ColBott 09-01-003
	The Bottom Billion Why the Poorest Countries Are Failing and What Can Be Done About It Paul Collier Oxford University Press, 2008, 209 pp., ISBN 978-0-19-537388-7

Paul Collier is Professor of Economics and Director of the Center for the Study of African Economies at Oxford University, and former director of Development Research at the World Bank. This book is based on a great deal of research. According to Collier the world consists of 5 billion well off or rapidly getting there and 1 billion falling further behind.

Since 1980 world poverty is falling for the first time in history. Most people are escaping poverty but a few countries, caught in four distinct traps, are not only falling behind but falling apart. Aid does not work well in these places but there are things we can do. Change must come from the bottom and primarily from within. But neglect will pose a security nightmare for the world of our children. (Preface)

[It was easier for me to understand the problems than the recommendations because the economics is a bit beyond my ken. Therefore there are more notes on the situation than on Collier's proposals. Dlm]

Chapter 1. Falling Behind and Falling Apart: The Bottom Billion

The third world has shrunk and the real challenge is the countries at the bottom. Aid is a development business by the big aid agencies, who don't find it safe and productive to live and work in the most difficult countries. And it is development "buzz" generated by rock stars and celebrities with simple messages, slogans, images, and anger, sometimes characterized as "heart with no head."

But at the bottom the villains have the guns and the money and they usually prevail. With hard work, thrift, and intelligence a society can climb out of poverty unless it gets trapped. The four big traps are 1) conflict, 2) natural resources, 3) being landlocked (with bad neighbors), and 4) bad governance. (5)

Seventy percent of these one billion are in Africa. Collier refers to the problem as Africa +. The + includes places like Haiti, Bolivia, the Central Asian countries, Laos, Cambodia, Yemen, Burma, and North Korea. (7) These countries are small. Life expectancy is 50 years. Infant mortality is 14% and long-term malnutrition is 36% (7-8)

The middle 4 billion have experienced rapid and accelerating growth. (8) The bottom countries are poorer than they were in 1970. (9)

China and India, who were poorer than many of these countries, broke free in time to penetrate global markets. (10)

"To my mind, development is about giving hope to ordinary people that their children will live in a society that has caught up with the rest of the world. Take that hope away and the smart people will use their energies not to develop their society but to escape from it--as have a million Cubans." (12)

"Change is going to have to come from within the societies of the bottom billion, but our own policies could make these efforts more likely to succeed, and so more likely to be undertaken." (12)

Part 2 The Traps

Chapter 2. The Conflict Trap

73% of people in the bottom billion countries are in a civil war or have recently been through one. (17) Civil war reduces income and low income increases the risk of civil war. (19) Low income means poverty and low growth means hopelessness and available young men. When the economy is weak the state is weak and rebellion is easier. Sometimes rebel movements get finances from resource exporters in return for future deals. (21)

"Rebels usually have something to complain about, and if they don't they make it up. All too often the really disadvantaged are in no position to rebel: they just suffer quietly." (24) Little relationship has been found between the risk of civil war and political repression or intergroup hatreds or income inequality or colonial history. There is some relationship to particular patterns of ethnic diversity. (25)

A civil war doubles the risk of another civil war. "Civil war is development in reverse." (27) "Both economic losses and disease are highly persistent: they do not stop once the fighting stops." (28) Usually there is a further deterioration in political rights. "A rebellion is an extremely unreliable way of bringing about positive change." (28) "The foot soldiers of rebellion, often do not have much choice about joining the rebel movement." (28) "Gradually the composition of the rebel group will shift from idealists to opportunists and sadists." (30) The kind of people most likely to engage in political violence are the young, the uneducated, and those without dependents. (30)

95% of global production of hard drugs comes from conflict countries. Conflict provides territory outside government control for illegal activities to operate. (31)

Three economic characteristics make a country prone to civil war: low income, slow growth, and dependence upon primary commodity exports. (32) "Civil war leaves a legacy of organized killing that is hard to live down. Violence and extortion have proved profitable for the perpetrators. Killing is the only way they know to earn a living. And what else to do with all those guns?" (33)

Chapter 3. The Natural Resource Trap

Paradoxically, the discovery of valuable natural resources in the context of poverty constitutes a trap. It often results in misuse of its opportunities in ways that make it fail to grow and results in stagnation.

Societies at the bottom are frequently in resource-rich poverty. "The heart of the resource curse is that resource rents [rents = excess of revenues over all costs] make democracy malfunction." (42) "Oil and other surpluses from natural resources are particularly unsuited to the pressures generated by electoral competition." (43) In the presence of large surpluses from natural resources autocracies produce much more growth than do democracies. When there is plenty of money, leaders tend to embezzle funds, spend on large, pet projects and buy votes through contracts. The corrupt win the elections. Resources reduce the need to tax, undercut public scrutiny, erode checks and balances, and leave electoral competition unconstrained where parties compete for votes by patronage. (46) Alternatively restraints raise the return on investment. (48)

Autocracies work with little ethnic diversity. Diversity tends to narrow the support base of the autocrat and requires greater income distribution to the autocrat's group. (49-50) "Becoming reliant upon the bottom billion for natural resources sounds to me like Middle East 2." (52)

Chapter 4. Landlocked with Bad Neighbors

Geography matters. Landlocked countries must export to neighboring countries or through their infrastructures to the coast. Uganda is poor and Switzerland is rich because they are dependent upon their neighbors. All countries benefit from the growth of their neighbors but resource-scarce landlocked countries must depend on their neighbors for growth. This includes about 30% of Africa.

Chapter 5. Bad Governance in a Small Country

Terrible governance and policies can destroy an economy with alarming speed. Note President Robert Mugabe. Governance matters, conditional upon opportunities. Differences in opportunities can make a big difference. Countries who have done better since 1980 have generally exported labor-intensive manufactures and services. The government simply has to avoid doing harm. Exporters need an environment of moderate taxation, macroeconomic stability, and a few transport facilities.

Why is bad governance sometimes so persistent? Because some benefit. The leaders of many of the poorest countries in the world are themselves among the global superrich. They like it that way. Many of them are simply villains. But beyond villainy, there is a shortage of people with the requisite knowledge, brave reformers get overwhelmed by the resistance, and there is often not much popular enthusiasm for reforms.

Recent failing states include Angola, the Central African Republic, Haiti, Liberia, Sudan, the Solomon Islands, Somalia, and Zimbabwe. The Democratic Republic of the Congo is borderline. (69)

Turnarounds are rare because reformers are often suppressed and in danger.

Three characteristics encourage a turnaround: larger populations, higher proportion of people with a secondary education, and recent emergence from a civil war. (70) Whether the state was a democracy or granted political rights did not seem to matter. The impetus for change must come from the heroes in the society. (71) The probability for a turnaround in any given year is 1.6%, so they are likely to stay as failing states for a long time.

Characteristics likely to help outside interventions to work:

1. higher income
2. larger population
3. greater proportion of population with education

Interventions less likely to work if

1. leader has been in office a long time
2. the country experiences a favorable shift in trade, and
3. if it recently emerged from a civil war (72)

Part 3. An Interlude: Globalization to the Rescue?

Chapter 6. On Missing the Boat: The Marginalization of the Bottom Billion in the World Economy

It is not impossible, but difficult to escape from the black hole. Globalization is helping the developing world grow faster than the developed countries, but it is causing the bottom countries to fall further behind because of global trade (to others), the flow of capital (out) and the migration of people (out).

In the past four years the average country of the bottom billion has at last started to grow, but at a slower pace than the other developing countries. This means they will fall further behind. (95) "Let me be clear: we cannot rescue them. The societies of the bottom billion can only be rescued from within." (96)

Part 4. The Instruments

Chapter 7. Aid to the Rescue

"Aid alone is really unlikely, in my view, to be able to address the problems of the bottom billion, and it has become so highly politicized that its design is often pretty dysfunctional." (99) "Aid does tend to speed up the growth process." (100) "The statistical evidence generally suggests that aid is subject to what is called 'diminishing returns.' That is, as you keep on increasing aid, you get less and less bang for the buck… When it reaches about 16 percent of GDP it more or less ceases to be effective." (100)

"The world has already conducted a natural experiment in giving the countries of the bottom billion a huge injection of budget support. It is called oil." (101) Nigeria, for example, has very little to show for it. Well-intentioned support for the desperately poor country of Chad is likely to end up largely financing the army. About 40% of Africa's military spending is inadvertently financed by aid. (103) The allocation of aid goes far too much to the middle-income countries rather than the bottom. (104)

Aid as technical assistance can be of help in turning around failing states. (115) When the opportunity for turnaround arises, It requires a lot of technical aid to help implement reform and then later, money for the government to spend. (116) While most such efforts will fail, a few winners will make it overall worthwhile. (117)

Chapter 8. Military Intervention

Military intervention has an important place. Their own military is more often part of the problem than a substitute for external forces. Besides expelling a foreign army (as in Kuwait), there are three important roles: "restoration of order, maintaining postconflict peace, and preventing coups." (124)

After success in Kuwait we intervened in Somalia. The dramatic reports of 18 deaths in 1993 resulted in our pullout. Armies cannot function at zero risk. After the U.S. pull out, by 1995, more than 300,000 people died. Since then we have no estimates. After that we didn't intervene in Rwanda in 1994 when another half million died. "So we should intervene, but not necessarily everywhere." (128) "It would be relatively easy to make coups history. We just need a credible military guarantee of external intervention." (131)

"The militaries of the bottom billion are running an extortion racket and our aid programs are the victim." (134)

Chapter 9. Laws and Charters

There are strikingly cheap and include both our own laws and international norms. For one thing, western banks provide safe haven for the criminals from the bottom. Most conduct is guided by voluntary norms enforced by peer pressure than by laws. An international charter gives people something very concrete to demand. (143)

Chapter 10. Trade Policy for Reversing Marginalization

"Trade policy is unusually difficult for people to understand…." (159) "Rich-country trade policy is part of the problem." "We waste our own money subsidizing the production of crops that then close off opportunities for people who have few alternatives." (159) "It is stupid to provide aid with the objective of promoting development and then adopt trade policies that impede that objective." (160)

Part 5. The Struggle for the Bottom Billion

Chapter 11. An Agenda for Action

Brave people in these societies struggle for change but the odds are against them. Of the four instruments -- aid, security, laws and charters, and trade -- we are using the first quite badly and the others scarcely at all. (176)

* * * * * *

Your comments and book recommendations are welcome.