Thursday night, before a packed Cole Assembly Room, Easterly, a New York University professor of economics and former research economist at the World Bank, and Stiglitz, winner of the 2001 Noble Prize in economics, lectured on “Reducing Global Poverty” in the concluding open forum of their two-day colloquium.
To Easterly, poverty reduction and democratic capitalism go hand and hand. “Around the world, those countries that are more free market, capitalist oriented have ended poverty sooner and more extensively, and those countries that are democratic have ended poverty sooner and more extensively,” said Easterly.
For Stiglitz, the equation isn’t as simple. “I’m very much in favor of democracy—let me make that clear,” he said. “What is clear is that the connection between democracy and poverty alleviation is ambiguous.” For much of the talk, Stiglitz stressed this point by zeroing in on the success stories of Eastern Asian economies as well as the failures of Latin American economies.
“It’s very clear that there’s one place in the world that has been more effective in reducing poverty—by far—than any other, and that’s East Asia, and in particular in China.” China, he said, has brought over 500 million citizens out of poverty over the last 30 years. “In many ways, this came as a surprise,” he said. “Trying to figure out what accounts for that success is one of the analytic challenges.”
Stiglitz went through a slew of factors that have made China a model in reducing poverty. Its high savings rate, population control, commitment to education and innovation, as well as investment in infrastructure have all contributed to China’s recent economic success, Stiglitz noted.
“One of the reasons that China was successful is that it had a high savings rate,” he said, citing a savings rate exceeding 40 percent. The U.S. household savings rate, by contrast, is close to zero. “They haven’t needed to borrow from abroad; they haven’t needed foreign aid.”
Stiglitz also harped on China’s managed, gradual entrance into the global economy. “They didn’t do this in a mindless way of saying, ‘well we just believe in free markets, we’ll take down the tariff barriers.’ That would have resulted in people losing jobs faster than jobs were created,” said Stiglitz. “They opened, but they opened up in a very managed way.” They were careful to allow in long-term foreign investment, but not an influx of short-term speculative flows.
Lastly, China realized that “trickle-down economics doesn’t work ... growth by itself would not necessarily benefit everyone in the country.” It has made policy to make sure benefits of growth seep down into the country’s poorest, resulting in a reduction of poverty in the realm of 500-600 million people, according to Stiglitz. Even so, it is still riddled with inequality and is looking to decrease the gap.
In addition to his talk on the benefits of democracy towards reducing poverty, Easterly spoke at length about aid. He opened the night by discussing what he called the two tragedies of global poverty. “The first tragedy is the tragedy of world poverty,” Easterly said, citing a speech by U.K. Prime Minister Gordon Brown, who noted the suffering of the world’s poor simply by virtue of being poor. “We need to increase aid because half of the world’s malaria deaths could be prevented with 12-cent medicines.”
But the second tragedy, Easterly said, does not receive the same attention as the first. “The West has already spent $2.3 trillion on foreign aid over five decades, and after then, malaria victims are still not getting 12-cent medicines.” Easterly called the second tragedy “one of the great scandals of our generation—that the money meant for the most desperate people of the world simply did not reach them.” He added, “It seems that asking for more money actually substitutes for asking the question of whether the money actually reaches the poor.”
Easterly blamed the squandering and failures of aid on the proponents of extensive aid planning in a complex bureaucracy. “At the end of the day, nobody is individually responsible for any one result,” he said. “Failure continues, and nobody is held accountable.”
Easterly argued that aid agencies act more like private industry, responding to customer feedback, relying on incentives to deliver on their intended results, and demonstrating actual accountability in the case of failure, instead of simply planning. He likened the failure of planning to the failures of Soviet-era five-year plans. He pointed to some successes in foreign aid, crediting them to “economic and social entrepreneurs” who went out into the field searching for answers. He cited the successes of Mohammed Yunus, whose program of microcredit won him and Grameen Bank the 2006 Nobel Peace Prize; Santiago Levy, a Mexican official who offered financial incentives to get parents to send their children to school; and Patrick Awuah, a one-time Microsoft executive who founded Ashesi University in Accra, Ghana.
Yet, according to Easterly, improvements for aid distribution alone will not be enough to eradicate global poverty. “Aid agencies are not going to be the vehicles that end world poverty,” said Easterly. “The vehicle of ending poverty is probably going to be what it has been everywhere else where poverty ended, which is the homegrown evolution of democratic capitalism.”
Professor of Economics Geoffrey Woglom, moderator of the open forum, was very pleased with the tone of the conversation. “I think Amherst teachers are great, but after students have had some exposure to material it is fascinating to hear experts discuss the issues, particularly experts with strong disagreements,” said Woglom. “Hearing the two experts disagree and explain their reasons for disagreeing is invaluable in showing students that on deep and important questions no one has all of the answers.”