A preview of the unpublished book A CIVILIZATION WITHOUT A VISION WILL PERISH: AN INDEPENDENT SEARCH FOR THE TRUTH by David Willis. CHAPTER 1: INDIFFERENCE TO POVERTY (Part 48). This blog is a continuation of the review of The End of Poverty: How We Can Make it Happen in Our Life Time, by Jeffrey Sachs, published in 2005
The real price of oil soared during the 1970s
The economic declines in the oil-producing and postcommunist countries reflect very unusual circumstances. The oil-rich states are, of course, not impoverished countries, but instead are middle-income and high-income countries where economic activity depends overwhelmingly on oil exports. These economies rise and fall in line with the “real” price of oil, that is, the price of oil relative to the price of imported goods such as machinery and consumer goods. The real price of oil soared during the 1970s, leading to the massive growth in living standards of these economies, but during the 1980s and 1990s, the oil price fell sharply, leading to a collapse of living standards. If there is a lesson here, it is that an economy dependent on a single product (or a small number of products) for export is bound to experience high volatility as the relative price of the product fluctuates in world markets. Since oil is highly volatile, the real income of the oil economies has similarly been highly volatile.
The strongest transition economies
The economic decline in postcommunist countries is even more of a special case. These countries have experienced a one-time decline in GDP per capita as they changed from a failed communist system to a market economy. Even in the cases of the strongest so-called transition economies – the Czech Republic, Hungary, and Poland – there was a period of sharp reduction in GDP per capita for a few years as old heavy industries linked to the Soviet economy declined or disappeared in bankruptcy and new sectors took time to develop. The result was what economists called a transition recession. By the late 1990s, the postcommunist countries had resumed economic growth, but from a lower GDP per capita than before the Soviet collapse.
Why some poor countries grew and others declined
Poor countries have a significant chance of falling into a poverty trap. Out of the 58 non-oil countries with per capita incomes below $3,000, 22 (or 38%) experienced an outright decline. Yet the 36 other countries enjoyed economic growth. How is it that some very poor countries escaped the ravages of a poverty trap while the rest did not?
The success stories show certain characteristics
Comparing those countries that made it and those that did not, the success stories show certain characteristics. The most important determinant, it seems, is food productivity. Countries that started with high cereal yields per hectare, and that used high levels of fertilizer input per hectare, are the poor countries that tended to experience economic growth. Countries that began with low yields in 1980 are the countries that tended to experience economic decline between 1980 and 2000. Figure 2 illustrates this point: among low-income countries, high cereal yields in 1980 (measured on the horizontal axis) are associated with high economic growth rates (measured on the vertical axis).
The biggest difference between Africa and Asia
The poverty trap is mainly a rural phenomenon of peasant farmers caught in a spiral of rising populations and stagnant or falling food production per person. The biggest difference between Africa and Asia is that Asia has had high and rising food production per capita during recent decades, whereas Africa has low and falling production per capita. The Asian countryside is densely populated, with a relatively extensive road network that can carry fertilizer to the farms and farm output to the markets. Farmers use fertilizers and irrigation, and food yields are high. Donor agencies gave ample support to the development of new high-yield varieties in Asia. Under these conditions Asian farmers were able to adopt high-yield crop varieties that produced the famous Green Revolution of rising food production per farmer.
The African countryside
The African countryside is much less densely populated, with an absence of roads to transport fertilizers and crops. Farmers do not use fertilizer on food crops, and depend on rainfall rather than irrigation. Donors have woefully underfunded the scientific efforts toward improved varieties appropriate for African conditions. Under these much harsher conditions, Africa’s farmers were not able to benefit much, if at all, from the Green Revolution development of high-yield varieties of food crops. Although both Asia and Africa were very poor in 1980, Asian agriculture was significantly outperforming African agriculture, as shown in table 3. This performance has provided a platform for Asia’s extraordinary growth since then.
Better social conditions
There are other tendencies apparent in the data. The Asian countries that experienced growth started in 1980 with better social conditions: higher literacy, lower infant mortality, and lower total fertility rates. They were, therefore, less prone to fall into a demographic trap of rapidly rising populations pressing on a limited amount of farmland. Once again, the Asian peasants were somewhat better off than their African counterparts. Another tendency is that poor countries with large populations seem to have done better than poor countries with smaller populations. The larger population probably increased the size of the domestic market, making it more appealing to foreign and domestic investors. Perhaps it was easier to introduce key infrastructure such as roads and power supplies in countries with larger populations, since these infrastructure networks are characterized by large initial costs of construction that are more easily financed by larger and more densely populated economies.