The End of Poverty Part 5

THE END OF POVERTY

HOW WE CAN MAKE IT HAPPEN IN OUR LIFE TIME

JEFFREY SACHS

PENGUIN BOOKS              2005

PART V

Chapter 4: Clinical economics

The rich world dominates the training of Ph.D. economists, and the students of rich-world Ph.D. programs dominate the international institutions like the International Monetary Fund (IMF) and the World Bank, which have the lead in advising poor countries on how to break out of poverty. These economists are bright and motivated. I know. I have trained many of them. But do the institutions where they work think correctly about the problems of the countries in which they operate? The answer is no. Development economics needs an overhaul in order to be much more like modern medicine, a profession of rigor, insight, and practicality.

SOME LESSONS OF CLINICAL MEDICINE

Lesson 1 is that the human body is a complex system

Lesson 2 is that complexity requires a differential diagnosis

Lesson 3 is that all medicine is family medicine

Lesson 4 is that monitoring and evaluation are essential

Lesson 5 is that medicine is a profession

DEVELOPMENT ECONOMICS AS CLINICAL ECONOMICS

The challenge of making policy recommendations for an economy, especially a poor and unstable economy, shares many of the challenges of clinical medicine. Yet the practice of development economics is not yet up to the task.

• The five key lessons of clinical medicine have clear counterparts in good economics practice as well.
• First, economies, like individuals, are complex systems. Like the circulatory, respiratory, and other systems of a human being, societies have distinct systems for transport, power, communications, law enforcement, national defense, taxation, and other systems that must operate properly for the entire economy to function appropriately.
• As with a human being, the failure of one system can lead to cascades of failure in other parts of the economy.
• Second, economists, like medical clinicians, need to learn the art of differential diagnosis. The IMF has focused on a very narrow range of issues, such as corruption, barriers to private enterprise, budget deficits, and state ownership of production. It has also presumed that each episode of fever is just like the others, and has trotted out standardized advice to cut budgets, liberalize trade, and privatize state-owned enterprises, almost without regard to the specific context.
• The IMF has overlooked urgent problems involving poverty traps, agronomy, climate, disease, transport, gender, and a host of other pathologies that undermine economic development.
• Clinical economics should train the development practitioner to home in much more effectively on the key underlying causes of economic distress, and to prescribe appropriate remedies that are well tailored to each country’s specific conditions.
• Third, clinical economics, like clinical medicine, should view treatment in “family” terms, not just individual terms.
• In the case of a country, the entire world community is part of the family. That is an assumption of the Millennium Development Goals, and especially the concept of a global partnership to achieve the goals, but it is not yet part of real clinical practice.
• Fourth, good development practice requires monitoring and evaluation, and especially a rigorous comparison of goals and outcomes. When goals are not being achieved, it is important to ask why, not to make excuses for past advice.
• The local priest gives one remedy after another – prayers, potions, oaths – until all of the chickens are dead. “Too bad,” says the priest, “I had so many other good ideas.”
• Fifth, the development community lacks the requisite ethical and professional standards. I am not suggesting that development practitioners are corrupt or unethical; such cases are rare.
• Rather, the development economics community does not take on its work with the sense of responsibility that the tasks require.
• Providing economic advice to others requires a profound commitment to search for the right answers, not to settle for superficial approaches.
• It requires a commitment to be thoroughly steeped in the history, ethnography, politics, and economics of any place where the professional advisor is working.
• Any IMF or World Bank official, as well as any academic development practitioner, has the responsibility to speak truth not only to the policy makers within the impoverished country, but to the policy makers of the rich and powerful countries as well.

 

WHERE ECONOMIC DEVELOPMENT PRACTICE HAS GONE WRONG

Clinical economics is needed to replace the past 20 years of development practice, known widely as the structural adjustment era. This era, ushered in by the conservative turn in the United States under President Ronald Reagan and in the United Kingdom under Prime Minister Margaret Thatcher, was based on a simplistic, even simpleminded, view of the challenge of poverty. The rich countries told the poor countries: “Poverty is your own fault. Be like us (or what we imagine ourselves to be – free market oriented, entrepreneurial, fiscally responsible) and you too, can enjoy the riches of private-sector-led economic development.” The IMF-World Bank programs of the structural adjustment era were designed to address the four maladies assumed to underlie all economic ills: poor governance, excessive government intervention in the markets, excessive government spending, and too much state ownership. Belt tightening, privatization, liberalization, and good governance became the order of the day.

• There were some truths in the structural adjustment agenda. But the policy and governance problems in the poorest countries were only part of the story, and in many places not the central part.
• Sadly, there were self-serving and ideological aspects of the structural adjustment era’s failures of advice and insufficient help.
• Foreign aid per person in the poor countries plummeted during the 1980s and 1990s. Aid per person in sub-Saharan Africa expressed in constant 1992 dollars, fell from $32 per African in 1980 to just $22 per African, during a period in which Africa’s pandemic diseases ran rampant, and needs for increased public spending were stark.

 

DIFFERENTIAL DIAGNOSIS FOR POVERTY REDUCTION

The Millennium Development Goals (MDGs) offer the world a chance to do better vis-à-vis the poorest countries after 20 years of failed structural adjustment policies. The MDGs state real goals that provide not only benchmarks for aid but also milestones for assessing the advice of the international agencies as well. The failures to meet the MDGs are failures of the rich countries as well as the poor, since both are responsible for their success. The fact that the MDGs are not being met throughout Africa, the Andean region, and Central Asia tells us that the problems are more than simply those of governance. Many governments in these regions have shown boldness, integrity, and intelligence. Yet development continues to fail. A clinical economics approach will point the way to a better strategy.

• The key to clinical economics is a thorough differential diagnosis, followed by an appropriate treatment regimen. In the course of a physical exam, the doctor runs through pages of questions. The clinical economist must do the same.
• In table 1, I describe a seven-part diagnostic checklist that should be part of the “physical exam” of any impoverished country: The extent of extreme poverty; Economic policy; The fiscal framework; Physical Geography and human ecology; Patterns of Governance; Cultural barriers to economic development; Geopolitics.

 

EDUCATION OF AN ECONOMIST

A differential diagnosis is the beginning, not the end, of the process. The next steps, of course, are to design programs and institutions to address the critical barriers to poverty reduction that are identified through the differential diagnosis.

These were issues that, much to my surprise, I had not been truly trained to address.