According to Sachs, F. A. Hayek, “the Austrian-born free-market economist, . . . suggested that high taxation would be a ‘road to serfdom,’ a threat to freedom itself.” There is now, however, “a rich empirical record to judge [this] scientifically.” “The evidence” (he says) comes from comparing the Nordic social democracies (Denmark, Norway, Sweden, Finland) with the Anglophone developed countries (Canada, the United States, Britain, Ireland, Australia, New Zealand).

The Nordics (he says) have met the challenge of “sustainable development”: they have reconciled “the . . . power of markets” with the reassurance and protection of (governmental) “social insurance.” They “combine . . . respect for market forces with . . . anti-poverty programs.” And “[t]he results . . . are astoundingly good” for households with the lowest incomes.

Thus Nordic income per head of working-age population is 4.5 percent higher than in the lower-taxed Anglophone countries. The Nordic unemployment rate is only slightly higher than the Anglophone rate (6.3 percent versus 5.2 percent). The Nordics have far higher budget surpluses as a proportion of GDP. In short, the Nordic territories “outperform” the Anglophones on average (in terms of these measures).

“Despite [their] high taxation,” the Nordic countries are highly dynamic: “they spend lavishly on higher education” and on R&D. While only 1.8 percent of Anglophone GDP goes to R&D, the Nordics spend 3.0 percent—two-thirds as much again. Sweden has the world’s highest ratio: “nearly 4 percent of GDP.” All, “especially Sweden and Finland,” have gained “global competitiveness” through the information-technology and communications revolution. In addition, the Nordics have “relatively low” taxes on capital.

In the Nordic areas 27 percent of GDP (on average) goes to “social purposes” via government; the Anglophone figure is only 17 percent. Nordic labor policies direct the “low-skilled” to “key quality-of-life areas such as child care, health, and support for the elderly and disabled.” The Nordic “poverty rate” is 5.6 percent—less than half that of the Anglophones, which is 12.6 percent.

Thus (according to Sachs) high taxes and high “social spending” have not “crippled prosperity” in the Nordic territories: “Von Hayek was wrong. In strong . . . democracies, a generous social-welfare state [is] a road to . . . fairness, . . . equality and international competitiveness,” not serfdom.

Now, Sachs, of course, speaks for U.S. government officials and their academic advisers. All have a vested interest in raising taxes and government spending and in increasing the numbers of government officials, evermore. Let us, however, “scientifically” take another look at the “rich empirical record.”

(What we’ll find: Scandinavia, especially Sweden, is an official’s dream come true. On average, over half of people’s income is confiscated. It is Scandinavia’s long-established integration into the growing international economy that has in fact continued to supply Scandinavians with their incomes, which officials then tax away.)

1. Between 1960 and 1990: Among OECD (Organization for Economic Cooperation and Development) countries, those with the largest government sectors (spending in excess of 60 percent of GDP) had the lowest growth rates. Those with the smallest proportion of government spending (less than 25 percent of GDP) had the highest growth rates—more than four times faster.

Between 1990 and 2005: the average overall tax burden came to 61 percent in Sweden, 58 percent in Denmark, and 55 percent in Finland.

2a. Between 1970 and 2003, in OECD rankings of economies: Denmark declined from third to seventh place; Sweden Finland rose from 17th place in 1970 to ninth in 1989, then fell back to 15th in 2003. fell from fifth to 14th.

2b. Over the same period (1970–2003) Ireland shot up from 22nd to fourth. In 1989 Irish taxes and government spending equaled 53 percent of its GDP. In 2006 this had fallen to 35 percent.

2c. In 2004: Irish productivity per working hour was nearly 26 percent higher than in Finland, just over 29 percent greater than in Sweden, and a whopping 43.2 percent above the Danes.

3. During 1995–2004: Compared with Sweden, the lowest incomes rose more than six times faster in Britain and more than eight times faster in Ireland. In 2004, 20 percent of Swedish households fell below the official “poverty line,” compared with around 18 percent in Britain and just under 15 percent in Ireland. In short, those with the very lowest incomes improved their position much, much more in lower-taxed Britain and Ireland than in higher-tax Sweden.

Over the same period, when the rise in the lowest incomes is compared with the average increase: Britain did 2.5 times better than Sweden, while Ireland was 2.35 times better. In other words, the lowest incomes came far, far closer to the average in low-tax Britain and Ireland than in high-tax Sweden.

4. Between 1981 and 2003: private-sector employment rose 56 percent in low-tax Ireland. There was a 12 percent rise in Denmark—in very low-productivity “employment” (see above, 2c.) But in high-tax Sweden and Finland, no new private-sector jobs were created. In other words, the government took the entire increase in the labor force over some 22 years. With the same number of people employed in the private sector and low growth rates overall, real incomes just about stagnated. From these stagnant real incomes, people had to pay ever-increasing taxes and support ever-increasing government officials and ever-increasing government spending.

5. According to a working paper prepared for the European Central Bank in 2003: Sweden, Finland, and Denmark have the most inefficient government sectors of all OECD countries in terms of the use of inputs. In Sweden the same level of output could be obtained for only 57 percent of the input. For Denmark this figure is 61 percent, for Finland, 62 percent. In other words, some 43 percent of the labor and other resources “used” in the Swedish government sector are—in effect—idle. The proportion effectively idle in the Danish government sector is 39 percent, and 38 percent in Finland.

In Sweden doctors saw an average of nine patients a day in 1975. In 2005 they saw four—or less than half as many. More than half of all patients have to wait 12 weeks to be examined and then at least as long again for treatment. In short, for most Swedish patients, from just making the appointment to seeing the doctor to actually getting treated, there’s a gap of some 24 weeks at least. (You’d better not fall sick in Sweden.)

6. Even in the later 1980s, Swedish doctors worked only some 57 percent of the hours that American doctors worked. And as early as the 1970s, doctors, dentists, lawyers, and so on worked only a few months each year—to avoid astronomical tax rates. By the 1970s retailers asked buyers: “With or without receipt?” while house painters, mechanics, plumbers, and more all operated largely in a cash economy. Books were already being published on avoiding tax for those on average incomes.

7a. The actual unemployment rate is disguised by classifying large numbers under other heads: (a) make-work in the government sector, (b) “early retirement,” (c) long-term “sick,” and (d) university “students” who are in fact avoiding open unemployment.

7b. The so-called “unemployment trap” is extremely high in Denmark and Sweden. When necessary expenses like transport, food, and so on are included, the lowest take-home pay is lower than the government payments received.

8a. All large Swedish companies, save one, were established in the late nineteenth century or in the late 1920s. Business taxes are very low, but they overwhelmingly favor larger established companies. Unincorporated-business income is taxed as heavily as personal income, but dividends and company incomes at much lower rates. Taxes on capital gains, however, are the highest in the world in Denmark and Finland.

8b. Labor mobility is low, which reduces productivity. People are stuck in unsuitable jobs. Labor input is also far less in practice: Some one-fifth of the workforce is absent, on average—double the proportion in the 1970s. In 1988 Swedes took an average of 26 days of sick-leave; this was still true in 2002. In addition, there are numerous other grounds for people to be absent with pay.

“One Size Fits All”

9a. The “welfare” state must operate on the principle of “one size fits all,” of course. Thus in Sweden the state supplies all childcare, schooling, medical services, and aged care, except for a minuscule proportion. But even here, “private” suppliers are paid from taxes. Swedish legislation virtually prohibits direct private purchase of alternatives.

9b. The tax system virtually forces women with children to work, so their children can go to state child care. This goes from preschool to after-school for older children. All this raises “employment” figures: Child-minders are “employed” while mothers at home are not.

“Private” childcare is state-funded and has to charge the same low fees as the state system. “Private” child-minders are also paid by the state. Officials can ban any adult from caring for children in his or her own home. Even family arrangements have to be reported under threat of prosecution; the proposed carer—even granny—is investigated (for a criminal record) and inspected annually.

9c. Up to 1992 there were virtually no private schools in Sweden. Then “vouchers” were introduced. “Private” schools are forbidden to charge fees. Thus taxes pay for all “private” schools, and they are prevented from competing on costs.

9d. The overwhelming bulk of people have to depend on state-supplied medical services. Government entities now buy an extremely small percentage of hospital services and aged-care services from “private” suppliers. The latter’s costs are lower, of course, and the entities’ employees are happier than when they were part of the government. Only a handful of the extremely wealthy have private health insurance.

9e. “Pensions” are paid from payroll taxes. There are both flat-rate and earnings-related pensions. In the 1990s Swedish officials required all employees, additionally, to pay a minute fraction of their incomes into “private” pension funds or into a government fund in default. All such payments are channeled through a new set of officials; payers and funds have no direct contacts at all. This minuscule “change” is seen by politicians, officials, their academic advisers, journalists, and so on as earth-shaking. It has just been announced that future state pensions will be well below those being paid currently. Only a handful of the wealthy have private pension plans with an insurance company.

9f. One aspect of the Swedish “welfare state” is particularly disturbing: the power that official “social workers” have over children. Children can be removed from parents and put into foster care for a wide variety of reasons. Disputes go before special administrative tribunals, not the ordinary courts. So the whole situation is stacked in favor of the official and against the parent. Foster parents receive tax-free payments from the state. In high-tax Sweden this is a huge advantage, which results in really good incomes.

A comparison with England underlines the power officials have in Sweden. In November 2001 some 21,500 employees of municipal social services in Sweden were assigned to “individual and family care.” This amounted to one children’s social worker per 414 people of all ages. In England in 2005 there were some 33,980 staff (full-time equivalent) who dealt with children and families. This came to one such official for every 1,484 people in England. Thus, pro rata, Sweden has nearly 3.6 times as many children’s “welfare” officials as in England. Are Swedes really some four times more prone to child abuse and neglect than the English?

Not surprisingly, when it comes to children forcibly removed from their parents and put into official care, Sweden runs well ahead, pro rata. In 2003 in Sweden there was one child in official hands for every 598 Swedes. In England in 2005 there was one child in “care” for every 836 residents. Thus—pro rata—there were 40 percent more children in Sweden who were officially taken away from their parents as compared with England. Are Swedish parents really 40 percent more incompetent and feckless than English parents?

State-Dominated Housing

10. Housing in Sweden: Government officials dominate here too. Only some 39 percent of all “dwellings” are owner-occupied. Some 21 percent are privately owned rental housing; 20 percent are rental housing provided by municipally owned companies; and 17 percent are cooperatives. The latter received state subsidies from the 1920s to the late 1990s. Municipal companies receive state subsidies from general taxation and some capital from municipal taxation. They pay only a “reasonable”—that is, subsidized—interest rate on this last. Their income is made up from rent and subsidies.

Thus around 37 percent of all “dwellings” in Sweden are built from taxation, largely or entirely. Only some 60 percent of housing is provided completely through private saving.

Anyone may rent a municipal flat—there are no income limits. Municipal companies are obliged by statute to provide housing for those with lower incomes. Swedish officials regard “income segregation” as undesirable so they accept higher-income tenants too.

In municipal housing, officials ask tenants to assign values to such things as the location; their living area; its standard, general amenities; convenience to state transport; and so on. Rents are set by negotiations between the municipal company and its tenants’ association, but rents also have to include an allowance for continued maintenance and cover the expenses of the highest-cost municipal company. Private rents are higher and are negotiated between landlords’ and tenants’ associations.

Private tenants may appeal their rents to an administrative tribunal. In 90 percent of cases the tribunal simply decides whether the rent is “reasonable.” In 10 percent of disputes the private flat is compared with a local municipal flat and 5 percent is then added to the private rent.

11. Exports: Norway is one of the world’s largest oil exporters from the oilfields deep under the North Sea. An American audience cannot know this, of course, so here Sachs is silent. In 2005, 68 percent of Norwegian exports consisted of oil and natural gas.

Sweden, Finland, and Denmark are overwhelmingly integrated into the global economic order. In 2005, foreign trade—exports and imports combined—equalled 90 percent of total output in Sweden; 80 percent in Finland; and 88.5 percent in Denmark. In short, all three territories are simply sectors of the world economy and have been since the late nineteenth century.

Thus their major export goods were developed mainly in the late nineteenth century and in some cases, very much earlier.

Let us take Swedish exports for the eight months from January to August 2006. Pharmaceutical goods, chemicals, metal manufactures, industrial machinery, optical goods—all together these equaled 28 percent of the total. Swedish firms have exported these items since the late nineteenth century. Timber and its products, iron ores, other minerals, and iron and steel together came to 22 percent. Sweden has exported these goods since the late fifteenth century at least. Telecommunications came to 14.3 percent. This includes telephones, made in Sweden since the late nineteenth century. “Transport equipment”—Volvos and Saabs—equaled 13.8 percent. Sweden has exported these since the late 1920s.

Advanced telecommunications also formed only a small percentage of Finnish exports in 2006; the bulk were already in place in the late nineteenth or early twentieth century. Electrical and optical products came to 24.5 percent; wood-pulp, paper, and wood products equaled 16.2 percent; basic metals, machinery, and equipment formed 26.2 percent.

The same picture is found in Denmark in 2005. Exports of foodstuffs (butter, cheese, bacon, fish, and so on), timber, and other primary products—important since at least the late nineteenth century—came to 15.8 percent. Medicines, pharmaceuticals, and chemicals came to 13.7 percent. Machinery and instruments—many items produced in Denmark since the late nineteenth century came to 26.4 percent. Textiles, clothing, furniture, and glassware—distinctively Danish—equaled 9.7 percent, energy, 10.3 percent. (For further reading, see Lorraine Mullally and Neil O’Brien, eds., Beyond the European Social Model, 2006, available online at htttp://tinyurl.com/ynqnp.)

12. Thus it is by participating in a growing international economy that Scandinavians produce increasing outputs. These are largely taxed away and allocated by bureaucracy. People’s continuing toil puts growing resources into government officials’ hands.

As a government adviser, Sachs must naturally see officials’ activities as the source of all goodness, including international competitiveness. The causation is rather the other way about. Successful integration into the international economic order produces output that officials then tax and remove from the people. Then officials (under the relevant authorizing legislation) use the revenues to support themselves (and their families), and to spend money or disburse it to authorized recipients under various authorized headings, namely, pensions, other incomes, schooling, medical and hospital services, aged care, child and after-school care, and so on. From the standpoint of government officials, and therefore their academic advisers, this is a delightful paradise. Naturally, therefore, Sachs describes this as “a generous social-welfare state . . . fairness. . . equality . . . international competitiveness.” This is exactly how it appears to the officials involved.

Finally, my editor asks me: “Why do the Nordics put up with it? What about the high disincentives?” One answer is: precisely the almost complete integration into the international economy. The output comes from large and small firms integrated into international production. These firms and their employees can hardly vanish into an underground economy. They must remain visible. Even if the firms, as legal entities, acquire another “nationality”—as many have done—their operations and employees remain in Scandinavia. This is because of the skills and expertise built up over the decades and centuries. Swedish steel must continue to be manufactured in Sweden. Volvos made in Portugal lack some intangible something compared with Volvos made in Sweden. Bang & Olufsen made in Bulgaria sounds dubious; made in Denmark, it does not.

Moreover, heavy taxes are levied on individuals, not businesses. The incomes are captured at the point where there can be least escape.

In the mid-nineteenth century Baptist preacher William Miller predicted the second coming of Christ on March 21, 1843, or between that date and March 21, 1844. When Christ failed to show, Miller “discovered” that the actual date of arrival was October 22 of that same year. This day came and went with nary a hint of Christ’s arrival. Undeterred, Miller awaited Christ’s return until his death in 1849. As Miller was to write in his memoir, “Were I to live my life over again, with the same evidence that I then had, to be honest with God and man, I should have to do as I have done.”

I was reminded of this tragically comic event as I read Jeffery Sachs’s The End of Poverty: Economic Possibilities for Our Time, a purported “blueprint” to solve global poverty. In clear, concise, and at times convincing prose, Sachs shames the world for not doing more to promote development in poor countries and argues for an increase in foreign aid to jump-start the growth process. His obdurate faith in foreign aid contradicts the majority of empirical evidence gathered over foreign aid’s 60-year modern history. Undeterred, Sachs forges ahead with a flawed strategy.

Sachs uses as his blueprint the United Nations Millennium Project, which, among other things, seeks to halve the number of individuals living on less than $1 a day and reduce by two-thirds the mortality rate for those under 5 by 2015. Ambitious stuff, no doubt. After a couple of hundred pages of autobiographical ruminations, Sachs finally outlines his course for reaching these goals: money, money, money. Rich countries, writes Sachs, have consistently shorted the developing world in foreign aid. Accordingly, he called on the U.S. government and their Western counterparts to increase “Official Development Assistance” to 0.44 percent of GDP in 2006 and to 0.54 percent by 2015. Approximately $7 billion needs to be spent by 2015 on scientific research to address climate change, energy production, and health care in poor countries, Sachs writes.

For people familiar with the history of foreign aid, this simply sounds like more of the same failed policy that development “experts” have been pushing for decades. Since 1960 Africa has been the constant recipient of development aid from the West, but standards of living are no better than before. There are now several governmental and quasigovernmental agencies specifically tasked with helping lift poor countries out of poverty. The U.S. government alone has spent over $500 billion in development aid. Sadly, there’s little evidence that any of these international welfare programs have done anything for sick and hungry people. As economist Peter Boone concluded, “Aid does not significantly increase investment and growth, nor benefit the poor as measured by improvements in human development indicators, but it does increase the size of government.”

If foreign aid fails to bring about growth, what will? According to MIT economists Daron Acemoglu and Simon Johnson and Berkeley political scientist James Robinson, “Economic institutions encouraging economic growth emerge when political institutions allocate power to groups with interests in broad-based property rights enforcement, when they create effective constraints on power-holders, and when there are relatively few rents to be captured by power-holders.” Douglass North made much the same point in his 1993 Nobel Prize lecture: “Institutions form the incentive structure of a society and the political and economic institutions, in consequence, are the underlying determinant of economic performance.” In short, a constitutionally limited government that respects property rights and promotes the rule of law is the best foundation for economic growth.

Unsurprisingly, the world’s poorest countries fail to provide these basic functions. Law, instead of being a tool that provides security and reliability, is arbitrary and selectively enforced. The right of property is nonexistent, and trade, often the engine of growth, is tightly controlled by the state. In much of Africa, for example, high barriers to trade are the norm. As one World Bank study found, “African tariffs are more than three times higher than those in the developing countries with the highest growth rates and more than five times higher than those in OECD countries.”

With all the book’s failings, however, the optimistic message should not be discarded. Sachs is correct that we have the tools and the knowledge to end extreme poverty. But the world’s leaders—and one of its better-known economists—are not interested in the one proven recipe for economic progress. Instead of heeding Sachs’s advice, policymakers would do better with that of Adam Smith, who in 1755 wrote that “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”

Screenwriter Richard Curtis received a great deal of attention for his 2005 movie The Girl in the Café. The film was the big-screen component of the Live 8 campaign, which included a deluge of media events and concerts around the world in an effort to increase aid to African countries and other developing nations at the approaching G-8 conference.

“I didn’t give my life to politics in order to say that I was part of a generation that succeeded in cutting the tariff on the import of processed coffee to 27.3 percent,” declares one of the movie’s characters. “I want to be a member of that great generation that for the first time had in its power to wipe out poverty, and did so.”

It’s a powerful message, but is aid truly the best way to wipe out poverty in Africa?

Africa’s growth problem is well documented. In a 1997 article in The Quarterly Journal of Economics, William Easterly and Ross Levine report that real per-capita GDP has been stagnant or declining in most African countries since 1960. Nearly all those countries had growth rates lower than the typical Asian country during this period, and many experienced economic decline. With the exception of some modest success stories such as Botswana and Lesotho, the view that Africa is a “growth tragedy” is sadly accurate.

This lack of growth has led to the impoverishment of hundreds of millions of people. Any attempt to remedy poverty in Africa must therefore focus on economic growth. The question of why some countries grow and others stagnate is at least as old as Adam Smith. In The Wealth of Nations Smith pointed to the quality of institutions, specifically economic freedom, as a factor in economic advance:

The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the follow of human laws too often encumbers its operations; though often the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security.

Historical and empirical evidence validates Smith’s insight that economic freedom matters for development and prosperity. In a 2004 Cato Journal paper, for example, economists James Gwartney, Randall Holcombe, and Robert Lawson found that a one-unit increase in the economic-freedom index would raise per-capita GDP by 1.25 percentage points. Similarly, Jac Heckelman and Michael Stroup write in a 2000 Kyklos article that nearly half the differences in growth between countries can be explained by differences in economic freedom. Niclas Berggren surveyed the literature on economic freedom and growth in a 2003 issue of The Independent Review and concluded that an increase in economic freedom generally leads to growth.

This finding, however, does not give developed countries clear guidance on which policies to pursue. Even development economists who acknowledge the importance of institutions—such as Jeffrey Sachs—often remain vigorous proponents of increased government-to-government aid. Peter Bauer and other economists, however, have argued that foreign aid should be eliminated because of its deleterious effects on less-developed countries (LDCs) and that trade is the primary route to prosperity.

Both domestic and international trade are important for growth. Millions of Africans live at subsistence level, producing everything their households consume. Even where production above household consumption is possible, the absence of trading networks makes it impossible to convert higher production into a higher standard of living.

The opportunity to produce for the market creates an incentive to increase the supply of labor in a household. Given the low capital-to-labor ratio in most LDCs, a tiny increase in the supply of labor can result in a large increase in production. In addition, labor can be a form of capital formation. An example would be farmers forgoing leisure to clear and improve additional land for cultivation.

Trade also increases the supply of labor because of its reciprocal nature. In his 2000 book From Subsistence to Exchange, Bauer pointed out that trade is the impetus for economic advance because it brings the possibility of material improvement to people’s attention. The availability of inexpensive but desirable goods because of trade provides a strong incentive to increase production.

Perhaps more important, the ability to produce for trade allows citizens of LDCs to benefit from specialization and the division of labor. Farmers no longer have to be concerned with producing everything their households need and instead can focus on growing cash crops such as cocoa. Specialization and the division of labor allow for the emergence of other productive enterprises. A final benefit of increased trade is the creation of trade networks. Trade networks lead to improved transportation routes and help to facilitate communication and dissemination of new ideas and innovations.

Openness to Trade Leads to Growth

The empirical evidence that a country’s openness to trade leads to prosperity is clear. Jeffrey Sachs and Andrew Warner find in a 1995 Brookings Institution paper that countries open to trade have average growth rates around 2.5 percentage points higher than countries closed to trade. In the Economic Freedom of the World 2001 Annual Report, James Gwartney, Robert Lawson, and Charles Skipton found that a one-unit change in a country’s trade-openness index can increase long-term growth by two-tenths of a percentage point.

While developed countries that remove their import barriers cannot force LDCs to open their economies, they can increase the payoffs for doing so, thereby strengthening the incentive for institutional change.

As a matter of historical fact, aid is not a necessary condition for escape from poverty. Nearly the entire developed world was able to escape from subsistence level without aid. The important question for policymakers is the effect of aid on economic growth.

A review of the literature on aid and economic development shows that aid is unlikely to reverse Africa’s growth tragedy because of the incentives it creates for rulers of African LDCs. While it is true that there are many types of foreign aid, the focus here is on cash and loans made directly by governments or organizations such as the IMF and World Bank. Regardless of where the aid comes from, though, it ultimately goes from one government to another.

Recall that a poor institutional environment is the primary reason for the low economic growth of these countries. In the long run, aid would only lead to economic growth if it created incentives for positive institutional reform. Yet aid creates exactly the opposite incentives. Government-to-government transfers create a moral hazard where rulers have little to no incentive to improve institutions because bad institutions lead to aid. In fact, rulers have a reason to make things worse in order to keep the aid coming.

The presence of government-to-government transfers in poorly governed countries creates what Bauer called the double asymmetry of foreign aid. On the one hand, aid as a percentage of GDP in these countries is relatively small and thus aid can do little to improve their situations. As a percentage of discretionary spending, however, aid is generally high. Thus the bad incentives discussed earlier dominate any good incentives that may exist.

The empirical literature on this topic is large and varied, with the current debate focused not on the general importance of aid but when aid might play a positive role. For example, Craig Burnside and David Dollar write in a 2000 American Economic Review article that aid is beneficial only in a good policy environment. While Easterly, Levine, and David Roodman called this finding into question in a 2003 follow-up article, it is important to note that nearly all African countries have bad policy environments. Thus even if the research of Burnside and Dollar is correct, this does not imply that aid to Africa will be beneficial. Increased aid in a poor policy environment is likely to make things worse given the perverse incentives.

How best to reduce poverty in Africa is a difficult question. Given that foreign aid is less than 1 percent of most donor countries’ GDP, it seems like a simple and relatively inexpensive solution to African poverty. Calls for increased aid such as Live 8 therefore also seem reasonable. Considering the importance of institutions in economic development, however, maintaining or increasing aid hardly seems promising given the perverse incentives it creates for institutional reform. In fact, as Easterly shows in his 2001 book The Elusive Quest for Growth, experience demonstrates that aid does little to alleviate poverty and often retards economic development by making institutions even worse than they already were.

While the citizens of developed countries cannot vote to change the institutional structure of African LDCs, they can pressure for the removal of their own barriers to trade. Doing so will increase the payoffs to production for international trade in Africa, which should increase internal pressure to make these countries more open to trade. Only through external contacts with developing countries will Africa be able to go from poverty to prosperity.

Indeed, as if in anticipating Richard Curtis and the Live 8 movement, 40 years ago the late Milton Friedman issued a clarion call for the elimination of poverty that rests on far more solid economic grounds. In the classic Capitalism and Freedom he wrote: “We could say to the rest of the world: We believe in freedom and intend to practice it. No one can force you to be free. That is your business. But we can offer you full cooperation on equal terms to all. Our market is open to you without tariffs or other restrictions. Sell here what you can and wish to. Use the proceeds to buy what you wish. In that way cooperation among individuals can be worldwide yet free.”

Last fall the High-Level Plenary Meet­ing of the UN General Assembly brought together more than 170 heads of state—“the largest gathering of world leaders in his­tory”—to review progress toward the Millennium Devel­opment Goals. It was, we were told, “a once-in-a-gen­eration opportunity to take bold decisions,” a “defining moment in history” when “we must be ambitious.”

One of the internation­ally agreed-on development goals the heads of state reviewed was the achieve­ment of universal primary education by 2015. The UN was not happy with progress. There are still officially more than 115 million children out of school, it reported, of which 80 percent are in sub‑Saharan Africa and Southern Asia. But even for those lucky enough to be in school, things are not good: “Most poor children who attend primary school in the developing world learn shockingly little,” the UN reported.

Something had to be done. Fortunately, the UN could call on Jeffrey D. Sachs, special adviser on the Mil­lennium Development Goals to Secretary-General Kofi Annan and author of The End of Poverty. He’s also director of the Earth Institute at Columbia University. He proposed as the way forward “Quick Wins,” which have “very high potential short-term impact” and that “can be immediately implemented.” Top of his list is “Eliminating school fees,” to be achieved “no later than the end of 2006,” funded through increased international donor aid. To the UN it’s as obvious as motherhood and apple pie.

But the UN’s “Quick Wins” are backing the wrong horse. For the past two and a half years I’ve been directing and conduct­ing research in sub-Saharan Africa (Kenya, Nigeria, and Ghana) and Asia (India and China). And what I’ve found is a remarkable and apparently hitherto unnoticed revolution in education, led by the poor themselves. Across the developing world the poor are eschewing free, disturbed by its low quality and lack of accountability. Meanwhile, educational entrepre­neurs from the poor communities themselves set up affordable private schools to cater to the unfulfilled demand.

Take Kibera, in Nairobi, Kenya, reportedly the largest slum in Africa, where half a million people live in mud-walled, corrugated iron-roofed huts that huddle along the old Uganda Railway. Kenya is one of the UN’s showcase examples of the virtues of introducing free basic education. Free Primary Education (FPE) was introduced in Kenya in January 2003, with a $55 million donation from the World Bank—apparently the largest straight grant that it has given to any area of social serv­ices. The world has been impressed by the outcomes: Former President Bill Clinton told an American prime-time television audience that the person he most want­ed to meet was President Kibaki of Kenya, “because he has abolished school fees,” which “would affect more lives than any president had done or would ever do.” The British chancellor of the exchequer, Gordon Brown, visiting Olympic Primary School, one of the five gov­ernment schools located on the out­skirts of Kibera, told the gathered crowds that British parents gave their full sup­port to their tax money being used to support FPE. Everyone—including Sir Bob Geldof and Bono—raves on about how an additional 1.3 million children are now enrolled in primary school in Kenya. All these children, the accepted wisdom goes, have been saved from ignorance by the benevolence of the international community—which must give $7 billion to $8 billion per year more so that other countries can emulate Kenya’s success.

The accepted wisdom, however, is entirely wrong. It ignores the remarkable reality that the poor in Africa have not been waiting helplessly for the munificence of pop stars and Western politicians to ensure that their children get a decent education. The reality is that private schools for the poor have emerged in huge numbers in some of the most impoverished slums in Africa and southern Asia. They are catering to a majority of poor children, and outperforming their government counter­parts, for a fraction of the cost.

I went to Kibera to see for myself, with a hunch that the headline success story might be concealing some­thing. In India I had seen that the poor were not at all happy with the government schools—a recent study had shown that when researchers called unannounced on government schools for the poor, only in half was there any teaching going on at all—and so were leaving in huge numbers to go to private schools set up by local entrepreneurs charging very low fees. Would Kenya be any different? Although the education minister told me that in his country private schools were for the rich, not the poor, and so I was misguided in my quest, I perse­vered and went to the slums. It was one of Nairobi’s two rainy seasons. The mud tracks of Kibera were mud baths. I picked my way with care.

Within a few minutes, I found what I was looking for. A signboard proclaimed “Makina Primary School” outside a two-story rickety tin building. Inside a cramped office Jane Yavetsi, the school proprietor, was keen to tell her story: “Free education is a big problem,” she said. Since its introduction, her enroll­ment had declined from 500 to 300, and now she doesn’t know how she will pay the rent on her buildings. Many parents have opted to stay, but it is the wealthier of her poor parents who have taken their children away, and they were the ones who paid their fees on time. Her school fees are about 200 Kenyan shillings (about $2.80) per month. But for the poorest children, including 50 orphans, she offers free education. She founded the school ten years ago and has been through many difficulties. But now she feels crestfallen: “With free education, I am being hit very hard.”

Jane’s wasn’t the only private school in Kibera. Right next door was another, and then just down from her, opposite each other on the railway tracks, were two more. Inspired by what I had found, I recruited a local research team, led by James Shikwati of the Inter-Region Economic Network (IREN), and searched every muddy street and alleyway looking for schools. In total we found 76 private schools, enrolling over 12,000 students. In the five government schools serving Kibera, there were a total of about 8,000 children—but half were from the middle-class suburbs. The private schools, it turned out, even after free public education, were still serving a large majority of the poor slum children.

A Typical Experience?

Was Jane’s experience typical since the introduction of free primary education? Most of the 70- odd private-school owners in Kibera reported sharply declining enrollment since the introduction of FPE. Many, however, were reporting that parents had at first taken their children away, but were now bringing them back—because they hadn’t liked what they’d found in the government schools. We also found the ex-managers of 35 private schools that had closed since FPE was introduced, 25 of whom said that it was FPE that had led to their demise. Calculating the net decline in private-school enrollment, it turned out that there were many, many more children who had left the private schools than the 3,300 reported to have entered the government schools on Kibera’s periphery and who were part of the much celebrated one million-plus supposedly newly enrolled in education.

In other words, the headlined increase in numbers of enrolled children was fictitious: the net impact of FPE was at best precisely the same number of children enrolled in primary school—only that some had trans­ferred from private to government schools.

I discussed these findings with senior government, World Bank, and other aid officials. They were sur­prised by the number of private schools I had found. But, they said, if children had transferred from private to state schools, then this was good: “No one believes that the private schools offer quality education,” I was told. British Prime Minister Tony Blair’s Commission for Africa agrees: conceding that mushrooming private schools exist in some unspecified parts of sub-Saharan Africa, it reports that they “are without adequate state regulation and are of a low quality.”

But why would parents be as foolhardy to pay to send their children to schools of such low quality? One school owner in a similar situation in Ghana, where we later conducted the research, challenged me when I observed that her school building was little more than a corrugated iron roof on rickety poles and that the gov­ernment school, just a few hundred yards away, was a smart, proper brick building. “Educa­tion is not about buildings,” she scolded. “What matters is what is in the teacher’s heart. In our hearts, we love the children and do our best for them.” She left it open, when probed, what the teachers in the government school felt in their hearts toward the poor children.

Exploring further in Kenya, my team and I spoke to parents, some of whom had taken their children to the “free” government schools, but had been disillusioned by what they found and returned to the private schools. Their reasons were straight­forward: in the government schools class sizes had increased dramatically and teachers couldn’t cope with 100 or more pupils, five times the number in the private-school classes. Parents compared notes when their children came home from school and saw that in the state schools pupil notebooks remained unmarked for weeks; they contrasted this with the detailed atten­tion given to all children’s work in the private schools. They heard tales from their children of how teachers came to the state school and did their knitting or fell asleep. One summed up the situation succinctly: “If you go to a market and are offered free fruit and vegetables, they will be rotten. If you want fresh fruit and veg, you have to pay for them.”

Perhaps these poor parents are misguided. Certainly that’s what officials believe. But are they right? We test­ed 3,000 children, roughly half from the Nairobi slums and half from the government schools on the periphery, using standardized tests in math, English, and Kiswahili. We tested the chil­dren’s and their teachers’ IQs and gave questionnaires to pupils, their parents, teachers, and school managers so that we could control for all relevant back­ground variables. Although the gov­ernment schools served the privileged middle classes as well as the slum chil­dren, the private schools—serving only slum children—outperformed the government schools in mathemat­ics and Kiswahili, although the latter had a slight advantage in English. But English would be picked up by privi­leged children through television and interaction with parents. When we statistically controlled for all relevant background variables, the private schools outperformed the government schoolchildren in all three subjects.

But there was a further twist. The private schools outperformed the government schools for considerably lower cost. Even if we ignore the massive costs of the government bureaucracy and focus just on the classroom level, we find the private schools are doing better for about a third of teacher-salary costs: the average month­ly teacher salary in government schools was Ksh. 11,080 ($155) compared to Ksh. 3,735 ($52) in the private schools.

Free primary education in Kenya, a showcase exam­ple of the UN’s “Quick Wins” strategy, has simply transferred children from private schools, where they got a good deal, closely supervised by parents, with teachers who turn up and teach, to state schools, where they are being dramatically let down. One parent was clear what the solution was: “We do not want our children to go to a state school. The government offered free education. Why didn’t it give us the money instead and let us choose where to send our children?” For this parent, a voucher system was the obvious way forward, putting her right back in control.

Perpetual “Aid”

Perhaps some will argue that these are teething problems and the UN’s “Quick Wins” need time to bed down. The evidence does not support this either. Take Nigeria, for example, which introduced its free primary education act in 1976. Ever since, state education has been backed by huge dollops of international aid, but it doesn’t seem much to celebrate.

Drive across the low highway viaduct over toward Victoria Island, in the bustling city of Lagos, for instance, and you’ll see the shantytown of Makoko, home to an estimated 50,000 people, sprawling out into the black waters below. Wooden huts on stilts stretch out into the lagoon; young men punt; and women paddle dug­out canoes down into narrow canals weaving between the raised homes. Across the top of the shantytown, there is a veneer of drifting smog created by the open fires used for cook­ing. Again, it’s the last place that you’d expect to witness an educational revolution taking place. But, again, that’s precisely what’s happening.

To get to Makoko by road, you’ll need to turn off Third Mainland Bridge, into the congested Murtal Muhammed Wayand sharply into Makoko Street, easing past the women crowding the streets selling tomatoes, peppers, yams, chilies, and crayfish. At the end of this road, there is the entrance to two parallel and imposing four-story concrete buildings. These buildings contain three public primary schools, originally church schools nationalized by the state in the 1980s, all on the same site, designed by the state officials to serve the whole population of Makoko.

Visiting these three public schools is a dispiriting experience. Our visit was a scheduled one; the schools had had time to prepare. But even so, in most of the classrooms, the children seemed to be doing very little. In one the young male teacher was fast asleep at his desk, not aroused even when the children rose to noisi­ly chant greetings to their visitors. In others the teacher was sitting reading a newspaper or chatting with some­one outside the door, having written a few simple things on the board, which the class had finished copying. In one of the three schools, Grade 1 had 95 children pres­ent, three classes put together because of long-term teacher absenteeism. The children were doing nothing; some were also sleeping; one girl was cleaning the win­dows. The one teacher was hanging around outside the class door. No one, certainly not the headmistress, seemed remotely embarrassed by any of this. I asked the children what lesson they were doing—when no one responded, the head teacher bellowed at the pupils to get an answer; “It is a mathematics lesson,” she reported, pleasantly, without any sense of incongruity, for no child had a single book open.

This one of the three schools alone could accommo­date 1,500 children. The headmistress told us that parents left the school en masse a few years earlier because of teacher strikes. But things have improved, and chil­dren have returned, she said, with 500 now enrolled. On the top floor of the stark building, however, there were six classrooms empty, all complete with desks and chairs, waiting for children to return. “Why don’t parents send their children here?” we asked the headmistress. Her explanation was simple: “Parents in the slums don’t value education. They’re illiterate and ignorant. Some don’t even know that education is free here. But most can’t be bothered to send their children to school.” We inno­cently remarked that we’d heard that, perhaps, parents were sending their children to private schools instead, and were greeted with laughter: “They are very poor families living in the slum ….They can’t afford private education!”

But she is entirely wrong. Continue past the three public schools, past where the tarred road ends at a raised speed bump, and enter Apollo Street, too muddy for a vehicle. Here you’ll need to pick your way carefully, squelching your way from one side of the street to the other, avoiding the worst excesses of the slime and mud and excrement and piled rubbish. Walk alongside the huts visible from the highway—homes made of flat tim­bers, supported by narrow slithers of planks sunk into the black waters below—and you’ll come to a pink plas­tered concrete building with colorful pictures of chil­dren’s toys and animals, and “Ken Ade Private School” emblazoned across the top of the wall.

Ken Ade Private School, not on any official list of schools, so unknown to government, is owned by Mr. Bawo Sabo Elieu Ayeseminikan—known to everyone as “B.S.E.” B.S.E. had set up the school on April 16, 1990, starting with only five children in the church hall, par­ents paying fees on a daily basis when they could afford to do so. Now he has about 200 children, from nursery to primary 6. The fees are about 2,200 Nigeria naira ($17) per term, or about $4 per month, but there are 25 children who come for free.“ If a child is orphaned, what can I do? I can’t send her away,” he says.

Philanthropy and Commerce

His motives for setting up the school are a mixture of philanthropy and commerce—yes, he needed work and saw that there was a demand for school places from parents disillusioned with the state schools. But his heart also went out to the children in his community and from his church—how could he help them better themselves? True, there were the three public schools at the end of the road, but although they were only about a kilometer from where he set up his school, the distance was a barrier for many parents, who didn’t want their girls walking down the crowded streets where abductors might lurk. But mainly it was the educational standards in the public school that made parents want an alterna­tive. When they encouraged B.S.E. to set up the school 15 years earlier, parents knew that the teachers were fre­quently on strike—in fairness to the teachers, protesting about nonpayment of their salaries. We arrange to meet some parents, visiting in their homes on stilts. The parents from the community are all poor, the men usually fishermen, the women trading in fish, or selling other goods along Apollo Street. Their max­imum earnings might amount to about $50 per month, but many are on lower incomes than that. The par­ents tell us without hesitation that there is no question of where they send their children if they can afford to do so—to private school. Some have one or two of their children in the private school and one or two others in the public school, and they know well, they tell us, how differently children are treated in each. One woman said: “We see how children’s books never get touched in the public school.” Another man ventured: “We pass the public school many days and see the children outside all of the time, doing nothing. But in the private schools, we see them everyday working hard. In the public school, chil­dren are abandoned.”

And of course, Ken Ade Private School is not alone in Makoko. In fact, it is one of 30 private primary schools in the shantytown. I know, because I sent in a research team, graduate students from Nigeria’s premier university, the University of Ibadan, to find as many of the schools as they could. In the 30 private schools found, enrollment was reported to be 3,611, all from the slum itself, while the enrollment in the three public schools was reported to be 1,709, but some of these chil­dren came from outside Makoko. That is, the great majority, at least 68 percent, of all schoolchildren in Makoko attends private school.

Whether it’s in Nigeria or Ghana, which started its own free primary education process in 1996, or India, where free primary education dates back to 1986, in poor areas my researchers found exactly the same story: the majority of poor schoolchildren attend private schools that outperform the state schools for a fraction of the teacher-salary cost.

Not only is the UN backing the wrong horse, it is also missing a trick: for the existence of private schools for the poor provides a grassroots solution to the problem of achieving universal basic education by 2015—without the huge dollops of aid supposedly required. If so many chil­dren are in private unregistered schools, then education for all is much easier to achieve than currently believed. Dramatically, in Lagos State, Nigeria, the experts tell us that 50 per­cent of school-aged children are out of school. My research suggests that it is only 26 percent—the remainder in private unregistered schools, off the state’s radar.

But all of this is a success story that’s not being celebrated. And perhaps the reasons why are obvious. National governments are threatened by the existence of this counterrevolution in private education, for if they can’t get basic education right, then people might wonder: what can they do? Aid agencies might wonder whether they have been backing the wrong horse for decades. And development experts feel ideologically snubbed: they believe that the poor need aid channeled through government schools; they’re offended that instead, the poor seem to have their own ideas about how educational needs can best be provid­ed. But poor parents know what they are doing. They want the best for their children and know that private schools are the way forward. The question is: will anyone with power and influence listen to them?

Whatever the motivations of the administration, the trip brought the partisans of American engagement in Africa out into the media spotlight. The president had thrown a bone to the foreign-aid community with his surprising endorsement of a $3 billion-a-year package of AIDS-fighting measures for Africa in his State of the Union address. Far from sated with this forced donation from U.S. taxpayers, the international aid bureaucracies have finally gotten a taste of red meat, and they want more.

How much more? One of the most notable calls for aid for Africa that emerged from this time was “A Rich Nation, a Poor Continent,” an op-ed by economist Jeffrey Sachs in the New York Times. Sachs sketches the truly terrible conditions in which many Africans live: life expectancy “is less than 50 years in most of Africa, and less than 40 years in some of the AIDS-ravaged countries. Until the pandemics of AIDS, tuberculosis, malaria and other killer diseases are brought under control in Africa, economic development and political stability will remain crippled.”

Having been a counselor on conversion to capitalism to ex-communist governments (most notably Russia), Sachs is now director of a sustainable-development center called “The Earth Institute” at Columbia University. He is also an adviser to UN Secretary General Kofi Annan. He has become a leading opponent of the free market and a cheerleader for foreign aid. His thinking seems to follow this general line: Capitalism and technology are good things, but any real progress in the world calls for international governmental solutions. In the case of epidemic disease in Africa, Sachs’s preferred solution is massive funding for the Geneva-based “Global Fund to Fight AIDS, Tuberculosis and Malaria,” to the tune of up to $8 billion per year from the United States alone.

An aunt of mine who was an unreconstructed New Dealer used to say to me: “The problem with the poor is that they don’t have money.” This seems to be Sachs’s view of the needy in Africa: the only thing that keeps them sick is a lack of medicine, and they only lack medicine because they are poor. Sachs puts it this way: “If rich countries contributed a total of around $25 billion per year [to fight disease in the Third World], the increased investments in disease prevention and treatment could prevent around eight million deaths each year in poor countries throughout the world.”

My aunt was right that the poor lack money. Any poor person could be made richer—at least temporarily—by a handout. And Sachs is right that in African countries where AIDS runs rampant, the sick lack medicines and too many don’t practice safe sex. Enough medicine and education could have a real impact, extending lives and encouraging people to act more prudently.

But Sachs is wrong to think that Africa’s problems are essentially medical or financial. He is wrong to emphasize charity at the expense of focusing on the real needs of Africa: rational culture, justice, and capitalism. And he, along with the Bush administration, is wrong to think that wealthy countries or wealthy people bear a responsibility for the health or welfare of others to whom they are unconnected by any significant ties.

My aunt ignored the fact that lasting poverty has roots in culture and incentives. Handouts don’t eliminate poverty; too often they help entrench the habits that perpetuate poverty. For his part, Sachs ignores the fact that Africa’s crisis has roots in gangster politics, irrationalism, and collectivism. No African country ranks among the 35 freest in the world, as objectively measured in Economic Freedom of the World 2002. In fact, several countries in Africa are among those with the least economic freedom and the most capricious legal environment. These include Zimbabwe, Guinea-Bissau, and both Congos. It is no accident that these are some of the poorest and most miserable countries in the world. It is misgovernment—not AIDS or any other disease—that has ruined these countries. When Sachs urges support for the Global Fund, he is calling, in effect, for the support of a new hyper-bureaucracy of foreign-aid experts and for open-ended support of the very regimes that are to blame for Africa’s crisis. It precisely to accommodate corrupt and ineffective regimes that the Global Fund is at pains to describe itself as a funding supplement to existing government programs.

A Matter of Morality

Ultimately the case here is moral. Sachs wants the top 400 earners in the United States to give up 10 percent of their income to the Global Fund. He argues “our world is dangerously out of kilter when a few hundred people in the United States command more income than 166 million people in Africa.”

The world is out of kilter, but not in the way Sachs means. Americans who have earned great wealth through their productivity are not vultures who prey on the poor. The world’s poor are generally poor or sick or hungry for reasons that have nothing do with the businesses that make Americans rich. In fact, having nothing to do with American-style capitalism tends to keep people poor, and it is corrupt, intrusive governments that keep them out of contact with the free market. (It is no accident that some of the best health care in Africa is that provided by big corporations for their local employees.) What is out of kilter is the political culture of Africa, not the fact that Americans and other mostly free people can acquire or possess great wealth.

There is nothing wrong with people giving some of their money away to help others. But when they do so, be they richer or poorer, they should make sure that they are really helping those in need, and not just throwing good money after bad into the pit of cultural and political corruption. The rich certainly do not owe the world an apology for what they have, and they are not responsible for all the terrible problems that people find themselves in. The health situation in Africa is a terrible shame. But the shame is not America’s.

—William Thomas
wthomas@objectivistcenter.org
Senior Fellow for Objectivist Studies
The Objectivist Center
Poughkeepsie, New York