The End of Poverty: Economic Possibilities for Our Time

Chapter 1, the longest single chapter in the book, provides much of the foundational information needed to understand Sachs’s analysis while also providing a quick overview of key points developed later. It begins with a snapshot of four places in the world: Malawi, Bangladesh, India, and China. These four countries are presented in ascending order of economic development, allowing Sachs to describe that development process through the metaphor of a ladder of economic progress.

First, Sachs describes a visit to Nthandire, Malawi, a small village located an hour’s drive from the capitol city of Lilongwe. The scene is stark and dire, illustrating a daily struggle to survive. Most of the working-age adults have died of AIDS, so elderly women each raise a large number of small children, all of whom struggle to survive each day amid malnourishment and disease. Next, Sachs describes the city of Blantyre, where Malawi’s main hospital is located. There, he witnesses a small number of individuals who can afford the $1-a-day cost of AIDS medication that has a 100% success rate in the country before he crosses the hall to observe a much larger number of people near death from AIDS, stacked three to a cot to die with strangers. Despite an exceptionally capable effort by Malawi’s government, the international community agreed to funding that will treat only 25,000 people over five years out of the approximately 900,000 who will otherwise die of AIDS. This, like the prevalence of death from the preventable and curable effects of malaria, illustrates the significance and cruelty of extreme poverty.

Second, Bangladesh offers an example of a country with a foothold on the economic ladder. Specifically, the garment industry is booming with sweatshops. Girls and women walk hours to large industrial facilities where they work 12 hours with almost no breaks and face major risks. Nonetheless, these women generally see their jobs as major opportunities and believe they are a step away from the extreme poverty seen in Malawi. The fertility rate for these women in Bangladesh, as well as the social norms dictating the desired number of children, fell precipitously in less than a generation. According to Sachs, this fact combined with the country’s burgeoning microfinance industry illustrates that “Bangladesh has managed to place its foot on the first rung of the ladder of economic development” (14).

Third, Sachs takes the reader to Chennai, India, where an explosion in the information technology industry has created opportunities. Sachs highlights a company where workers with some higher education transcribe medical data dictated by doctors in the United States each day. India has some regions that are still ensnared in extreme poverty but others that are seeing rapid economic growth—Sachs states 6% or more growth annually in India. Sachs also introduces the recurrent concept that “the world is not a zero-sum struggle […] but rather a positive-sum opportunity in which improving technologies and skills can raise living standards around the world” (16).

Finally, China, with an economic growth rate of 8%, illustrates the remarkable achievement of affluence for a segment of the Chinese population in just 25 years. Specifically, Sachs notes that the value of China’s exports rose from about $20 billion in 1980 to $400 billion in 2005.

From these snapshots, Sachs establishes some key points that recur throughout the book. First, science and technology are crucial in the development process. Relatedly, an increasing urbanization of people (and concomitant move away from subsistence agriculture) occurs as countries develop away from extreme poverty and toward affluence.

Next, Sachs describes the state of humanity according to four economic segments, maintaining the metaphor of a ladder of economic development. One-sixth of humanity (a billion people) exists as portrayed in Malawi—in extreme poverty, struggling to survive. Another 1.5 billion people live more like what Bangladesh represents—what Sachs describes as the upper end of the low-income world—assured of survival but facing constant hardship. About 2.5 billion others exist in a middle-income bracket, with incomes of a few thousand dollars per year, much like the portrait of the Indian IT workers. Finally, approximately 1 billion people live in the high-income world, most of whom live in the world’s rich countries, though an increasing number are also gaining affluence in the middle-income countries.

Sachs points out that well over half of the global population is experiencing significant economic progress. In other words, they are on the ladder of economic development. However, he notes that the “greatest tragedy of our time” still persists: The fact that 1 billion people live in extreme poverty, suffering extreme material deprivation with no means to improve their lives absent outside intervention and assistance (19). This, of course, is the challenge that The End of Poverty encourages the remainder of the world to take up and solve as quickly as possible.

World Bank data is also used to identify the poor that Sachs refers to in calling for “the end of poverty.” He defines “extreme poverty” to be the condition in which households cannot meet basic needs for survival, using the World Bank demarcation of $1 per day or less income as a rough indication. “Moderate poverty” allows survival but little more, equating to the World Bank’s category for income of $1 to $2 per day. “Relative poverty” simply means a household income below a certain percentage of the average national income.

Sachs’s call to end poverty is, first, a call to end extreme poverty. In recent decades, such poverty has been falling significantly in Asia but has risen in Africa. This is true in terms of absolute number and proportion of the population.

Second, Sachs aims to ensure that all the world’s poor—including those in moderate poverty—“have a chance to climb the ladder of development” (24). That “chance” is the core ingredient of what Sachs believes will constitute the end of poverty.

To close this overview chapter, Sachs lists the following “economic possibilities of our time”: meeting the UN Millennium Development Goals (MDGs) by 2015; ending extreme poverty by 2025; ensuring all countries can move up the economic development ladder; and achieving these goals with only modest financial assistance from the world’s rich countries.

Chapter 2 dispels the myth that wealthy countries gained their status entirely by exploiting the poor countries. Sachs acknowledges that imperialism and related exploitation occurred to the advantage of rich countries at the expense of the poor, but he explains that it does not explain the present.

Instead, the explanatory factor is technology. Human production and quality of life were essentially flat from the earliest records until about 1750. From that time forward, beginning in England and soon spreading globally, the Industrial Revolution took hold and radically transformed the productive capacity of human societies.

Thus, everyone was basically living in extreme poverty before about 1700, with some brief exceptions that did not last. Only with the advent of the steam engine—as well as the conceptual underpinnings of technology, such as Isaac Newton’s Principia Mathematica, which Sachs calls “one of the most important books ever written” (34)—did humanity gain the ability to dramatically increase production of food and, then, other materials that dramatically increase the potential quality of life.

That process of technological and material advancement is the process of economic development. According to Sachs, it depended on harnessing the power of fossil fuel energy. Yet, more than the coal beneath the ground, it required the ingenuity to utilize the stored energy coal possesses. That is the fundamental difference that demarcates the major, long-term shift between thousands of years of stasis in poverty for all humanity and the modern era.

However, Sachs notes that the shift into technology-driven modern economic growth depended on some specific features of England, first, and then other prosperous nations. Some of those features are geographic (such as soil quality or relative immunity from invasion due to water bodies), but others are political (such as the relative openness to social debates and scientific ideas that emerged in England during the Renaissance and the Scientific Revolution). In that context the emergence of the Industrial Revolution has allowed a long-term, stable improvement in the quality of life for the first time in human history.

These improvements were accompanied with marked transformations in society. Primary among these is urbanization, which relates to the increase in food production and the rise of nonfarm economic activities that benefit from high-density living arrangements. Next, market-based modern economic growth creates social mobility through bursts of technological change that shift the roles and occupations of a society. This social mobility includes a transformation of previously strict and stable gender roles because women are freed from the high fertility rates and hard labor of agrarian societies. In turn, family structures change as a drop in the desired number of children effects fundamental demographic transitions in the society.

Finally, as economist Adam Smith recognized at the beginning of the Industrial Revolution, specialization and the accompanying division of labor is a hallmark of modern economic growth as markets enable the sharp increases in efficiency that promote increased quality of life for all in the society. Division of labor requires a market, and the extent of the market depends upon specialization among its participants.

Modern economic growth, however, did not occur uniformly. It originated in England and then began to spread along certain identifiable pathways. Most directly, it was passed on to the North American, Australian, and New Zealander colonists, who took these economic ideas with them as they were freed from the agrarian lifestyle and also benefited from robust trade with the Old World. Second, within Europe, modern economic growth spread from the west, where access to the sea promoted trade and feudal societies had more fully broken down, across the continent to the east. The remaining areas of the world constitute the third aspect of the diffusion, often encountering differing levels of uptake and resistance.

The actual developments of modern economic growth began with the harnessing of fossil fuels but quickly came to include communications technologies (especially the telegraph). Second, technological advances dramatically reduced the time necessary to transport goods for trade. Third, the advent of electricity and the internal combustion engine, as well as developments like chemical-based fertilizers, exploded throughout the world as forces of modern economic growth.

These processes bring the story to the dawn of the 20th century. Sachs then emphasizes the significance of World War I, to which he attributes the origins of the Great Depression and World War II. Specifically, he suggests (as others before him have as well) that it was clear that war would become so devastating that it should not occur lest it destroy the many advantages being enjoyed from the new economic growth over the prior two centuries. However apparent that may have been, war did come, and it was transformative.

In Sachs’s telling, and that of many economic thinkers, the political world was reconstructed in the aftermath of World War II in a manner that explains many of the challenges faced by disadvantaged regions today. Specifically, Western Europe and North America continued the work of rebuilding a world market economy by restructuring convertible currencies and the like. However, with the Bolshevik Revolution in Russia, the “second world” carved out an ideologically driven path for nearly one-third of the world that would prove far less efficient until it finally collapsed. Thus, the “third world” emerged in the wake of colonialism, determined to break the yoke of first-world imperialists and find its own way while resisting the pull of communism in the Soviet Union, the People’s Republic of China, and related regimes.

This effort to establish a third way, Sachs maintains, was much less efficient, and the third world had a far more difficult time connecting to the global economy than that which was created by the first world’s market-based economies. Ultimately, according to this economic vision, all the world is moving toward that market-based approach because it is the driver of modern economic growth.

Chapter 3 moves away from large time scales and overviews of global history to ask why, in a world where five out of six people live with at least a foothold on the ladder of economic development, the remaining one out of six have failed to obtain that foothold.

To illustrate and explain the problems that plague countries in extreme poverty, Sachs employs the much simpler hypothetical of the economic circumstances and events affecting a single household in a simple agricultural economy. He identifies the following possible routes to increase the household’s income in a year: saving; trade (e.g., through specialization and emergence of a market); technology (e.g., through education on better farming methods); and a “resource boom” made possible by government policies.

Then, Sachs reverses each possibility to show the routes to declining economic well-being. Due to an inability to save, the ordinary breakdown of equipment can cause declining income and capital depreciation. A lack of infrastructure or an outbreak of violence may prevent or hamper trade. Disease may cause a generation to die off before the next generation learns the skills necessary to continue—let alone develop—technology usage, causing a technology reversal as the upcoming generation takes over the farm without guidance. Resources may also decline due environmental factors (such as prior overuse).

Beyond reversal of the four possible routes, Sachs offers several more reasons for decline in a household’s income. Natural disasters may cause “adverse productivity shock” as yields plummet or are wiped out entirely. Population growth over generations will, in the absence of expansion in land or improvement in yield, produce a consistent decline in income where one couple produces two children, each of whom marries to form a household and remain dependent on the same land that a single generation occupied in the prior generation.

Drawing on this simple model, Sachs cautions against blaming the poor for their circumstances. Poverty often begets further poverty because the poor are often “too poor to save for the future and thereby accumulate the capital” that would alleviate their poverty (56). That “poverty trap” is the primary reason for continued economic stagnation in poor countries.

Additional factors identified as reasons poor countries fail to thrive include physical geography; the “fiscal trap,” which means that the government lacks the resources to create or maintain infrastructure necessary for private economic activity; governance failures; cultural barriers; geopolitical factors; lack of innovation, often caused by a lack of incentive to innovate due to the absence of a local market (caused by poverty itself); and the “demographic trap,” meaning that the poor often have the highest fertility rates and therefore even fewer resources to devote to each child.

Sachs briefly notes where these factors have been important to actual countries’ development but ultimately explains that each case requires a particularized diagnosis. He closes the chapter by reasserting that the extreme poor need help to reach the first rung of the ladder of economic development, but afterward, they can continue ascending on their own.

Chapter 4 articulates several of Sachs’s concerns with the state of his discipline and profession, then outlines his core ideas to improve them in a manner that proves relevant later in the book.

From clinical medicine, Sachs draws five lessons that he then applies to discuss what he calls “clinical economics.” The lessons are provided here for medicine and economics in parallel, although Sachs discusses the five lessons from medicine, then discusses the five applications.

The first lesson is that the human body is a complex system, which is also true of an economy. Thus, as in medicine, an economist must consider the interactions of various systems within and around that economy when diagnosing or treating an economic illness.

The second lesson is the need for differential diagnosis. Each economic situation, like every presenting patient, is unique. There are no one-size-fits-all solutions for economic challenges.

The third medical lesson is that all medicine is family medicine, which translates to the need to consider trade partners and others when attempting to improve a country’s economy. Without supportive “family” relationships, an individual economy is less likely to correct a problem.

Fourth, physicians know that monitoring and evaluation are essential to improving their practice, and economists should begin to recognize this as well. In this sense, Sachs is calling for greater empiricism in the practice of economics at the global level.

Finally, the fifth lesson relates to the existence of norms and standards in the profession of medicine, which Sachs believes should provide a model for improving the norms and standards of economists. Specifically, he is calling for recognition of the greater economic good—and not solely the self-interest of the wealthy—to play an increasing, and increasingly formalized, role in guiding professional economists.

Sachs then identifies several ways he believes economists have erred in their approach. He acknowledges the challenges of identifying the need for a new approach and, especially, in developing one. The concepts in this chapter recur in later chapters but are concisely articulated here as the final piece of the book’s first phase.