The Bottom Billion

THE BOTTOM BILLION
WHY THE POOREST COUNTRIES ARE FAILING AND WHAT CAN BE DONE ABOUT IT
BY PAUL COLLIER
OXFORD UNIVERSITY PRESS 205 PAGES STG £16.99
Reviewed by Richard Whelan

“In the 1930s the world sleepwalked into the avoidable catastrophe of World War II because electorates in the US and Europe were too lazy to think beyond the populist recipes of isolationism and pacifism”. We are now doing the same for one billion of our fellow human beings, says Paul Collier, Professor of Economics and Director of the Centre for the Study of African Economics at Oxford University.

In this book, Collier bridges the divide between William Easterlys’ dismissal of aid as nearly useless and Jeffrey Sachs’ over-reliance on it as a development (as opposed to a humanitarian) tool.

The good news is that since the 1990s more than four billion people in the developing world have begun to move out of the depths of poverty. The bad news is that one billion – “the bottom billion” – has been left behind and will stay there if we do not move beyond ideological sloganeering and focus on innovative ways of helping them.

Collier points out that almost a billion people, 70% of whom live in sub-Saharan Africa , are in 58 economically stagnant or declining countries. By 2000 these people were poorer that they had been in 1970, while the growth rates for the other 4 billion have been unprecedented. The non-economic statistics for the two groups are stark; average life expectancy 50 years compared to 67 years; infant morality 14% as against 4%; the proportion of children with symptoms of long term malnutrition – 36% as against 20%.

Why? “Poverty is simply the default option when economies malfunction”. Collier notes that billions in East Asia are climbing out of poverty, not because of aid (very few received anything significant) but because conditions were created for their economies to grow.

Collier then argues that these 58 countries have fallen into one, or more, of four traps from which it is impossible to escape without outside help. These are the “conflict trap” (730 million have been through civil wars), the “natural resources trap” (290 million are dominated by the malign politics of natural resources), the “trap of being landlocked with bad neighbours” (300 million), and the trap of “bad governance in a small country” (a full 760 million live in countries that have suffered long periods of bad governance and poor economic policies).

He explains why each trap has “sprung”, in the process slaying many sacred cows.

For the “conflict trap” he shows that 730 million of the bottom billion have been through a civil war or are still in one. He quantifies the cost of one civil war, (there are many amongst the bottom billion), at approximately $64 billion (38% of our GDP). If that country becomes a failed state, the cost of such is $100 billion approximately. He also notes that “95% of global production of hard drugs come from conflict countries”. The cost to the world of this “conflict trap” is enormous. The cost of conflict prevention or amelioration is demonstrably much lower.

The “natural resources trap” is much misunderstood. Such exports cause a country’s currency to rise against other currencies. This makes “real” exports uncompetitive, increases the cost of local goods and services, and alters how electoral competition is conducted, eroding normal checks and balances, by facilitating patronage politics where voters are bribed with public money. This trap erodes citizens’ control on what their governments and civil services are doing, with dire results for the economy and national politics.

The third trap, “landlocked with bad neighbours” arises only in Africa . Collier’s prediction for the 300 million trapped here is stark. “I can find no example of a landlocked, resource-scarce country with bad neighbours that has made it to middle-income status”.

The fourth and most important trap “bad governance in a small country” affects 760 million people. After looking at many examples of what has really gone wrong here, Collier summarises the problem as not “the IMF against Africa” but “reformers against villains”. With only a 2% chance of a state escaping from this trap in any one year, the case for external assistance is obvious.

Collier then sets out solutions to these four traps. They comprise four tools – aid, security, laws and charters, and trade. All of the four are needed, but only one (aid) has really been tried to date, and on its own it is not enough. “A reasonable estimate is that over the past 30 years [aid] has added one per cent to the annual growth rate of the bottom billion. Aid has been a holding operation preventing things from falling apart”.

To “break the conflict trap” he recommends aid, provided later than now, in large amounts, and for a longer period, with much more supervision on how it is spent. An external military presence is often required (he acknowledges the difficulties but has suggestions) as the national army is frequently part of the problem and usually needs to be downsized, requiring an expanded role for the police. Trade has a limited role certainly in the early years, while Collier shows that a key tool is previously defined international charters for post-conflict governance.

To “break the natural resources trap” aid will need to be much more focused while initially trade will have little to offer. Security will be important once again – particularly guarding against the risk of coups which can be “provoked” simply by the availability of funds from natural resources and aid itself. Once again the key tool will be our own laws and international norms. This would include a charter for resource wealth – a revised version of the Extractive Industries Transparency Initiative. “We can, however, help to empower the reformers within the societies of the bottom billion – or we can sit on our hands while our oil companies compete with the Chinese in the bribery game”.

To provide “lifelines for the landlocked” the best we can probably do is mitigate the problem. Aid will help people live decently, providing transport corridors to the nearest coast, and should be tied in to governance and “independent service authorities”. To help prevent coups, external military guarantees should be provided, tied into international charters on democracy and budget transparency.

In “breaking the reform trap” he summarises our role thus: “what we are called upon to do is the safe task of making it easier for such people to win their struggle”. Aid will help, once the way it is delivered is significantly changed, and timed to support reform and frequently takes the form of technical assistance. Once again the key instrument is the use of our laws and international norms and charters to rein in corruption and to help the reformers defeat the frequently well-heeled villains.

An important overall trade policy is to temporarily help the bottom billion against Chinese and Indian exports into our markets until they get on their feet and build up their own export potential.

Much of what Collier suggests is familiar to us from our own economic development policies of the last 40 years. The surprise is why we have failed to apply such to helping the bottom billion. Collier has been attacked for sometimes contradicting himself, undue optimism and for ignoring the dismal plight of the economies of the bottom billion. However he has set out an approach to solving these problems and, if modified as circumstances dictate (as we did in Ireland ) probably arrives at the best available approach in a difficult world.

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