When it comes to foreign aid, the giving has yet to begin

The End of Poverty
October 14, 2005

The G8 Gleneagles Summit now seems a long time ago. The London bombings, and the Government's confused and confusing proposals on immigration and terrorism that followed them, pushed the African agenda off the front pages again. Poor Africa - whenever it seems that its problems have seized the world's attention, some more pressing distraction emerges.

There was considerable scepticism about Tony Blair's motives, as the current president of the G8, for putting poverty reduction in Africa at the top of the summit agenda. It shifted attention away from the Middle East and Iraq, far more awkward subjects to handle with tiresome folk like Jacques Chirac and Gerhard Schroder. And it provided an opportunity for Blair and Gordon Brown, united, to strut their stuff. Even those who accepted the UK initiative at its face value (and there is powerful evidence that both Blair and Brown are genuinely interested in poverty reduction in general, and Africa in particular) were sceptical of Britain's ability to deliver a worthwhile initiative in the face of indifference at best, and open hostility at worst, from the Bush Administration. While the US aid commitment is so small - about 0.15 per cent of gross domestic product - and much Republican rhetoric is openly abusive of the United Nations, it seems hard to believe that a major increase in funds flowing to the poorest countries, in support of an agenda driven by the UN, is achievable. In the event, the G8 summit does seem to have made some worthwhile progress, especially on debt relief.

But Jeffrey Sachs is here to tell us that we are merely scratching the surface of the problem. Without a massive increase in aid (at least up to the UN target commitment of 0.7 per cent of GDP on the part of the wealthy nations in general and the US in particular), we do not stand a chance of putting the poorest countries on a sustainable growth path. The End of Poverty was written well before the Gleneagles summit, but that summit was, we were told, the culmination of a long campaign by Blair and Brown. Yet in a lengthy review of the politics of aid, the construction of the UN Millennium Goals, the debt relief campaign and the plight of sub-Saharan Africa, Sachs does not mention Blair once. There is a passing mention of Brown, though he does not make it to the index. (We hear a lot more about the third "B", Bono, who also contributes an introduction. It shows vividly that campaigning, not writing, is the most effective role for him.) The story told here is in essence about US policy on development, a policy that, as Sachs sees it, has been both unsuccessful and dishonest for decades. Though he acknowledges that President George W. Bush has increased US aid at the margins, he thinks US influence on the main UN agencies, the World Bank and the International Monetary Fund has been malign, peddling a policy line that is inimical to development.

At the risk of oversimplification, we might characterise the debate about aid and development by reference to two competing schools of thought. One maintains that much aid is wasted, that it creates a dependency culture at best, and at worst sustains corrupt regimes in a comfortable lifestyle.

Only a serious and sustained commitment to economic freedom and good government will pull poor countries out of the poverty trap. Targeted conditional aid may, on occasion, help kick-start the resolution of particular problems - water supply and contagious disease, perhaps - but is of marginal use at best.

The other school holds that poor countries are held back by heavy accumulated debt burdens and oppressed by adverse terms of trade imposed by developed countries. It maintains that good governance typically comes with development, not before, and that sizeable aid flows, if appropriately conditional and properly monitored, can create the conditions for growth and for a virtuous cycle of economic and political progress.

Sachs is firmly in the latter camp. He believes that a major increase in bilateral and multilateral aid could make a major impact on extreme poverty (his principal focus here).

The End of Poverty is something of a curate's egg in literary terms. It is a rag-bag of country case studies - Bolivia, Poland, China, India and Russia - political polemics and economic analysis, with rather a lot about Sachs along the way. True, he has played a significant advisory role in a number of places and is certainly one of the foremost experts in the political economy of aid, but whether it is quite accurate that the UN "would sometimes have to call me to find out what the IMF was doing", I have to wonder. He also rather skates over some of the hiccups in countries that have acted on his advice.

Still, when Sachs gets into his stride in the later chapters, he makes a powerful case. He tackles head-on the arguments of those who believe that aid has done (and will do) little for poor African countries. He points out that, today, total aid flows to sub-Saharan Africa amount to no more than $30 a year per person, and half of that goes on debt relief or consultants from developed countries - so we cannot reasonably say that an aid-rich solution has been tried and found wanting.

Furthermore, he maintains that poor African countries are not worse governed than countries at a similar stage of economic development elsewhere. In any event, he finds little correlation between indices of economic freedom (as defined by the American Enterprise Institute and The Wall Street Journal ) and GDP growth. So the case against increasing aid is found wanting.

That does not, however, necessarily imply that the converse is true. The End of Poverty is moving in its description of the problems of disease and access to the basics of clean water and elementary education. But Sachs asserts that (rather than explains how) a massive increase in aid would reduce these intractable problems. He presents a comprehensive and coherent programme, based around the UN's Millennium Goals. Furthermore, he costs it, which is where the story becomes interesting. How should and could a massive increase in aid, primarily on the part of the US, be paid for?

Sachs shows that Americans have little idea of the amount they now contribute to the Third World. A University of Maryland survey in 2001 "reported that Americans, on average, believed that foreign aid accounts for 20 per cent of the federal budget, roughly 24 times the actual figure".

So the first job is to explain that very little is being given so far. The second is to prove that the sums involved are affordable. But the third is to identify willing or capable suppliers of the additional $38 billion a year that he believes the US needs to cough up to make a difference.

Fortunately, there is a group to hand: the rich. The incomes of the top 400 taxpayers in the US - $69 billion - comfortably exceed the combined GDPs of Botswana, Uganda, Nigeria and Senegal (the four countries Bush visited on his African tour). Sachs calculates that "a 5 per cent income tax surcharge on incomes above $200,000 would yield about $30 billion".

Unfortunately, in the transition from the emotional to the practical, he has switched focus from the super-rich to the families who would not regard themselves in that light. Many US university professors, certainly those with book contracts, would be included in this expanded donor group. How realistic is this as a funding source? It would be a major turnaround for a president who has built his second victory on a tax cut targeted at precisely that constituency. So we may presume that Sachs is looking to influence President Clinton in 2008, rather than Bush in 2005.

Sachs is most effective when he harnesses his astonishingly broad first-hand knowledge of the practical problems of developing countries to his understanding of the politics of the UN. He is less persuasive when he addresses the domestic fiscal and electoral consequences of a massive rise in aid expenditure.

And he cannot seem to prevent himself conducting a running battle against his personal bête noire , the IMF. He wants the fund and the bank to be "no longer the handmaidens of creditor governments, but the champions of economic justice and enlightened globalisation".

The End of Poverty is a valuable and, at times, moving and inspiring book.

It could have been more persuasive, but perhaps we should simply accept that Sachs lets his emotions get the better of him from time to time. On the subject of grinding poverty, that can hardly be considered a grievous fault.

Howard Davies is director, London School of Economics.

The End of Poverty: How We Can Make It Happen in Our Lifetime

Author - Jeffrey Sachs
Publisher - Allen Lane The Penguin Press
Pages - 396
Price - £20.00 and £8.99
ISBN - 0 713 99800 8and 0 14 101866 6

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