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
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.
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

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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 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.