Development in a global context.

• Author: Sachs, Jeffrey

There have never been more countries in need of international development assistance yet many misconceptions prevent accurate diagnoses of their problems. This article suggests we have to look beyond economic analyses if we want to begin making real progress.

Let me begin with some personal observations. I was trained as a macro-economist and learned fairly early how to turn the dials of exchange rates, monetary policy, budgetary policy, and financial market policy for the purposes of macro-economic stabilisation. For many years I was engaged in helping countries in hyper-inflation to attain some kind of stability, often, I am happy to say, with reasonable results. But I also learned some important lessons about the real limits of these tools.

The Power of Geography

I began my international career in Bolivia. It was such a remote and desperate place they were willing to have anyone, and I answered the call, certainly not knowing what I was getting into or realising how fundamentally that experience changed my life.

Bolivia was and is still a country of very poor people. In the five years before 1985 it reported a decline of per capita income of more than 30 per cent. That is a catastrophe if you are already amongst the poorest nations. By the time I arrived there inflation over the preceding 12 months had reached more than 24,000 per cent cumulatively. That made it the seventh highest hyper-inflation in the history of the world. Sadly, it was subsequently surpassed by many others.

But to summarize a long story, Bolivia did succeed in ending the hyper-inflation and in establishing stability and even, consolidating a new democratic process, which was also unique for a country that was on record as being one of the most unstable in the world.

Bolivia succeeded in restoring economic growth to about 2 per cent per year per capita, which, for a very poor country, is surely a long haul out of underdevelopment. At that rate if per capita income was about $600 at the time of stabilisation, it would take 35 years to reach $1,200, and then another 35 years to reach $2,400. In other words by the next century Bolivia might aspire to reach the level of development that the United States reached 50 years ago. This is hardly a realistic target for global development.

When I flew into La Paz where the airport was 12,000 feet above sea level and the air very thin, I realized this was an unusual country. Visiting Lake Titicaca, the highest lake in the world, was an unusual experience. The mountains were beautiful and the Altiplano was exceptionally stark, but I was not trained, to think in a serious way, what the consequences of all of those factors were for economic development.

We thought, "Well, they are only growing at 2 per cent per year because they fixed the exchange rate this way or that way," but were completely ignorant of the fact of what life happens to be like up in the Andes Mountains at 12,000 and the profound difficulty of getting Intel to come and build a semi-conductor factory up in the Alto or getting Nike to produce shoes near Lake Titicaca or other tricks of the trade that are part of the process of creating jobs and creating export growth and incomes for poor countries.

Bolivia is very much a country of its geography. This is such an obvious point yet it took me 15 years to understand what that really means. I came to understand very directly when I worked in Vietnam for a short period of time. It had miserable, corrupt government, terrible regulations, very little participation of civil society, a pretty authoritarian old guard, mismanagement around the state enterprise, and yet it was growing several percentage points per year faster than Bolivia. Why? Because they had a beautiful long coast that was excellent for bringing in Taiwanese firms and Korean firms and many other firms that wanted to make television sets and sandals and footwear and T-shirts and other things which created jobs and income.

So I realised that globalisation actually does not treat all parts of the world equally. I began to question this mantra of governance that proclaims when things go wrong it is clearly because poor people do not govern themselves properly. The world is really a more complex structure and development is a much more complex process than some of the simple visions we have of everyone running the same race or everyone participating in the same globalisation process.

The more I have seen and the more I have thought about it, the more I have come to understand how incredibly powerful are geographical factors which are barely noticed in our professional discourse. The most obvious one is that almost all of the tropical world today is poor. Almost all of the temperate world is either richer or former communist. It is hard to be in the temperate zone and not to have been under the Soviet thumb and still to be poor. If you look at the roughly 1 billion people that are in the World Bank's category of high-income countries, 992 million of them are in countries in the temperate zone. There are only two economies on that list in the tropics. Singapore, with its 3 million people, and Hong Kong. There is no other economy in the top 30 in the tropics. I challenge you to look at any macro-economics text book to find even one sentence about this most powerful geographical gradient in the entire world. You can look at 500 recent papers on economic growth and 497 of them will not even mention geography once.

If you look at landlocked countries in the world, like Bolivia, you will find no success stories, except if you happen to be landlocked surrounded by rich countries. So there are a couple of rich landlocked countries like Switzerland and Luxembourg but there is a world of poor landlocked countries in South America, in the tropical Sub-Saharan Africa and in Central Asia including Uzbekistan, the world's only double landlocked country, meaning all of its neighbours are landlocked. You have to cross two international borders to get to a coast!

There is not a success story among them. Overland transport costs are extraordinarily high. You do not ship most goods by air, except at a very late stage of economic development. If you want to get started in economic development, if you do not have access to a sea port, it is very tough. If you look at the temperate zone coastal regions that are within a hundred kilometres of a navigable waterway or with the oceans, it turns out that those thin strips of land of the east coast and the west coast of North America, of Chile, Argentina, southern Brazil, Australia, New Zealand, coastal China, Japan, Korea, and western...