One could easily argue that development economist Jeffrey Sachs knows how to pick his spots – Poland, Bolivia, and the former Soviet Union, and projects – global poverty reduction, poor countries’ debt reduction, and disease control. But if Mr. Sachs has indeed picked his spots and projects he has certainly earned the right to do so. While an economist at Harvard University for more than 20 years and director of the school’s Center for International Development, Mr. Sachs served as an economic advisor to the governments of Bolivia, Poland and the Soviet Union, in the process helping to right their economies and implement economic reforms. He has also been a consultant to the IMF, World Bank, OECD, and the chairman of the Commission on Macroeconics and Health of the World Health Organization. Today, he is Director of The Earth Institute, Quetelet Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University. He is also co-chairman of the Advisory Board of The Global Competitiveness Report.
While Mr. Sachs has done most of his work in the public sphere he has done so with one, overriding intention – to improve the public good, namely to ameliorate the lives of poor people around the world. He is currently the Special Advisor to United Nations Secretary General Kofi Annan on a group of poverty alleviation initiatives, the Millennium Development Goals. In his latest book, The End of Poverty (Penguin, 2005), Mr. Sachs describes how the Millennium Project hopes to reduce extreme poverty, disease and hunger by 2015 (part of the UN’s Global Compact, of which Ivey is a member). I began the interview by asking Mr. Sachs about some of the ideas he discusses in the book.
Ivey Business Journal: In The End of Poverty, you write that “clinical economics,” as you call it, is one solution to leading people out of the poverty trap. Describe clinical economics?
Jeffrey Sachs: Clinical economics means doing economic development with the same precision and attention to science — and I’d also add ethical standards — as does the practice of good clinical medicine. Having been married to a clinical pediatrician now for 27 years, I’ve observed the essence of good clinical medicine, which is of course having a rigorous science base and then being able to provide a good differential diagnosis, as the doctors call it, to any particular patient and the patient’s conditions.
So when you see the problem of extreme poverty, just as when you see a fever, one has to understand that there are many possible underlying causes. Treating the symptoms is almost never sufficient. There is almost never a single possible cause for a specific economic syndrome. And just as with clinical medicine, the key is to make a good diagnosis from the various possibilities and then make a good regimen in response. Part of the problem with economics as it’s practised now is its very glib attitude, where people often try to peddle their single magic bullets or believe what has worked in one place automatically works the same way in another, rather than understand that since the underlying conditions are different, we need specific approaches that are well-tailored to the specific problems. In the case of Africa, where I have directed a lot of my attention in the past dozen years, I put a lot of stress on Africa’s unique geographical burdens of disease, tropical agriculture in a savannah climate, and the problems of isolation, with the lack of basic infrastructure needed for high levels of productivity. This combination of disease, flagging agricultural productivity and chronic food shortages, and the problems of economic isolation need to be addressed specifically in an African context to break the poverty trap and enable Africa to get on a path of development.
IBJ: In The End of Poverty, you say that governments in Africa need to create an environment conducive to business coming in. You also believe that corruption and misrule are not the problem. How do you create an environment that’s conducive to business coming in while ignoring the corruption and misrule?
JS: There is certainly corruption in Africa but there’s corruption everywhere, including in our own country, of course. The point I’m making is that there is not only corruption in many parts of Africa, but that the situation is no worse and often considerably better than it is in much faster growing parts of the world, particularly in Asia. The point is really a diagnostic point that we absolutely, simplistically I would say, rush to the Big C, corruption, as the explanation for Africa’s problems, ignoring the challenges that I mentioned before which I think are the much bigger ones, and therefore we fail to keep problems of corruption in perspective. It has become both an excuse for inaction and a kind of paralyzing factor in discussion, a kind of showstopper. “Well, we can’t do anything, there’s so much corruption.” The fact of the matter is that it’s simply not true and it’s not really a sound or full explanation. It’s a misunderstanding to think that I somehow condone this or condone corruption or feel that it isn’t a problem. I don’t mean to say that. I just mean to say that we have exaggerated this one problem to the neglect of many other programs designed to promote economic development. We’re not helpless in simply thinking that our option is to hand money over to corrupt officials and that’s the end of it. Either we do it or we don’t do it. No, the fact is that we can design the delivery mechanisms of assistance programs in ways that keep the corruption in check, that are designed for, according to transparent performance standards with milestones, audits, regular monitoring, the kinds of things that one does to account for what is often a relatively weak management environment. Of course we have to respond to the realities, but we aren’t helpless in the face of these problems.
IBJ: In that environment of weak management, what role is there for the private sector?
JS: There’s a huge role for the private sector. Of course the private sector has played a role in all development successes everywhere and will do so in Africa as well. Now part of that role is simply the straight business operation, selling technologies and sourcing from Africa and producing as well for the local market. And there are lessons about operations in very low-income settings. These things are typically very standardized. They depend often on mass production according to relatively straightforward technologies. They are often developed by incorporating local production into a global production system and putting the relatively low-skilled and standardized operations in the low-income settings. Countries have learned, especially in the Asian experience, how to economize on infrastructure, for example, by concentrating industrial activities in industrial parks or export zones where basic infrastructure is guaranteed even when, at a country scale, it’s far from adequate. So there are methods that have been developed very successfully to economize on the lack of economy-wide skills or economy-wide management or economy-wide infrastructure and those same lessons will surely apply in the African context. But there’s also an added dimension of governments undertaking actions consistent with a broader corporate social responsibility. In the case of Africa, I think that this is a very important and rich area for business to get engaged in activities that are not mainly for short-term monetary gain but mainly for helping business play a constructive role, still consistent with it being a business, in the great global challenge of ending extreme poverty.
IBJ: Where and when does corporate social responsibility work best?
JS: The essence, in my view, of corporate social responsibility is that when businesses are owners of technologies that are very important for development, they can play a marvellous role in promoting development by taking actions, often in partnership with the public sector, to ensure that their technologies reach those who can be benefited by them, even if those are not paying customers for the moment. And that’s for me the real source of uplift of corporate social responsibility. The basic aspect of corporate social responsibility, which I think clearly needs to be said, although not dwelled on, and is that I’m also presuming that companies are obeying the law, both U.S. law and local law, they’re not bribing officials, they’re not exploiting the workforce, they’re obeying basic labour standards and labour rights. This is also obviously a core and very significant part of corporate social responsibility. But I’m talking about the part that goes beyond what I regard as absolutely rock-hard fundamentals to how businesses can contribute to the Millennium Development goals, through making their technologies more widely available.
IBJ: Can you illustrate?
JS: Let me give you three examples, because they reflect the range of this issue. One is that sometimes companies make philanthropic contributions, and sizeable ones, to demonstrate the efficacy of their technologies and to simply allow their technologies to reach those who need them. An example of that is Sumitomo Chemical, which makes long-lasting, insecticide-treated bed nets. It has donated hundreds of thousands of these bed nets to the Millennium villages across Africa, thereby enabling absolutely impoverished people to stay alive in malaria zones. So that’s a philanthropic contribution. And of course there are many pharmaceutical companies that have done similar things in the fight against African river blindness, for example, or other conditions where the companies have medicines against the infectious diseases and have made philanthropic contributions.
A second kind of example is the public-private partnership example where the companies know first that they won’t be able to make profits in these poor countries because the people who need their technologies are too poor to pay for them. On the other hand, the nature of the problem is so large that the companies certainly can’t solve them by themselves. And in the case of AIDS, for example, many of the pharmaceutical companies have agreed to make many of their products, their anti-retroviral products, available on a no-profit basis. So they don’t give them away for free, but they set them at a price which is basically at cost. The ultimate buyer at that cost is not the infected individuals or even their government but rather the global fund to fight AIDS, TB or malaria, or other funders of the fight against AIDS. So that’s a kind of public-private partnership where the companies segment their markets, set a pricing structure, agree explicitly not to aim for profits in the poorest countries but rather aim to maximize the uptake of their vital technologies.
A third example is a partnership that Ericsson has with the Millennium villages, where it is ensuring connectivity both of mobile wireless and Internet connections in these rural and remote areas. While they’re doing it as a corporate contribution it also views this as the long-term development of a very important market. So in the short term, it’s a donation to be sure and a very generous one, but it’s also part of a long-term market building strategy that makes a lot of sense, it feels, as a commercial venture.
These are all examples for me of a critical technology that can play a very significant role in the development process where the poor, who are the beneficiaries of the technology, can’t afford the technology on their own but whether through philanthropy or a partnership or a forward-looking investment, the international companies are making that extra effort. All three of the above are good examples of corporate social responsibility. And very effective ones.
Most business people that I know are very proud to work in successful companies with valuable technologies. It’s painful to have a technology that you know to be extremely important and to realize that it’s out of reach for precisely those parts of the world for whom it would make the greatest difference. So more and more companies are asking themselves what they can do to make their special value adding part of the economy play a constructive role in the development process. Especially in the technology-laden sectors, whether it’s pharmaceuticals, whether it’s electronics, whether water purification engineering, naturally the business leaders and the employees are eager to see their technologies at work, helping impoverished people. Of course, they also realize that they’re businesses and so they can’t do this on a purely philanthropic basis, they have to find effective ways to get their technologies adopted and disseminated. And that’s through the mix. But the other thing that they know is that over time, today’s impoverished economies are tomorrow’s emerging markets and in Africa there’s already an accelerating path of national income and regional income. East Africa, actually Africa as a whole, is growing at about 6 percent per year now, which is starting to be a respectable clip. I believe that Africa can get up to double digit growth rates. It’s starting so poor and the possibilities of leapfrogging are really present. And I think that many businesses also want to establish a presence, even if they’re not making much money at the beginning. They are getting to understand a market that’s going to consist of a billion and a half people or more by mid-century, and with some luck and hard work, at income levels vastly higher than today’s income levels. So they want to be there for that as well.
Businesses have told me that this sort of thinking is sort of planning is an incredible boost of internal morale and increases their ability to recruit new workers. In fact, a lot of American businesses are finding that when they go to the colleges these days, the very first question that they’re asked and sometimes the questions that they’re grilled on, “What are you doing for the world? We don’t want to be in the business just to be in the business. We want to be in a business that’s making a global contribution.” Many companies have told me, kind of a shock for them in the last couple of years that they’re asked straight out, “What are you doing in Africa? That’s what I want to know to decide whether I’m going to be joining your firm.”
IBJ: What would you say to companies in the tech sector, for example, that would like to make the step but are reluctant to do so whether for political or economic reasons?
JS: I’m encouraging them to get in touch, literally with me, as Special Advisor to the Secretary General or with the UN Global Compact, so that we can work with the companies to help them think through strategies that can be effective for them. What I say about the Global Compact in particular is that it’s not to set a particular bar or a particular approach or a particular report card in any way, but it is to say to every business, do something meaningful for the Millennium Development goals, think about your core competencies and how you can make a contribution, work with the Global Compact and with the United Nations and the support team at the UN Development Program and think though what you can do, but do make a contribution and let it be known, of course not only for your only public goodwill and so on, but let it be known as an inspiration for other businesses as well, so that all businesses that have important technologies that can make a contribution jointly on this effort.
IBJ: What can be done to minimize the damage that a corporation might do damage and to maximize their net contribution to society?
JS: I’d answer it in two parts, and hopefully, not get overblown. First, I think Milton Friedman had a point when he said that at the core of business is business and to make sure that business is doing social good it is the responsibility of governments to make sure that the price signals and the market signals the businesses are receiving are accurate, to basically let business do business. I think that there’s one aspect of that that I think is right and that is in areas like the environment, where technologies can be quite harmful to society through pollution. The key is that we have public policies that make sure that businesses are facing the right incentives, to minimize their pollution in line with keeping the social cost down, reducing the carbon emissions and so on. We can’t expect business to figure this out on its own. It really is a matter of public policy that’s needed there. But then what we’ve been discussing goes beyond the public policy and beyond simply having laws in place that keep businesses operating in an appropriate manner, and that is to take that extra step to recognize that as holders of the most valuable technologies of our time, the opportunity to make a contribution through imaginative application of those technologies, by going to places where businesses might not otherwise think, by willing to operate in places where you don’t make a profit at the beginning but you don’t need to make a loss either, but by finding partnerships and organizing coalitions with government and civil society, you could do very, very creative things right now around the core competencies of business. So the point I would make about how to maximize corporate good and minimize corporate harm is to create a legal framework that’s appropriate, to recognize the benefits of business but also the costs, the possible cost to the environment or the abuse of the workers or dangerous working environment and so forth, so that we get the right kind of behaviour through market forces, but second to use imagination and to realize that we’ve arrived at a high-tech society with great ability to help those who have not yet benefited, if those technologies can be applied and we have then the opportunity to be highly creative right now so that business can really play a key role in global improvement.
IBJ: With respect to infrastructure projects, you have written that they should be funded by the public sector rather than the private sector. Why?
JS: There are two issues about infrastructure. One is that many kinds of infrastructure have such strong increasing returns to scale or network externalities that they are really naturally provided in a unified system. That can be true of a road network for example, where basically you want a unified structure which would, if it were in the private sector, tend to be a natural monopoly. So we’ve left most of road building in most of the world, not all of it, but most of it, to the public sector, and water, sewer systems in urban settings, a lot of the environmental management, safety of levees, as in New Orleans for example. Those are things that cannot be provided by the market inherently. Those are inherently about public good. But there’s another issue which I am concerned about on infrastructure. Even when the private sector can provide it, there are some kinds of infrastructure that we absolutely need to ensure is available for everybody and if it’s simply a matter of market pricing, the poorest of the poor will be priced out of the market and the results can be calamitous. An example of this is what happens when there is a not-very-thoughtful privatization of a water system and you end up having the poor excluded from access to the commercialized water. It can happen, certainly with other aspects of infrastructure as well, and the point that I suggest there is that we ensure a guaranteed access at least for minimum needs of individuals for that kind of private provision of infrastructure, whether it’s water or power. That guarantee should also be extended even to things that aren’t quite infrastructure, a bag of fertilizer for the poorest of the poor farmers and so on, for example, ensuring that basic needs can be met so that nobody gets trapped in extreme poverty and becomes vulnerable even to death from the extreme deprivation that they face.
IBJ: Is there a particular country where you’ve seen that example of people unable to get water?
JS: There have been many cases where water privatizations were followed by riots and a reversal of the privatization, such as in Bolivia. But there have been cases that had used what’s sometimes called a lifeline tariff, which means a pricing structure that guarantees at least a minimum amount of access for the poor. South Africa did this in a very clever way for power and water after the end of apartheid, when it took major efforts to expand the access to infrastructure in formally very poor areas. It was basically on a commercial basis but it ensured access for all of at least a minimum level of need.
IBJ: The industrialized world has is stuck with a tradition of having taken resources out of Africa? .How do you persuade the industrialized world to come in, stay and build markets?
JS: The important point is that the world has a tremendous stake — and I think that it’s more evident than ever — in ensuring that all parts of the world can share in the prosperity that is on average with us but still eludes major regions of the world. We’re facing all of the evidence of what happens when regions collapse from extreme poverty and environmental degradation, places like Afghanistan or the horn of Africa, obviously the devastation of their own living standards. But they become threats to the world as well, so we have to take an enlightened view of our own self-interest, understanding that greedy behaviour in the short term, trying to maximize the short-term take, leaves regions in acute distress that can really come back to haunt us. And I think that people are seeing the reality of that risk and they’re also seeing more and more the opportunities for positive approaches to help us meet our market desires but don’t do so in a way which destroys or undermines other parts of the world. We better learn that, that’s for sure, because these challenge the problems of resource scarcity, environmental degradation, climate change, water stress. They’re all going to get a lot worse in the future unless we learn how to manage them better.