Ending Poverty Part 3

THE END OF POVERTY

HOW WE CAN MAKE IT HAPPEN IN OUR LIFE TIME

JEFFREY SACHS

PENGUIN BOOKS              2005

PART III

Chapter Two: The Spread of Economic Prosperity

• The move from universal poverty to varying degrees of prosperity has happened rapidly in the span of human history. Life was as difficult in much of Europe as it was in India or China.
• The average income per person in Western Europe in 1820 was about 90% of the average income of Africa today. Life expectancy in Western Europe and Japan as of 1800 was about 40 years.
• A few centuries ago, vast divides in wealth and poverty around the world did not exist. China, India, Europe, and Japan all had similar income levels at the time of European discoveries of the sea routes to Asia, Africa and the Americas.

The novelty of modern economic growth

• Before 1800 there had been virtually no sustained economic growth. There was no discernible rise in living standards on a global scale during the first millennium and perhaps a 50% increase in per capita income in the 800-year period from A.D. 1000 to A.D. 1800.
• In the period of modern economic growth, the global population rose sixfold in two centuries, reaching 6.1 billion at the start of the third millennium, with plenty of momentum for rapid population growth still ahead.
• US per capita income rose twenty-five-fold. Total worldwide food production more than kept up with the booming world population (though large numbers of chronically hungry people remain until today).
• Gross world product or GWP rose 49 times during the past 180 years. In 1820 the gap between the world’s rich and poor countries was a ratio of four to one in per capita income; in 1998 it was 20:1.
• Technology has been the main force behind the long-term increases in income in the rich world, not exploitation of the poor. Economic development is not a zero-sum game in which the winnings of some are inevitably mirrored by the losses of others. This game is one that everybody can win.

On the eve of takeoff

• Until the mid-1700s, the world was remarkably poor by any of today’s standards. Life expectancy was extremely low; children died in vast numbers in the now rich countries as well as poor countries.
• Many waves of disease and epidemics, from the black death of Europe to smallpox and measles, regularly washed through society and killed mass numbers of people. Episodes of hunger and extreme weather and climate fluctuations sent societies crashing.
• What changed was the onset of the Industrial Revolution – with the combination of new technologies, coal power and market forces – supported by a rise in agricultural productivity and food yields in northwestern Europe through improved agronomic practice.
• Britain’s advantages were a combination of social, political and geographical factors. Scientific thinking was dynamic. Other parts of the world were not as fortunate and their entry into modern economic growth would be delayed – in some cases until today.

The great transformation

• Suddenly economies could grow beyond long-accustomed bounds without hitting the biological constraints of food and timber production. The power of economic growth spilled out from Great Britain to all parts of the world, changing the way people lived in every fundamental sense.

The spread of modern economic growth

• Britain’s industrialization spread to other markets by stimulating the demand for exports from Britain’s trading partners, supplying capital to make investments, and by spreading technologies first pioneered in Britain.
• The confrontation between rich and poor was stark because the gap of wealth also meant the gap of power, and power could be used for exploitation.
• Imperial powers forced Africans to grow cash crops, imposed taxes, compelled Africans to work in mines and on plantations, commandeered natural resources, and maintained private armies to ensure compliance.

The cascade of technological change

• Living standards began to rise in many parts of the world, even with the brutality and suffering in places where colonial masters grabbed much of the economic output.
• The single most important reason why prosperity spread, and why it continues to spread, is the transmission of technologies and the ideas underlying them.

The Great rupture

• WW I ended the era of European-led globalization. It’s death toll was staggering; it destabilized the Russian czarist regime; created prolonged financial instability in Europe; left a mountain of debt incurred; dismembered the Ottoman and Hapsburg empires; created small, unstable, and feuding successor states; and paved the way for Hitler’s rise to power.
• The economic instability that followed WW I led to the Great Depression of the 1930s and then to WW II. The Great Depression triggered a calamitous spread of trade protectionism and the rise of Nazism in Germany and military rule in Japan.
• By the end of WW II, the pre-1914 global system had gone to pieces. The age of European imperialism was coming to an end, although it would take decades and many wars for it to end decisively.
• Standing on the ruins of WW II, the benefits of a global marketplace – with a global division of labor, a peaceful spread of technology, and open international trade – looked long gone, buried under the rubble of two world wars and a great depression.

Restructuring a global economy

• Between the end of World War II and the end of the Soviet Union in 1991, Europe, the United States and Japan constructed a new international trading system under U.S. political leadership. The socialist world, forged by Lenin and Stalin, remained cut off economically from the first world until the fall of the Berlin Wall in 1989 and the end of the Soviet Union in 1991. The third world included the rapidly rising numbers of postcolonial countries.
• The post-WW II world evolved on three tracks. The fundamental problem, however, was that the second world and third world approaches did not make economic sense, and they both collapsed under a pile of foreign debt.
• By the early 1990s, the overwhelming majority of countries of the second and third world were saying, “We need to be part of the global economy; we want our sovereignty; we want our self-determination; economic isolation makes no sense.”
• One of my roles from the mid-1980s was to help countries to become sovereign members of a new international system, dealing with three big questions: What is the best way back to international trade? How do we escape from the barnacles of bad debts and inefficient industry? How do we negotiate new rules of the game to ensure that the emerging global economy truly serves the needs of all of the countries of the world, not only the richest and most powerful?

Two hundred years of modern economic growth

• This era of modern economic growth has brought higher living standards, a spread of modern technology, and a scientific and technological revolution that still gains strength, but phenomenal gaps between the richest and poorest.
• Why does a vast gulf divide one sixth of humanity today in the richest countries from the one sixth of the world barely able to sustain life?
• The richest countries were able to achieve two centuries of modern economic growth while the poorest didn’t begin till decades later, in some cases facing the brutal exploitation of dominant colonial powers.
• The poorest faced barriers related to geography, climate, food production, disease, energy resources, topography and proximity to world markets that had not burdened the early industrial economies. They made disastrous choices in their national policies.
• There are practical solutions to almost all of their problems. But as there is no single explanation for why certain parts of the world remain poor, there is also no single remedy. A good plan of action starts with a good differential diagnosis of the specific factors that have shaped the economic conditions of a nation.

 

Chapter 3: Why Some Countries Fail to Thrive