More than five billion of the world’s 6.5 billion people can meet their basic living needs. They can be said to have escaped from the conditions that once governed everyday life. Significant success in poverty reduction India, China, and Vietnam. Slide: One out of six inhabitants on the planet, struggles daily to meet requirements such as: adequate nutrition, uncontaminated drinking water, safe shelter and sanitation, and access to basic health care Every year, nearly a million children die of malaria and more than two million die before they are a month old. Some 1.3 billlion gets by on $1 a day or less and are overlooked by public services for health, education and infrastructure. Robert Zoellick noted in late November 2008 that 100 million people have been driven into poverty in 2008 only. That crisis is a result of commodity prices, especially rising energy prices and higher fertilizer prices. Slide: Every day more that 20,000 people die of dire poverty, for want of food (People are starving to death in Niger, Mali, Ethiopia, Malawi, Mauritania, Burkina Faso, Zimbabwe, Eritrea and southern Sudan) safe drinking water, medicine or other essential needs (About 1.5 billion rural poor live without electricity). Africa: an average annual income per capita of merely $600 and 300 million people living in poverty. Slide: Many of the poorest regions are in a trap: they lack the financial means to make the necessary investments in infrastructure (transportation and power generation); education, health care systems and other vital needs. Why? 1. The weight of the evidence indicates that internal factors such as governance make difference. (waste of funds, arms purchases). Note the differences between Central America and Africa, on the one hand, and E. Asia, on the other. Examples: Nicaragua and Vietnam. Both are poor countries with primarily agricultural economies. Both have suffered from long periods of conflict. And both have benefited from substantial foreign aid. But only Vietnam has reduced poverty dramatically and enjoyed steady economic growth (five percent per capita since 1988). Nicaragua has floundered economically, with per capita growth too modest to make a real dent in the number of poor people. Vietnam faced a U.S. embargo until 1994, and it is still not a member of the World Trade Organization (WTO). Despite these obstacles, it has found markets for its growing exports of coffee and other agricultural products and has successfully begun diversifying into manufacturing as well, especially of textiles. Nicaragua, on the other hand, benefits from preferential access to the lucrative U.S. market and had several billion dollars of its official debt written off in the 1990s. Yet its coffee and clothing export industries have not been able to compete with Vietnam's. Why has Vietnam outpaced Nicaragua? The answers are internal: history and economic and political institutions have trumped other factors in determining economic success. Access to the U.S. market and the largesse of Western donors have not been powerful enough to overcome Nicaragua's history of social and economic inequality: land and power there have long been concentrated in the hands of a few elites, and the government has failed to invest enough in infrastructure and public welfare. The experiences of many other developing countries confirm the importance of specific internal factors. Like Vietnam, neither China nor India -- the two emerging superstars of the last quarter century -- has benefited from trade preferences. And neither has received much foreign aid compared to countries in Africa and Central America. But by enacting creative domestic reforms, China and India have prospered, and in both countries poverty has plunged. Mexico. It has the advantage of sharing a 2,000-mile border with the world's greatest economic power. Since the North American Free Trade Agreement went into effect in 1994, the United States has given Mexican goods duty-free access to its markets, has made huge investments in the Mexican economy, and has continued to absorb millions of Mexican laborers. During the 1994-95 peso crisis, the U.S. Treasury even underwrote Mexico's financial stability. Outside economic help does not get much better. But since 1992, Mexico's economy has grown at an annual average rate of barely more than one percent per capita. This figure is far less than the rates of the Asian growth superstars. It is also a fraction of Mexico's own growth of 3.6 percent per year in the two decades that preceded its 1982 debt crisis. Access to external markets and resources has not been able to make up for Mexico's internal problems. Corruption? But: according to surveys conducted by Transparency International, business leaders actually perceive many fast-growing Asian countries are more corrupt than some slow growing African ones. Many African countries have been unable to match Vietnam's success, despite being no poorer or more agrarian. True, education and health indicators have improved markedly in Africa, and some of its countries have achieved macroeconomic stability. 2. Geography (natural resources, climate, topography, and proximity to trade routes and major markets) is at least as important as good governance. As early as 1776, Adam Smith argued that high transport costs inhibited economic development in the inland areas of Africa and Asia. More recently: Xavier Sala-i-Martin has demonstrated that tropical countries suffering from the spread of malaria have experienced slower growth than those free from disease. 3. Misguided recommendations of international financial institutions. Growth is not simply a free-market phenomenon. Since the mid-1980s, virtually all Latin American countries have opened and deregulated their economies, privatized their public enterprises, and allowed unrestricted access to foreign capital. Yet they have grown at a fraction of the pace of the heterodox reformers and have been strongly buffeted by macroeconomic instability. Growth requires basic government services: infrastructure, health, educations, and scientific and technological innovation. So many of the recommendations of the past two decades originating from Washington – the governments in low-income countries should cut back on their spending to make room for the private sector – miss the point. Government spending, directed at investment in critical areas, is vital for growth, especially if its effects are to reach the poorest of the poor. According to UNICEF, over 500,000 children under the age of five died each year in Africa and Latin America in the late 1980s as a direct result of the debt crisis and its management under the International Monetary Fund’s so-called structural adjustment programs. 4. Capital flight (financial + human); Impoverished areas lack adequate internal saving to make the needed investments. The few high-income families, who do accumulate savings, park them overseas rather than at home. The poorest countries are often, perversely, net exporters of capital. (Excellent peace by James Henry) who cites the study showing that at least half of the fund borrowed by the largest “debtor” countries flowed right out the back door, usually the same year or even the same month that the loans arrived. Many institutions -- the OECD and the U.S. government, for example -- have laws against bribing foreign officials. But the regulations are often both narrow in scope and weak on enforcement. For example, a loophole in the U.S. laws ("deferred gifts") invites abuse. Some OECD rules damage transparency by protecting banks that hide ill-gotten wealth deposited by leaders of developing countries. This capital flight includes not only financial capital but also the human variety, in the form of skilled workers – doctors, nurses, scientists and engineers, who frequently leave in search of improved economic opportunities abroad. How to solve the problem? Greater market access Debt Relief The initiative to write off the debt of the most heavily indebted and poorest countries, launched in 1999 and in which 26 countries (out of a possible 42) now participate, It has not been an unqualified success, as even the World Bank acknowledges. Critics argue that the effort has not guaranteed that poor countries can escape from their debt trap, and point to Uganda as an illustration of how things can go sour. Foreign aid: Although economic growth has shown a remarkable capacity to lift vast number of people out of extreme poverty, progress is neither automatic nor inevitable. Market forces and free trade are not enough. People like Jeffrey Sachs believe that the end of such poverty is feasible if a concerted global effort is undertaken. 1. He cites the Millennium Development Goals at the UN Millennium Summit in 2000 as an example of such global effort. Central recommendations: Boosting assistance to the poorest countries of the world (as indicated in the reports of the UN Millennium Project and (Former) British Prime Minister Tony Blair's commission on Africa), Blair's (2005) plan to provide about $50 billion a year to Africa by 2010 — with the U.S. kicking in $15 billion to $20 billion. With that money, Africa could control killer diseases, triple food production and cut hunger, and improve transportation and communications. Most of today’s successfully developing countries, especially smaller ones, received at least some backing from external donors at crucial times. Aid is a prerequisite for African development on account of the continent's bad geography and favorable environment for diseases. a big reduction in the number of people living in poverty universal primary education—to be met by 2015 reduced corruption and better management in poor countries. The Millennium Promise Alliance (of which J. Sachs is a president) aims to help countries reach the U.N.’s Millennium Development Goals by 2015 (by advocating increased foreign aid). Hard economic times are hitting big donors such as the United States, Europe, and others. Promises are for less than 1 percent of income—which is true whether we are in a good year or a bad year. Less than 1 percent is manageable. The idea of $25 billion for Africa suddenly doesn’t sound like so much after a $700 billion bailout in the United States or $2 trillion in bank guarantees in Europe. One of the core strategies is looking at multiple donors, not only traditional donors in the United States and Europe. The Middle East can and should put in more money; China can and should put in more money. There is a global network of expertise and goodwill to help achieve this objective. The world’s richest nations spent trillions to rescue their own financial systems from the crisis caused by years of excess. They must also be prepared to provide billions to poorer countries that did not cause this crisis but are nevertheless its victims. Private capital flows to emerging markets are expected to plummet 30 percent in 2008. Exports are suffering as rich economies slow and commodity prices retreat. Remittances from migrant workers — a core source of earnings for many developing countries — are falling fast. Eastern and Central Europe, where much of the banking system is controlled by Western banks, is in particularly dire straights. Ukraine asked the International Monetary Fund for $14 billion to prop up its financial system as money flees. Hungary got 5 billion euros from the European Central Bank. Pakistan — America’s hoped-for ally in the fight against Al Qaeda that also has nuclear weapons — is said to need $3 billion to $4 billion to finance a gaping trade deficit. Even robust economies with strong budgets and ample reserves have been walloped by the capital crunch. Two weeks ago, the Mexican peso suffered its steepest drop since the peso crisis of December 1994. The Brazilian real and the Korean won have plunged by a quarter against the dollar. 2. Sachs claims that there is a number of development agencies, international financial institutions, NGOs and communities throughout the developing world 3. The technology to overcome problems (and handicaps) and jump-start economic development exists. Malaria can be controlled using bed nets, indoor pesticide spraying and improved medicines. Drought-prone countries in Africa with nutrient depleted soils can benefit enormously from drip irrigation and greater use of fertilizers. Landlocked countries can be connected by paved highway networks, airports, and fiber-optic cables. But not everyone is exciting the prospects of poverty reduction with aid. Aid has accomplished some great things. Health issues: smallpox has been eradicated, infant mortality rates have been lowered, and illnesses such as diarrhea and river blindness have been widely treated. Aid programs have improved women's access to modern contraception in Bangladesh and Egypt and helped increase school enrollment in Uganda and Burkina Faso. Aid also pays for much of the (still-limited) access to AIDS medicines in poor countries. In the last decade, aid has helped restore peace and order after conflicts in places including Bosnia, East Timor, and Sierra Leone. BUT: There are many reasons for the mixed performance of foreign assistance. Donors themselves cause many of the problems. Recipient countries can be overwhelmed by the multiplicity of donors pursuing many, even inconsistent, objectives, disbursing aid to innumerable projects and imposing a plethora of conditions on its use. These factors contribute to rather than offset a poor country's lack of institutional capacity. On top of that, there is the natural volatility and uncertainty of foreign aid, which make it difficult for recipient governments to plan their budgets. Thus, the fundamental dilemma: countries most in need of aid are often those least able to use it well. That sets limits on the extent to which large infusions of foreign funds can make a difference. Assistance does work well, but only when the recipient countries do the right things to help themselves and have the capacity and the leadership to spend the money wisely. Some statistical evidence indicates a link between financial assistance and growth. But aid has not been associated with the sustained increases in productivity and wages that ultimately matter. During the 1990s, for example, countries in sub-Saharan Africa received funding amounting on average to about 12 percent of their GDP, while their average growth rate per capita declined by 0.6 percent per year. Meanwhile, some of today's development successes -- such as Chile and Malaysia -- relied little on aid. And aid to China and India has been very small. Almost all successful cases of development in the last 50 years have been based on creative -and often heterodox -- policy innovations. South Korea and Taiwan, for example, combined their outward trade orientations with unorthodox policies: export subsidies, directed credit, patent and copyright infringements, domestic-content requirements on local production, high levels of tariff and nontariff barriers, public ownership of large segments of banking and industry, and restrictions on capital flows, including direct foreign investment. Since the late 1970s, China has also followed a highly unorthodox two-track strategy, violating practically every rule in the book -- including, most notably, securing private property rights. India, which raised its economic growth rate in the early 1980s, remained a highly protected economy well into the 1990s. Even Chile -- Latin America's apparently "orthodox" standout that managed to achieve both growth and democracy -- violated conventional wisdom by subsidizing its nascent export industries and taxing capital inflows.
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