As of Monday the 18th of August, there are 500 days before it will be time to tally the score-cards and see whether the ambitious targets set for development in the third world – the Millennium Development Goals – have been met. In many areas huge strides have been made. For example, the development goal of halving global poverty (defined as living on less than US$1.25 a day) was reached in 2010, five years ahead of the deadline. Hundreds of millions of people have been dragged out of poverty in China and India, in particular. However, for all this success, there is a subset of the world’s poorest – the bottom billion – for whom there has been little improvement. Most of these people live in Africa. Amongst the bottom billion, the average life expectancy is a miserable fifty years, whilst in other developing countries it is sixty-seven.
Given recent debates about Australia’s commitment to foreign aid (or lack thereof), and the impending deadline of the Millennium Development Goals, now is as good a time as any to think seriously about how poverty can be tackled post-2015. In his book The Bottom Billion, Professor Paul Collier, Director of the Centre for the Study of African Economies at Oxford University, discusses the causes of the plight of the bottom billion and what can be done to help them. The issue, one discovers, is far more complex than some aid agencies make out. The solutions, too, are often counter-intuitive.
Collier identifies four traps that play a central role in keeping countries stuck in poverty: the conflict trap, the natural resources trap, the trap of being landlocked with bad neighbours, and the trap of bad governance. These traps need not be permanent – but they are extremely difficult to escape from. For instance, civil war (the conflict trap) keeps a country poor by frightening off investors, encouraging the exodus of intelligent citizens and their private capital, and by setting a toxic example of how the limited riches of the state can be seized in the future: through further warfare, now made easier by an abundance of cheap weapons. It probably won’t surprise you to hear that seventy-three percent of the bottom billion live in countries that have either recently been through a civil war or are still in one. Poor countries are more likely to have a civil war, and having a civil war makes it much more likely that it will stay poor.
Another trap is being landlocked with bad neighbours. Manufacturing is one of the most promising avenues for rapid economic growth, but transporting goods to wealthy buyers requires access to the sea. Unfortunately, many African countries are landlocked. What about Switzerland, Austria or Luxembourg, you say? Well, they have access to German and Italian ports. Uganda’s access to the sea, by comparison, depends upon Kenya’s infrastructure. Furthermore, even without access to overseas markets, Switzerland has access to its wealthy neighbour’s domestic markets: Germany, Italy, France, and Austria. To take the example of Uganda once more, as Collier points out:
Uganda has Kenya, which has been stagnant for nearly three decades; Sudan, which has been embroiled in a civil war; Rwanda, which had a genocide; Somalia, which completely collapsed; the Democratic Republic of the Congo, the history of which was sufficiently catastrophic for it to change its name from Zaire; and finally Tanzania, which invaded it. You could say that at least in recent decades Switzerland has been in the better neighbourhood.
Corruption and poor governance are undoubtedly key impediments to exiting poverty. A survey in 2004 revealed that just 1 percent of money released by the Ministry of Finance in Chad, intended for rural health clinics, actually made it to those clinics. As another shocking example of corruption stifling success, Madagascar in the 1990s established an export processing zone that was initially hugely successful; capital flowed in and almost overnight 300,000 new jobs were created. Unfortunately, not long after, President Admiral Didier Ratsiraka lost an election, and he had a cunning plan to win back his old job: he ordered his cronies to blockade the port until he was restored to power. This economic strangulation went on for eight months. Unsurprisingly, the foreign investors packed up and left. For international investors, the phrase that likely first comes to mind when thinking about Madagascar today is ‘sovereign risk’.
So, can the bottom billion lift themselves out of poverty? Yes. But it won’t be easy. According to Collier, the probability of a sustained turnaround beginning in any year is a dismal 1.6 percent. The average length of time it takes to escape ‘failing state’ status is fifty-nine years. Even if states are able to undertake the task of fixing their governance institutions, global markets are now harder to break into. In the 1980s there was a sufficiently large wealth gap that potentially any low-wage developing country could jump into exports. This, however, is no longer true:
During the 1990s this opportunity receded because Asia was building agglomerations of manufactures and services. These agglomerations because fabulously competitive: low wages combined with scale economics. Neither the rich countries nor the bottom billion could compete. The rich countries did not have low wages, and the bottom billion, which surely had low wages, did not have the agglomerations. They had missed the boat.
Exiting poverty is also difficult because high quality institutions require technical expertise, and poor countries typically fail to educate people with this expertise. Those who have expertise migrate, because they can earn more with their skills elsewhere. There is also the problem of capital flight: by 1990, it was estimated that 38 percent of Africa’s private wealth was held abroad – a proportion higher than in any other region in the world. The reason is simple: people invest their assets where they can get the highest safe returns, and the countries of the bottom billion don’t provide it.
For all this doom and gloom so far, The Bottom Billion is actually an overwhelmingly positive book. Collier’s prescriptions for helping fight poverty include sensible suggestions on the investment of aid (use it to help countries break into exports: e.g. through the building of ports and rail corridors), the provision of technical assistance from developed countries (to help maintain the incipient reforms of new governments), and the provision of foreign military guarantees as credible deterrents against coup d’états. Other intriguing aspects of the book concern Collier’s thoughts on ‘Fair Trade’ products, the resource curse and the World Trade Organization and tariff barriers.
Overall, The Bottom Billion is a veritable cornucopia of illuminating empirical evidence and analysis on poverty and development. It is written in an engaging style and is sure to challenge you – and probably convince you – to change your views on a number of important issues.