Creative Destruction: Kill The Poor

Gregory Clark has written A FAREWELL TO ALMS: A Brief Economic History of the World, a new book attracting considerable attention among economists and historians. I'm not going to talk about the book here, I'm saving that until I've read a bit more, but I do want to review one of its themes, as developed by the author in a New York Sun opinion piece: How to Save Africa:

Africa is poor. Very poor.

Saving Africa has rightly become a popular concern, uniting Bono and Bill Gates, Angelina Jolie and Pope Benedict XVI. Despairing of academic skepticism, the intellectual force of this movement, Jeffrey Sachs, appeals directly to the people promising $110 per head to end destitution and disease in Africa. Who could resist such a humanitarian bargain?

However, in economics the best of intentions does not necessarily lead to the best of outcomes.

The long history of living standards suggests that the Sachs plan is more likely to further impoverish Africa than enrich it. The promised health improvements and one-time gains in crop yields cannot create sustained improvement of living conditions.

The problem is that temporary boosts in food production or eliminating disease just produces a population increase that gobbles up all the gains and leaves everyone worse off. This is the Malthusian logic of the dismal science, and it's also at the heart of his book. I think it is a largerly unassailable argument, and in fact, all the millenia of progress between 100,000 BC and the 16th century likely left the average person worse off than his or her stone age counterpart.

He continues:

Industrializing Africa is the only way to solve its poverty. The industrialization of coastal China — accompanied by declining public health provision, a neglect of agriculture, and environmental degradation — ultimately transformed the lives of the Chinese.

Before the Industrial Revolution all societies were caught in the same Malthusian Trap that imprisons Africa today. Living standards stagnated because any improvement caused births to exceed deaths. The resulting population growth, pressing on fixed land resources, inevitably pushed incomes back down to subsistence.

To me, this is the economist's classic error - he assumes that the future is going to be more like the last two hundred years than it will be like the last 2 million years (or 4 billion years). Nobody has repealed or refuted Malthus or Darwin. The spurt in human productivity that accompanied the industrial revolution is not some new birthright of the human race, it is a fluctuation - similar to fluctuations that occurred with other discoveries that permitted more efficient consumption of the environment. It is already hitting its Malthusian limits in much of the world.

Next he puts forth perhaps his most provocative idea: Rich societies could only be rich through high death rates. The high disease burden of Africa, paradoxically, made it relatively rich. He has other examples, but not many here.

Now back to his fantasy:

Most of the world, thankfully, has escaped the topsy-turvy logic of the Malthusian era through the Industrial Revolution. Living standards are now independent of population levels, so any reduction in mortality is an unalloyed blessing. This is how Mr. Sachs thinks of the world.

This notion, that living standards are independent of population levels, is so obviously absurd that it hardly seems worthy of refutation. Finite resources cannot cope for long with exponential growth - this is the simple logic of Malthus, and no hocus pocus can make it go away.

It is worth examining once more how today's richer societies got that way. They got there by controlling population growth. Fertility rates are low in almost every rich country, and almost every country with very low fertility is getting richer fast. It's very hard to look at this gapminder chart without that point jumping out and hitting you on the head.

There are only two ways to beat the Malthusian trap: high death rate or low fertility rate. Africa is desperately poor for probably more than one reason, but its super high fertility rates are a key one. The only country with both a slightly high fertility rate and a fairly high per capita GDP is Saudi Arabia, and the former has fallen rapidly while the latter has fallen slowly. The only poor countries with low fertility are the former Soviet states, and they are all now growing rapidly.

The title of Professor Clark's essay is essentially phony - it should really be called "How Not to Save Africa," by which he means the ideas of Jeffrey Sachs:

If Mr. Sachs' Millennium Project succeeds where most of its effort is concentrated, in reducing mortality, then it will further erode living standards. . . . Given the heavy dependence of Uganda on agriculture and natural resources, population pressure has ensured that even with improved crop yields, incomes have stagnated over the past 40 years.

Fourteen percent of children born in Uganda die before the age of five. If the Millennium Project reduces such deaths to American levels, that alone will increase the population growth to 4.2% a year. Without sustained economic growth, this is just a recipe for more miserable living conditions.

To achieve sustained growth economies, Uganda would have to switch employment to manufactures and services. Despite the astonishing low wage of these economies — apparel workers in East Africa still cost about $0.40 an hour compared to $10-$20 in America and Europe — industrialization has escaped Africa.

Fostering industrialization is not easy. British Colonial administrators in India between 1857 and 1947 engaged in many of the cheap but effective health and agricultural improvement and infrastructure measures that Mr. Sachs advocates. India remained impoverished, however, because no enlightened government edict could make Indian textile mills profitable. Indeed India deindustrialized in that era.

There is no simple formula for industrialization that is appealing to many. But that is where the focus must be of the attempts to help Africa. The Sachs plan is a proposal to ameliorate the symptoms of poverty, not treat its cause.

The last two paragraphs strike me as disingenuous, since Clark in his book argues that the British were able to industrialize because Darwinian selection pruned the society of those unsuited for the industrial society. Interpreted in the only plausible way, his prescription is end aid until the evolve to a more suitably industrial type.

The Malthusian trap is real, but industrialization is another palliative, not a cure. There has got to be a better way than "Kill the Poor", and there is. It's called fertility control. It seems to be a natural byproduct of successful industrial societies, but it doesn't require them.