Sachs Versus Easterly Round 1,429: Cato-tonic

♠ Posted by Emmanuel in , at 6/13/2008 12:31:00 AM
Ho-hum, here we go again. The development debate between Jeffrey Sachs versus William Easterly is supposedly planning versus searching, official development aid versus generating local business. Easterly's personal site has the tale of the tape so far. Meanwhile, the latest round is being waged on Martin Wolf's blog, site of some of the best economist-versus-economist intellectual jousting. It all began when Martin Wolf wrote a favourable review of Jeffrey Sachs's new book, "Common Wealth." Here is an excerpt from Wolf:

Is it possible for the vast mass of humanity to enjoy the living standards of today’s high-income countries? This is, arguably, the biggest question confronting humanity in the 21st century. It is today’s version of the doubts expressed by Thomas Malthus, two centuries ago, about the possibility of enduring rises in living standards. On the answer depends the destiny of our progeny. It will determine whether this will be a world of hope rather than despair and of peace rather than conflict.

This – not the effectiveness of its particular prescriptions – is the biggest question raised by the report of the growth commission discussed here last week. It is also the focus of a powerful new book by Jeffrey Sachs, director of Columbia University’s Earth Institute.

The challenge is stark. World real incomes per head could rise 4.5 times by 2050 and world population by 40 per cent. This would mean a sixfold increase in global output, concentrated in the developing world. Is such an increase feasible? The answer he gives is: yes and no – yes, because changes in incentives, technology and social and political institutions would make a benign outcome feasible; and no, because the path we are now on is unsustainable. Professor Sachs is an optimistic prophet of doom. He falls in between those environmentalists who see no solution and those free-marketeers who see no problem.

By inclination, I am far closer to the latter than the former. But it has become evident, at least to me, that the human impact on the planet on which we depend has risen to enormous proportions. We have treated the global commons as if they were free. Self-evidently, they are not.

Prof Sachs emphasises three goals: first, “the end of extreme poverty by 2025 and improved economic security within the rich countries as well”; second, “stabilisation of the world’s population at 8bn or below by 2050 through a voluntary reduction of fertility rates”; and, third, “sustainable systems of energy, land and resources use that avert the most dangerous trends of climate change, species extinction, and destruction of ecosystems”. Finally, to achieve these ends, he recommends “a new approach to global problem-solving based on co-operation among nations and the dynamism and creativity of the non-governmental sector”.

To this Sachs adds his bit of "mainstream economics neglects environmental limits" line of argument:

Martin Wolf is right, in his generous review of my book (“Sustaining Growth is the Century’s Big Challenge,” June 11), that the biggest question in economics is whether there is room enough on the planet for 7 – 10 billion human beings, the tens of millions of other species, and economic convergence, that is the continued, reliable, and fairly rapid narrowing of income gaps between rich and poor due to technological catching up by the poor. The tendencies for convergence are powerful. Rapid economic growth in China and India reflect the powerful capacity of today’s poorer countries to close technology gaps. The results are impressive: income doubling periods of 7 to 10 years. The results are also harrowing: profound threats to the Earth itself, and therefore to continued economic development and even survival of vast numbers of people and vast parts of the biosphere.

Martin calls me both optimistic and pessimistic at the same time. My point is that either the positive trajectory or negative trajectory is possible, indeed both are plausible. I believe that physical resource limits alone will not do us in, or end economic convergence. On the other hand, the market economy by itself will not solve a now world-threatening crisis of sustainable development. The market system fails to solve four fundamental classes of problems: ecosystem functions (the bio-geophysical commons); population; extreme poverty (because of the very real dynamics of poverty traps); and technological pathways needed for sustainability. These are solvable problems. They require collective action, as they are fundamentally in the character of public goods. Yet for the same reason they are not solved. Part of the barrier is the ideology of market economics itself, which often denies these problems and therefore is short on producing practical tools and solutions.

The biosphere does not come packaged according to the assumptions of neoclassical economics. What we call externalities are the norms, not the exception. In ecosystems, the nutrients, carbon, water, nitrogen, energy, and species (including ours) are in flux. There are spatial migrations and temporal flows and interactions which make a lie of the underlying assumptions of “private” property. A farmer that encloses his farm, or drains groundwater, or introduces an invasive species, or puts on chemical pesticides, or replaces high biodiversity with a commercial monoculture, has pervasive effects on a whole ecosystem. These are, by nature, not fenced in his enclosure. None of this mattered in the extreme perhaps when the Earth was still populated by 1 billion of us, or perhaps even 2 or 3 billion. When local systems failed, there were new ecological niches to conquer. Yet in the past 250 years, the population has risen nearly tenfold. There are no more places to flee. And ecosystems everywhere are under profound threat.

Unsurprisingly, Mister Market himself, William Easterly, takes a dim view of Sachs's assorted criticisms of markets. To his loss, Easterly does not seem to address environmental concerns Sachs raises directly. Instead, he dismisses Sachs's concerns as eco-nannyism, more or less. As most of you probably know, Easterly is aligned with the Cato Institute which believes global warming is overblown. (Here's a sample of Cato views on the environment.) Easterly says:

In his new book, Professor Sachs lists other grave global challenges that will not be solved unless we also apply to them the same formula of money, international agreements, and a UN plan. One of these challenges is Sachs’ revival of another old idea, that of The Population Scare - from Paul Ehrlich’s 1968 book The Population Bomb and the Club of Rome’s 1972 Limits to Growth. If the population problem is indeed scary, Sachs’ solutions give a dismal outlook once one considers the track record of aid money, international agreements, and UN plans. John Kay put it well in another column in today’s FT on the recent UN summit responding to the world food crisis:

“So the summit ended as such summits always do. The delegates agreed on the importance of the problem, the urgent requirement to spend more money: they emphasised the need for coordinated action, and resolved to meet again in future to reach the same conclusions.”

Fortunately for the world’s poor and for all the rest of us, there are much more dynamic forces in the world than UN bureaucrats and their academic advocates. Private, political, and social entrepreneurs, creative scientists, technological innovators, and resourceful workers and farmers found a way to escape “poverty traps” - the world poverty rate has declined by half over the last 30 years - and to avoid the famines and growth crash predicted by Ehrlich and the Club of Rome in the 1960s and 1970s. It is never a sure thing to predict that future problems will be solved in a similar way, but this historical record gives one a lot more hope about these challenges than one can derive from yet more toothless international agreements.

There is also a measured response from Paul Collier on Wolf's blog. Indeed, Collier is often posited as occupying the middle ground between Sachs and Easterly on the efficacy of aid. Although I am with Easterly on the point that development won't likely result from more massive aid, I do believe that his nonchalance over environmental matters is too ideologically extreme in the Cato-esque sense. What's wrong with channelling market forces in designing products and services which minimize or reduce environmental damage? Surely, even Easterly can get on that bandwagon--unless he believes global warming doesn't exist in the first place of course.