To buy shovels, amongst other thingsAfter some introductory economics lessons and a bit of autobiography, we’ve finally got through Jeffrey Sachs’ plan for eliminating poverty by 2025. Now it’s time to answer the key question: go on then, how much?

The short answer: $135bn a year - as opposed to the $65bn/yr currently being spent - now, rising to $195bn a year by 2015. After that, we’ll see. In other words, we need to double aid for a while, then add the same amount on again. That’s for the whole of the developing world, not just Africa. This amounts to around 0.5% of GDP, still less than the 0.7% we’ve been promising for thirty years. We should put the rest in, too, to have something aside for when climate change starts to bite.

There, that’s the short answer. ADHD sufferers, sod off now.

Still with me? Good. It’s worth going into a bit more detail. Beware: there will be numbers.

A quick way to calculate something very complicated

Sachs starts with an initial, illustrative sum which, as it turns out, generates a very familiar figure to the more complex arithmetic. How much sheer money is the developing world short of to meet everyone’s basic needs? Basic needs means 1.08 purchasing power parity dollars a day at 1993 rates, and if that sounds like Martian, you need to read this. Let’s just call it $1.08 a day. 1.1 billion people, by the last count, live under this income level and their average income is $0.77 a day - yes, that’s right, about the price of a Mars bar. That’s a shortfall of 31 cents a day, or $113 per year. That times 1.1 billion people equals $124bn. That’s about 0.6% GDP of the main donor countries. (p290)

In other words, for the first time in history, the longstanding commitment to give 0.7% of GDP for aid - first pledged back when disco sucked and flares were first fashionable - would actually be enough to lift everyone out of extreme poverty. This is new. In 1981, Sachs notes, the shortfall was larger, rich countries weren’t as rich, and $1.6% of GDP would have been needed. (p291)

Why has ending poverty got cheaper?

  1. Fewer extremely poor people. For all the doom ‘n’ gloom about poverty, it’s easy to lose track of the good news - that the proportion of the world’s population in poverty has never been smaller. 1.1bn is just over a sixth of the world; a generation ago the poor made up something more like one-third, and mid-20th Century more like half. That’s worth repeating - in the course of the Twentieth Century, we went from a world mostly extremely poor, to one where only one-sixth of people are consigned to extreme poverty. It’s still too many, of course. But it’s worth noting the progress. The great thing is, the number is now sufficiently small that eliminating poverty entirely becomes affordable. The downside is, the last few are always going to be those whose poverty is most stubborn.
  2. The rich world today is rich. Far more so than a generation ago. And because the very rich own a greater proportion of the wealth than before, you can raise huge sums for development just by stinging them (more on this later).
  3. Technology, god bless its silicon socks, is on our side. Mobile phones, the internet, logistics, new medicines, new agricultural products: these all help in different ways. They need to be put to work on the job more effectively.
  4. Don’t forget we’re ending extreme poverty here, not all poverty (despite the book’s title, which states the opposite). There will always be rich and poor, as that’s relative. This is about enabling people to meet basic needs.
  5. Equally, this isn’t about transforming whole societies. It’s great if countries become efficient market economies, democracies, transparent and so on, but it’s not all strictly necessary to get people onto the ladder of growth. Focus on the practical interventions, and it’s not as scary - or expensive.

….and now the complicated way

This is back-of-a-matchbook stuff, though. The full process of assessing the need is more complex, and at this stage Sachs is offering only an estimate.

Before we can get to the headline figures, we need to agree exactly what we’re buying. This is called “needs assessment.” And this has six steps (Sachs does like his bullet points):

  1. Identify the package of basic needs
  2. Identify which aren’t being met in each country
  3. Work out how much it’ll cost to meet them - with population growth borne in mind
  4. Work out how much each country can pay
  5. Work out how much is left for donors to pay
  6. Work out how donors will divide it up

So what’s in the “package of basic needs”? Well, it’s the kind of thing employed in the Millennium Villages - key ones include safe drinking water, primary education, nutrition programs, anti-malaria nets, paved roads, and access to modern cooking fuels (to prevent illness from indoor fumes). It’s important to note that these needs are so basic that basically everyone in rich countries has access to these. This is not “poverty” in the New Labour sense. This is a kind of poverty we in rich countries have almost forgotten exists.

As for how much it’ll take to meet them, in practice this usually is focussed on meeting the Millennium Development Goals. So at this stage, we’re only planning up to an interim point - the MDG’s call for a halving of extreme poverty. Once we’re there, we can assess the challenge to get the rest of the way. - so in some cases it’ll be aiming to meet needs for half the population by 2015, and the rest later. The UN Millennium Project (another Sachs vehicle) estimates that in Ghana, Tanzania and Uganda - as well as some non-African poor countries - the cost would be about $110 per person, per year, till 2015. (p293)

Who pays for what? The UNMP calculations assume that households themselves can pay for some things - energy, water, and investments in agriculture, with differing levels of subsidy for the poor (the extremely poor pay nothing). It also estimated that governments could muster up an extra 4% of GDP to support progress towards the MDGs, through better tax collection and taking money from other things, like corruption and war. In middle-income countries like Brazil, households and the government between them have enough money to fulfil the goals - they’re failing largely through problems of politics. Poor countries, though, need roughly $65 of the $110 to come from donors (of the rest, households are supplying $10 and governments $35).

Based on these rough estimates, we’re looking at $40bn per year for sub-Saharan Africa, or $80bn/yr for the whole developing world. By 2015, this rises to $83.4bn for Sub-Saharan Africa, $134.7bn for the world. Of course, this assumes that all countries qualify. In practice, this won’t happen because of requirements on governance and transparency, so the real figure would be less. (p295)

“Hang on, that’s $80bn/yr. You said $135bn!” I hear you cry. No, really, I can hear you. Over the internet. With, um, Skype. “So where does that extra $55bn go? Not on private jets for Jeffrey bloody Sachs, I hope.” Well, no. The thing is, not all aid goes on the kind of direct budgetary support that Sachs is talking about. Of the $65bn we currently give, for example, only $12bn goes to poor countries in a way they can use to support investment. The rest went to middle-income countries, or on debt relief, technical assistance (read: expensive experts), and emergency assistance. Some of this is necessary, and needs to continue in addition to the extra money on investment. Plus, extra money is needed to actually run the agencies that will co-ordinate and manage the money, and to provide extra capacity to existing agencies like those of the UN. In addition, as we mentioned last time, an extra $7bn/yr is needed for scientific research into poor-country problems neglected by commercial science. The final tally for all of this - minus countries that probably won’t qualify - equals $135bn/yr now, increasing gradually to $195bn/yr by 2015. This is about 0.44% of rich-world GDP, rising to 0.55% by 2015. (p299)

See? Told ya. Sachs acknowledges that “clearly there is not a high degree of precision in these estimates.” The point, though, is that they show that the MDG’s can be met, and poverty eventually eliminated, within the previously agreed 0.7% target.

Is this a unique assessment?

No. You might remember the Commission for Africa alled for a doubling of aid to Africa, from £25bn to 50bn, with a further £25bn after 2010. Sachs is looking at aid worldwide, but proposes the same basic formula: a doubling (from $65bn to $135bn, or about £30bn to £65bn in 2005’s exchange rates), followed by a similar extra amount again after 2010. A doubling of aid has also been proposed in 2001 by a dedicated commission and endorsed in 2004 by the leaders of the UK and France. And in the end, a doubling of aid became the central demand called for by campaigners at the Gleneagles G8 summit of 2005, more of which in the future.

So what happens after 2015?

Sachs makes a lot of people nervous with his talk of an antipoverty effort lasting till 2025. After all, ten years is a lot less time to spend money on a problem than twenty years - and in practical terms, it could mean sustaining support for the initiative across five different US presidencies. So he’s eager to reassure: needs after 2015 would be substantially less than before. China would, according to the plan, be free of extreme poverty; and India and even sub-Saharan Africa would have it down to below 20% of the population (it’s 40% in sub-Saharan Africa now). It will continue to fall, but some countries will need money right up till 2025.

So who pays?

So. It’s been a sumptuous, five-course development feast, and now the bill’s arrived. And, as usual, you’re thinking back to the menu; remembering how cheap your main course was; watching your ex’s new boyfriend picking at his leftover lobster; and looking at the bill, and thinking: no way are we splitting this evenly.

In reality, it’s not about who consumed what, as it is, after all, aid. It’s about ability to pay. If every rich-world country gets up to 0.5% GDP (of course, some are already there, and some are up to 0.7%), who would be contributing the most? The answer is, of course, the US - its mammoth economy gives it by far the biggest share of the responsibility. The sheer scale of the US’ share, though, is shocking. Its 0.5% responsibility would total $55bn/yr; its current contribution is around $18bn/yr. That difference - $37bn - is over half, 51%, of the additional money needed.

I’ll say that again. If the US got up to 0.5% of GDP on aid it would provide over half the additional money needed for the whole anti-poverty effort. If Japan, Germany, the UK, France and Italy joined in too, that would account for 90% of the shortfall. (p302) If Sachs’ calculations are sound, six countries hold the future of the world’s poor in their hands.

Getting the US to stump up

The good news is that the UK and France have put timetables in place to reach 0.7%, in addition to their Gleneagles pledges on aid; so in theory at least, we don’t have to worry about them. Perhaps because of this, or perhaps because it’s his home turf, Sachs focuses firmly on the US. He points out that to get all the way to 0.7% - more, remember, than is required to eliminate poverty -from the current level of 0.15% is a cost equivalent to less than a third of the annual growth of the US economy.

Still, to make it easier on the average American, Sachs proposes focussing the fundraising on the very richest. And let’s not forget, people, just how mind-meltingly rich these people are. The richest 400 Americans, Sachs calculates, have more money than the people of Botswana, Nigeria, Senegal and Uganda put together - 161 million people. If these 400 gave ten percent of their income to antipoverty efforts, that alone would raise $7bn, a healthy chunk of the shortfall - and that’s in 2000 numbers; they’re richer now. (p305)

Now, remember those tax cuts for the rich that President Bush controversially put in place soon into his first term? They have saved the richest 0.6% of Americans - those with incomes above 500,000 - over $50bn per year. You could more than pay the US’ share of the extra aid needed just by rolling back a portion of the Bush tax cuts. To put it another way, the extra $70bn/yr needed globally is a little more than some estimates of the annual cost of the Iraq war.

Sachs’ actual practical suggestion is a 5% income tax surcharge on income in the US above $200,000 each year. This would bring in the $40bn/yr needed, and, let’s face it, have precisely no negative effect on the lives of those paying. (p307-8)

So there you go. The good news is, it’s very, very affordable. The bad news is, much of the power to do it rests with American gazillionaires. Perhaps it’s not surprising there’s been little progress under the President who refers to gazillionaires as “my base”.

So - assuming we’re all won over and the case for much more aid has been made - why has it proven so hard to actually get the money put up? Sachs’ book was written before the 2005 Gleneagles summit committed to $50 billion more aid by 2010, near what Sachs asked for. But two years on, there’s still no sign of the actual money. What’s the problem?

Not, Sachs argues, the will of the American public. “A vote for foreign aid has often been described as the toughest vote for a congressman,” he admits. But “in fact, these political risks are ridiculously overstated.” 54% of Americans, he notes, agree that foreign aid is the responsibility of governments. (p331) And a whopping 87% agree with government spending to “give food and medical assistance to people in needy countries (let’s face it, would you say no to that if you were asked in public?).” (p340) The problem is not that they won’t pay, but that they greatly overestimate the amount they’re already paying in aid. A survey in 2001 showed that Americans believe on average that 20% of the federal budget goes to foreign aid! It’s actually less than 1%. (p329) Instead, the failure has been one of politicians, “a lack of political leadership… to ask the public for greater efforts.” While President Bush has discussed poverty and raised the US’ aid spending, Sachs notes, he hasn’t even nearly made the case for the kind of massive aid increases Sachs wants - so we can’t know that the US public would reject them.

Reminding ourselves why

There are, of course, some very serious arguments against increasing aid. And Sachs devotes a chapter of the book to refuting them. But we’re going to park that for a while, and come back to it once we’ve outlined the case against aid in detail. Next time, we’ll turn to Sachs’ last chapters where he reminds us of the reasons for action, and puts the antipoverty effort in a wider context.

All page references are from the UK paperback edition of Sachs’ The End of Poverty.