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Jeffrey Sachs on world poverty: Three critiquesAndriana Vlachou a , José Carlos Escudero & Maria Pilar Garcla‐Guadillaa Associate Professor at the Athens University of Economics and BusinessPublished online: 25 Feb 2009.

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SYMPOSIUM

Jeffrey Sachs on World Poverty:Three Critiques

Every so often the Economist invites economic development guruJeffrey Sachs to contribute an article on world poverty and shortlythereafter CNS invites two or three Editors who live and work in theSouth to contribute a commentary on Jeffrey Sachs.

Sachs is an important figure in the post-Cold War drama (andmelodrama). He espoused the famous "shock therapy" — the freemarket policies that helped to impoverish Russia after the collapse ofthe Soviet empire. His latest effort in the Economist (August 14,1999) focuses on the causes of world poverty and its remedies. "HavingSachs write on helping the world's poorest," one of the weekly'scorrespondents wrote, "is laden with irony. " True enough, but not thewhole truth and nothing but the truth. In fact, the brutal realities ofglobalism have moved Sachs somewhat leftward, not in his theory, butin his proposed policies. For example, he now champions debt relieffor the poorest countries and a revival of the World Health Organizationand other UN agencies be a significant fact. The distance betweenneoliberal theory and the policy views of some neoliberal theorists maybe growing as a result of the revealed statistics of "globalization. " Thiswas obvious at the IMF, which, finally, advised a simple Keynesian"spend and spend some more" solution to the downward economicspiral in Southeast Asia caused by the Fund's original policies ofbailing out foreign investors, high interest rates, and economicretrenchment. Needless to say, the IMF didn 't change a word of itsextremist neoliberal theory that unregulated capital markets are thesolution to poverty, unemployment, economic instability (!) andstagnation, and just about all the world's troubles except perhapsbaldness. Economist David Felix visited recently and noted that someof our brethren are changing their policy views on world capitalmarkets in ways that have nothing to do with their basic theory. These

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facts suggest that a trend might be in the making: there seems to he adeep crisis of neoliberal theory, and the greater the distance betweentheory and policy views, the greater the crisis. This is to be welcomed.

Jeffrey Sachs argues for the mobilization of science and technologyto address poverty in the developing world. Knowledge, according toSachs, is becoming the undisputed centerpiece of global prosperity andlack of it, the core of human impoverishment. Research anddevelopment of new technologies are overwhelmingly directed at theproblems of developed countries, failing to meet the needs of theworld's poorest, he argues.

The importance of technological change for economic developmentis not a novel idea. Sachs, however, attempts to situate it within thelatest variant of the neoclassical theory of economic development andgrowth — often called the "market-friendly" approach. This approachhas to some extent disassociated itself from the "free-market" model byrecognizing the existence of market imperfections, absent or incompleteinformation, scale economies, externalities and public goods. Thisrecognition along with the growing dissatisfaction with the traditionalneoclassical growth theory which was at a loss to explain long termeconomic development and its disparities across countries,1 provided theimpetus for the development of a new growth theory, the endogenousgrowth theory which reaffirms and reexamines the importance oftechnological change.

In particular, endogenous growth theory assumes that investmentsin the reproducible factors of production, including technology (researchand development expenditures), can generate external economies andproductivity gains which might offset diminishing returns and result inincreasing returns to scale which, in turn, sustain long-term growth. Inparticular, human capital, which is created by education, on-the-joblearning, better health care and other factors, is considered one of themost important factors contributing to higher and sustained growth. Asa result, endogenous growth theory recommends government policies toaffect the rate of investment in research and development, human andphysical capital and to boost the long-run growth rate. In markedresemblance, Sachs informs us that scientific advance tends to have

^Traditional neoclassical theory predicted a convergence of developmentamong countries through free trade and capital mobility. The explanationoften given for the persisting divergence was bad government policies.

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increasing returns to scale; he also favors public action in fosteringtechnology: "free-market ideologues notwithstanding, there is scarcelyone technology of significance that was not nurtured through public aswell as private care."

Endogenous growth theory also concludes that national growthrates in closed economies differ across countries depending on nationalsavings rates and technology levels. Technological change is now"induced or endogenous." Several models make it dependent on thestock of physical, human and research capital particular to a specificcountry, as well as on the organizational and institutional structures ofthe country that shape capital formation. In open economies,international flows of capital can increase capital accumulation in aparticular country. However, they might not be directed to developingcountries due to the low levels of complementary investments ininfrastructure, education and in research and development in thesecountries. As a result, direct or indirect government intervention orinternational public action are often recommended.

Sachs, under the influence of these developments, explains theimbalance of global science as a complex market failure. The root ofthe problem is the small size of the market to attract research and theexternalities involved in advances in health and biotechnology. He thuscalls for a international public funding (a pledge, for example, topurchase an effective malaria vaccine or AIDS drug) which willguarantee future markets for malaria, tuberculosis and AIDS vaccines.He also proposes public action to create incentives for advances inbiotechnology specific to developing countries which could increasefood productivity and alleviate poverty. International action should alsobe taken to address global ecological problems, like global warming,which further deteriorate the condition of developing countries.

Sachs' arguments and policy recommendations to help the world'spoorest are not convincing. Sachs fails to provide a comprehensiveexplanation why the conditions in many developing countries areworsening dramatically, even as global science and technology createnew surges of wealth and well-being in the richer countries, as headmits. His argumentation is eclectic and fragmented or partial —features which enables him to accommodate a variety of policyprescriptions. He is not willing to even consider the possibility that theimbalance of global science might have been the outcome of theworkings of the capitalist system in which scientific research anddevelopment is embedded. Embracing the premises and values of globalcapitalism, he emphasizes that new technologies will not take hold inpoor countries if investors fear for their property rights, only to

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contradict himself later when he seems to reproach transnationalcorporations and rich-country institutions for patenting everything fromhuman gnome to rainforest bio-diversity, thus ripping off the poor. Hefails to realize that one of the main features of capitalism throughoutits history has been to create an uneven development not only in theeconomy but also in knowledge.

Scientific research and technical development are relativelyautonomous but complex social activities. They are shaped by manyinteracting elements: by the scientific activity itself as well as by real-world natural, economic, political and cultural processes, whichconstitute the real world and impact upon scientific research anddevelopment. History matters for scientific and technical change.Conceptual and experimental frameworks have been shaped by scientifictraditions and by the needs and the resources of the wider society withinhistorical time. Past developments in science and technology exercisesignificant influences on current ones. Major 20th century innovationssuch as information and communication technology and biotechnologywould have been impossible without the prior accumulation ofscientific knowledge. Many inventions have occurred in the process ofimproving existing devices and of extending them to new end uses.Innumerable inventions and radical innovations resulted from effortsconcentrated on solving "critical problems" which made newtechnologies inefficient and unable to compete with existing ones.

Economic aspects have always been important in shaping scientificand technical activity. In contemporary capitalism, firms introduce newtechnologies with the motive to maximize their profits. By innovating,they increase productivity and reduce costs, thus increasing relativesurplus-value. Significantly, the first capitalist firms to innovate areable to reduce their individual unit costs and capture excess profits. Atthe same time, firms weigh savings in current operating costs againstlosses on the value of existing machinery and plant and may delayinnovation. However, high cost producers will be driven out ofbusiness if they do not soon innovate. Technological change hasalways been an important element of capitalist competition. It is animportant determinant of the variations in productivity and profit rateswhich exist within sectors and among industries. The movement ofcapital among industries and across regions and countries give rise to atendential equalization of profit rates but it also creates economicinstability and uneven development. An early technical and economiclead of certain constellations of capitals within present-time developednations is not easy to overcome.

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Research and development has become an important economicactivity in itself. Firms base their innovations on knowledge that isdeveloped within and outside the firm. They may specialize (or partlyinvest in research and development activities) with the motive ofsecuring a profit rate as high as in any other alternative investment.The work of scientists is now more than ever influenced by theeconomic goals of the firm, the resources available to it, the patterns ofprofessional recognition and reward that the research market fosters, andso forth. In this sense, I could not agree more with Sachs that "sciencefollows the market."

The economic determination of scientific research and development(one among their many determinations) affects the nature, the directionand the pace of technological change. It can illuminate, for example,how differences in labor costs can affect the pattern of technical change.In societies where wages are comparatively high, technical change tendto be more labor-saving. Economic considerations can also explain whyscientific research has failed to solve health problems pertaining to theunprivileged and economically deprived, even in the richest countries ofthe world. Despite the tremendous progress in medicine, for example,many female diseases have not yet been properly or successfullyaddressed. Research in this area has been under-funded as the net benefitsof many research projects are small, reflecting the conditions of thelow-paid or unemployed women that will benefit. In addition, it shouldbe emphasized that advances in science and technology which Sachswrites were at the core of the long-term growth of the developedcountries and were also subsumed to the profit motive and resulted insignificant environmental degradation in these countries. Globalwarming is a good example of such a capitalist development. Inconclusion, uneven scientific and technical development is experiencednot only in developing countries but also in developed ones. Theimbalance of global science and technology is an aspect of unevencapitalist development and manifests how science and technology areinseparably interwoven with capitalist goals and institutions.

Are the strategies and policies recommended by Sachs a solution tothe problem of global science imbalance, and for that matter, to theproblem of poverty? In my opinion, they are not. They are based on aninadequate theoretical understanding of the process of scientific researchand development. They also lack a firm institutional foundation toimplement them. Capitalist firms which lie at the core of economicdecision-making are clearly not interested in investing in science andtechnology particular to less developed countries. Internationalinstitutions like the UN should then step in, according to Sachs, to

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finance this research and development until it becomes commercial.However, this seems to be more wishful thinking than a real option.International institutions lack the funding to affect policies. The failureof the U.S. to pay its UN dues and the fact that the rich countries holdsummits without the presence of poor countries are surely indicationsof an on-going process of dis-empowering world institutions. Theysupport the argument that the globalized economy is rather driven bythe motives of the world's powerful capitalist classes than by the ethicsor morals of some world collective. This is especially true today, whenthe North is trying through the IMF, World Bank, and WTO to onceagain subordinate nationalist development to global capital.

Sachs does recognize the unwillingness of rich countries to financeinternational public goods. He thus proposes, at the end, a global taxon carbon-emitting fossil fuels to raise the necessary finance and, at thesame time, to deal with the global warming problem. However, Sachsshould know that there have been endless discussions of such a policybut no seriously binding commitments. Developed countries can not beeasily persuaded into redistributing tax revenues to even alleviate theburden incurred by developing countries due to a global warmingpolicy. One neoclassical economist who has made significantcontributions to the global warming issue, suggests that theinternational entity to affect a global warming policy would be moreeffective if its executive board has weighted voting, in which countrypopulation and economic size are taken into account. Thus, theInternational Monetary Fund and the World Bank, in which votes areweighted according to economic size, have enjoyed a much greaterrecord of success than many UN entities, in which the one-nation one-vote principle applies. Weighted voting will be especially important ifan entity is to have discretion over financial resources — for example,for assistance to developing countries in pursuit of emissionsreductions.2

What I read into Cline's perceptive suggestions is that developedcountries are not willing to take any action which would underminetheir position in the existing international capitalist order; that is, theyare not willing "to introduce some sense and equity into this runawayprocess" of capitalist competition. In these days, they are rather headingunchallenged towards even "parenting the sun," could they create theappropriate technology and exclusive institutions for it.

2See W. dine, The Economics of Global Warming (Washington, D.C.:Institute for International Economics, 1992), pp. 345-46.

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Poverty is the outcome of uneven capitalist development as agroup of CNS Editors pointed to Sachs almost two years ago (CNS, 9,2, June, 1998). And since scientific research and development isimbedded in this process, it fails today to solve the problems of theworld's poorest. Only the mobilization of the deprived and theunprivileged, through organized movements and struggles to affectcommon control over science and society, can effectively challenge therunway process of uneven capitalist development in both developed andless developed countries. — Andriaea Vlachou

Jeffry Sachs' crisp prose brings forth easily the basic premises ofhis thought. One is a negation that power (the ability to make othersdo what one wishes) and of politics (the allocation of the collectivesurplus toward one of several societal alternatives) have any place indevelopment analysis. He simply does not use the words power andpolitics. Sachs believes in capitalism, and that a very successful (in itsown terms) form of societal organization has been apt in using powerto further its goals, fulfilling also the political need of maximizing itsrate of capital returns, in many cases at the expense of the needs —biological, educational, cultural, psychological — of those few billionof people in the world who are poor, and are now the subject of Sachs'writings.

What characterizes a poor person? Poverty can be held to be apositional, relative situation towards others who are better off inmaterial/consumption terms. As individual expectations increase(prodded by that most creative of all social sciences, advertising) or asmore and more goodies are produced, this positional conception ofpoverty is likely to cause anguish among those relatively worse off,and is also likely to make them work harder/longer/more ruthlessly, fortheir own greater good as they see it, but more significantly for thegood of the system of capital reproduction which benefits from theirefforts.

Poverty, however, can be defined more starkly as deprivation eitherof a basic (a very basic) set of household goods, of access to basichealth and educational services, and of monetary access to suchelementary goods as calories, proteins and vitamins, to the hours ofsleep and rest that physiology prescribes. We shall deal with this lattertype of poverty, which is the one that overwhelmingly produces theworld's excess deaths, suffering and curtailment of the development ofhuman potentialities. Firstly, these poor do not exist solely in only

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certain countries, as Sachs states, but exist everywhere, albeit in smallnumbers in the rich countries. (By the way, Sachs' own country has arelatively high percentage of poor of this type, in comparison withother rich ones.)

Secondly, to pull these poor out of poverty it is not necessary toevoke breakthroughs in "science and technology," research anddevelopment of "new technologies," of "modern science," of "science-based technologies," and other invocations that pepper Sachs' texts, andwhich characterize his thought. To abolish poverty is a politicalquestion and pertains to the issue of power. If the acquisition ofscientific knowledge were frozen today, current knowledge could beapplied to improve the lot of the poor. These unfortunate subjects ofSachs would see their condition improve radically in a short time, at anexpense which is a minute fraction of the money that is traded daily inthe world's financial markets.

A third characteristic of Sachs' thought is a quaint sort ofclimatological determinism: countries in the temperate zone have aclimate which is sometimes awful, but barring a few isolated examples(the ex-communist ones, which can only improve, and isolatedMongolia and Afghanistan), they are rich, and their skiing is better,too. Perhaps Sachs can draw a "mango producing line" on a world map,to identify those countries in which the eating of mangoes off a tree hasto be traded with a high prevalence of poverty. Well, mango-producingCuba has social indicators in the health and educational areas whichrival those of Sachs' own country, and mango-producing Kerala hasshown, in comparison with other Indian provinces and with the muchworse situation in Pakistan, how a domestic redistribution of power anda reallocation of its political priorities to favor the poor hassignificantly decreased their number and improved their lot. Indeed, inthe interesting question of tropicalism as historical fate, it is useful torecall that the greatest geographical mortality and educationaldifferential of adjacent geographical zones in the world is betweentropical eastern Cuba and tropical northwestern Haiti, one of which hasmortality, morbidity, educational and health system coverage levelswhich rival those of the U.S., while the other can only gladden Sachs5

intellect and sadden his sense of compassion by its high percentage ofhopeless poor.

Why is it that so little is spent on a malaria vaccine, a point whichSachs stresses? The real explanation exceeds Sachs' explanatory frame:capitalism does not cater to human needs which have no monetarybacking and cannot be supplied through the market. Some of theseneeds are taken care of piecemeal, through such non-capitalist

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initiatives as chanty. If an AIDS patient uses up pharmaceuticals at arate of $10,000 U.S. monthly, with a captive market assured for manyyears through the patient's longevity, while the development of amalaria vaccine, which can prevent from one million to 2.5 milliondeaths annually and can cost little: if one is a capitalist, Dr. Sachs,where does one place the pension funds in order to maintain a healthyand sustained profit?

The World Bank, which has taken over the normative role inworld health from the World Health Organization, systematically favorsthe needs of investment capitalism worldwide. The World Bank alsowants to introduce individual health insurance into health care andindividual pension plans into Social Security. The Bank hardly says aword about the technical feasibility (or the political feasibility) ofreducing expenditures on pharmaceuticals. It is power and politics, Dr.Sachs. One easy measure to improve the health of the poor could be torestrict the sale of pharmaceuticals to those whose efficacy has beenscientifically proven, turning over the savings into primary health care,non-commodified access to food, subsidization of school attendance, theprovision of adequate housing, drinkable water and sewerage systemsfor those who are now deprived of these. This sensible and technicallyeasy proposal — worldwide health expenditures on pharmaceuticalscould perhaps be cut in half with no ill health effects — does not havea chance, given the current, but hopefully not eternal, distribution ofpower currently in the world, and the predominance of certain politicalideas. — Jose Carlos Escudero.

III .

I agree with Sachs that poverty, low income and poor health are allfeatures of Third World countries. However, there is no causal link;these factors do not explain why the Third World is poor. I stronglydisagree with Sach's theory of poverty and the ways he would alleviateit. Poverty has to do more significantly with political ecology and withpolitical economic structural causes, such as the hegemonic interests ofthe industrial countries seeking to gain sovereignty over valuablenatural resources.

I disagree that poverty is going to be diminished with good wishesand welfare programs by the "international community." In fact, the"international community" itself is one of the causes of Third Worldpoverty, that is, global elites are part of the problem and, in fact, areinterested in maintaining poverty in the Third World. As thedependency theorists of Latin America, Asia and Africa argued more

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than three decades ago, the development of the wealthy one-third of theworld meant and means the underdevelopment of the remaining two-thirds.

Sachs explains poverty as a result of the vicious circle of povertyso well exposed in The Asian Drama by Gunnar Myrdall, almost half acentury ago. Like Myrdall, Sachs stresses the consequences of povertywithout explaining the structural causes of poverty. Historically, atleast in Latin America, the industrial countries first exploited the ThirdWorld (at the time, colonies) of valuable mineral and agriculturalnatural resources. Recently, exploitation has taken the form of theappropriation of biodiversity for patenting and transformation intogreen technologies, as well as keeping valuable industrial goods out ofthe reach of Third World countries. The same intention to appropriate ispresent in the efforts to declare biodiversity a landmark of "humanity."

Even if the tropical countries do not have what industrial or"temperate" country elites call good soils for agriculture, they have thegreatest biodiversity, which is currently the most valuable resource forthe future. According to Sachs, this biodiversity is able to produce highprotein nutritious food and also new medicines to cure many of thetropical countries endemic disease. The problem, says Sachs, is that thebig global corporations are first and last interested in profit; they arenot interested in developing these valuable products because there is noprofitable market for them. Even if this iron law of the market weretrue, another contributing factor should not to be disregarded, namely,that tropical products may well compete with products from the"temperate countries" in terms of nutrition and quality as well as ofprices. In fact, the so-called better quality products coming fromtemperate agriculture are usually "artificially constructed" by costlymass-media campaigns, which can raise the real prices of those productsby over a 100 percent.

Suspiciously, only after being appropriated through the patentprocess do products derived from biodiversity become valuable for thecapitalistic industrial market. It seems, then, that the problem is notthat products from tropical countries are of lower quality; it is rather theneed that the temperate capitalistic countries have to expand their ownmarkets and create high benefits through unequal market relations —buying at low costs and selling at high prices. It is the rale ofcapitalism not climatic determinism or the vicious circle of poverty, asSachs claims, that explains the lack of development in the Third World.

The industrialized countries, once they have destroyed their ownnatural environment, now continue to grow at the expense of our

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natural resources and sovereignty, and to also sell us an ideology of"pseudo-environmentalism" which hides the true colonialist intentionsto "internationalize" and take over such resources. The offers of someinternational agencies such as the World Bank to provide financial andtechnological help subject to conditions that they refuse to impose onthemselves are unacceptable. The same is true of those multinationalenvironmental organizations that pretend to "internationalize" the water,air, biodiversity, and even native peoples, once these goods and personsbecome valuable for the market, that is, as an economic valuableresource due to their scarcity. There is a coincidence between theinternational economic agencies and the multinational environmentalorganizations, such as World Wildlife Foundation (WWF), in theirintentions to declare the Third World environment "patrimony orlandmark of the humanity."

I recount an episode at the beginning of 1992, when I had theopportunity as part of the Environmental Network to lead the battleagainst the appropriation of biodiversity at the Fourth World Meetingon National Parks held in Caracas, Venezuela. This meeting was to endwith the Declaration of Caracas about National Parks and one of theimportant issues to discuss was, "who was the owner of the greatbiodiversity existing in developing countries." Leading the discussionforum was the President of the WWF, an institution that was trying byall means, including non-democratic authoritarian practices, to imposethe view that "the international community and not the countries wherethe rich natural resources were located, were the owners of thoseresources." And that "the governments where the resources were locatedwere responsible for taking care or keeping them for humanity."Despite the fact that the official languages of the conference wereEnglish, Spanish and French, this motion was presented for finalapproval only in English, while the President of the WWF rejecteddemands made by the environmental lobby present at the meeting for aSpanish translation. Later on, it offered an "edited" Spanish translationof the statement that contradicted the English version.

The Venezuelan Minister of the Environment was present at theforum and did not understand English. He was accused by theenvironmentalists of selling the sovereignty of Venezuela's NationalParks. In view of the increasingly tense situation, the President of theWWF, who did not understand Spanish, threatened to end thediscussions; in fact, he did so, in a very authoritarian way. As aconsequence, the environmental lobbying which included other LatinAmerican and Third World environmentalists decided to denounc themotion through the print media, and also threatened with civil

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disturbances and demonstrations if the President of Venezuela, CarlosAndres Perez (who in the previous month had faced an attempted coupd'etat by the military sector) dared to come to the forum to sign thedeclaration (as was expected). It should be pointed out that, after Perez'ssignature, the declaration was to be sent to the Conference onDevelopment and Environment of Rio de Janeiro.

During the coffee break, called in view of the conflicts, protestsand accusations of authoritarianism and colonialism against the WWF,the Minister of the Environment asked the environmentalists to"...write down, in both English and Spanish a clear wording of theirdemands for sovereignty." He would then present this for final approvalin exchange for the demobilization of environmental lobbying. Thus,the statement of non-sovereignty of the Third World over richbiodiversity was changed for a statement of sovereignty.

This was probably the main reason why the Treaty on Biodiversitywas not signed in Rio de Janeiro. The unexpected wording onsovereignty over ecological resources located in the Third World wasagainst the Interests not only of the U.S. but also those of suchtransnational environmental organizations as the WWF. The battle forthe appropriation of biodiversity did not end In the Declaration ofCaracas nor In Rio de Janeiro; it Is still present since the reversal of theDeclaration of Caracas has been one of the main reasons for the "so-called ecological involvement" of international and ecologicaltransnational agencies.

Nature and biodiversity are the main challenges and assets of ThirdWorld countries. They increase the possibility of being re-colonized bythose countries which (without any moral authority since they havedestroyed their natural environment) try to impose on Third Worldcountries what to do with their nature and biodiversity. But as theAlternative Environment of the Third World stated in Caracas in 1992,during the Fourth World Meeting on National Parks:

...nature and biodiversity also represent a hope for thepossible future, maybe the only one and we are notpretending to assume a nationalistic stand. Webelieve that it is necessary the concurrence of theinternational community to resolve the acuteeconomic and environmental challenges we faceworldwide. What we are asking for, is consistency,mutual respect and sincerity in the dialogue betweenthe North and the South if we truly want to achieveecological, economic and social justice. We are also

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demanding the rights and a greater responsibility fromthe one we have, to be the keepers of our richenvironment and prolific biodiversity which must bekept in the benefits of the whole humanity, butshould also take into consideration, in the first place,the well-being of our own people. Only in this waywe could work together towards a sustainabledevelopment and a common future.

In sum, Sachs' discourse on poverty is what the big multinationalglobalized corporations of the "temperate-postindustrial countries" wantto hear; an old colonial discourse that points out the consequences butnot the causes of poverty. Maybe because of this deterministic,ideologically biased and superficial discourse, Sachs is, and willcontinue to be, regarded as a grand guru of economics and benefactor-consultant for the development of the Third World. — Maria PilarGarcla-Guadilla

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