Paul Collier. The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It. Oxford: Oxford University Press, 2007.
Summarized by John Teevan, May 2008
This book adds a third category of nations to the existing categories of the developed and the developing world. The new category recognizes that much of the developing world took a significant step forward with the globalization of recent decades. The roughly 50 nations and 980 million people, mainly in Africa and SE Asia (Laos, Cambodia, Burma, plus Haiti, Bolivia, Yemen, and North Korea 7), that comprise the bottom billion actually declined 5% even during the prosperous 1990s, the very decade when the billion in China and the billion in India were making their upward move.
Part 1
Falling Behind and Falling Apart: The bottom billion are worse off than they were in 1970(3,9). In this sense, among developing nations, some poor are getting rich while others are getting poorer. In other words, the four billion poor are joining the one billion rich, but the bottom billion is truly stuck even though they are no longer starving.
The bottom billion missed that opportunity. Now, when businesses want to expand, they go to those developing countries that are actually developing (the middle four billion) and not (theme) to the countries of the bottom billion; they missed their chance, and it will take decades for another opportunity to roll around (5). Those who are developing accelerated their growth to 4% in the 1980s and 1990s and then to 4.5% annual growth in the 2000s. These growth rates are without precedent in history (9).
There are complicating factors. First, the governments of the bottom billion are among the worst in the world. Second, the legion of NGOs that seek to serve the bottom billion have a doctrinaire abhorrence of economic development as evil; Collier calls this the development ‘buzz.’ Third, the aid agencies and those who contract with them are powerful even when their projects are counterproductive. Collier calls these people the development ‘biz’.
This book is about four traps that go beyond both the myth (business lifts the poor) and the anti-myth (the system is rigged against the poor). Collier believes that the traps are 1) civil war, 2) abundance of natural resources, 3) being landlocked, and 4) bad governance.
Tragically, the NGOs are not focused on economic growth nor on removing the traps, but on ‘sustainable pro-poor growth’ as if the bottom billion were a testing ground for their idealism (11).
Part 2: The Traps
Trap #1. Civil War.
It is easy to think that repression and exclusion are the grievances that cause civil war when heroic rebels lead ‘the people.’ Not so. A civil war is one with 1000 or more deaths on both sides. They occur in low-income nations (73% of the bottom billion have been in a civil war), and the war further reduces income. Other correlations include slow growth and a dependence on commodity exports; those commodities are what the rebels seek to snatch away from the current government. Rebels discuss inequality and rights to secure funding from the diaspora (23). Ethnic strife is another illusory cause.
Civil wars last about seven years and reduce growth by about 2.3% per year or 15% per civil war (26-27). Each civil war costs the nation and its neighbors about $64 billion (32). Civil wars are accompanied by migration, malaria, environmental harm, and the loss of infrastructure, with many who do not flee joining the rebellion at the point of a gun (29). “Gradually, the composition of the rebel groups will shift from idealists to opportunists and sadists (30). Greedy psychopaths often become the leading rebels.
Collier gives the example of the Norman invasion of England when the Vikings invaded, killed the English elite, “and subjected 98% of the population. During this time, there were many civil wars. None of them was a rebellion of English serfs against their Norman masters. All the civil wars were one bunch of Norman barons against another, trying to grab yet more land” (24). The modern example of a land grabbing is in Fiji, and the most notable resource civil war was in Angola.
The central idea of this chapter is not the civil war itself as if it could be overcome; it is, Collier says, a trap from which there is no escape; worse it is a trap that even a well-meaning government may fall into if the country has slow growth, low income, and is resource-rich. “It is harder to avoid these ‘triggers’ than to develop the economy (33). The Congo will need about 50 years to return to the level it was at in 1960 (34).
A coup is not a rebellion, but it is nearly as bad. Coups do tend to rely on ethnic concerns. Once there is a coup to change the government, there are likely to be more coups. The secondary impact of this fact is that presidents fear their own armies (36). Democratic nations are no less prone to coups. Both coups and civil wars tend to reduce growth.
Trap #2: Natural Resources
The ‘resource curse’ refers to how natural resources such as minerals or diamonds raise a country’s currency value, making other imported goods relatively expensive and therefore less welcome on global markets. Those ‘other goods’ are often better for the nation and for the people. The sale of resource funds the government, which then cannot reduce its public sector after the resource boom ends. When nations try economic reforms that are undone during a bust, they conclude that the reforms caused the troubles. In addition, resources tend to drive out investment (44).
Resources tend to make democracy malfunction (42); Nigeria and Middle Eastern nations. Resource-rich systems tend toward patronage, leading to effective bribery (45). Voting blocs supported by people who sell their votes for favors (or even for basic justice) work, but they attract crooks. Resource money pays for the patronage. Democracy cannot function in such a system that erodes all checks and balances. Collier has identified 17 ‘restraints’ (e.g., a free press, competitive bidding) with an average of 2.8 in the bottom billion nations and a minimum of four needed to function (47). After elections, public projects often suffer immense cost overruns as politicians recoup the necessary money to buy votes (48).
Autocracy does seem to work for non-diverse ethnic nations such as China, but there are few among the bottom billion, in part due to the post-WWII determination of new nation borders by the West (49). Norway has oil, but it had its restraints before the oil income.
Trap #3: Landlocked with Bad Neighbors.
The leaders of the Central African Republic were asked what nation they would like to become in 20 years. They thoughtfully replied, “Burkina Faso.” This is a sign of current despair, as BF is an impoverished nation (53). Switzerland may be landlocked, but its neighbors have good roads/harbors, and they buy its products; neither is true for the CAR. It is true if the neighbors grow it is good for the landlocked nations; 30% of Africa is landlocked and grows at .2% compared to .7% for the non-landlocked in Africa (57-8).
What can the landlocked do? 1) increase neighborhood growth spillovers, 2) improve your neighbors’ economic policies, 3) improve coastal access, 4) become a haven in your region for something like finances. 5) Do not be air-locked (Kenyan flowers to England 60). 6) Encourage remittances. 7) Create a transparent and investor-friendly environment for resource prospecting. 8) Develop rural areas. 9) Try to attract aid.
Trap #4: Bad Governance.
This chapter gives factual background to the dramatic costs and tragedies of ‘failed states’. The limitations of government, combined with local corruption and misguided Western ideals, create tragedies for the bottom billion. Governments among the bottom billion need to overcome immense obstacles to create opportunities where none exist. The bottom billion are characterized not only by failure to do so, but by an opposite strategy.
If the U.S. values a stable Iraq at $350b and the cost of a failed state over its lifetime (using 60 years) is at least $100b, then his idea (later) to spend $7b in strategic moves to intervene at the right moments with failed states is worth it from at least a cost-benefit perspective.
Excellent government can help some, but bad governance can ruin quickly (Zimbabwe under Mugabe since 1998). Bad governments need many restraints, while good governments need to learn to be effective. For a time, high export prices can allow bad leaders to prosper (Chavez). Bangladesh, though super corrupt, has grown as the government has avoided causing economic harm to this labor-intensive goods exporter. Chad is resource-rich, but corruption severely affects its economy. Why should the super-rich leaders give an inch?
China made an immense mistake under Mao (adored by the Western media), but his best contribution was to die (66), and China has made a complete change since then, followed by India.
Even in moments of opportunity for reform, there are two problems: first, reform is wrongly seen by the people as harmful; second, leaders realize they only need to promise reform (67). This was especially evident in the 1980s, when the Western left was fighting the reforms of Thatcher and Reagan and refused to acknowledge the corruption of the elites in the most corrupt governments (67).
Collier’s research led to a study of nine of the worst failing states. Their leaders do not submit to restraints or embrace reforms unless they are forced to. Seeking to identify what led to sustained growth (five years), they discovered that democracy and flattery from Western Marxists (71) did not help, but a large population did, especially if many are educated. The post-civil war moment is ripe as long-term leaders (presumably deposed) harm reform, but the flux of such periods makes it harder to sustain reforms (72).
Part 3: Globalization
Missing the Boat: Adding up the percentages of landlocked nations with recent civil wars, abundant natural resources, and bad governance, the total is 200%; each nation has the equivalent of two full traps. The corollary is that only 2% annually escape any trap (79). Escaping means catching up by attracting capital inflows and producing goods for export. The middle four billion have recently escaped (see Ch 1) by using labor-intensive manufactures and services. They benefited from low wages and abundant labor. Land-based commodities benefit only landowners, not the people. Bad that developed nations imposed trade restrictions, worse that the bottom billion imposed additional limits of their own.
Those nations that escaped used their coastal locations, trade, and labor laws to attract some businesses, and eventually more, from developed nations, and now there are ‘enough’. Some almost-escaped nations have corrupt leaders who seek to privatize the gains, such as Madagascar, by reimposing restrictions (83). Those nations that have not escaped will not soon escape, giving their leaders a rationale to change. Civil war or coups often come from populist quacks (85). Worse, the Chinese and others are bidding up the commodity prices of the bottom billion, enriching their corrupt leaders.
Capital (both public and private) is lacking, especially in Africa, but Africa has twice the public capital spending as private compared to the opposite ratio in the nations that escaped. Uganda escaped by making itself more attractive to private capital (by reducing its risk rating by 89). But even if the bottom billion reduced their risk rating, they will not be credible as permanent improvements.
Ironically, there are massive capital outflows from the bottom billion; 38% of Africa’s wealth is held abroad (92). Corruption and poor investment opportunities (along with the traps) drive out capital. Not only does capital (savings) leave, but also competent people who are usually educated and skilled, who migrate. While this hurts the countries, it can prevent rebellions, but so what?
The bottom billion are (on average) in two of the traps, do not attract private investment, and see both their own capital/savings funds and their talented people leave the country. What’s left? Corrupt leaders and public inflows of capital from the World Bank and the aid of the nations. They can only be rescued from within (96).
Part 4: The Tools
Aid to the Rescue? When affluent nations live near cesspools of misery, it is both pathetic and dangerous. Aid (public capital) is a popular response that is immensely ineffective because many see aid as a kind of guild-driven reparations for colonialism. Fortunately, there are three alternatives to aid that focus on development (growth) rather than on guilt.
Aid horror stories abound: agencies want to get the credit; they want their projects pursued; they compete; they complicate; they insist on odd standards (or none) of accountability. When aid reaches 16% of GDP, it ceases to be even potentially effective. When aid finally gets to the people it is supposed to help, sometimes over 90% has disappeared into the budget and bureaucracy (Chad 102) and even the military (11%). They measured ‘poverty efficiency’ and found that aid was not well directed to the bottom billion.
Aid can aggravate the civil war trap, though it helps in the post-conflict moment. Aid is impotent in the face of natural resources. Aid to landlocked countries needs to focus on transportation infrastructure (access to harbors). As for governance, aid can help as an incentive to develop skills and to reinforce good government. Aid has its limitations, but if used with other tools, it can play a worthy role.
Military Intervention? The U.S. intervention against the invasion of Kuwait was a success, but the intervention in Iraq has not been. Desert Storm succeeded because it expelled a despised aggressor and restored order and sustained post-conflict peace. Stability is a public good. The U.S. is hot or cold depending on its previous experience, which was so bad in Somalia (media’s treatment of 18 U.S. deaths in 1993) that we refused to help in Rwanda (500,000 civilian deaths) in 1994 (125). Having missed that, we got involved again, only to watch the UN’s failures in Bosnia, and now Iraq suggests we will not intervene.
An intervention after a conflict to sustain the new and fragile stability is effective at about 30 times the cost (128). Intervention to prevent coups (often by the reluctant French) could be effective, as could the EU rapid reaction force if the EU ever decided to actually act (not yet in Sudan). As with the UN, there is an illusion of concern and action that is endlessly delayed until the talks have finished, but they never do. This could have worked in Togo or Côte d’Ivoire, with the troops of the African Union.
Foreign military intervention to produce fair elections could work. National militaries only get involved in the problem, not in the solution. In a post-conflict situation, national military spending seems essential, but it merely diverts public funds to the army. Worse, fragile governments rely on the military to avoid further coups. This involves even more costs. This time, the expense is like extortion by the military, which offers ‘protection’ (134).
Laws and Charters? Western banks enable lots of money laundering of tax, aid, and export sale money in a way that leads Collier to call them (especially the Swiss) ‘pimping bankers’ (136). Bankers, like doctors, need to police themselves to root out the quacks. France allows companies to deduct bribes (‘facilitation payments’) as business expenses. Corruption, especially among construction contractors, is extreme. Patronage, like the prisoner’s dilemma, allows for no good answers.
- Charter #1: contracts. As for natural resources, he sees many steps: awarding contracts (corrupt), bearing the risks (governments, not contractors), transparent revenues and transparent public expenditures (non-existent), and a way to smooth public expenditures in the face of revenue shocks (141). A charter signed by all involved, adhering to a new international standard for all these steps, is needed and could work. A charter will require the initiative of the rich countries and the insistence of the people of the bottom billion, followed by selective boycotts of affluent consumers (145).
- Charter #2: democracy. Democracy is no guarantee against corruption or patronage, but it has a rich history and a media that can draw the attention of corrupt leaders.
- Charter #3: budget transparency. Scrutiny in Uganda led to the portion of government expenses actually reaching schools rising from 20% to 90% (151).
- Charter #4: post-conflict situations. Post-conflict situations are critical opportunities that can, but rarely do, lead to stability and growth. The fluid situation embraces change that will require ‘truth and reconciliation’ commissions and the transparency of donor governments and NGOs.
- Charter #5: investment. The overwhelming need for growth means there is greater demand for private capital than for public capital. International investment standards that apply to both foreign and domestic investors would replace the official, but often unobserved, national ones. Arbitration would replace confiscation. This was a popular idea in the late 1990s that failed due to a lack of consultation with the receiving nations.
These charters would be good and would replace the ‘public bads’ of corruption and instability. However, “Global public goods are grossly under-supplied because nobody has much interest in providing them. Being suitable for everybody, they face the ultimate free rider problem (156).
Better Trade Policy? Rich guilt is dramatic but contrived and misinforms people in wealthy nations with absurd narratives. In 2004, Britain’s Christian Aid ran an ad depicting a capitalist as a pig sitting on top of an African woman (157). This Marxist approach to trade viewed free trade as exploitation, thereby elevating costs. Worse, they backed up their image with a study by a student at the infamous School of Oriental and African Studies. Collier consulted Bhagwati on the research, who rejected it as deeply misleading (158). Politicians are scared of NGOs like Christian Aid, and the public is ignorant, leaving those NGOs with “power without responsibility” (159). Collier is scathing in his denunciation of this example.
- Problem #1: rich country trade policies that protect agriculture. Rich countries do not trade with the bottom billion and do not care about tariffs with them.
- Problem #2: Bottom billion nations try to protect non-existent domestic producers and sustain high protective trade barriers of their own. Rather than saving money for investment, bottom billion people pay higher prices for goods and for the indirect costs of corruption. (161).
- Problem #3: aid actually hurts nations, as the $/— coming in must be sold to gain local currency, which means someone, a local importer, needs to buy the $/s. This drives out the demand for $/ from exports. Trade liberalization would expand such demand and help (162).
- Answer #1: Fair Trade. No. This is a tolerable charitable transfer, valid only when seen as such (163). Fair trade sustains the narrow past range of exports rather than fostering new, more beneficial ones. “They get charity as long as they stay producing the crops that have locked them into poverty (163).
- Answer #2: Regional Integration. If the U.S and the E.U. can enjoy the benefits of economic integration, why not the nations of the bottom billion? There is good theater in this, but their markets are so tiny (sub-Saharan Africa has the GDP of Belgium, 164), and the benefits come from trading with rich countries. Worse, in the rich trade areas, the poorest gain, while in the poor trade areas, it is the rich that gain (165). Uganda’s farms should be feeding Kenya, but high barriers keep it from happening, so both lose.
- Answer #3: Export Diversification. Exporting is both good and raises productivity, as manufacturing is a new area of the economy. This requires free trade, not cozy deals.
The bottom billion needs protection from Asia (167). Without lower tariffs on BB nations, they will have to wait until Asia is rich (re-creating the export-inducing wage gap) before they can grow through export trade. Removing all tariffs from the BB will be an immense help. The BB will also need to remove tariffs. Specifics such as ‘rules of origin’ can be modified and, possibly more importantly, simplified and unified.
- Answer #4: The World Trade Organization. The WTO is a marketplace that relies on bargaining power rather than a forum that makes the best decisions. Without exports to trade, they are powerless to get the rules or transfers they desire. The World Bank could help, but it is focused solely on transfers.
An Agenda for Action
The Bottom Billion are stuck in the various traps so nasty that the struggle and bravery of the wise have come to nothing, and there is no hope in sight. Yet a worse future is both foreseeable and avoidable. We need to quit relying on aid as our only tool and begin using security, laws, and trade rules much more effectively (176). The strategy is to determine which tools to use, when, how, and with whom, for each trap, one by one.
The Conflict Trap requires external military help to stabilize the situation in the post-conflict period, and aid that is phased in (rather than large amounts of immediate aid) for infrastructure built by independent contractors, not the government (177). More infrastructure and less cash to tempt the national military (shrink the army) will be an improvement. If nations agree on a procedure for post-conflict situations, it will be reasonable and standard rather than improvised and subject to manipulation by strong men.
The Natural Resource Trap will need an international charter for resource wealth. Aid and trade policies will be of little use. We must resist the colonial illusion that we still have power (179), but rather empower and protect the reformers. This will keep the external and internal crooks at bay.
The Trap of the Landlocked actually requires aid for resolution, provided the aid is controlled and used in ways that do not tempt a new coup. External military help will be needed to keep the government focused on actual improvements and to prevent the army from ‘catching the scent of the money’. Innovative ways to grow the economy include Kenya’s air freighting tons of flowers to England (180).
The Trap of Bad Governance carries the tragic stories of many almost-successful reformers. External military and trade policies are of little help, leaving laws and international norms. These will have to be pro-growth, which infuriates the NGOs and dictatorial aspirants.
How will these break out of limbo? By using aid to improve the infrastructure of trade to assure exports, apart from the shopping lists of both politicians and donors, and apart from Western romantic ideas about poverty. Developing new trade policies will be essential (183).
Who should do this? The G8 alone can. The WTO, World Bank, and IMF are not focused on these issues, and the UN and the NGOs are entrenched in ways that often make them enemies of these ideas. Many are suspicious of growth. Aid agencies need to rise above their donor-focused marketing and focus on the worst of the Bottom Billion. Governments focus on the amounts of aid… even doubling it recently, but it is run worse than any other part of government (184). The Iraq War has set back military intervention.
The NGOs could empower reformers, lock in change, and overcome free riders, but they would feel neo-colonial. Budgeting and transparency in spending could help, but overcoming political inertia is difficult. Liberalizing trade policy could work, but for every person who gets it, there are 100 who are ignorant. “Rich-country protectionism masquerades in alliance with anti-globalization romantics and third world crooks’ (187). The slogans of marginalization, justice, and fairness, and anti-globalization form a populist argument that often trumps the value of free trade.
In addition, there are the problems of coordination and focus that tend to prevent the proper use of these tools. Therefore, only the top level of Western governments can push these changes through. The Millennium Development Goals were good, but focused on the four billion above the bottom billion. Iraq, the Kyoto Accord, and ag tariffs cloud, and even poison, the rational use of military, international standards, and trade policy. The aid community has no desire to leave Rio to work in Bangui (190), and (worse), they refuse to believe that growth from capitalism is working among the four billion. While “growth is not a cure-all, the lack of growth is a kill-all” (190). What many nations consider strategic plans are merely shopping lists for more aid.
The Left needs to abandon its self-hatred and idealized notions of developing nations and learn to love growth. Jeffrey Sachs is brilliant, but over-relies on aid. The Right needs to abandon the idea that the bottom billion will automatically spring to prosperity once aid crooks disappear. That worked for many of the four billion, but it will not work for the bottom billion.
Collier wants us to 1) focus our development on the bottom billion in stuck countries. 2) Help and protect the reformers against the powerful groups that oppose them. 3) Get involved. “In short, we need to narrow the target and broaden the instruments. That should be the agenda for the G8″ (192). [end]