Our Word is Our Weapon

Last month I mentioned that Gordon Brown was anticipating “a major breakthrough in debt relief at the next G8 meeting”. Well, that meeting took place and there was no major breakthrough. The rich white men decided to extend the present completely inadequate program of debt relief. Meanwhile the debt crisis continues to pointlessly ruin the lives of millions.

There is no good reason why the governments we elect are not spending the meagre amounts of money needed to stop the preventable deaths of millions of people every year.

This is Harvard economist Jeffrey Sachs, in 2002, talking about a recent trip he made to Africa:

“We went to Queen Elizabeth hospital in Blantyre, Malawi, the major hospital in one of the most impoverished countries in the world.

We were taken to the medical ward. About 70% of the people in the medical ward now are AIDS related patients. But patients is a euphemism. There are no drugs in the clinic. So this was a room of dying people. It wasn’t that every bed was filled. It was that every bed in the entire ward was filled with two people in the bed and one or two under the bed. They’re running four to a bed. On a good day, it’s three to a bed. Hundreds of people were packed into the room dying of AIDS. Now of course you know that calamity. But what you can’t fully appreciate until you see the unbelievable character of it is that across the hall from that ward was the outpatients service, where, for the tiny percentage of the public that can afford one dollar a day for the drugs, people are under treatment; their health is restored; they are back at work; they are tending to their children. Their children have mothers and fathers. Yet across the hall for a lack of a dollar a day were thrown away human beings. We’re doing that by the millions right now …

The shocking part about this is that it would be so easy to address. For two years I chaired a commission for the World Health Organization looking at the conditions of health of the world’s poorest people. We found that 25,000 people per day in the poor countries are dying of preventable or treatable conditions because they lack a few bucks to get health care. It’s malaria. It’s AIDS. It’s TB. It’s things we have the drugs for. But we’re talking about the poorest places in the world. Markets don’t serve the poorest of the poor, especially the sickest of the sick among the poorest of the poor. So, what you can ask and what I’m trained to do as a macro-economist is to add up the cost. What would it actually take to address this? It turns out that if all of us in the rich world set aside one penny for every ten dollars of our income, one penny for every ten dollars, since the rich world is a 25 trillion dollar world – [in terms of GNP per year]; one penny out of every ten dollars would mobilize 25 billion dollars a year. Our estimate showed this, when combined with the efforts within these countries themselves, could save 8 million people a year.”

I think he’s right - it is that simple. We have no need of the relatively tiny amount of money it would take to save millions of lives and prevent the implosion of whole societies. There are economic arguments to be made for handing over this money, but we don’t need them. There are reasons of security we could cite - but we don’t have to. You can justify it on religious grounds - it’s irrelevant. The simple fact is we should give whatever it takes to save those 8 million people a year because it takes very little and we will hardly notice the giving.

Check out OligopolyWatch, newly added to my list of worthwhile blogs.

There’s an interesting paper here by Martin Ravallion, a World Bank expert on poverty and inequality. It’s a useful discussion of how many different meanings can be attached to a simple word like “inequality”, and of how much of the confusion in arguments about development policy could be avoided with a little effort towards definition. Here’s an extract from the conclusion:

Both sides of the globalization debate often use the term “inequality” as though we all agree on exactly what that means. But we almost certainly don’t all agree. And that could well be the nub of the matter. This paper has demonstrated that the factual claims one hears about what is happening to inequality in the world depend critically on value judgments embedded in standard measurement practices. The paper has highlighted three such issues: whether one weights people equally or countries equally when assessing what is happening to global inequality, what weight one attaches to horizontal inequalities and whether one focuses on relative inequality or absolute inequality in assessing the welfare impacts of globalization.

Interestingly, Ravallion also makes pretty much exactly the same point as I recently did about his own findings on the role of China in global poverty reduction:

The pro-globalization side of the debate has often pointed to the developing world’s overall success against absolute poverty since the early 1980s as support for the view that globalization is good for poverty reduction. It is argued that pro-globalization policies in developing countries are pro-poor because they generate higher economic growth, which does not come with higher inequality and so reduces absolute poverty (see, for example, World Bank, 2002). However, a closer inspection of the aggregate poverty numbers immediately raises some doubts about the role played by globalization versus other factors. China is hugely important in the world’s overall success against extreme poverty; indeed, the number of poor in the world (by the $1 a day standard) outside China has remains quite stable over this period, at around 850 million (Chen and Ravallion, 2004b) … There was a dramatic decline in China’s poverty incidence in the early 1980s; about 200 million people crossed the $1 per day hurdle between 1981 and 1984. Note, however, that this largely preceded the country’s external trade reforms. More plausibly the sharp drop in poverty in China in the early 1980s was due to another kind of reform: the de-collectivization of agriculture following Premier Deng’s reforms starting in 1978. [emphasis added]

At the end of the 20th Century more than half of the world’s human population was estimated to subsist on an income equivalent to less than $2 a day. The distribution of world income remains extremely unequal, and it’s unclear whether this income inequality is rising or falling. It seems safe to say that the inequality in the global distribution of wealth is even higher. This is perhaps a more important phenomenon, since it is wealth that brings us security, and it is security that we will come to treasure in the years ahead.

Here’s two examples of what I’m talking about. Firstly, unless you live in a tree you’ll probably have noticed that oil prices are fairly high right now, having risen to over $40 a barrell from less than $20 in the late 1990s. A sustained rise in oil prices would cause rich countries some signficant short-term economic difficulties, but a new report from the International Energy Agency (pdf) shows that the impact on poor countries would be much greater:

a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD [i.e. rich countries] as a whole losing 0.4% of GDP [i.e. national income] in the first and second years of higher prices …

The United States would suffer the least, with GDP falling by 0.3%, largely because indigenous production meets a bigger share of its oil needs …

The adverse economic impact of higher oil prices on oil-importing developing countries is generally even more severe than for OECD countries. This is because their economies are more dependent on imported oil and more energy-intensive, and because energy is used less efficiently. On average, oil-importing developing countries use more than twice as much oil to produce a unit of economic output as do OECD countries. Developing countries are also less able to weather the financial turmoil wrought by higher oil-import costs ….

It is estimated that the loss of GDP averages 0.8% in Asia and 1.6% in very poor highly indebted countries in the year following a $10 oil-price increase. The loss of GDP in the Sub-Saharan African countries would be more than 3%.

What this means is that the damage done by high oil prices is almost directly proportional to a country’s existing level of underdevelopment. The poor will get hit the hardest because they are poor, because they have less resources of their own and are less able to adapt flexibly to a changing external environment. A drop in income of this scale would wipe out most of the (faltering) progress that is being made towards the internationally agreed Millennium Development Goals. This is a doubly cruel fate since the poorest countries are also those who have had least to do with the causes of high oil prices - increasing consumption by the OECD and quickly-developing countries, and uncertainty over security and instability in oil-producing countries.

The second example concerns the impact of global warming, which is of course intimately connected to the problem of oil. There seems to be a growing scientific consensus that global temperatures will rise by between 1.5 and 3.5 degrees celsius by the end of the 21st Century. The consequences will include a greater incidence of ‘extreme’ weather conditions, faster desertification, greater difficulty for many in accesssing fresh or clean water, and a quicker destruction of existing habitats. As with higher oil prices, wealthier people are much better placed to deal with these consequences than the poor and insecure. People who have access to wealth and other resources find it easier to adapt, protect and move around in response to changing conditions. The billions who already live on the slender margin between survival and destruction are much more vulnerable to the rising tides of natural hazards. There is another obvious parallel with the oil situation in that the poorest people in the world have generally done the least to bring about global warming, while we who can afford to escape its worst consequences have generally done the most.

Many rich countries are aware of unequal vulnerability to external shocks within their own borders. While these inequalities are not quite as extreme as at the global level, in many cases steps are taken to avoid the worst-case scenarios. Rich individuals don’t only have access to their own resources but also to a whole range of policies - from well-funded emergency services to public transport to flood barriers - that together constitute a comprehensive safety net. At the global level, there is nothing of the sort. The poor are left at the mercy of a dangerous world until they start dying in sufficient millions to arouse our sympathy. But with a little foresight we could spend now to save later, as Jeffrey Sachs points out in The Economist:

In every aspect of Africa’s complex plight an ounce of prevention will be worth a ton of treatment. In recent years America gave a negligible $4m a year to Ethiopia to boost agricultural productivity, but then responded with around $500m in emergency food aid in 2003 when the crops failed. In the 1990s America gave less than $50m a year for Africa to prevent AIDS, so now will spend $3 billion per year to treat the disease after it has spread to more than 50m Africans�20m dead and 30m currently infected.

The lesson seems fairly clear to me - greater investment now in the poorest countries, aimed both at promoting development in general and guarding against the worst consequences of uncertainty - will give the poorest people the means and the resouces to better protect themselves and would save the rich world money in the long term. Redistribution of income and wealth is an accepted route to the common good in every country in the world - but global redistribution still gets sniffed at. The sooner we wake up to the consequences the better.