Schlock therapy: this week's plan to end world poverty

I came to this book with mixed feelings. Having met Jeffrey Sachs briefly in 2001, I was dazzled by his rhetorical skills, and he is obviously an incredibly bright and driven man, so I really wanted to understand why he is prescribing a kind of Great Leap Forward, a huge boon for the aid industry, but so destined for failure.

Of course, I was impressed with the book. Sachs's supreme self-belief--okay, breathtaking but enjoyable arrogance--almost seduced me into believing that ending poverty is not only possible, but straightforward. I had no idea that Sachs almost singlehandedly solved the macroeconomic problems of Bolivia and Poland, so perhaps his vision is the true one. It would be a relief to know that the failure of his proposed reforms for Russia and parts of Africa was caused by a lack of faith--that those countries simply didn't follow his advice.

It makes me quite sad that I know better. Sachs has become the intellectual cheerleader to the world's poor--articulate, passionate, persuasive, and wrong. Unfortunately, he will exact more influence over the distribution of aid than most cheerleaders have over team strategy.

He is right about the tragedy of poverty: Someone dying every three seconds from extreme poverty is a story that should be told with passion, and solutions should be urgently sought. Sachs has the passion, but his solutions seem to come down to a recurrent theme in his work: spending vast amounts of Western money to attempt to instantly instill economic reforms in poor or transitional economies. His approach has become known as "shock therapy"--a phrase that now dogs him, although he didn't seem to mind it when it was used alongside terms like the "Sachs plan" in the early 1990s.

About a decade ago, Sachs's attention switched from macroeconomic and currency reforms to the developing world, and especially the problems of Africa. He published influential papers on the costs of malaria and AIDS to Africa, and documented how all but a handful of Northern European countries were not hitting their U.N. targets of 0.7 percent of GDP in foreign aid.

I am with Sachs on the hypocrisy of world leaders who sign up to targets and timetables without real thought as to whether they are deliverable. But I'm baffled that he has faith in targets. Early on, Sachs says: "The key is not to predict what will happen, but to help shape the future." Fair enough. But with his intellect and knowledge of the system, he should surely realize what all insiders know: that U.N. targets are missed because their purpose is to maintain jobs, make the bureaucrats feel noble, and to spoon-feed headlines to the media (who we all know are too lazy to properly check back on the stream of broken promises). It's Sachs's loss of analysis, when it comes to this aspect of human nature, that is most worrying.

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His plan is that the U.N. should coordinate massive aid through the various large agencies (World Bank, IMF, WHO, etc.), delivering complex solutions (nitrogen-fixing plants, bed nets, water recycling, etc.) to complex problems (nutrient-poor soils, malaria, high water salinity, etc.) in areas of extremely low capacity. He predicts that increasing aid spending by tens of billions of dollars each year until 2025 will spring the poverty trap for good and all.

The idea that a poverty trap exists at the international level is just plain silly. No country can keep another one poor (unless by violence). Nor has any country become wealthy from handouts from another--individuals and Swiss bank accounts notwithstanding. Lack of good governance keeps citizens poor, and guaranteeing a ruler a life ticket on a gravy train is enough to corrupt a saint. Never mind the gravy train operators taking a cut. Despite the cynicism, the U.N. can be a force for good, but that ain't the way.

In the real world, it's the alternative approach of tailored aid to specific projects and marginal reform of institutions that is promoted by Sachs's nemesis, Bill Easterly, author of the Elusive Quest for Growth and a fellow New York-based economics professor, which has proved most successful, especially among the Asian tigers.

Interestingly, Sachs says he has drawn his economic approach from medicine--his wife is a physician--but the analogy is false. He says that the complex system of the body requires an understanding of complexity, a diagnosis, and targeted treatment, and so it is with economics. But where he is right about treating malaria in patients, his diagnosis of how to control malaria in Africa is bound to fail, because human beings respond to incentives and make choices, and red blood cells do not.

Sachs correctly chastises the IMF and World Bank for their dogmatic demands for structural reforms, such as cutting budget deficits, without establishing whether they improve sustainable growth. He dislikes their hegemonic and homogenous advice since, when it is wrong, it harms millions. It seems bankers, like the rest of us, prefer to stay within the crowd, even if the crowd is wrong.

Unfortunately his approach to malaria control fails for the same reason. The U.N. agencies that he trusts to control health spending in poor countries actually do what is least offensive to shareholders and advisers rather than what is best for patients. Given the choice, developing countries prefer to spray insecticides to control mosquitoes. Western donors, influenced by environmentalists, want to force them to use bed nets, even when they don't work or are used for fishing. So, WHO behaves just like the IMF. And when it is wrong--as it is much of the time--it is hugely damaging. It will be more so if Sachs gets his way and increases its influence tenfold.

The worst thing about long-term aid is that it encourages the brightest minds in a country to milk the system rather than do something productive. And this is the part of Sachs's book I find most disappointing: He ignores the history of failed aid, and the perversion of human action it causes.

Sachs is a great fundraiser, and I have no doubt more aid will be forthcoming; we're already seeing it with AIDS. But unless aid is well targeted, or free-market reforms are enacted, any health benefit will be short-lived. Take malaria: Eradicated from many countries when DDT was used, it returned significantly to some of them when DDT use was stopped. Critically, only in the countries that had reformed or improved economically, such as Singapore, did it stay eradicated.

If Sachs just stuck to cheerleading he might be occasionally annoying, but still useful to raise awareness. I hope, however, he never gets hold of the playbook.

The End of Poverty

Economic Possibilities for Our Time

by Jeffrey D. Sachs

Penguin, 416 pp., $27.95

Roger Bate is a resident fellow at the American Enterprise Institute.

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