good for the poor is good for America
Jul 12th 2001
From The Economist print edition
Jeffrey Sachs on where Uncle Sam should be more
generous, and why
ALTHOUGH its prosperity depends on a worldwide network of trade, finance
and technology, the United States currently treats the rest of the
world, and especially
the developing world, as if it barely exists. Much of the poorer world is in
turmoil, caught in a vicious circle of disease, poverty and political instability.
Large-scale financial and scientific help from the rich nations is an investment
worth making, not only for humanitarian reasons, but also because even remote
countries in turmoil become outposts of disorder for the rest of the world.
The biggest priority of next week’s Genoa Summit should be for the rich countries,
above all the United States, to get serious about contributing to global economic
During the cold war, the United States and its allies provided the global public
good of containment, investing trillions of dollars to stop the spread of communism.
The task now is vastly more complicated. The principal goal of foreign policy
is now almost containment’s opposite: helping to ensure that all parts of the
world, including the poorest, are integrated into global economic and ecological
networks in mutually beneficial ways.
American presidents in recent times have not acknowledged that this goal requires
massive foreign-policy investments. America’s foreign aid is 0.1% of GDP, a
derisory shadow of what it used to be, and roughly one-third of the European
level (see charts). Following America’s lead, most of the large economies have
allowed their own foreign-assistance programmes to shrink since the end of
the cold war. Even when the United States reaped a peace dividend of more than
2% of GDP in reduced defence spending after 1990, it cut, rather than increased,
foreign-assistance spending as a share of national income.
lessons of state failure
Traditional diplomacy deals with risks of conflict between nation-states. These
risks are of course still present, but a more pervasive danger is that states
will simply collapse. Of the dozen or so conflicts in Africa in recent years,
few, if any, have involved cross-border aggression. Instead, bankrupt and impoverished
states have imploded, the vacuum filled not by regimes with newly consolidated
power but by brutal violence engulfing civilians. The disaster then fans out
to neighbouring countries, and eventually much farther afield.
special “task-force on state failure” set up by America’s CIA has found that
three variables are most predictive of state stability or instability: the
openness of the economy (closed economies carried an increased risk of state
collapse); democracy (authoritarian regimes were less stable); and infant mortality
(a high incidence of disease raised the risk of collapse). In sub-Saharan Africa,
where much of the population lives on the edge of subsistence, poverty and
slow economic growth, or outright decline, increased the likelihood of future
state collapse, thereby trapping the countries in a vicious circle of poverty
and political instability. Rich countries, on the other hand, tend to maintain
political stability which, in turn, promotes further economic development.
When countries were classified in 1990 by their status in the United Nations
Human Development Index (an index of income, literacy and health), high-development
countries achieved robust and stable economic growth during 1990-98, with average
growth rates of around 2.3% a year and with 35 out of 36 countries enjoying
rising living standards. Middle-development countries achieved a slightly lower
growth rate, 1.9% a year, but seven out of 34 countries experienced outright
declines in living standards. The poorest countries averaged no economic growth
at all, with 15 out of 39 experiencing falling living standards. The flip-side
to the poverty trap, however, is that the gains of development tend to be sustained,
once countries break through to sufficient levels of income, health and literacy.
Conservatives in America often ask why it matters if an impoverished country
collapses. The answer is that, aside from humanitarian concerns, crises in
such far away places often suck the United States into crisis as well. Since
1960, America has been dragged into military conflicts in Cuba, Thailand, Laos,
Congo, Vietnam, the Dominican Republic, Cambodia, Cyprus, Lebanon, Zaire, El
Salvador, Libya, Lebanon, Honduras, Nicaragua, Chad, Liberia, Bosnia, Somalia
and, more recently, Kosovo and Colombia.
State failures, or even milder state instability, have also undermined American
and global interests through globally transmitted financial crises, drug-trafficking,
money-laundering, terrorism, the spread of diseases such as AIDS and mass refugee
flows. On the positive side, sustained economic development would create new
and potentially large gains from trade, as well as much-needed co-operation
in science and culture.
Even when a problem is correctly identified, there is a stunning disconnect
between risk and action in America’s foreign economic policy. The global AIDS
epidemic, for example, has recently and wisely been identified as a risk to
the security of the United States. What action has been taken? President George
Bush has called upon Americans to give just $200m, or 70 cents each, to the
new global fund to fight the disease.
The failure to make even basic investments in foreign policy has been pervasive,
and the examples are legion. Eleven years ago, the last prime minister of unified
Yugoslavia, Ante Markovic, launched a last-ditch plan for economic stabilisation.
He appealed to Europe and the United States for a reduction in debt-servicing
and other modest financial support, but was turned down by the creditor governments.
Economic stabilisation was undermined, and this helped Slobodan Milosovic to
get the upper hand. The rest, as they say, is history.
In the past two years America and European countries have made the same mistake
in Nigeria, an impoverished and unstable country emerging from years of corrupt
despotism. Although Nigeria’s oil earnings, net of production costs and income
to foreign oil companies, amount to around only $90 per Nigerian a year, the
United States and Europe continue to prevaricate over urgently needed debt-reduction
because the oil earnings are easy to squeeze for debt-service payments. The
new democratic regime of President Olesegun Obasanjo is put at risk, and Libya’s
leader, Muammar Qaddafi, does not miss a chance to inflame matters in Nigeria’s
Islamic northern states.
Area after area of neglect can be catalogued, from the strife-torn Andes to
regions around the world undermined by climate change. Through all of it, the
United States barely lifts a finger. It somehow thinks that sending the impoverished
and unstable governments down Pennsylvania Avenue to get loans from the IMF
and the World Bank will do the job, but even some staff of those organisations
now publicly acknowledge that they have failed: making loans when grants are
needed, imposing excessive austerity by collecting rather than cancelling debts,
and failing to find partner-institutions with the scientific expertise to tackle
underlying problems of disease, low food production, climatic stress and environmental
Re-inventing foreign aid
The Bush administration and Congress must find their way to a renewal of American
foreign policy and the sensible international investments that will be needed
to back it up. The president’s core team knows the world and its risks. Last
year’s Meltzer Commission, on which I served, demonstrated that there could
be a bipartisan consensus on the need for much more American help for the poorest
countries. The new chairman of the Senate Foreign Relations Committee, Joseph
Biden, is ideally suited by knowledge and temperament to help lead a bipartisan
foreign-policy effort with the Bush administration. Here are some guidelines
for investing in foreign policy in today’s global economy.
First, we must identify the areas where money can really make a difference.
Keenest attention should be paid to the world’s poorest regions, the ones most
likely to fall prey to the vicious circle of poverty, disease and state collapse.
Remarkably, only around one-sixth of American aid is currently directed to
the 48 least-developed countries, most of which are in Africa. Help for these
countries should come in two ways: as direct support for national programmes
to fight disease, malnutrition and illiteracy, when those programmes make sense
and are honestly administered; and through programmes to develop new technologies
to overcome barriers to long-term economic development.
Second, the United States should end its decade-long war against the United
Nations agencies. Specialised organisations such as the World Health Organisation,
the Food and Agriculture Organisation, the Consultative Group on International
Agricultural Research, UNAIDS and the United Nations Development Programme
need to be bolstered with more money and administrative reforms, not squeezed
financially to the point of collapse. These agencies would be greatly strengthened
by closer and properly financed links with America’s own top-rank institutions,
such as the National Institutes of Health and the Centres for Disease Control.
Third, and surely most important, the Bush administration must explain to Americans
that a big increase in budgetary outlays on behalf of economic development
in the world’s poorest and most unstable regions is an investment in core American
interests and values. All serious professional estimates show that the fight
against AIDS in the developing countries will require at least $2 billion-3
billion a year from the United States government for the global fund—rather
more than the $200m so far promised. External assistance for Africa will require
not the current miserly $1 billion from America, but a several-fold increase,
if profound problems have a chance of being overcome. Sub-Saharan Africa, neglected
by the United States, has routinely received a sum equivalent to around one-sixth
of the American aid given to the Middle East.
As a minimum, realistic target, the Bush administration should pledge to raise
foreign assistance to at least 0.3% of GDP. This would not only bring the world’s
richest country back into line with the average of other donor nations, but
would make available an extra $20 billion a year to invest in economic development.
Such a turnaround in America’s role could harness much larger contributions
from the European Union, Japan, and other potential donors both public and
A Powell Plan?
Fifty years ago a soldier-statesman, General George Marshall, then secretary
of state, explained to Americans that urgent financial support for Europe would
stabilise societies destroyed by the second world war and the post-war economic
crises. Such aid would unleash Europe’s potential for recovery to everyone’s
mutual benefit. His vision was exactly on the mark. Winston Churchill called
the resulting Marshall Plan “the most unsordid act in history”.
The United States once again has a soldier-statesman, Colin Powell, as secretary
of state. A new Powell Plan to mobilise American technology and finances, both
public and private, on behalf of the economic development of the world’s poor
countries would be a fitting follow-up to the Marshall Plan. The world, and
America, would be enormously safer and more prosperous as a result.
Sachs is director of the Centre for International Development and Galen Stone
professor of economics at Harvard University.