THE END of POVERTY Economic Possibilities for Our Time JEFFREY D. SACHS THE PENGUIN PRESS NEW YORK 2005 THE PENGUIN PRESS Published by the Penguin Group Penguin Group (USA) Inc.. 375 Hudson Street. New York, New York 10014, U.S.A. - Penguin Group (Canada), 10 Alcorn Avenue, Toronto, Ontario, Canada M4V 3B2 (a division of Pearson Penguin Canada Inc.) Penguin Books Ltd, 80 Strand, London WC2R ORL, England Penguin Ireland, 25 St. Stephen's Green, Dublin 2, Ireland (a division of Penguin Books Ltd) Penguin Books Australia Ltd, 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd) - Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park, New Delhi-110 017, India ' Penguin Group (NZ), Cnr Airborne and Rosedale Roads, Albany, Auckland 1310, New- Zealand (a division of Pearson New Zealand Ltd) - Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa - Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R ORL, England First published in 2005 by The Penguin Press, a member of Penguin Group (USA) Inc. Copyright ©Jeffrey D. Sachs, 2005 All rights reserved Page 397 constitutes an extension of this copyright page, LIBRARY OF CONGRESS CATALOGING IN PUBLICATION DATA Sachs, Jeffrey. The end of poverty / Jeffrey Sachs. p. cm. Includes bibliographical references and index. ISBN 1-59420-045-9 1. Poverty—Developing countries. 2. Developing countries—Economic policy. 3. Developing countries—Economic conditions. 4. Economic assistance—Developing countries. I. title. HC59.72.P6S225 2005 339.4'6'091724—dc22 2004065942 This book is printed on acid-free paper. @ Printed in the United States of America 13 5 79 10 8642 DESIGNED BY MAUNA EICHNER Without limiting the rights under copyright reserved above, no part of this publication may­ be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book. The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law. 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FOR SONIA Life partner, inspiration, teacher, best friend Contents Acknowledgments ix Foreword by Bono xv Introduction 1 One A GLOBAL FAMILY PORTRAIT 5 Two THE SPREAD OF ECONOMIC PROSPERITY 26 Three WHY SOME COUNTRIES FAIL TO THRIVE 51 Four CLINICAL ECONOMICS 74 Five BOLIVIA'S HIGH-ALTITUDE HYPERINFLATION 90 Six POLAND'S RETURN TO EUROPE 109 Seven REAPING THE WHIRLWIND: RUSSIA'S STRUGGLE FOR NORMALCY 131 Eight CHINA: CATCHING UP AFTER HALF A MILLENNIUM 148 Nine INDIA'S MARKET REFORMS: THE TRIUMPH OF HOPE OVER FEAR 170 Ten THE VOICELESS DYING: AFRICA AND DISEASE 188 Eleven THE MILLENNIUM, 9/11, AND THE UNITED NATIONS 210 Twelve ON-THE-GROUND SOLUTIONS FOR ENDING POVERTY 226 Thirteen MAKING THE INVESTMENTS NEEDED TO END POVERTY 244 Fourteen A GLOBAL COMPACT TO END POVERTY 266 Fifteen CAN THE RICH AFFORD TO HELP THE POOR? 288 Sixteen MYTHS AND MAGIC BULLETS 309 Seventeen WHY WE SHOULD DO IT 329 Eighteen OUR GENERATION'S CHALLENGE 347 Works Cited 369 Further Reading 372 Notes 376 Index 385 Acknowledgments These acknowledgments must perform double duty. In writing this book, I have depended upon countless acts of support, generosity, and guidance. But perhaps more important, in engaging with the challenges of our global society and deeply divided world, I have depended upon steadfast colleagues, teachers, and leaders. This is an important oppor­ tunity for me to thank them for a lifetime of collegiality and support. I naturally begin with my family, wife Sonia, daughters Lisa and Hannah, and son Adam. This has been a family effort, through two decades of redefining "vacation" as listening to Dad give another lec­ ture in a sweltering room in a village in East Africa. Sonia has been my guide, inspiration, teacher of differentia] diagnosis, and partner and coauthor in development studies. My kids, I'm proud to say, have seen all corners of the developing world and have taken up the challenge of global development themselves. Their wonderment at what we see to­ gether is my inspiration to fight for the future for them. In all of this family effort, the wisdom of my father-in-law, Walter Ehrlich, the good sense of my mother, Joan Sachs, and the avid interest of my sister, An­ drea Sachs, all played a tremendous role in keeping us on the right track. So too has the enduring moral compass of my late father, Theodore Sachs, who devoted his great lawyerly gifts and energies to the struggle for social justice. For twenty years I have been blessed to be welcome in all parts of the world and to have colleagues who joined me in understanding the local conditions and challenges and in fitting those challenges into the broader global canvas. My earliest colleagues in Bolivia were Daniel Co­ hen and Felipe Larrain, lifelong companions in intellectual forays. David Lipton left the IMF to join me in work in Latin America and Eastern Europe and then went on to a scintillating role in international political economy during the Clinton administration. Wing Woo has tu­ tored me on Asia for a quarter century and has been my guide, coau­ thor, and coadviser in many valuable efforts. Nirupam Bajpai has been X ACKNOWLEDGMENTS steadfast and accurate as a keen observer, scholar, coauthor, and adviser on all aspects of India's remarkable reforms during the past decade. The best way to become a successful economic adviser is to advise successful governments. I've been extremely fortunate to do that. My earliest adventure was in Bolivia, under the remarkable leadership of the late President Victor Paz Estenssoro and his top economic aide and later president, Gonzalo Sanchez de Lozada. Both taught me about the practical politics of successful economic reforms and the value of hon­ esty and love of country in achieving broader political successes. In Poland, Larry Lindenberg played the pivotal role in introducing me to Solidarity's remarkable leaders, including Adam Michnik, Jacek Kuron, Bronislaw Geremek, and of course Lech Walesa. Leszek Balcerowicz, the brave and brilliant leader of Poland's reforms, made us all look good. I admire Poland's long-serving president, Alexander Kwasniewski, and remain in his debt for the honor he bestowed upon Lipton and me in awarding us one of Poland's highest civilian awards, the Commanders Cross of the Order of Merit. President Janez Drnovsek of Slovenia not only taught me about the tangled politics of the Balkans during the past two decades, but also inspired me with his leadership and honored me with the chance to contribute to Slovenia's birth as an independent country. In Russia, I want to thank my advisory partner Anders Aslund and pay special tribute to three reformers who struggled bravely against the odds: Yegor Gaidar, Boris Fedorov, and Grigory Yavlinsky. My work in Africa has been blessed by help and guidance from a large number of colleagues and African leaders. I am especially grateful to Calestous Juma, Dyna Arhin-Tenkorang, Wen Kilama, Charles Mann, and Anne Conroy. My ardent hopes for Africa are fueled by the power­ ful and visionary leadership that I have seen in abundance throughout the continent, in contrast to the typical uninformed American view about Africa's governance. In particular I would like to thank Africa's new generation of democratic leaders who are pointing the way, includ­ ing former President Alberto Chissano of Mozambique, President Mwai Kibaki of Kenya, President John Agyekum Kufuor of Ghana, President Olusegun Obasanjo of Nigeria, former Vice President Justin Mulawesi of Malawi, President Festus Mogae of Botswana, President Abdoulaye Wade of Senegal, and Prime Minister Meles Zenawi of Ethiopia. The world is held together, however precariously, by the vision, lead­ ership, and struggle of its leaders who are committed to a world of justice, equality, and rule of law. The greatest of these is UN Secretary- ACKNOWLEDGMENTS XI General Kofi Annan, whose quiet resolve has helped to keep the world from falling over the precipice in recent years. Another great leader is Gro Harlem Brundtland, who gave me the honor to serve the World Health Organization during her tenure as WHO director general. The WHO Commission on Macroeconomics and Health helped to show the way toward scaling up basic investments for the poor. My fellow commis­ sioners are incomparable leaders in their respective fields, including Manmohan Singh, India's current prime minister; Richard Feachem, di­ rector of the Global Fund to Fight AIDS, TB, and Malaria; Supachai Pan- itchkadie, the director general of the World Trade Organization; and Harold Varmus, director of Memorial Sloan-Kettering Cancer Center. The UN agencies are filled with talented and dedicated leaders, and I have been honored to work closely with them in recent years: Mark Mal- loch Brown, administrator of UNDP, who has championed the UN Mil­ lennium Project from the start; Joseph Chamie, director of the UN Population Division; Zephirin Diabre, deputy administrator of UNDP and my guide to the economies of the African Sahel; former IMF manag­ ing director and current president of Germany, Horst Kohler, who during his stint at the IMF pressed the case for more global justice in resource al­ location; Anna Tibaijuka, the remarkable Tanzanian-born leader of UN Habitat; Klaus Topfer, the relendessly talented head of the UN Environ­ mental Program; and Jim Wolfensohn, the brave and energetic leader of the World Bank.