Legacy III: Poverty reduction
GEORGE W. Bush is a very unpopular man throughout the world. His approval ratings are low in Europe, the US, and in most Muslim countries. But educated men and women should know better! George Bush has done more to eradicate poverty than any other human being in history.
During his eight years tenure in office 800 million to 1 billion persons were lifted out of poverty largely due to his economic policies. Without the particular direction he took, the improvements in economic welfare through poverty reduction would have reach not more than 150-200 million persons. I argue in this article that it was Bush's economic policies that were critical in this dramatic reduction in poverty levels. Of course Bush's economic policies did not achieve this without many other things happening, but the Bush policies were a necessary, if not sufficient condition, for this great poverty reduction!
The second development area where Bush has brought about dramatic change is in Africa. This is one continent where Bush is widely appreciated and admired. Most sub-Sahara African countries are doing significantly better in economic growth, gender equality, health measures -- (particularly HIV/AIDS), education, and nutrition. Democratic political systems are emerging as a consequence of Bush's initiatives. There is a very long way to go but for the first time in 25 years signs of hope are emerging that sub-Sahara Africa can restart its economic and political development that has so long been stalled.
Most of this change was achieved in the past eight years with the US playing the key leadership role. The success of Bush's African development program is remarkable for it being unexpected. For many development experts, Africa was a lost cause. But taking things step by step, Bush has managed to generate the hope for an African Renaissance. Unlike Latin America and Asia, in Africa George Bush is a hero, as he has led the drive to tackle the critical development issues. The press in South Asia has largely ignored these positive actions that have begin to reduce the very high African poverty levels.
What has George Bush done that one should credit him with success? The key to poverty reduction is rapid economic growth. To trigger and sustain such growth requires rapid export growth. During Bush's eight years, US economic policy undertook to run a very large deficit in its balance of payments, accepted the wish of Asian nations to maintain large surpluses and allowing Asian central banks to invest heavily in US government securities. This was the critical action needed to support the rapid growth of exports that propelled Asian growth. While this had been going on for some time, under the Bush administration it became much larger.
If Mr. Bush had acted to restrict this unbalanced world economy, India and China would have growth at more modest rates of 5-6% and Bangladesh at 4-5%! Without the tremendous increase in exports of goods and services absorbed by the US, the economic outcome would have been much different, and the progress in poverty reduction would have stalled.
Of the billion persons in China and India lifted out of poverty, most would have remained below the poverty time in the absence of Bush's policies. The export boom in Bangladesh was more modest, but the rate of poverty eradication doubled, so that about 7 million more persons were lifted out of poverty. The poverty reduction is not caused by special projects and policies but by economic growth. "Pro-poor growth" is redundant; when an economy grows faster more are lifted out of poverty.
Mr. Bush's policies have done considerable harm to the United States. In effect he did what South Asia leftists are screaming for -- he sacrificed the economic welfare of Americans to provide an opportunity to the Chinese and Indian poor to rise! Rather than criticise Bush, India and China should see Bush as a saint -- the man who did more for their people than any of the politicians in those two countries.
Nehru and Mao harmed their nations with wrong economic policies and plunged their people into decades of poverty. Both stand condemned for the terrible human cost imposed on their people. In contrast, George Bush helped the down-trodden poor in Asia, while the intellectuals denounced him at conferences he paid for!
We will now see the consequences. The American economy will recover, but our new leaders will demand economic frugality. The American balance of payments will move rapidly into equilibrium with a small deficit or surplus on current account. This will slow down economic growth all around the world, but this will not help.
The balance of payments constraint is simple:
Current account Private capital Net change in reserves
surplus(deficit) +account surplus(deficit) =including official capital inflows (negative) For the United States the current rough position is as follows:
- $500 billion + $50 billion = - $450 billion The deficit on the current account reflects the great imbalance between imports and exports. The change in the capital account shows the US private sector exporting a net $50 billion to the rest of the world. The $450 billion is the purchase of US government securities or their equivalent by central banks. The coming few years will see the change in reserves equal to zero. The American current account deficit will have to fall to the size of the net private capital account outflow. A slower world economy, unfavourable exchange rates and more cautious behaviour will restrict the capital account to almost zero. This will force the current account deficit to near zero. This is only possible with a very weak dollar. This will reduce exports to the US and cause serious setbacks to most Asian economies. If foreign central banks withdraw money from the US, then the current account of the US will have to become more positive to enable this to happen. This will reduce exports to the US even more. On experience to date, this will slow Asian economic growth even more. We will then see the reverse of the past decade: The US will export to the rest of the world! The US workers and owners will prosper, while the rest of the world stagnates. The rest of the world can protect itself by restricting trade, but that simply leads to an even worse economic situation with reduced employment and lower productivity. Nations may return to failed import substitution strategies. Brazil, India, China, Russia and Bangladesh will all long for the days of George Bush. But it will be a long time before this new US economic position will change. The shift of the US to become a net creditor in the world will cause a protracted period of slow growth and may will lead to an increase of poverty. It need not, but so far no Asian country has solved the problem of achieving rapid economic growth without rapid export growth. As for the owners of oil and gas resources, with a slowing world economy oil prices will fall sharply. The strategic importance of the Middle East will decline and in a sense the rest of the world will not be much concerned. Remittance flows to Bangladesh will decline when the Middle Eastern countries are poorer. Commodity prices will weaken. The Bangladesh economy will face slower growth but will be able to avoid catastrophe. It is Americans like me that are angry at Bush for sacrificing our welfare to improve the lot of the Asian and African poor. He had no right to do that! I have a right to criticise him for these actions; but it baffles me why Asians are so against Bush when he has done so much for their economic prosperity.
surplus(deficit) +account surplus(deficit) =including official capital inflows (negative) For the United States the current rough position is as follows:
- $500 billion + $50 billion = - $450 billion The deficit on the current account reflects the great imbalance between imports and exports. The change in the capital account shows the US private sector exporting a net $50 billion to the rest of the world. The $450 billion is the purchase of US government securities or their equivalent by central banks. The coming few years will see the change in reserves equal to zero. The American current account deficit will have to fall to the size of the net private capital account outflow. A slower world economy, unfavourable exchange rates and more cautious behaviour will restrict the capital account to almost zero. This will force the current account deficit to near zero. This is only possible with a very weak dollar. This will reduce exports to the US and cause serious setbacks to most Asian economies. If foreign central banks withdraw money from the US, then the current account of the US will have to become more positive to enable this to happen. This will reduce exports to the US even more. On experience to date, this will slow Asian economic growth even more. We will then see the reverse of the past decade: The US will export to the rest of the world! The US workers and owners will prosper, while the rest of the world stagnates. The rest of the world can protect itself by restricting trade, but that simply leads to an even worse economic situation with reduced employment and lower productivity. Nations may return to failed import substitution strategies. Brazil, India, China, Russia and Bangladesh will all long for the days of George Bush. But it will be a long time before this new US economic position will change. The shift of the US to become a net creditor in the world will cause a protracted period of slow growth and may will lead to an increase of poverty. It need not, but so far no Asian country has solved the problem of achieving rapid economic growth without rapid export growth. As for the owners of oil and gas resources, with a slowing world economy oil prices will fall sharply. The strategic importance of the Middle East will decline and in a sense the rest of the world will not be much concerned. Remittance flows to Bangladesh will decline when the Middle Eastern countries are poorer. Commodity prices will weaken. The Bangladesh economy will face slower growth but will be able to avoid catastrophe. It is Americans like me that are angry at Bush for sacrificing our welfare to improve the lot of the Asian and African poor. He had no right to do that! I have a right to criticise him for these actions; but it baffles me why Asians are so against Bush when he has done so much for their economic prosperity.
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