The Bottom Billion: Why The Poorest Countries Are Failing and What Can Be Done About It
By Paul Collier
When a book is recommended by both The Economist (more conservative) AND George Soros (quite liberal), it is bound to be interesting … and this book did not disappoint. Collier is a British economist and former research director at the World Bank with a particular focus and experience on Africa. By training and interest, he is a statistician which he states clearly and explains that he’s just “sharing the numbers.”
Looking at the world the wrong way
He starts off by stating that he believes we’re looking at the world (from the perspective of economic development) in the wrong way. The current mainstream way of viewing the world is that there are 1 billion rich people and 5 billion poor people. He says that a better way to look at (and understand the world) is that there are 1 billion rich people, 4 billion people well on their way to becoming rich and 1 billion people who are poor and becoming [absolutely, not just relatively] poorer. That is, about 4 billion people live in countries where they are seeing incredible economic growth rates which if they continue will in the next few decades bring the vast majority of their citizens out of poverty and into the middle class. [See my previous post, Is the world getting better?]
He focuses on this “bottom billion” people who live in some 58 countries who are stuck and not participating in the benefits of economic development through globalization and other means. Their reality is more the fourteenth century way of life … civil war, plague and ignorance. These people are concentrated in countries in Africa (70%) and Central Asia. In 2000, these 1 billion people were poorer than they were in 1970. The typical person in these countries has 1/5 the income of the 4 billion people in other developing countries. He believes this problem is denied by the development biz (aid agencies and their contractors) and the development buzz (what he calls the “headless heart” generated by rock stars, celebrities and NGOs). He argues that the traditional approaches of conservatives and liberals are both failing and a new approach is required based on what we’ve learned and what we know.
Growth is good
When he was at the World Bank, his research department produced a controversial paper called “Growth Is Good for the Poor.” The paper points out that “the central problem of the bottom billion is that they have not grown. The failure of the growth process in these societies simply has to be our core concern, and curing it the core challenge of development.” He says that we should not be indifferent to how an economy grows, but that the exaggerated suspicion of growth (now often a bad word which must be prefaced by “sustainable, pro-poor”) by those who are concerned about development. He critiques this view by stating that “the problem of the bottom billion has not been that they have had the wrong type of growth, it is that they have not had any growth. The suspicion of growth has inadvertently undermined genuinely strategic thinking.” He goes on to state, “we cannot make poverty history unless the countries of the bottom billion start to grow, and they will not grow by turning them into Cuba … a stagnant, low-income, egalitarian country with good social services.”
What is causing these one billion people to be left behind?
Collier has identified four traps which he believes must be recognized and addressed in order for these countries/people to break out of their condition of ongoing misery caused by poverty. I have made a few highlights on each of the traps:
(1) the conflict trap
- 73% of these countries are in (or have recently been in) a civil war
- Civil war is much more likely to break out in these countries — have the starting income per person and you double the risk of civil war
- The rebels are almost always as bad in governance as their targeted incumbents … their social justice messages are rarely made a priority if they get into power
- Natural resources help to finance conflict (and sometimes motivate it)
- Ethnic minorities are just as likely to rebel with or without discrimination
- There is no statistical significance on likelihood of civil war based on income inequality or whether or not it had been a colony of another country
- Civil war reduces growth by about 2.3% per year and typical war is 7 years
(2) the natural resources trap
- 29% of the bottom billion live in countries where resource wealth dominates the economy
- The “resource curse” works like this … resource exports cause the country’s currency to rise in value against other currencies … this makes the country’s other export activities less competitive … yet these other activities are often key for technological progress. This can work while resource demand is high, but there are always downswings.
- Needed reform (and diversity of economic development) is very difficult to get support for during resource boom times and almost impossible during down cycles.
- The heart of resource curse is that resource rents (ability to earn excessive profits during boom periods) make democracy malfunction when resource profits are at or above 8% of national income. He asserts that in these situations autocracies outperform democracies by a large margin.
- Both democracies and autocracies with resource abundance underinvest their profits and invest them badly.
- Democracy is critical yet insufficient … politicians need to exercise restraint rather than the usual practice of obscene levels of patronage.
(3) the trap of being landlocked with bad neighbors;
- 38% of the bottom billion are in landlocked countries.
- Neighbors matter…the economic health and infrastructure of your neighboring countries are particularly important for these countries…both as export markets and necessary transportation routes to other export markets. Growth does still over.
- He makes multiple suggestions for how to break this trap … all which take bold intentional policies.
(4) the trap of bad governance in a small country.
- There is not much popular enthusiasm for economic reform (think: making medicine) because it has unfortunately got a bad reputation and people are inpatient.
- These “failing states” are both failing their citizens and are increasing the likelihood of falling into the conflict trap.
- A failing state is more likely to experience a turnaround the larger its population, the greater the proportion of secondary educated and has recently emerged from a civil war. Interestingly, democracy and political right didn’t seem to be an important factor.
- The average time it takes to turnaround a failing state is 59 years!
He also notes that even once countries break through these traps, it is now harder for them to compete in the global market as they are latecomers to the globalization party. He reminds those against globalization though that our last experiment with retreat of trade, capital flows and migration (1914-1915) was a ghastly experiment. So, we need to figure out ways to provide on ramps for the bottom billion to participate in growth afforded by global markets.
The weakest part of his book is his recommendation that we rely on the G8 (group of 8 large economy countries) forum to implement his ideas. This is just not going to happen. The G8 forum has proven to be ineffective for almost everything it is supposed to address to date that I have little hope for a miracle here. So, while I think Collier has challenged us with some helpful data and insights to that data, we need additional new thinking on how to engage with these ideas and get them into the mainstream political forum … to make helping the bottom billion escape from their traps a reality rather than a dream.
See also Mark Lange’s series of articles which cover more of Collier’s ideas.