I readThe End of PovertybyJeffery D. SachsonApr 19th, 2019


Can we eliminate poverty from this planet1? In the book, The End of Poverty, Prof. Jeffery D. Sachs was optimistic about the lofty goal:

  • It is misconception that the poor is poor due to their laziness. In many circumstance, the country is stuck in the poverty trap.
  • The developed country SHOULD provide ample financial aid to help the poor countries to escape the the poverty trap.
  • The policy makers SHOULD adopt the clinical economics, a methodic analysis followed by a specifically tailored prescription.

Disparity of Wealth

In the human history, all regions were poor before 1820. The Industrial Revolution fundamentally changed the way how we utilized the energy: the high density fossil fuels to replace the low-density carbohydrates. The Industrial Revolution began in the Great Britain thanks to the relative open society, political liberty, scientific advancement, and geographical advantage. Then it spread to British colonies, the Europe, and the rest of the world.

However, some countries fail to achieve the economic growth due to:

  • Physical Geography and Geopolitics
  • The Demographic Trap: the population growth outpace the economic growth.
  • Poverty Trap: the extreme poverty hamper the economic bootstrapping without essential infrastructures.

The author also demonstrated the correlation between the low-income countries and negative-growth countries(the only exception is UAE, an oil exporter) to prove the existence of poverty trap.

Case Study

The author won his international reputation as the savior of Bolivia and Poland.

Bolivia Hyperinflation

Bolivia has been a landlocked country since the War of the Pacific, and the high transportation costs across mountainous terrains make most of trades unprofitable. The country has heavily depends on the commodity exportation with high value per unit weight, such as crude oil, silver, tin, and cocoa; which make its economy vulnerable of the market fluctuation. With dwindling economy since 1970, the cost to issue bonds kept rising and the government had to print more money to close the budget deficits.

In 1985 the Bolivian peso crashed with annual inflation rate of 20,000%. Prof. Jeffery D. Sachs was invited by the authority to stabilize the economy. He proposed:

  • Deregulate the oil price. The oil price increase could bring more tax for the government to pay off the deficit.
  • Use the foreign exchange reserves to buy back Bolivian peso in the second wave of hyperinflation on Dec 1985 to strengthen the currency,
  • Work on the tax-exempt plan with foreign creditors to bring more room for Bolivia’ economy to breathe.

The hyperinflation was stopped in time, even though the selling foreign exchange reserves was controversial to IMF regular practice.

Poland’s Return to Europe

Poland regained its political independence in 1989 and its economy suffered significant productivity loss during the transition from the planned economy to the free market. The state-owned enterprises were incompetent and lingered on the national banks’ loans. The government adopted the famous Balcerowicz Plan, aka Shock Therapy, named after its author, Leszek Balcerowicz:

  • Economic liberalization by release the price and currency control.
  • Stop the state subsidies and allow state-owned enterprises to go bankruptcy for privatization.
  • Deregulate the state market for trade liberalization.
  • Debt reduction for the debts accumulated in the Communist authority.

It is generally agreed that the Shock Therapy paved the way for Polish economy recovery on the expense of short-term pain, such as unemployment rate surged (0.3% to 6.5% in 1990), GDP loss(-9.78%, and -7.02% in 1990 and 1991). The privatization was postponed until the economics was stabilized as contrasted to Russia.

The Dying Africa

According to World Bank 2017 report, the top 10 poorest countries are all in Africa2 3 4:

Country Int$ Birth rate Infant mortality rate
Central African Republic 726 36 86.30
Burundi 771 40 58.80
Liberia 827 33 52.20
Democratic Republic of the Congo 887 42 68.20
Niger 1017 47 81.10
Malawi 1202 35 69.50
Mozambique 1247 38 65.90
Sierra Leone 1526 34 68.40
Comoros 1552 32 60.00
Madagascar 1555 33 41.20

These African countries need to breakthrough tremendous resistance to escape the poverty trap.

The homo sapiens originated from the Africa continent, and the African soils were exploited for thousands of years by the human being’s agriculture activities. About 55% of land is unsuitable for any kind of agriculture except nomadic grazing; about 16% of the land has soils of high quality and about 13% has soils of medium quality5. The farmers need to apply fertilizers to boost the yield of crops, and many communities are just too poor to make this investment.

The Africa continent suffers the most severe malaria epidemics6.

About 90% of all malaria deaths in the world today occur in Africa south of the Sahara This is because the majority of infections inAfrica are caused by Plasmodium falciparum, the most dangerous of the four human malaria parasites. It is also because the most effective malaria vector -– the mosquito Anopheles gambiae -– is the most wide spread in Africa and the most difficult to control.

The African countries gained their independencies individually from the arbitrary post-colonial borders disregards the heritages see Scramble for Africa. It invited conflicts such as land dispute, and the ethic polarization would escalate to genocides, see Burundian genocides.

Close Thoughts

In 2018, World Bank published Piecing Together the Poverty Puzzle(pdf). The major contributing factor for the global extreme poverty reduction is the strong economic growth in China and India.

Extreme Poverty Trends
Extreme Poverty Trends

I disagreed with the author that the Shock Therapy and financial aids are panaceas to exterminate the poverty. Use China as an example, the financial aids China received were $220m from Japan in 1978, $1.4B from US in 20017, roughly $1 per capita, hardly to make significant difference. I think the China accelerated its industrialization by the price scissors. In the controlled economy, the government controlled the production and prices. It deliberately decreased the produce price to transfer the wealth to industry for re-investment.

Also the Shock Therapy was not popular among the elites, the official media disdained the Shock Therapy and used Russia as a bad example. I feel the central government preferred a more gradual reform approach. For example, the household responsibility system(家庭联产承包责任制) was a grass root movement initiated by peasants in Anhui province.

The Chinese government also heavily invested on the infrastructures, tie gong ji(铁公基) to stimulate the GDP growth. This paved the foundation for China to embrace the globalization and become the world factory.

  1. The international poverty line is defined by World Bank as income below $1.90 a day.
  2. Data source of GDP per capita: Wikipedia.
  3. Data source of birth rate: World Bank data 2017.
  4. Data source of infant mortality rate: The CIA World Factbook.
  5. Soil Quality and Soil Productivity in Africa, Hari Eswaran, et al.
  6. The burden of malaria in Africa
  7. Data source: Foreign aid to China