Why the Poorest Countries are Failing and What Can be Done About it
by Paul Collier
Alarge group of smallish countries totalling about a billion people have sheered off from the rest of mankind. As the world becomes more socially integrated this giant pool of poverty will be both unacceptable and explosive. It is the world’s biggest economic problem and we need to do something about it. To know what to do we need to start with a diagnosis. While the common fate of the bottom billion has been stagnation and poverty there has been no single cause. In my recently published book The Bottom Billion I propose four distinct traps that between them account for the problem, each requiring a distinct remedy. I also argue that globalization, though it has been benign for the majority of the developing world, is not working for the bottom billion and is not likely to do so. On the contrary, it is liable to make them increasingly marginalized.
So what are the key policy issues? One is that Africa has failed to develop jobs in export manufactures, the strategy that has been transforming Asia. Bangladesh has generated nearly three million jobs by exporting garments. If Kenya could do the same, it would be transformed. But Asia’s success has made it harder for Africa to get started. It will help by granting Africa better access to developed country markets. At present most of the G8 countries impose tariffs on imports of garments from Africa. There is one exception: the US. The US allows Kenya to export shirts duty-free into its market. Europe does not. Even the few African countries that are allowed duty-free access into Europe get blocked by absurd technical requirements: Lesotho sells thousands of shirts to America, but they do not satisfy the regulations of the European Union. As a result, over the last five years Africa’s garments exports to Europe have declined while increasing sevenfold to the US. The G8 could easily adopt a common set of rules for these African exports that would generate jobs across the region. I proposed this to the G8, but they spent their time posturing over aid commitments.
A second policy issue is that many of the countries of the bottom billion are now in the throes of revenue booms from oil and other minerals that dwarf any conceivable aid flows. The last time this happened was thirty years ago and it proved a disaster. The money corrupted the local politics so badly that not only was it wasted, it impoverished, sometimes even leading to civil war. Can the governments of developed countries do anything to reduce the risks of repetition? Well, where do corrupt politicians put their money? They certainly do not leave it in their own banks, it comes to banks in developed countries. And what do developed country banks do? Basically, they keep quiet about it. Is this a necessary consequence of banking secrecy laws? No it is not. If the money is suspected of having terrorist associations then, very sensibly, we now require the banks to blow the whistle on it. But if its stolen from the ordinary citizens of the bottom billion, well that is just too bad. It cost the reforming government of Nigeria huge legal fees to track down some of the previous president’s millions in a Swiss bank, and even when they won their court battle the Swiss Minister of Justice blocked sending the money back.
A third policy issue is security. Quite possibly the most effective ‘aid’ Britain has ever provided was the troops that have secured peace in Sierra Leone. Britain currently guarantees the peace there through an ‘over-the-horizon’ commitment: if there is trouble, British troops will fly in. It has not been necessary: the commitment alone is sufficient. Civil wars have been devastating to Africa: the one in Sierra Leone delivered the coup de grace to an economy that had already been wrecked by revenues from diamonds. Across the region there are now several postconflict situations that need this sort of commitment. To date, nearly half of all post-conflict countries revert to war within a decade: we should surely be able to make a difference here. Unfortunately, along came the war in Iraq and closed down serious discussion of Africa’s security needs. The western powers are afraid that sending troops abroad will be unpopular, and the governments of the bottom billion fear that western involvement would license preemptive invasions.
Trade in shirts, the governance of resource bonanzas, and security commitments are a more sophisticated agenda than simply doubling aid. However, I should stress that I do not see them as alternatives to aid but as complements. Think how the US responded to the need to rebuild Europe after 1945. It recognized that the problem was serious and addressed it through the full range of possible policies. Yes, there was a big aid programme, Marshall Aid. But this was complemented by a complete reversal of US trade policy, from protectionism to integration, through the founding of the GATT. It was also complemented by a reversal of US security strategy: from isolationism to mutual guarantees enshrined in NATO and over one hundred thousand troops in Europe for four decades. Finally, there was a dilution of the principle of absolute national sovereignty, with the creation of new structures for mutual support of good governance, enshrined in the founding of the OECD and the EEC. That is what happened when the US became serious. The challenge posed by the divergence of the bottom billion is evidently more diffi cult than that of rebuilding Europe. It will take that same full panoply of policies, although obviously the content of each policy will be different.
So, the message is to narrow our focus and broaden our instruments. Narrow our focus to the divergence of the countries now at the bottom of the world economy: a one-billion person problem. Our efforts will be spread too thin if we continue to fuss about the entire fi ve billion people in developing countries. Broaden our instruments beyond the exclusive reliance upon aid, to recognize that other policies are likely to matter more. Our aid agencies need to be rethought as genuinely development agencies.
Paul Collier is Professor of Economics at Oxford University and Director of the Centre for the Study of African Economies.