Sunday, November 07, 2004

Why Jeffrey Sachs is Wrong

Given that my last post lacked that thing called an argument, perhaps something further is in order.

Sachs is a good man. He has his moral convictions and believes that we should try to improve the world. This is a good thing. But development does not lack for people who feel morally superior; what it lacks is effective policy. Now Sachs serves a useful role as an evangelical for development and it would be nice if he successfully coordinated billions of dollars for development. More money does, in general, improve the livelihood of some people in the short-run. My concern is that the ambition of his rhetoric cannot be matched by the effectiveness of his policy proposals and that in twenty years someone will write a book about the utter failure of Sachs' plan. Here's why.

Development and the alleviation of poverty is not a uni-dimensional thing. Unlike a public health campaign where eradicating a disease means simply inoculating vast numbers of people, development is something which occurs along many fronts because, like it or not, it involves fundamentally altering a given society. People can debate whether industrialized society is "better" than "underdeveloped" society, but the fact is, once you decide you want to "develop" a society, it means that you have to consider how any program will feedback through the rest of the society -- how the rest of the society will react to this change. It's the difference between doing partial equilibrium analysis and general equilibrium analysis: some disease eradication programs have impacts almost solely in one domain, so it is sufficient to only consider that "market"; but development attempts to change everything in a society so you have to consider how it impacts every "market."

Any development project which argues that by changing just one facet of society we can "alleviate poverty" and etc. is bound to fail. And I cannot necessarily tell you why it will fail, simply that you will have neglected some countervailing force in the society. William Easterly makes the case that most post-war development efforts(and this can extended to colonial efforts at development: Tim Burke taught me something) have failed because development economists have neglected the fact that making an investment work requires that people think the investment will work. That is, even if I build you a massive factory with the idea that Al Hirschman's forward and backward linkages will promote development, people won't actually make the factory run and use the factory effectively unless they think that the investment is worth it -- if they think the society will be sufficiently stable and etc. or else they will just loot it, or run it at less than full capacity because it is run by the state, so why bother working hard. Actually, this doesn't give Hirschman enough credit. His The Strategy of Economic Development highlights the need to change expectations, but then gives a uni-dimensional solution. But the point remains: just building schools won't bring development so long as nothing else about society changes. For the same reason that business wasn't expanding before it will continue not to expand -- despite the newly educated. And students will have no reason to work hard because it won't change anything about business prospects. Development has to think seriously about how other aspects of society will react to the plans; if not, it is doomed to fail.

The article is not entirely clear on what exactly Sachs is promoting, the most specific things I can find are "the costs of basic infrastructure, health care and primary education" and "Hunger, for example, can be eliminated with the right science and technology," but I am not optimistic. He has obviously learned something from past development projects, but he has not fully internalized the lessons. He deserves credit for promoting a vision in which many aspects of society are impacted -- this has the power to change expectations and, maybe, promote development. So he does not fail the first test of not being entirely uni-dimensional. But he does have the problem of not fully considering how it will feed back into the society, and the economy. Such an enormous intervention in the economy will do dramatic things to the economy, and not all of them good. He is enough of a neo-liberal that he has to recognize that the market sometimes gets something right and that tossing huge sums at the economy will throw off all incentives -- and probably in bad directions. The Peter Bauer story about how the economy grows organically isn't entirely right, but it cannot be neglected. Development which doesn't have some basis in elements already existing in society won't work. It won't be sustainable. Once money is no longer being thrown at it, you are left with lots of technology and infrastructure that may or may not be useful and which may or may not be used.

The promise of poverty eradication in a set, short amount of time, cannot be fulfilled. Any vast development project cannot have considered all the necessary contingencies and how they will feed back through the economy. No single body is sufficiently knowledgeable. How does Sachs know that what he promotes will work? Good for Sachs to raise money. But if I am to get enthusiastic about a development project, it will be a Michael Kremer style project which tries to figure out what actually works by designing smaller projects to be "testable," then implementing those that are successful. It doesn't lend itself to grand visions, but it does let you improve aspects of a society with the hope that the agglomeration and accumulation of projects will make a lasting difference.


Anonymous Anonymous said...

I have found that often public projects are analyzed and tested to extremes before daring to plunge a nickle into the project.
Social improvement projects - education, welfare, etc. - are so entwined with variables that the finest mathematicians cannnot come up with formulae that help.

Poverty in third world nations is embedded with myriad complexities, as you state. Perhaps the best plan would be one that simply gives money, not food or seeds, to forget organizations whether civic or private. Then, assume that some meaningful small proportion of the individuals will buy an acre to plant, or a cart from which to sell hot dogs, or a llama to haul sticks to market, or medicine to stay alive...perhaps after feeding his family and buying shoes for the children. Let each become an entrepreneur with a small bank roll. Most would have that dream, at least. Establish a carrot to reach for, a second and third dollar allotment.
All sorts of results will ensue, but some will move forward...maybe 5% or 10%. Others will have been maintained for a short period of time. If we can move 100,000 people to a new life level, from a 10 billion investment, we will gain.

Giving money to governments often only makes the bureaucrats more wealthy, unless strict monitoring is established... and that is costly. Like Americorp, Peru established its own domestic Peace Corps type organization which was quite successful in its time, under Belaunde in the 1960s. Sachs is a great man.. not a good man.. and I am sure that his efforts to loosen up the pocketbooks of wealthy nations will have good effects whether every dollar is strictly accounted for, or productive, or not. If measured in twenty years, as you suggest, Sachs' efforts could be deemed shallow or failed, but indeed, his program is, must be, a hundred year program at the least. The fundamental changes take place at snail's pace. And, its not entirely a program to aid those in poverty, but also to enlighten the haves.

Embedded primitive ideas are slow to diffuse or disappear. Science must replace them as a way of life. Indeed, in this respect, we have a long way to go in our own country. You, Isaac, have hit the mark in many of your assertions in your latest post, especially in bringing out the complexities of any poverty program, but if you made Sachs a Saint, I would agree.

9:40 PM  
Blogger Jim said...

Interesting post, Isaac. You should read "Ending Africa's Poverty Trap", in which Sachs and several others set out their analysis of the various poverty traps Africa seems to be caught in, and how the various targeted interventions they list (and there's a *lot*) should help. It's not so much a 'grand scale vision' as a comprehensive combination of a lot of small vision. It actually seems very practical to me in its reliance on simple, small-scale, tried and tested interventions.

Is it guaranteed to work? Of course not. If Africa is not a developed region in twenty years, will Sachs have failed? No, I don't think so. If it has managed to arrest its slide into every deeper poverty and chaos and has caught up the average non-African developing country, I think it will be an amazing achievement. The only way to find out is to try it, and given the potential the price Sachs is asking isn't all that high.

Link to "Ending Africa's Poverty Trap":

6:34 PM  
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