Sachs has advice for Zoellick

My former MPAID student Varad Pande refers me to a new piece by Jeff Sachs in Fortune.  Here is the gist of it:

[T]he core problem in Africa is not corruption but the lack of basic infrastructure and services. Like all poor regions (and rich nations like the U.S.), Africa has its corruption problems, but they do not explain its distinctively poor economic performance.

The causes are obvious to anyone who has spent a few days in African villages. There are almost no roads, electricity, doctors, nurses, fertilizers, high-yield seeds, and all the other things that constitute the first step out of extreme poverty.

These villages live at subsistence or below, trying to eke out survival on soils depleted of nutrients, with children dying of malaria and mothers and fathers dying of AIDS, and without the most rudimentary help of technology.

When poor American farmers lacked electricity, the U.S. established the Rural Electrification Administration in 1935 to provide low-cost credits to bring electricity to the countryside.

When India needed a Green Revolution in the 1960s, the Rockefeller Foundation brought high-yield seeds, and the U.S. government shipped massive amounts of fertilizer.

When China's countryside needed roads and electricity, the Chinese government, not the private market, did the job, and the World Bank helped with financing.

Yet when it comes to Africa, according to Washington's free-market ideologues, all those wonderful things are supposed to spring up by themselves, with markets coming to the rescue. And when those things don't arrive, since there is no way to pay for them, African governments are blamed for corruption.

As any junior IMF staffer could tell the bank in a heartbeat, the African governments do not have the fiscal means to invest in what's needed, and that would be true even if Mother Teresa were running the local treasury.

New bank chief Zoellick needs to tell his staff that their jobs depend on meeting the goals in Africa. Here are four areas where the bank can have a quick and dramatic success:

• It can help Africa raise food production at least 50 percent by 2010. Malawi introduced a voucher scheme to ensure that every farmer could obtain fertilizer and high-yield seed. This program could be implemented Africa-wide within two years. African governments are ready, and the Gates and Rockefeller foundations will provide valuable support.
• The bank can help Africa defeat malaria. By 2010 every sleeping site in malaria-transmission regions can be protected with a long-lasting bed net, and every village can be protected with first-line medicine. More than one million lives per year can be saved, with massive add-on effects on schooling and harvests.
• It can help Africa achieve electrification by 2015. It is a cruel myth that development without electricity is possible in the 21st century. Rather than helping countries ship their oil abroad and then remain dependent on wood for energy, the bank should be helping Africa develop its hydrocarbons to support regional power grids.
• The bank urgently needs to help Africa finance roads and rail upgrading, starting with a major highway (rather than a two-lane, broken- down road) linking the port of Mombasa in Kenya with Nairobi and Uganda, Rwanda, Burundi, and eastern Congo. A road and rail network would enormously expand trade between Africa and the world.

Seasoned practitioners not held back by ideology and posturing know how rapidly results can be achieved. The philanthropy Millennium Promise, which I helped start, has raised over $100 million in private funds for Millennium Villages. This demonstrates how rural life can be improved dramatically from one season to the next.

Sachs makes it all sound so easy, as if we have all the answers, and all we need is to put the money and the programs in place. I want to believe with all my heart that he is right, and yet most of what I know about development tells me that Sachs is approaching things from the wrong end--dealing with the symptoms of underdevelopment--lack of resources of various kinds--rather than its fundamental undrerlying dynamics.

Sachs does have a version of these dynamics, which is the idea that African nations are unable to grow out of poverty because investments in health, education, infrastructure, and technology are all subject to significant returns to scale at low levels of development. Hence in the absence of a coordinated big push in all these areas, these countries get stuck in a "poverty trap."

The trouble is that the evidence in support of generalized poverty traps is extremely weak. I am inclined to believe that the underlying constraints differ from country to country and therefore require a different sequence of reforms in different settings. In any case, without understanding the true dynamics I am afraid Millennium Villages will remain a success only as long as Sachs and the outside world keep  the spotlight shining on them.

Comments

[Ryan]

After reading Mr. Sachs and then your take on the developmental problems of Africa I have to wonder, to what degree is this a chicken or egg debate?

What I mean is, how much of a role does electrical and road infrastructure play in incentivizing education within Africa? Indeed, you do have many Africans who are recieving great educations through study abroad programs, but do they go back to reinvest their human capital in their home countries??

To me, if I were one of the few, lucky Africans that had the opporunity to study in the US or elsewhere, and after experiencing the lifestyles afforded in a much more modern environment, it would be highly unlikely that I would want to return to my home. Also, I think it would be fairly obvious to me that I would best gain from my education in a more modern economy rather than in one with little to no infrastructure or demand for my skills.

It really is a difficult question to answer, and I feel that the solution for each country will be different from any other. But, I believe that the solution contains a bit of both yours and Mr Sachs ideas.

[Chris]

Is there any reason why Mr Sach's efforts couldn't or shouldn't happen alongside the policy reform agenda that you mentioned in a previous post? Is this debate not somewhat of a false dichotomy?

Admittedly I haven't formally studied development but, given that both camps make valid arguments and their approaches seem compatible, it seems logical that we should pursue both avenues. Am I wrong?

[Nilgun]

Dani is right about the way in which Jeff, despite his goodwill, chooses to address the infrastructure gap in Africa. Jeff fails to tackle the real problem of how to increase public or private investments into infrastructure sectors(existing facilities, the state-owned and controlled utilities, and/or green field projects). The issue is not just about pouring in the money either. In the 1990s some private money (including those via unsolicited proposals)went into independent power producers (IPPs) and now these very IPPs cost the electric utilities almost half of their revenues to pay for the capacity and energy charges. (Tanzanian case offers one of the painful examples.) The whole development community (the Bank and the IMF included) has to work hard to increase capacity at the Ministries of Finance which has been eroded while disproportionate resources were dedicated to privatization agencies over the last decade. The governments need to collect and analyze the direct and hidden inflows and outflows between the Treasuries and the state-owned and controlled infrastructure enterprises so that they know exactly the resources spent and needed to maintain and expand existing facilities. They need to go back to macro economic evaluation of the SOE sectors which have been ignored both by the Bank and the IMF lately as the very first step to make infrastructure investments easier--public or private--in Africa.

[dissent]

I traveled in Kenya for several months in 1979 and stayed with locals, interviewed lot of folks, and the like. One thing I heard a lot was lamentations over how infrastructure had decayed. It has gotten much worse since then. Roads and universities in particular. I think Sachs does not take into account the severe decay of infrastructure that has occurred over the last 40 years. So the question is: why? I think Africans have in large part settled for low quality leadership. Why? I have observed that countries with diverse tribes and a tribal social structure don't seem to adapt well to modern economies. Is that a factor?

I don't think a mechanistic, 'build it and they will get out of the poverty trap', is enough at this point.

[mik]

Jeffrey Sachs did a terrific work on Russian economy post Soviet collapse for President Eltsin. It was so good that now Russians vomit when they hear boilerplate on Democracy/Capitalism/Free Markets.

100% inflation and complete robbery of Russian natural resources resulted from a brillian work by aol Jeff.

Bunch of Jeff's Russian friends have helped themselves to stolen properties to the tune of billions dollars.

And his close friend r and comrade in arms Andrei Shleifer from Harvard executed a few superb transactions for which Harvard was barred from State Department honeypot.

Kudos all around. It is now time to give old Jeff a few hundred billion to perform his magic in Africa.

[Christopher Scott]

Amen, Professor Rodrik, your remarks are on target. Another prominent economist who makes a similar argument is William Easterly, formerly of the World Bank but now at NYU. His books The Elusive Quest for Growth and White Man's Burden provide an excellent overview of the failed development strategies pushed by the World Bank from the McNamara era onward. I highly recommend the former for anyone, and the latter for anyone who is particularly interested in the World Bank.

[Justin Rietz]

Dani, I agree with you. I'm always taken aback by Sach's standard line, exemplified above: "Africa has its corruption problems, but they do not explain its distinctively poor economic performance".

First, I disagree with his position. But second, and to your point, he then sidesteps the issue of causes and instead focuses on the effects. Admittedly, short-run aid is needed to save the lives of the starving and diseased; however, I believe Sachs is applying bandages to a gunshot wound but forgetting to take out the bullet.

I find quite a bit of sense in William Easterly's "White Man's Burden". I think we need to be careful about “policy colonialism” – something that the Washington Consensus failed to take into account.

Dissent, did you read the article "Going up or down?" in the June 9th issue of The Economist? It echoes your sentiments about Kenya.

Mik, while I wouldn't have expressed it the same as you, for what it’s worth, I agree with your assessment of Sach’s efforts in Eastern Europe.

[notsneaky]

This is going in an off-topic direction - for the record I think Dani Rodrik and Bill Easterly are both right on this - but just wanted to say that Jeff Sachs DOES NOT bear any responsibility for Russia's mess. Maybe some other Western economists do, but Sachs does not.

mlk
100% inflation and complete robbery of Russian natural resources resulted from a brillian work by aol Jeff.

Justin Rietz
I agree with your assessment of Sach’s efforts in Eastern Europe.

Both 100%+ inflation and robbery of national assets was well underway in both Russia and Poland before Jeff Sachs got there. Both economies were spiraling downward. In both macroeconomic and other reforms were inevitable and going to be difficult.

In Poland, where Sachs was listened to and his advice taken seriously the painful transition period was short. In Russia, he was not listened to and Russian officials tended to see him as a Western face to put on fake reforms - window dressings, and in fact, Sachs resigned in disgust. As a result the painful transition period lasted almost a whole decade.

Of course there were differences between the two economies. Russia, pre 1989 was in much more serious economic trouble than Poland. I'm pretty sure that there was going to be an economic crisis in Russia no matter what was done in 1991. You can take those Republics of the former USSR which seceded before "shock therapy" in Russia and hence did not institute the same kind of reforms (sometimes they had their own versions of it, more often they did not). Well, guess what, their performance looks just as bad, if not worse than Russia's.

This is like blaming the firemen at the scene of a fire for the property damage that results.

[mik]

"where Sachs was listened to and his advice taken seriously the painful transition period was short. In Russia, he was not listened to and Russian officials tended to see him as a Western face to put on fake reforms"

I cannot rectify your ignorance about that history in a post. Read Gaidar recollections. Read independent assesments from Western econs and pols from Left and Right.
Compare Russian "privatization" (ie theft) with Chechoslovakia.
Compare Russian Federation performance with Baltic republics.

Take a look at old Jeff buddies, Anatoly Chubais and other oligarchs. Does old Jeffie have any friends in Russia who is not multi-millioner?

What about his right hand, the brilliant Andy Schleifer, the scorge of Harvard University?

Old Jeff has tremendous ability not to see multi-billion theft all around him. Just keep giving him billions and billions of taxpayer money so he will feel good and his buddies will get super-rich.

[notsneaky]

Ay ay ay ay. Aside from calling me ignorant, you haven't managed to say anything of substance in the 100 words or so you wrote.

Give example of "independent assesments from Western econs"

Understand diffirence between Russia's situation in, oh, 1987 and Czech(sic)oslovakia's.

Look at time series of gdp per capita for Baltics and for Russia and then get back to me.

Don't confuse Gaidar with Chubais.

And we're talking about Sachs, not Schleifer.

[paine]

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"The trouble is that the evidence in support of generalized poverty traps is extremely weak"

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