Monday, December 12, 2005

Differential Diagnosis For Poverty Reduction

Por Jeffrey D. Sachs.

The Millennium Development Goals (MDGs) offer the world a chance to do better vis-à-vis the poorest countries after twenty years of failed structural adjustment policies. The MDGs state real goals that provide not only benchmarks for aid but also milestones for assessing the advice of the international agencies as well. The failures to meet the MDGs are failures of the rich countries as well as the poor, since both are responsible for their success. The fact that the MDGs are not being met throughout Africa, the Andean region, and Central Asia tells us that the problems are more than simply those of governance. Many governments in these regions have shown boldness, integrity, and intelligence. Yet development continues to fail. A clinical economics approach will point the way to a better strategy.

The key to clinical economics is a thorough differential diagnosis, followed by an appropriate treatment regimen. In the course of a physical exam, the doctor runs through pages of questions: "Are you taking medications?" "Do you have allergies?" "Have you been operated on recently?” "Do you have a family history of the following diseases?" The economist must do the same.

The Real Extent of Extreme Poverty

The first set of questions involves the extent of extreme poverty. The economist should make a set of poverty maps, using available or newly commissioned household surveys, geographic information system data, national income accounts, and other information. What proportions of households live in extreme poverty? What proportion of households lack access to basic needs in schooling, health care, water and sanitation, electricity, roads, nutrition? What is the spatial distribution of poverty? Is poverty mainly urban or rural, and is it concentrated in few regions or distributed evenly throughout the country? How does poverty relate to demographic conditions of the household (female or male headed household, number of children, health of household members) and to its asset ownership and economic activities (landless poor, smallholder farmer, commerce, industry, and so on)?

In the course of mapping poverty, the clinical economist should identify key risk factors that may exacerbate poverty in the coming years. What are the demographic trends (births, deaths, internal and initial migration) that may affect the numbers and distribution of me poor? What environmental shocks and trends (sea level changes, coastal erosion, deforestation, land degradation, depletion of water aquifers, biodiversity loss) might impinge on poverty? What climates shocks (El Nino, long-term warming, chronic drought, and extreme weather events) are likely to affect public health, disease, and agricultural productivity? What changes in infectious disease incidence and need may weigh on the national or regional economies? How might world-market fluctuations in key commodities affect extreme and poverty and prospects for economic growth?

Economic Policy

The second set of questions involves the economic policy framework. These are more traditional questions, but they should be addressed systematically. What is the cost of doing business in the country (and in different regions within the country)? What is the coverage of key infrastructure (power, water, roads, and transport services), focusing on sub national regions, both urban and rural, as well as national averages? How are costs affected by the lack of infrastructure? What is the trade policy framework, and how are trade barriers impinging on costs of production especially for export oriented business. What are the incentives in place for potential domestic and foreign investors, and how does the incentive system compare with the incentives in place in competitor countries? Is the government investing adequately in human capital through programs on nutrition, public health, disease control, education, and family planning?

The Fiscal Framework

The third set of questions homes in on the fiscal framework, since the budget must carry much of the burden of key investments in infrastructure and social services. What are the current levels of budget spending and public revenues? These should be measured both as a percent of GDP and in dollars per person. The share of public spending in GDP in various categories (health, education, and infrastructure) gives a sense of the level of effort that a country is making to reduce poverty. The absolute spending, in dollars per person, gives a sense of the adequacy of the spending to ensure basic needs and to support the escape from a poverty trap. To what extent is the government hampered by an overhang of public sector debt inherited from the past? How much would debt relief contribute to the capacity of the government to expand public services? Are there hidden or off-balance-sheet lines on the public sector, such as debts of the central bank, or hidden losses of the commercial banking system that will have to be covered by the government’s budget?

Physical Geography and Human Ecology

The fourth category of questions involves the physical geography and human ecology (meaning the interface of society with the physical environment). Economists are surprisingly untrained in this area, despite its fundamental importance in diagnosing and overcoming extreme poverty. What are the transport conditions in the country, by average and by sub region? How much of the population is proximate to seaports and airports, navigable rivers, paved roads, and rail services? What are the costs of transporting freight (such as fertilizers, food crops, machinery, industrial products) within the country and internationally, and how do those costs compare with competitor countries? What is the distribution of population between coastal and interior areas, rural and urban settlements, and densely and sparsely populated areas? How does population density in various parts of the country affect the costs of infrastructure, for example bringing the population into road, rail, power, and telecom grids?

How are agronomic conditions affected by the physical environment? What is the length of the growing season, and how does that affect crop choice, nutrition, and income levels? What are the patterns of soils, topography, hydrology, and land use affecting crop yields, suitability for irrigation, and costs of land improvements? How are agronomic conditions affected by interannual climate variability linked, for example, to the El Nino fluctuations? How are agronomic conditions affected by long-term trends such as global warming and changes in precipitation patterns, like the evident decline in rainfall in the African Sahel?

How are ecosystem functions changing, and perhaps degrading, over time? Is deforestation threatening the functioning of ecosystems (for example, by exacerbating flooding and land degradation) and the livelihoods of the poor (for example, by exhausting the supplies of fuel wood)? Is the loss of biodiversity threatening ecosystem functions (for example, by reducing the pollination of agricultural products)? Are invasive species affecting the fertility of the land and fisheries? Is the introduction of toxins into the environment threatening the air and drinking water?

How does the ecology affect the burden of disease and its change over time? Malaria is a disease heavily conditioned by climate and mosquito species. Is malaria transmission epidemic or endemic (year-round), and is it changing over time as a result of population movement and climate changes? What are the key patterns of animal disease that may have major effects an agricultural productivity (such as African sleeping sickness, a classic example)? What plant pests and diseases pose the greatest threat to livelihoods, intentional trade, and human health?

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