The End of Poverty Summary and Review

by Jeffrey Sachs
Has The End of Poverty by Jeffrey Sachs been sitting on your reading list? Pick up the key ideas in the book with this quick summary.
Have you ever wondered why we are still dealing with poverty when there is enough wealth in the world for everyone? Unfortunately, a lot of developing societies are still incredibly poor. Most people accept this baffling situation without questioning it. They probably think that for some people to have a lot and for others to have very little is only natural. Others, however, fight inequality on a regular basis but don’t get significant results. Just think of all the donations and aid sent from rich countries to developing ones. People send donations year after year, but poverty is still present. So how should we approach this issue? Should we help more or should we just give up? The short answer is no. This summary will help you understand why poverty still exists and what we can do to stop it. For this summary you will also learn:
  • how developing nations like India and China managed to rid themselves of poverty;
  • the fact that only a small percentage of developmental aid goes to the people in need; and
  • how being landlocked is affecting many poor countries.

The End of Poverty Key Idea #1: Billions of people still live in poverty despite the vast wealth produced by the industrial revolution.

The concept of equality differs tremendously from one country to another. On one hand, the citizens of wealthy countries can make the most of their enormous quantities of resources, they also consume much more than they need. On the other hand, citizens of poor nations struggle to find the most basic resources on a daily basis and even lack access to food and water. In consequence, almost 20,000 children die of malnutrition each day. In other words, every ten seconds two children die of hunger! But these huge wealth discrepancies haven’t always been so pressing. In fact, they are a fresh problem that appeared in the last two hundred years. For example, two hundred years ago, the majority of people, regardless of where they lived, were relatively poor. Therefore, the wealth differences between Africa and Europe were relatively minor. However, as certain countries were able to develop rapidly throughout the Industrial Revolution, other countries were left behind. For instance, the invention of the steam engine allowed people to mass produce valuable goods while ships and steam trains encouraged trade. Furthermore, technological advancements and the use of electricity made further progress attainable, resulting in a substantial boost in the global economy. It is important to mention that while some countries benefited greatly from this progress, others didn’t. Consequently, a lot of countries outside the West that couldn’t keep up with the industrial revolution are still dealing with poverty. For example, more than one billion people struggle with extreme poverty today and live on less than $1 per day. Another one and a half billion people live in moderate poverty, spending between $1 and $2 per day. That is barely enough money to survive, and clean running water, flush toilets, and electricity are considered luxuries. Then there are the two and a half billion people who are part of the middle class. They can afford food, shelter, a television, and can go on vacation once a year. But why do some countries still struggle with poverty nowadays?

The End of Poverty Key Idea #2: The great majority of poor countries are trapped and unable to find a way out of poverty.

So, it has already been established that the Industrial Revolution helped Western countries become rich, but how come so many developing nations that are still poor? Well, it’s important to understand that poverty can be generated by many things and a lot of poor countries face a common issue: they are caught in a vicious cycle called a poverty trap. This poverty trap prevents them from getting rid of impoverishment. In other words, they lack the tools that countries need in order to prosper and to grow economically. For example, a major problem that can be considered a poverty trap for developing countries is their unfavorable geographical positions. This is one of the main reasons why so many developing nations cannot grow their economies. Here are some examples of bad geographical positions: a nation’s climate is too hot for consistent agriculture, the country is riddled with mountain chains or desert, the country lacks sufficient access to clean water, etc. These issues can prevent people from farming and can lead to high transportation costs, making trade difficult. Another issue that often leads to poverty is the state governance. If a state doesn’t focus on economic growth, it will most likely lack good infrastructure and a favorable business outlook becomes impossible. For example, without strong infrastructure features like education, sanitation, communication networks, and roads, a country will not be able to develop economically. An additional issue that small, poor countries are usually facing consists of a lack of innovation and a brain drain. More often than not, people who receive an education in a developing country are extremely likely to emigrate to a wealthy country. This brain drain happens because local markets prove to be too small for educated people and intellectual property is usually unprotected. And last but not least, demography is also a huge issue. A large number of developing nations have astronomical birth rates due to a lack of contraceptive measures and sexual education. As a general rule, the higher a nation’s birthrate, the harder it is to develop a healthy economy. Why? Because big families that are poor will not be able to provide a good education for all their children. Thus, new generations will not have the necessary tools to succeed and to boost the country’s economy. It’s safe to say that there are many different reasons why some countries are still trapped in poverty today. This indicated that a good poverty-ending strategy should aim at solving multiple problems.

The End of Poverty Key Idea #3: In order to achieve economic growth, poor countries must accumulate capital, which is a near impossibility.

We are all familiar with the saying, “it takes money to make money” and it applies for both people and nations: to become wealthy one must accumulate capital first. After all, in order to become rich, a healthy stream of capital investment is required, and if used wisely, is guaranteed to create additional wealth for further development and investment. So, wealth can only be built if a nation’s economic growth is higher than increases in population and inflation. Inflation is a currency’s decreasing value, so, if a country produces a surplus of goods, but is struggling with an inflating currency, it’s extremely likely that little or no additional wealth will, in fact, be generated. Furthermore, population increases can have a negative impact for the same reason. A substantial increase in population indicated that a nation’s surplus needs to be shared with more individuals, leaving little for investment. Consequently, economic growth and wealth building are only possible when a country’s economic surplus is greater than the country’s inflation and population growth. As you can imagine, acquiring a great economic surplus is relatively easy for wealthy countries, but very difficult for poor ones. That’s owed to the fact that economic growth in rich countries is simple: the huge surplus generated by the economy is reinvested in the nation’s industry while population growth and inflation and population remain at low levels. Unfortunately, more often than not poor countries struggle with huge increases in population and high rates of inflation. Furthermore, when countries like Bolivia, for instance, are struggling with huge debt, the government decides to print more money in an attempt to pay off their loans. This leads to hyperinflation because it greatly devaluates the country’s currency. At the same time, their stagnant economy doesn’t produce much surplus, so overcoming the hyperinflation and managing population growth becomes impossible. As a result, nations who find themselves in this situation almost always remain poor. And even if, in an exceptional situation, a poor country is able to grow economically, this growth will most likely be inequitably distributed. In most cases, only the selected few, or the elite, will get to enjoy the privileges of education, networks, technology, and capital.

The End of Poverty Key Idea #4: Only individualized solutions can solve the problems of economically disadvantaged countries.

People are always talking about miraculous solutions that can put an end to poverty once and for all. But the truth is that standardized solutions, also known as one-size-fits-all, are unlikely to function. That’s because every nation is struggling with poverty due to a series of complex and unique reasons. As such, we should only focus on individualized solutions that can carefully unpack each issue. Bolivia is a great example of a nation that has been struggling to find a solution to economic strife for a very long time. Throughout the 1980s, the Bolivian government was dealing with over 24,000% hyperinflation! Consequently, in just a few years, the pesos and dollars exchange rate had multiplied by millions. It is thought that the Bolivian economy was severely affected by the state’s decision to produce oil and gas by spending money that it didn’t have. Constantly running a deficient budget was the main reason for the rapid currency devaluation. So, the nation implemented a shock therapy, which was meant to stall the rampant inflation through a series of rapid-fire economic procedures. For example, one of the tactics consisted of pausing the government’s spending on oil production. It took only one week to minimize the budget deficit and to stabilize the rate of exchange. Just like that, the Bolivian government managed to stop hyperinflation. Unfortunately, the economic stability of the Bolivian nation only lasted for a few years and the country found itself in a similar crisis once more. Why? The problems that the Bolivian nation was facing were much more severe and complex than a simple budget deficit. For example, a great disadvantage was the country’s geographical position. The nation was landlocked, and the only exports that would bring substantial profits were its high-quality natural resources. As it turned the transportation costs were too high to export anything else. As a result, the Bolivian economy was increasingly dependant on its tin and natural rubber exports. The country’s economy was also affected by skyrocketing debts. In a similar way to the previously mentioned crisis, these debts were caused by accelerated public spending and stagnant revenue streams. So, the country was only able to implement a sustainable and effective solution once these complex structural problems were clearly outlined. Some of the most notable actions that the Bolivian government made were reforming the tax systems in order to increase the nation’s governmental income and defaulting on its debts.

The End of Poverty Key Idea #5: There’s a lot to learn about natural advantages and governmental change from China’s rags-to-riches strategy.

It is a well-known fact that China is a global superpower today. The nation is also one of the fastest and most stable growing economies globally, but this wasn’t always the case. In fact, China was a poor and mostly rural nation that was isolated from the rest of the world up until the 1970s. During this time, the great majority of the Chinese population was struggling with poverty as the communist government was building a diplomatic wall around the nation’s economy in order to protect it from interference and external markets. However, a reformed government, coupled with some China’s natural advantages such as its geographical location, made it possible for the country to break this cycle and become a powerful and rich nation. To have a better understanding of the Chinese economy, let’s take a look at the nation’s amazing geographical location. Due to an abundance of large harbors and long coastlines, China has a natural advantage over other countries. Once the country’s doors have been opened and international trade was possible, the coastlines ensured a rapid and cheap exchange of goods in and out of the country. Because it happened early in the country’s development, this abundance of exports led to a huge economic surplus, helping the nation escape the poverty trap. But there’s more. The Chinese government was wise enough to open the agricultural sector to private markets. Having been run by the state for a long time, Chinese agriculture was employing too many laborers and under-producing. However, the situation changed completely as the nation’s economy started to grow. The government ceded control of previously public agricultural production to private farmers. This lead to staggering growth in productivity, it greatly increased yields and made it possible for people to work in more profitable industries. And last but not least, China could also benefit from having a predominantly mobile population. When the government created economic areas that were job-rich and provided wealth, a lot of workers were willing to migrate to these areas. The Chinese workers came in droves and filled the manufacturing jobs that were extremely important for the nation’s economy. This mobility resulted in a flourishing industry which ended up attracting international investments and boosted the country’s economic growth even further.

The End of Poverty Key Idea #6: By investing in education and opening its markets, India managed to pave its way out of poverty.

China’s strategy is a great example of escaping the poverty trap, but it’s not the only one. India is another nation that was able to find and apply efficient strategies in order to reach economic stability. The story of the Indian nation shows us how important the market opening and education providing can be for a country’s success. But before we get into more details about India’s economy, it is important to know the country’s history. Between 1858 and 1947, The exploitative British Empire took a large portion of the Indian resources while completely ignoring the country’s impoverished population. But although the country got its independence in 1947, the economy hardly improved. The main reasons behind the poverty of the independent Indian nation consisted of Prime Minister Nehru’s focus on politics, instead of economics as he declared “democratic socialism”. What Nehru wanted was to achieve complete financial independence from foreign companies and governments. As a result, it was under his government that the Indian state began controlling each and every economic activity.  For example, even minor economic activities such as opening a new bank account required citizens to get a license. So, from 1947 until 1970, the Indian economy only grew by a meager 1.9 percent a year. However, in the 1960s, a movement known as the green revolution started making efforts towards freeing the market. Here’s how it happened. First off, the agriculture was enriched with a bunch of new crops. This increased the nation’s agricultural productivity substantially, so for the first time in its history, India had more food than it needed. At this point, the government started to loosen the tight control it exerted over the national economy and big parts of the market were starting to open up. Finally, throughout the 90s, India started to see a steady and huge economic growth. As companies like Microsoft understood the advantages of cheap and qualified labor,  they set up huge centers that contributed to the growing Indian economy. Another institution that had a great influence on the country’s economy was the Indian Institute of Technology, an elite university that enabled gifted Indians to get a good education. The graduates of elite universities such as the Indian Institute of Technology have enjoyed rampant success in tech hubs on a global scale. They got jobs in companies like Tata and Infosys and Tata, which are among the most successful businesses in the world.

The End of Poverty Key Idea #7: With a modest amount of developmental aid, African poverty could be reduced and even eradicated.

It can be quite baffling to think that the African continent has been trapped in poverty for decades. Despite receiving developmental aid on a regular basis, the continent seems to make little to no progress. Why? Well, to put it simply, the continent’s poor geography and the European colonization are the main culprits behind Africa’s crippling poverty. For example, the defective administration and resource plundering of the European colonists left the African continent with no infrastructure, no education system and health care, and weak political leadership. Furthermore, the country’s problematic geography only made things worse. That’s mainly because Africa doesn’t have many navigable rivers or irrigation systems. What it does have are huge areas of extreme rainfall and extreme drought. So, how can poverty be reduced and eliminated in this context? Increasing developmental aid can be an effective strategy aid. Channeling funds to the areas that are struggling the most and funding economic and social development is a great starting point. By applying this strategy, the African continent won’t need to go through a complete redistribution of wealth or to implement a new world order. In fact, the wealthiest nations would only have to stand by their promise to invest a minimum of 0.7 percent of their national income in helping struggling nations. The problem is, at the moment, only a small portion of this foreign aid is making its way into Africa. Unfortunately, only around $30 per person reaches the continent each year. From that already small amount, $5 go to consultants, $5 to debt relief operations, and $4 go to service African debts. After covering these expenses and other deductions, aid development only gets $12 per person every year. In order to achieve long-term growth, developing nations need to invest in new technologies, fertilizer, and machinery and without being able to invest, it becomes impossible to eliminate poverty and increase productivity. This indicates that changing international aid policies is the first step towards solving African poverty. To entirely transform an average village, it would only take about $70 per person a year. In other words, in order to escape poverty, a country like Kenya would only need  $1.5 billion in total.

The End of Poverty Key Idea #8: Wealthy countries need to make ending global poverty their number one priority.

Alright, now that we’ve established how developmental aid can help a country fight poverty, it’s also important to mention that there are more important steps to be made. Transforming international politics is key to achieve the complete elimination of poverty. First of all, developing countries need to have their debts canceled by other governments. Crippling debts cannot be repaid, and only by having these debts canceled, can countries look towards the future. In other words, debt only serves to produce more costs in borrowing and financing for poor countries that are already struggling. These costs make it impossible for these nations to invest in their futures and to get out of their poverty trap. But if we want to help poor countries grow economically, we also need to ensure that their exports will be boosted. Free trade is an essential part of the economy, so the second step is allowing developing countries to sell their goods to wealthy nations. At the moment, the agricultural customs duties of the European Union and the United States currently impose a lot of restrictions on these exports. So, for the sake of reducing and abolishing poverty, these restrictions have got to go. Beyond that, the agricultural and medicinal sciences need to start focusing on the problems that poor countries are currently facing. For example, billions of dollars are invested in fighting diseases that are specific for wealthy countries such as diabetes while much less research is being done on treating dengue fever. So, it’s extremely important that we begin to focus and acknowledge the problems of the developing countries. And of course, climate change is also a pressing issue. Wealthy nations can and should help developing countries fight global warming, especially African nations. The African continent is being severely affected by climate change, despite consuming little resources and releasing little carbon dioxide. The African continent is affected by floods and droughts that can destroy lives, decimate crops, and destroy the infrastructure. And sadly, the Sub-Saharan countries are being acutely affected by climate change, despite not having contributed to it at all. So, it would be fair for those who are responsible for climate change to do more to help those who are suffering.

In Review: The End of Poverty Book Summary

What is the key message of this book? The unbalanced distribution of global wealth has trapped numerous nations in poverty. Fortunately, by making a collective effort, the Western nations could reduce and put an end to poverty. Invested correctly, a modest amount of developmental aid can have a huge impact.