The Bottom Billion: Why the Poorest The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Countries are Failing and What Can Be

Done About ItDone About It

Paul Collier :

Born 1949

Professor of Economics and Public Policy at the

Blavatnik School of Government

Director, Centre for the Study of African Economies

at Oxford University

The director of the Development Research Group of

the World Bank (1998 – 2003) .

The Bottom Billion (2007)

Discusses the significance & limitations of

developmental aid to developing countries

Explores the reasons why impoverished countries

fail to progress despite international aid and support

He also talks about the way forward.

Who are the Bottom Billion? Who are the Bottom Billion?

Countries that are not only the poorest but also failed to

grow.

Countries that do not follow the development path of

most other nations ( against the a backdrop of global

development success).

58 countries

Cntd. Cntd. They are small.their per capita income is very lowthe income of the typical country is less

than that of most rich-world cities.

Ctnd.Ctnd.Average life expectancy is 50 years

In developing countries it is 67 years.

Infant mortality is 14%

In the other developing countries 4%.

The proportion of children with symptoms of

long-term malnutrition is 36%

20 % for the other developing countries.

Poverty is something that most people are managing to escape. All societies used to be poor & most are now lifting out of it.

Why are others stuck?

Traps Traps

Four distinct traps explain the countries at

the bottom billion.

The natural Resource The natural Resource TrapTrap

The discovery of valuable natural resources in the context

of poverty is a trap.

The societies of the bottom billion are disproportionately in

this category of resource-rich poverty.

about 29% of the people in the bottom billion.

Source of Conflict

Rent The surplus from natural resource exports significantly

reduces growth. Economists term the excess of revenues

over costs as “rent,” and rents seem to be damaging. Over

time, countries with large resource discoveries can end up

poorer.

Natural Resource mean that a Gov'ts does not have to tax its

citizens. Consequently, the citizenry are less likely to

demand financial accountability from the Gov'ts. Resource

rents are likely to induce autocracy.

The sort of democracy that the resource-rich societies of the

bottom billion are likely to get is itself dysfunctional for

economic development.

The Dutch disease

R/ship b/n the increase in the exploitation of natural

resources and a decline in the manufacturing sector or

agriculture.

The mechanism is that an increase in revenues from

natural resources (or inflows of foreign aid) will make

a given nation's currency stronger compared to that of

other nations, resulting in the nation's other exports

becoming more expensive for other countries to buy,

making the manufacturing sector less competitive.

White-Elephant ProjectsWhite-Elephant Projects

The resource-rich democracies not only under invest but

invest badly, with too many white-elephant projects.

White elephant’ projects are projects that are large,

expensive and take longer than originally estimated but

they never performs satisfactorily either in terms of

stated role, or financially.

Moreover, what makes these projects ‘white elephants’ is

that they become expensive to maintain because of poor

design, confused role and lack of what may be best

described as a ‘business case’ for their very initiation.

Landlocked with Bad NeighborsLandlocked with Bad Neighbors

38 % of the people living in bottom-billion societies

are in countries that are landlocked.

Poor landlocked countries with poor neighbors find it

almost impossible to tap into world economic growth.

Countries with coastline trade with the world

landlocked countries only trade with their neighbors.

Cntd Cntd Landlocked countries with poor infrastructure

connections to their neighbors however have a

limited market for their goods.

being landlocked reduces the growth rate by half a

percentage point.

landlocked countries incurred much higher

transport costs. This transport cost depends on

how much its coastal neighbor had spent on

transport infrastructure.

Why is Uganda poor when Switzerland is Rich? Why is Uganda poor when Switzerland is Rich? Switzerland’s access to the

sea depends upon German and Italian infra-structure,

landlocked countries depended upon their neighbors not just as transport corridors to overseas markets but also directly as markets.

Germany, Italy, France & Austria serves as Switzerland Market

Uganda’s access to the sea depends upon Kenyan infra structure.

Kenya, Sudan, Somalia Rwanda, Congo, Tanzania bad neighbors

Sudan civil warSomalia failed

state( collapsed)Rwanda genocide Tanzania & Kenya stuck b/c

of poor policy

Congo, Sudan & Somalia stuck in conflict so

Uganda can neither access the global market,

because of the high transport costs along Kenyan

roads, nor rely upon reorienting its economy to its

neighbors, as they are stuck too.

Being both resource-scarce and landlocked, along

with bad neighbors exclusively in Africa. Around

30% of Africa’s population lives in landlocked,

resource-scarce countries. Only 1% of the

population in developing countries outside Africa.

What has to be Done What has to be Done ? ?

1. What can a landlocked Country 1. What can a landlocked Country do? do?

Strategy 1: Increase Neighborhood Growth Strategy 1: Increase Neighborhood Growth SpilloversSpilloversWhat can be done to increase growth spillovers from

neighbors?

Cross-Border trade: is primarily a matter of transport

infrastructure and trade policy.

Regional Integration, including the elimination of

intraregional trade barriers. While the landlocked

countries have a strong interest in regional integration,

including the elimination of intraregional trade barriers,

they also have a strong interest in reducing the external

trade barriers of the region.

Eg. When the East African Community revived its

common external tariff in 2003, Uganda was forced

to lift its trade barriers against nonmembers.

Within a regional trade bloc the landlocked

countries should therefore lobby for the lowest

possible trade barriers.

Strategy 2: Improve Neighbors’ Strategy 2: Improve Neighbors’ Economic PoliciesEconomic Policies An implication of spillovers is that once economies are better

integrated, the economic performance of neighbors matters more.

The faster neighbors grow, the faster the landlocked country will

grow.

Hence, good policy choices of the more fortunately endowed

neighbors are regional public goods.

E.g it matters to Niger that Nigeria should adopt good policies,

but whether Niger adopts good policies is of little consequence

for Nigeria.

So Niger can plead to Nigeria, but there is not really the basis for

a deal.

Strategy 3: Improve Coastal Strategy 3: Improve Coastal AccessAccess

Provide sufficient incentive to the neighboring governments transport infrastructure .

Strategy 4: Become a Haven for the RegionIf one country in a region manages to set policies

clearly superior to those of its neighbors, it will attract services and export them around the region. E.g Lebanon, which became a financial center for the entire Middle East.

As Lebanon demonstrates, a country does not need to be landlocked in order to become a regional haven.

The landlocked have no absolute advantage. However, they do have a comparative advantage.

The possibility of becoming the center for regional goods that are highly policy-sensitive, such as finance, gives landlocked countries a differential incentive to adopt good policies.

Strategy 5: Don’t Be Air-locked or E-lockedStrategy 5: Don’t Be Air-locked or E-locked

Air transport for landlocked countries

Deregulation- open up sky

Nigeria provides a good model of how an open-skies

policy radically reduce the cost of air services and

increase their frequency.

Landlocked need cost-cutting companies like

Ryanair, easy Jet, and South-west Airlines.

E-services now have the potential to deliver rapid economic growth. E-services are attractive because distance is irrelevant.

Having good telecommunications infrastructure and having workers with post primary education.

Strategy 6: Encourage Strategy 6: Encourage RemittancesRemittances

Because landlocked economies have fewer options for growth, they are likely to experience substantial emigration.

emigration can be turned to some advantage through enabling migrants to make large remittances.

educate people so that they are employable in higher-income economies rather than simply as unskilled workers.

Facilitate the finding of jobs in such economies.

Eg. Philippinestraining is targeted to the needs of high-income

economies. The embassy make hiring of its citizens easy.

encourage emigrant workers to remit by

reducing remittances taxes.

encourage the Diaspora to invest in the country

eg, building homes for family and retirement, and

linking the second-generation emigrants more

closely to the country.

Strategy 8: Rural DevelopmentBecause landlocked countries do not have the

option of rapid industrialization, the bulk of their populations will continue to be rural for a long time. In turn, this implies that policies for rural development should receive higher priority than in other economies.

policies for rural development must be adapted to local circumstances and so require a much larger investment in local knowledge.

How about the subsidies that are paid to farmers in Europe, Japan a constraint upon rural development for bottom billion countries?

Strategy 9: Try to Attract Aid

2. Change the Way aid is 2. Change the Way aid is given given Aid does tend to speed up the growth process. A

reasonable estimate is that over the last thirty years it has added around 1% to the annual growth rate of the bottom billion. So adding 1% has made the difference between stagnation and severe decline. Without aid, cumulatively the countries of the bottom billion would have become much poorer than they are today.

Aid has been preventing things from falling apart. Additional aid will not have such promising results.

aid is subject to “diminishing returns.” you keep on increasing aid, you get less and less: the first million dollars is more productive than the second, and so on.

Can we change the way aid is provided, to make it more effective?

◦ horror stories about aid where three donor agencies each

wanted to build a hospital in the same place. They agreed

to coordinate, but then faced the problem of having three

in-compatible sets of rules for how the work should be

commissioned. It took them two years to reach a

compromise, which was that each agency should build

one floor of the hospital under its own rules.

1. Budget support 1. Budget support The donors give the money to the government and it

spends it on whatever it chooses, as if it were its own tax revenue.

In some situations this is the best way to transfer aid, but it depends upon the budget being reasonable. In many countries of the bottom billion the budget is not reasonable eg. 2005 the European Commission gave 20 million euros to the government of Chad in budget support. How much of it do you imagine was well spent? the survey was only following money that was already intended for health care. the government of Chad prefers to spend its money on the military.

Collier estimated that something around 40 percent of Africa’s military spending is unintentionally financed by aid.

So the donors have a legitimate interest in warning military spending, or at least in worrying about it.

Is aid part of the problem or part of the solution ?

2. military intervention2. military intervention The bottom billion own military

forces are more often part of the problem. Hence, external military intervention has an important place in helping the societies of the bottom billion.

three important roles for external military intervention: restoration of order, maintaining post conflict peace, and

preventing coups.

The 1990s began well for military intervention—

the expulsion of the Iraqi invasion of Kuwait was a

victory of the new internationalism. Kuwait was a

pretty clear-cut case for international intervention:

expelling an aggressor.

In 1994 Rwanda genocide half a million people

were butchered, entirely avoid-ably, because

international intervention was inadequate.

the consequences of civil war spill over to

the rich world in the form of epidemics,

terrorism, and drugs. Some citizens of the

rich world are going to die as a result of

chaos in the bottom billion. The choice is

whether these deaths will be among civilians

as victims of the spillovers or among soldiers

who have volunteered to put things right.

Governments that send soldiers to serve as UN peacekeepers are paid $1,000 per individual per month. For some countries this is not a bad way of getting some income from their armies. The imperative is then that soldiers should not get themselves killed, so safe environments such as East Timor are ideal, and risky environments such as the Democratic Republic of the Congo are unattractive. Even if troops are sent to dangerous places, they often play it safe. The best-known example occurred near Srebrenica in Bosnia in 1995, where Dutch troops were supposed to be providing a safe haven but failed to protect the scared refugees, who were massacred.

The Dutch seem not to have learned a lesson from this—when Liberia looked worrying in 2004, as it has periodically in recent years, the Dutch sent a naval vessel, but their instructions were, broadly, to sail away if trouble developed. Another revealing case is the ragtag United Nations force in Sierra Leone. In 2000 the RUF rebel movement took five hundred of these soldiers hostage and stripped them of their military equipment. Was the RUF such a formidable fighting force? Hardly—once a few hundred British troops arrived a few months later, willing to take casualties, the whole rebel army rapidly collapsed. The UN troops were an easy target because the RUF understood that they would not resist. They were carrying their guns like tourists flaunting their jewelry.

We should intervene, but not necessarily everywhere.

Sierra Leone rather than Iraq is the likely future of

intervention opportunities in the bottom-billion countries..

In Sierra Leone our forces were invited in by the

government and hugely welcomed by the local population.

In Sierra Leone we could not be accused of going in for the

oil, as there wasn’t any.

3. Laws and charters 3. Laws and charters

changes in our own laws that would benefit the bottom billion

the societies of the bottom billion might become safe havens for criminals, terrorists, and disease . The rich countries have also been a safe haven for the criminals of the bottom billion.

Eg. Western banks have taken deposits looted from the bottom-billion societies, held the money in great secrecy, and refused to give it back.

In the United States, in 2004 Riggs Bank, in Washington, D.C., was holding huge deposits from the president of Equatorial Guinea and writing him letters of encouragement. As soon as the matter came to light it was stopped and the bank radically reorganized.

In Britain, in 2000, the family of Sani Abacha, a former

military dictator of Nigeria, had made massive cash deposits

into London banks with no troubling questions whatsoever.

Also around 2000, it came out that Abacha had placed

money in Switzer-land and when the post-Abacha Nigerian

government pursued the money, the Swiss did not exactly

cooperate. Even after a Swiss court eventually ruled that the

deposits belonged to the government of Nigeria, the Swiss

minister of justice refused to return the money. He had to be

shamed into doing so.

Let us make the reporting of any potentially corrupt deposits a requirement of banking.

What other factors can inhibit the development of a country ?

Religious, cultural & psychological Cultural traditionalism can inhibit

economic development by:promoting large families, inhibiting the use of new technologies,

and denying women access to education and work outside the home.

Development traps have become a fashionable area of academic dispute, with a fairly predictable right-left divide. The right tends to deny the existence of development traps, asserting that any country adopting good policies will escape poverty. The left tends to see global capitalism as inherently generating a poverty trap.