and the well-endowed could jump, whereas markets allowed a larger number to make it to the check-out counter.” (p.15) He notes that anti-capitalism, anti-corporation and anti-Americanism attitudes (for various different reasons) have have unfortunately turned into anti-globalization rhetoric.

Some people argue that Bhagwati is a free-market-with-no-limits zealot. I found Bhagwati to be very balanced in this book. He owns his own bias to taking a macroeconomic viewpoint while showing sensibilities for how there are impacts on a microeconomic level. He critiques the ultra-liberal and ultra-isolationist international trade viewpoints. He also provides many critiques of globalization practices and provides suggestions about how to reduce ill-effects, abuses and impact on the displaced. For instance, he argues for gradualism in changing short-term capital restrictions in order for the developing nations’ financial institutions to mature and prevent another Asian-type financial crisis.

Topics he tackles include:

  • Poverty: Enhanced or Diminished?
  • Child Labor: Increased or Reduced?
  • Women: Harmed of Helped?
  • Democracy at Bay?
  • Culture Imperiled or Enriched?
  • Wages and Labor Standards at Stake?
  • Environment in Peril?
  • Corporations: Predatory or Beneficial?

I found the last section of the book on how to improve governance to make globalization work better a bit dry and lacking in pragmatism … but this is a hard topic with much political complexity.

So, overall, I highly recommend this book for anyone who wants to get smarter about globalization benefits, problems and how to drive the benefits of globalization to more equal distribution.

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Guns, Germs and Steel book review

August 19th, 2006

Guns, Germs and Steel: The Fates of Human Societies

By Jared Diamond

This is not per se a book on poverty. The reason I list it here though is that if you want to get a non-Western, Judeo/Christian perspective of how human history might have developed and why certain people groups prospered and dominated more than others, then Diamond provides a good read. He looks back at anthropologic discoveries to attempt to piece together how different people groups ended up where they did and what enabled certain civilizations to develop more quickly than others. Here are a few of his findings:

  • Food production. Cultivation of crops and domesticated animals enables people to transition from hunter gatherer to more permanent living quarters. It turns out that the majority of the most beneficial domesticated grains originated in the Mesopotamia area. It also turns out that more large domesticable mammals were also found in EurAsia than in other continents.
  • Latitude reach. Spread of discoveries (including food production) are much more easily accomplished to similar climate zones. This means latitude-based spread is more common than longitudinal spread. EurAsia has a much larger similar latitude area than any other continent.
  • Germs bigger killers. He argues that most human germs/diseases develop first in non-human mammals which are kept in high density living situations and then mutate and pass on to humans. Very few killer germs were found in the Americas because there was limited animal husbandry and much lower density population situations which cause germs to gain their potentcy. When the more densely populated Europeans visited the Americas, they brought along diseases for which they had built up some immunities. Very few (if any) diseases were picked up from the Americans by Europeans. There were many more native Americans killed by European-originated disease than anything else.
  • Continental environments mattered the most. Diamond argues that our perception that societies developed differently because of different human biology (e.g. Europeans were more intelligent or more industrious or something else) is wrong. Instead, he argues (with considerable research) than it was the different continental environmental situations which played the largest role in determining where we are today.

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The White Man’s Burden book review

June 24th, 2006

The White Man’s Burden: Why the West’s efforts to aid the rest have done so much ill and so little good

by William Easterly

Boy, has this book started a lot of controversy in the international aid community. You’ve even got Nicholas Kristoff writing an oped piece in the New York Times in response to his book! Easterly, a Professor of Economics at NYU and previously an “insider” at the World Bank, doesn’t pull any punches in asking the hard questions about the results of international aid. He’s an economist, so his book is full of numbers and statistics supplemented with a number of humanizing stories.

In a nutshell, he asks “After $2.3 trillion over 5 decades, why are the desperate needs of the world’s poor still so tragically unmet? Isn’t it finally time for an end to the impunity of foreign aid?” He points out that despite spending all of this money, we still don’t deliver vaccines and other medicines costing < $1 and insecticide-treated mosquito nets at a few dollars to those who need them and die without them. The main issue, he argues, is that our international aid agencies (he focuses mostly on multilateral and bilateral government orgs including USAID, The World Bank and the International Money Fund) are run by planners, not the entrepreneurial, finding-what-works “searchers”. We in the West are very utopian with a grand plan to eliminate poverty always the goal and what the politicians like to talk about.

The Big Push Strategy has no Basis in History

Easterly’s argues through his research data that the following legends persist and drive much of the “Big Push” thinking behind international aid strategy today:

  • Legend #1: The poorest countries are stuck in a poverty trap from which they cannot emerge without an aid-financed big push.
  • Legend #2: Whenever poor countries have lousy growth, it is because of a poverty trap rather than bad government.
  • Legend #3: Foreign aid gives a big push to countries to achieve a takeoff into self-sustained growth.

These “legends” are core premise for the “spend more on aid” supported by Jeff Sachs and others. Easterly questions the existence of this poverty trap concept as there have been many success stories of countries growing wealthy without significant aid (e.g. East Asian Tigers including Hong Kong, Singapore, Taiwan and South Korea). A few notes

  • May 2005 study that “found no evidence that either ‘short-term impact aid’ or any other type of aid had a positive effect on [a country's] growth.” (p. 49)
  • “Over 1950-2001, countries with below-average aid had the same growth rate as countries with above-average foreign aid. Poor countries without aid had no trouble having positive growth.” (p. 39)
  • Another new study found that as aid represented 8% or more of the GNP of a country that the there was a negative effect on growth. (p. 50) He notes that 27 countries are already about the 8% aid level and that if the Big Push strategy continues that virtually all of the low-income countries will be pushed over the 8% level.
  • In reality, he notes that “most countries that escaped from extreme poverty did so with gradually accelerating growth.” (p. 51)

Some additional highlights from the book (I’m skipping a lot of other interesting stuff):

  • Government-to-Government Aid. He asks the question why our government aid agencies need to always give to directly to often corrupt other governments rather than through other orgs who could get the money to the intended people/projects.
  • Planning Markets? An oxymoron? Why so often do we in the West think that we can go in and impose significant market changes on the Rest and expect them to endure and succeed? This isn’t how it works (or has worked) in the West?
  • Political Correctness vs. Truth. Easterly highlights many examples where the IMF and the World Bank have continued to poor money into countries where there was blatant and widespread corruption with their previous capital. They need to call a spade a spade rather than deceiving themselves that somehow a miracle change will happen this time.
  • Helping Bad Governments will Make Them Good Governments? Easterly notes that this is a common argument to justify giving money to gangster governments arguing that it will promote their political development and reform. He responds “this argument is based on the overambitious goals of political transformation [which have no historical precedents].” (p. 157)
  • No Aid Org is Accountable. Since the multiple international aid organizations have very broad and overlapping (and sometime contradictory) goals/agendas, they can simply throw up their hands when they don’t produce results and blame it on the other guy. That’s why you always hear them take about “inputs”, not “outputs” (results). Easterly argues for scaling back aid agencies to focus/specialize on smaller, specific, measurable projects which they are held accountable for by independent evaluators and the receipients of the aid. Amazingly, this almost never happens today.
  • HIV/AID drugs. He explains that it costs $1,500 per year of total cost to administer the latest cocktail of HIV/AID anti-viral drugs even if the meds themselves are basically free. On average, people taking these drugs live an extra 3-4 years. He asks the question … have we ever asked the Africans how they’d recommend we spend the $5B we’ve committed to these treatments? Would they spend it all in this way? He has asked many Africans and they would likely spend very little of the $5B on this healthcare and instead spend it on other much broader impact healthcare initiatives which would save way more lives. Hmmm … interesting.

International Aid Needs Massive Reform

So, is Easterly against international aid? Surprisingly, not. He argues for significant reforms to focus on what works, smaller initiatives (vs. grand plans) and more accountability. So, his grand plan is that there is no grand plan. History argues that it is the initiative of the people themselves along with their governments are the only path to sustainable economic growth. In conclusion, Easterly summarizes:

“Aid won’t make poverty history, which Western aid efforts cannot possibly do. Only the self-reliant efforts of poor people and poor societies themselves can end poverty, borrowing ideas and institutions from the West when it suits them to do so. But aid that concentrates on feasible tasks will alleviate the sufferings of many desperate people in the meantime. Isn’t that enough?”

Scary for the status quo in international aid, but great news for the customer!

Read my full book review

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Untouchables book review

February 3rd, 2006

Untouchables: My Family’s Triumphant Journey Out of the Caste System in Modern India

by Narendra Jadhav

If you want to understand India and how to be effective in accelerating impact on poverty there, you need to understand the caste (pronounced “cast”) system and how it affects how the vast majority of people think in India.  For outsiders, the caste system is often perceived as a thing of the past. For, wasn’t the caste system abolished when India declared independence from Britain over 50 years ago?

To see the caste system in action, all you need to do is open up any Indian newspaper and turn to the classifieds section for people seeking marriage partners. Almost all of the ads are explicit about the caste system of the ad buyer as well as the caste requirements of the spouse they are looking for. The explicit caste recognition is less front-and-center in other social spheres, but it is very much there under the surface and affecting how people think about themselves and each other.

This book is a biography of a dalit family living through The Great Depression, the India independence movement and up to today. Dalits are also known as the out-castes or untouchables. They are lower than the lower-castes as they are below the caste system. It is a story of triumph and yet a call to continue to fight to break the caste slavery system.

Narenda Jadhav, born in 1953, says that the caste system is still very much in place. It is still in people’s minds and affects how they see the world every day. Jadhav is a very successful economist and is the chief economist for the Reserve Bank of India (India’s central bank.) And Jadhav is a dalit.

Dalit is the more politically correct name for the out-castes or untouchables. These are people who are so low-on-the-totem-pole that they are not even in the caste system. They are lower than the lowest caste and therefore have no caste. This “matters” in India because castes are connected to occupations. For instance, there is the sweeper caste (who sweep streets), the milk caste (who raise animals to produce milk), the merchant caste (who conduct trade), etc. Historically, and still in much of India, people work in their caste occupations hoping to do a good job so that they when they are reincarnated they will move up to a higher caste. You can find out what caste people are from by asking their name.

The problem with the dalits is that they don’t have an association with an occupation type. So they are relegated to the most demeaning type of occupations including picking up cow dung, begging, scavaging and the like. They are treated like dirt by everyone including the lower caste peoples. They are denied education because they are considered too low for it.

In this book, Jadhav shares the story of his parents growing up through the depression era and through the Indian independence movement. His parents, dalits of course, were illiterate, extremely poor who were born in rural India and moved to Mumbai (formerly Bombay.) You get to see inside the lives of a family on the economic edge and without justice. Yet you see their determination to have their children have a better life.

His father, Damu, catches the dream and becomes a follower of Dr. Ambedkar (affectionately known as Babasaheb) who himself a dalit became a central person in defining the constitution of the new, independent India. Through the biography, Jadhav tells the story of how Ambedkar rallied dalits (now estimated at some 400M+ in India) to assert themselves. He first tried to work within the Hindu religious system for equal rights for dalits. He later gave up this approach and led a mass conversion (literally millions of people) of dalits to Buddhism as an act of liberation. Jadhav provides very interesting color commentary on what that looked like from the eyes of an ordinary dalit.

Damu followed through with Ambedkar’s personal recommendation to educate his children in order for them to escape the tyranny of the caste system. Damu followed through on this and many of his children even went on to college and to having prominent roles in the new India.

While I think that Jadhav has done us all a great service by telling this story, I think you must view the unique success of Jadhav (and his siblings) as an anomaly, not the norm. Just like we can find success stories of African-Americans, this doesn’t mean the equality and justice has been and is being served to all African-Americans in the USA [or pick your own example in another context.]

The caste system is, unfortunately, very much alive and well in India today and is a form of slavery as powerful as other slavery systems in history. About 100 years ago, Jotirao Govindrao Phule, wrote a book called Slavery which articules the how the Hindu religion (he calls it Brahminism) initiated and perpetuates the evil caste system in India. Dr. Ambedkar praised this book: “Mahatma Phule, the greatest Shudra of modern India who made the lower classes of Hindus conscious of their slavery to the higher classes and who preached the gospel that for India social democracy was more vital than independence from foreign rule.” That is, Ambedkar, Phule and others believe that the more important independence which India needs is liberation from the oppressive caste system.

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The Fortune at the Bottom of the Pyramid book review

September 20th, 2005

fortuneThe Fortune At The Bottom of The Pyramid: Eradicating Poverty Through Profits

by C.K. Prahalad

Professor Prahalad, a respected business management consultant, shares results from in-depth case studies developed by his MBA students on how some multi-national organizations are targeting the world’s poor with specific products and services and the consequences. If you think globalization is all bad, this is a helpful and provocative read.

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The World is Flat book review

September 16th, 2005

theworldisflatThe World is Flat: A Brief History of the Twenty-First Century

by Thomas Friedman

Friedman is the foreign affairs columnist for The New York Times. So, he gets to talk with lots of people around the world from the most senior government officials to academics to business leaders. His book The Lexus and the Olive Tree: Understanding Globalization (1999) is recognized as one of the definitive books in describing globalization and its effects and implications on various populations. Fortune magazine also just profiled Friedman in an article called Rockin’ in a Flat World.

In his latest book, Friedman argues that a number of changes have conspired in the late 1990’s to define start a new chapter in human history which opened at the dawn of the twenty-first century. He argues that 10 forces (from Berlin Wall coming down on 11/9/89 to the global Internet wiring to outsourcing/insourcing/offshoring to supply-chaining/workflow software to digital/mobile/personal/virtual revolutions) have created a new “flatter” world where it matters less where you live for your economic opportunities than any time in human history. In walks through how all of these changes have dramatic, change-the-rules implications about how we should think about the world.

He emphasizes how certain countries have benefited most from this flattening of the world – specifically India and China. He describes how countries like China have integrated themselves into the global supply chain and are continuing to advance up the value-added ladder from simple value-add to original design. He describes how India has (after opening its markets in the past 20 years) has unexpectedly become an IT development and services powerhouse.

“The World Bank reported that in 1990 there were roughly 375 million people in China living in extreme poverty, on less than $1 per day. By 2001, there were 212 million Chinese living in extreme poverty, and by 2015, if the trends hold, there will be only 16 million living on less than $1 a day. In South Asia – primarily India, Pakistan, and Bangladesh – the numbers go from 462 million in 1990 … down to 431 million by 2001 and down to 216 million is 2015. In sub-Saharan Africa, by contract, where globalization has been slow to take hold, there were 227 million … in 1990, 313 million in 2001 and an expected 340 million by 2015.” p. 315

Wow! What a contrast on the big picture impact of globalization.

Friedman also describes that forces which counteract this world “flattening” trend. There are still 3 billion people who are not connected to the new global economy. Africa is the single biggest block and much of Asia (including massive populations in India & China) and most of the Middle East are also “round” world economies. He suggests that 9/11 represents the opposite of 11/9 (the falling of the Berlin Wall). So, he describes a world where there are forces to flatten the world (globalization) which allow more people to join the world economy and move ahead economically. He then describes forces which are focused on “unflattening” the world. The unflattening forces fear the changes for various reasons but often because they are feeling left behind in the benefits of flattening.

One example he describes is the most recent national elections in India where the incumbent government was thrown out mainly by the rural vote. He interprets this vote not as an anti-globalization vote, but much more as a vote by the rural citizens that they too want to participate in the globalization benefits. The current Prime Minister of India is now implementing reforms intended to spread the wealth benefits of globalization more widely to the rural populations.

Friedman primarily focuses on the better off 3 billion people in the world and how the best educated and/or geographically privileged (e.g. those near ports where exports are booming) are now making gains that were once only possible if you lived in a developed country. So, poverty hawks may be frustrated by his lack of articulation of the deep challenges of those who are still born in the wrong “zip code” and don’t have access to infrastructure and education upon which they can have the opportunity to participate in the globalization wave. I think, though, that his observations about the positive aspects of globalization as an empowering and leveling opportunity for hundreds of millions (if not eventually billions) of the world’s poor are very helpful.

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The Trouble with Islam Today book review

September 16th, 2005

troubleIslamThe Trouble with Islam Today: A Muslim’s Call for Reform in Her Faith

by Irshad Manji

This is one of the most different and interesting books I’ve read in a long time. Manji is a gay, practicing muslim who grew up in Vancouver, Canada (my home town) and now lives in Toronto, Canada. She is a journalist and now activist for reform in Islam. Manji describes herself as a muslim refusenik who is fed up with the stuck-in-the-6th-century, refusing to think mainstream muslim culture dominated by “desert Islam” religious despots. The anti-dote? Revive “ijtihad”, Islam’s lost tradition of independent thinking. She encourages both muslims and non-muslims to ask muslims hard questions about Islam rather than shrinking back [in silence] from fear of offending muslims or being culturally insensitive.

Regarding poverty, she calls out the decrease in per capita income in most of the middle east Arab countries including the ones that have oil. She describes the history of how the house of Saud (Saudi Arabia) cut a deal with the super-conservative Wahabi muslim sect which is still in place today creating a very oppressive culture. Many middle east citizens have university degrees (paid for by the government), but they have no jobs. Why? Because for one thing the content of their education is primarily religious around how to be a good muslim. Second, there has been no development of other non-oil industries to diversify the [very controlled] economy. So, Manji boldly calls for reform in Islam as one of the critical requirements for muslims to be true to the heart of the Koran and the historical spirit of freedom in Islam.

This book is a challenge to many of the politically incorrect questions we all need to ask ourselves about our own “fundamentalist” beliefs and tendencies.

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Banker to the Poor book review

August 21st, 2005

bankerBanker to the Poor: Micro-Lending and the Battle Against World Poverty

by Muhammad Yunus

Yunus is probably the most well-known microfinance practitioner having started The Grameen Bank in Bangladesh in the 1970’s and led it ever since to its current state where it serves millions of micro-entrepreneurial women across Bangladesh and, through replication, in many other countries. Yunus is very much a practitioner, a continuing innovator and activist for practical solutions to putting poverty to where it belongs … a museum.

This is his first book which tells the story of birth of the Grameen Bank up until mid 2000′s.  If you want more up-to-date writings on Grameen Bank, I recommend:

Related Posts:

Grameen update
Grameen and Yunus win Nobel Peace Prize
Grameen now lends to beggars
Yunus: Statesman for the poor
Yunus bio

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Give Us Credit book review

August 19th, 2005

giveuscreditGive Us Credit: How Muhammad Yunus’s Micro-Lending Revolution is Empowering Women from Bangladesh to Chicago

by Alex Counts

Counts heads up Grameen Foundation USA, the non-profit extension of The Grameen Bank – one of the first, large-scale successful microfinance banks based in Bangladesh. Counts shares the story of The Grameen Bank from its early inception in Bangladesh to where it is today. In parallel, he tells the story of an attempt of another NGO helping micro-entrepreneurial women in South Chicago with micro-loans.

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The End of Poverty book review

August 10th, 2005

endofpovertyThe End of Poverty: Economic Possibilities for Our Time

by Jeffrey Sachs

This book seeks to lay out the facts — both historical and present — on the state of global poverty and with concrete recommendations about how to move forward.

Here are a few facts:

  • world population — about 6.1 billion
  • extreme poor (< $1 income/day) — 1 billion — live at subsistence without core basics
  • poor ($1 – $2/day) — 1.5 billion — above subsistence (survival ok), but hard to meet ends meet
  • middle-income (few $1,000′s/year) — 2.5 billion — most live in cities, have housing and maybe indoor plumbing, children go to school, nutrition and clothing are adequate — but not like USA middle-class
  • high-income — 1 billion

He advocates two goals by 2025: (1) End extreme poverty; and (2) Enable all poor a place on the economic development ladder. He demonstrates how a modest 0.5% of GNP provided as as official development assistance (ODP) by the developed countries through 2015 would be adequate to achieve the UN Millenium Development Goals (MDG) which target reducing extreme poverty by 50% from 1990 levels. Since Sachs was one of the key contributors to MDG, he provides details into why these goals were chosen and how they can produce these (seemingly) dramatic results. He then declares a 2025 goal to extend MDG objectives for 10 more years at a decreasing % of rich country GDP investment level to finish off the task. Why a decreasing investment level? Because with fewer poor people, growing GNP in poor countries and continued growth of overall GDP in developed countries, the cost for ODP is simply lower.

One thing that stuck out to me is the lack of follow-through that the USA has had towards promised aid to developing nations. The US has publicly committed (signed multiple documents) that it will make “concrete efforts” to contribute 0.7% of GNP to ODA. Our current level is about 0.2%. We spend all told about $15B on aid per year (vs. $450B on military.) And of the $15B, more than half is on activities other than ODA (e.g. paying USA consultants.) For the USA to reach 0.7% of GNP as ODA here is what it would take … “With the U.S. per capita GNP rising by around 1.9% per year, the extra amount represents less than one third of a single year’s growth in GNP. So, if the U.S. were on track to reach a $40,000 disposable income by, say, January 1, 2010, it would instead reach the same income on May 1, 2010, one third of a year later.” (p. 304)

More blog postings based on this book and Sachs:

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The Mystery of Capital book review

July 7th, 2005

The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else

by Hernando Desoto

I think it is pretty much unanimously agreed to by most economists that in order to unleash the full potential of the wealth creation process of capitalism that a nation needs to have a reasonable and predictable methodology for defining and managing property rights.

I highly recommend Hernando de Soto’s book, The Mystery of Capital (subtitle: Why Capitalism Triumphs in the West and Fails Everywhere Else), where he explores the history of property rights in the developed world and the state in developing world nations. He argues for the essential nature of well-defined property rights to transform the trillions of $ of “dead capital” (property which is owned through the unofficial “extra-legal” market) into leveragable capital which we take for granted in the developed world. One of the most interesting sections is when he describes the extended time (75+ years) it took in USA for property rights to become reasonably established. He argues that we expect developing nations to implement our current system in a very short period of time which isn’t the process the USA (and all other developed nation systems) went through! It is inherently a political process and politics takes time for new systems to soak into the fabric of the society and displace the entrenched status quo which has many beneficiaries.

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