Naked Economics: Undressing the Dismal Science pdfdrive com

Geography. Here is a remarkable figure: Only two of thirty countries classified
by the World Bank as rich—Hong Kong and Singapore—lie between the Tropic
of Cancer (which runs through Mexico across North Africa and through India)
and the Tropic of Capricorn (which runs through Brazil and across the northern
tip of South Africa and through Australia). Geography may be a windfall that we
in the developed world take for granted. Development expert Jeffrey Sachs
wrote a seminal paper in which he posited that climate can explain much of the
world’s income distribution. He writes, “Given the varied political, economic,
and social histories of regions around the world, it must be more than

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coincidence that almost all of the tropics remain underdeveloped at the start of
the twenty-first century.”
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The United States and all of Europe lie outside the
tropics; most of Central and South America, Africa, and Southeast Asia lie
within.
Tropical weather is wonderful for vacation; why is it so bad for everything
else? The answer, according to Mr. Sachs, is that high temperatures and heavy
rainfall are bad for food production and conducive to the spread of disease. As a
result, two of the major advances in rich countries—better food production and
better health—cannot be replicated in the tropics. Why don’t the residents of
Chicago suffer from malaria? Because cold winters control mosquitoes—not
because scientists have beaten the disease. So in the tropics, we find yet another
poverty trap; most of the population is stuck in low-productivity farming. Their
crops—and therefore their lives—are unlikely to get better in the face of poor
soil, unreliable rainfall, and chronic pests.
In Africa, one particularly nasty insect may have inhibited the trajectory of
growth seen in other parts of the world: the tsetse fly. This biting insect lives off
the blood of humans and animals; in humans, it transmits the parasite that causes
sleeping sickness. For common domesticated animals like goats and cattle, the
tsetse bite is worse: It kills them. Marcella Alsan, a Stanford economist (and
doctor), hypothesized that the tsetse fly inhibited the development of agriculture
by making it harder to keep livestock. Sure enough, she found that in areas
where the tsetse thrives, local people were much less likely to keep domesticated
animals during precolonial times. In areas outside Africa with similar climates
but no tsetse flies, she did not find this historical dearth of livestock, suggesting
that the biting insect is what held back African farmers.
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Obviously countries cannot pick up and move to more favorable climates.
Mr. Sachs proposes two solutions. First, we ought to encourage more
technological innovation aimed at the unique ecology of the tropics. The sad fact
is that scientists, like bank robbers, go where the money is. Pharmaceutical
companies earn profits by developing blockbuster drugs for consumers in the
developed world. Of the 1,233 new medicines granted patents between 1975 and
1997, only thirteen were for tropical diseases.
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But even that overstates the
attention paid to the region; nine of those drugs came from research done by the
U.S. military for the Vietnam War or from research for the livestock and pet
market. How do we make private companies care as much about sleeping
sickness (on which no major company is doing research) as they do about canine
Alzheimer’s (for which Pfizer already has a drug)? Change the incentives. In

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2005, British Prime Minister Gordon Brown embraced an idea that economists
have long kicked around: Identify a disease that primarily afflicts a poor part of
the world and then offer a large cash prize to the first firm that develops a
vaccine that meets predetermined criteria (e.g., is effective, is safe for use in
children, doesn’t need refrigeration, etc.). Brown’s plan was actually more
sophisticated; he proposed that rich governments precommit to buying a certain
number of doses of the “winning” vaccine at a certain price. Poor people would
get lifesaving drugs. The pharmaceutical company would get what it needs to
justify the vaccine research: a return on investment, just as it does when
developing drugs that consumers in rich countries will buy. (The British
government has been thinking this way for a long time. In 1714, after two
thousand sailors drowned when a fleet got lost, crashed into the rocky coast, and
sunk, the British government offered 20,000 pounds to anyone who developed
an instrument for measuring longitude at sea. The prize led to the invention of
the chronometer.)
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The other hope for poor countries in the tropics, says Mr. Sachs, is to step
out of the trap of subsistence agriculture by opening their economies to the rest
of the world. He notes, “If the country can escape to higher incomes via non-
agricultural sectors (e.g., through a large expansion of manufactured exports),
the burdens of the tropics can be lifted.”
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Which brings us once again to our
old friend trade.