Review: Paul Collier, The Bottom Billion, Oxford University Press, 2008

1 Paul Collier, The Bottom Billion, Oxford University Press, 2008

A basic question that one sees frequently discussed in the course of study of development economics is quite a loaded one: “Why are some people poor?” And the answers to this question seem to fall on two very controversial and distinctly varied camps. On one hand, we have an answer of “Because capitalism is unfair!” Simple, sweet, and pretty much devoid of universally accepted proof or evidence. On the other, we have “Because poor people don’t work hard enough!” Now the answer becomes both inflammatory and downright unscientific. As such, we have not yet reached a consensus on this simple yet incredibly layered issue. In the midst of a fast-developing global market, we see what the adoption of capitalism has done to elevate the standard of living in China, India, and Asia to new heights. But does the application of free market principles apply and impact the living conditions of a rural farmer in Chad? In an attempt to put a sense of rationality to the random, we turn to Collier.

For the majority of the global population, Collier does not seem to see any emerging issues in economic development. China and India are star examples of countries that are on the fast track of catching up with other more developed nations in a manner that is shockingly similar to how the economies of less affluent members of the EU – Ireland and Portugal, to name a few – behaved in the beginning of their respective entry to the global league. Collier believes that a majority of the world is in a genuine stage of true economic development that will eventually lead to assimilation with the global community that will equal more opportunities to each nation’s citizens.

The problem therefore, Collier states, lies in the subset of countries that fail to fall in line with this trend of economic development. Many of these countries have just recently overthrown foreign rule through colonialism as early as the ‘60s. Since their independence, countries like North Korea, Burma, Afghanistan, and other Central Asian nations have had economic situations that have either inched their way begrudgingly to a higher quality or worse, have lost headway and begun the path of slow and steady regression. Collier calls this bottom billion of the world’s poorest nations as “Africa+”, but the name itself is a bit of a misnomer. All his examples come purely from Africa, though some economic insights are applicable to other nations as well.

Taking inspiration from Jeff Sachs’s designation of the malaria disease as a “development trap” that prevents a country’s overall growth, Collier creates four categories of traps that the bottom billion nations are suffering from. Most of the bottom billion is ailing from not just one, but two of these specified economic obstacles.

Conflict: Being engulfed in an internal conflict such as a full-fledged civil war is the most straightforward way to stunt economic development. Civil wars are a rather long affair to resolve – on average, six years – and have a significant role in destroying local economy. Collier’s studies on countries experiencing internal strife have led him to believe that growth is reduced by an estimated 2.3% per annum. Taking into account that wars have a ripple effect that reach far beyond national borders and usually spill over to a country’s neighbors, Collier estimates a $64 billion cost for a single civil war. $64 billion seems like a drop in the bucket to the resources spent in Iraq, but is already quite a substantial amount from the viewpoint of the bottom billion. To put it into perspective, 64 billion dollars is just below the GDP of Ethiopia, a country with a population of approximately 70 million people.

Collier’s team has also established an unsurprising fact that poor nations are far more susceptible to civil war than its wealthy counterparts. Collier himself glosses over ideological causes for civil war, stating that all it takes to start one is for a large enough group to gain access to weapons, ransack the national treasury, and begin the exploitation of their country’s national resources. An average low-income nation has a 14% chance of relapsing into the state of civil war within a five year period, more if its economy is in a condition of stagnation or contraction.

Natural resources: For individuals with an interest in international development with no formal training or education in the economics field, discovering that most economists cannot answer questions that should be basic and straightforward is rather unsettling. For instance, an answer to “Does aid work?” is not a resounding “Yes!” that one expects, but rather a technical equivalent of a “We don’t know yet.” What’s even more unsettling is the paradoxical nature of what some would call conventional economic wisdom. Case in point, being a nation with abundant natural resources is usually a bad thing from an economic standpoint.

Natural resources are a juicy price for most criminal elements, but it is surprisingly not what Collier states is the biggest problem. That would be solely reserved for what is called the Dutch Disease, an economic phenomenon which pertains to a negative economic impact created by the discovery of a product or service that would lead to a large influx of foreign currency into a country’s market. Coined in the 1960s in an attempt to enlighten the economic community to the lagging behind of Netherlands’ manufacturing sector after the use and trade of natural gas became widespread, it operates on a concept of simple cause and effect. People can be found in all economies that would like foreign currency to gain imports. As such, they collaborate with domestic exporters who earn this currency through the sale of goods from within the country. Therefore, in the event of a discovery of a new resource such as oil, demand for this product makes the exportation of oil a quick and easy way to earn foreign currency. By specializing on this, the activity in the sale of this new product leads to less activity in other sectors like labor-focused manufacturing sectors that have been greatly beneficial to Asian economies like South Korea and Singapore. The end result would be an increase in the development of one economic sector with an equal or greater decline in that of another.

Based on his studies, Collier believes that understanding the Dutch Disease is a necessary step in understanding the plight of the bottom billion. The very same principle can apply to foreign aid as well as newly discovered resources like oil. Aside from that, he sees that another negative effect can be tied in with the presence of abundant natural resources: the subversion of democracy. Ideally, policymakers and government officials benefit from policies that improve and benefit society as a whole. However, for countries rich in natural resources, politicians gain more reward for practices of bribery and patronage. Collier calls this the “survival of the fattest” and points to Nigeria in the 1990s as an example of its possible ramifications.

Landlocked with bad neighbors: As a general rule, landlocked nations have more difficulty in the exportation business due to a nonexistence of ports. Yet Switzerland does not seem to face the same level of problematic trade like Uganda does. The difference lies in the fact that Switzerland’s neighbors are relatively rich and can serve markets via the provision of infrastructure to use the latter’s ports. Uganda, on the other hand, does not have as much luxury and, as seen in the result of its reliance on Kenya to export its products, did not have as much luck.

Collier’s stand on this particular trap is less solid then the rest. His solutions involve the reliance on remittances to make sure that landlocked nations are not ‘airlocked’ or ‘e-locked’ because of an unreliable Internet connectivity. This would be quite the conundrum since the fastest Internet access is available through the use of expensive undersea cables. Another stated solution from Collier is an attempt to revise the neighboring countries’ economic policy, which is rarely if ever accomplished. He wraps this up by stating that some of the bottom billion who are prey to this trap should not have existed as independent states in the first place; something he sees is an end result of Europe’s colonial carve-up.

Badly governed: Governance – that of the poorly executed kind – has been a hotbed of controversy the U.S. aid community has had experienced great intimacy with for the past decade. To be the recipient of USAID funds, developing countries had to build an economic growth program that passes the standards of good governance and accountability. Unlike the majority of his fellow economists, Collier has fewer worries on the effects of a dysfunctional government. He points to Bangladesh as a currently high-performing nation that has been thriving economically in spite of the fact that it is plagued by one of the most corrupt governments in history for a number of years. Bangladesh improved normally through its labor manufacturing sector, a sector that does not require great government oversight to function in a country with a large workforce and numerous ports.

Granted, deviance exists in small nations with an absence of ports like Chad, which incidentally has a government that is arguably as corrupt as Bangladesh’s. Usual paths to economic progress are blocked, and positive involvement rather than the usual apathy from its government is a requirement to begin development in its economy. It is rather unfortunate that countries such as this have become unable to service its people in an adequate manner. Angola, Central African Republic, Haiti, Liberia, Sudan, the Solomon Islands, Somalia and Zimbabwe are some of the entries of Collier’s list of states that have failed this political and economic criterion of service. An estimated cost of $100 billion is Collier’s approximation for state failure in terms of citizens of a nation, its neighbors, and in the global community itself. The chances of recovery for a country experiencing such a defunct level of governance is abysmally low at a 1.9% chance per annum.

In a quick statistical round-up, surveys show that in the bottom billion nations, 73% have undergone civil war, 29% have economies specializing in the exportation of natural resources, 30% are landlocked countries, and 76% have gone through periods of bad governance. Some of these countries have the misfortune of meeting at least three of these four factors. Collier asserts that the two most prescribed solutions for an ailing developing country – trade and aid – will have no lasting positive effect in terms of allowing the nation’s economic base to develop.

Freer trade could be the answer to uplift the bottom billion, but it has to be the right kind. Collier notes that Africa’s natural resources stir great interest in countries like China, but foresees an increase in corruption and a decrease in economic competition in an economy that focuses solely in the trade of its natural resources. Most developed countries have a significant percentage of its economy vested in manufacturing sectors, which have greater earning power when compared to natural resource exports.

This does not come without a large investment effort, though. A manufacturing effort requires major funding to even begin operations. Factory equipment alone would require massive amounts of financial backing to even begin producing goods for trade. The surge in global capitalism might lead one to think that investors with a taste for risk and return would be claiming their stakes on the uncharted territories of these poor nations’ manufacturing sectors. Sadly, these markets have been deemed too risky and have repeatedly experienced the rejection of most international investors. Globalization of free trade has made sure that finances flow out of these countries, with little to none flowing in. If ever one would be fortunate enough to strike it rich in the Central African Republic, one would rather invest those hard earned funds in a safer option that will almost always be a foreign rather than a local industry. Collier notices a similar pattern for skilled laborers. Smart, ambitious Chadians would rather look for their fortunes overseas than stay inside their country’s borders.

If globalization is more economic sickness than financial cure, then how about man’s compassion to his fellow man in the form of foreign aid to the bottom billion? The answer, according to Collier, would still be a no. He points out that the bulk of foreign aid goes into the pockets of corrupt politicians rather than the intended parties due to the flawed state of governance in the bottom billion nations. Again, Chad is held up as an example, where a recent study showed that less than a percent of donations reached the rural clinics they were supposed to go to. Corrupt governments rerouting foreign aid to finance their military budget only leads back to the conflict trap that many of the bottom billion are subject to.

Collier has a selection of resolutions to the economic dilemma that plagues the bottom billion, but they are technical, complex, and revolutionarily bold. A pop concert spanning five continents that rallies support for ‘improved international norms of transparency on natural revenues accounting’ is hard to imagine and boggles the mind, but it is exactly the kind of answer Collier is calling for. The following are included in his array of economic proposals.

Targeted military interventions: With the memories of Iraq and the practice of outside regime change through military measures fresh on the minds of people all over the world, Collier acknowledges the political blockades that might come with such a proposal. However, he also acknowledges that cases exist wherein the application of outside military force has actually sparked a movement towards economic development. The British military intervention in Sierra Leone has, upon Collier’s analysis, provided an economic benefit that exceeded the cost of military action by at least a factor of 32.

International charters: Applying a batch of international charters that set new and basic benchmarks for the bottom billion and any developing nation to follow is another proposal that is complex and challenging by nature. The aspects of natural resources, democratization, budget transparency, investment and the management of post-conflict situations are but some of the fields that Collier has mentioned as noteworthy fields of debate.

Lowering of trade barriers: Lowering the existing OECD trade barriers in a way that benefits bottom billion nations is also an unusual strategy from Collier. Encouraging export diversification by the elimination of certain tariff for bottom billion nations while maintaining it for well-developed countries can, done correctly, have a positive return over many years.

Function of the WTO: A fundamental discussion that rehashes how the WTO should behave in regards to reciprocity is also something Collier called for. According to him, bottom billion countries should not be bargaining with affluent nations. A trade forum that allows reasonable concessions on the grounds of global economic development is something that requires further thought and deliberation, if not swift implementation.