The Bottom Billion (Paul Collier)

I should probably by saying I am a fan of Paul Collier, I have read his book The Bottom Billion which inspired me to enrol in the Introduction to Development Economics course.  For those who have not read the book, take 16 minutes to watch this ‘Ted Talk.’

One billion people are stuck living in economies that have been stagnant for 40 years.  How can we as global citizens give ‘credible hope’ to these one billion people?  This is our fundamental challenge now in development, as the societies that these one billion live in cannot offer this hope.  Consider this – what if we do nothing today, where will these bottom billion be in another 40 years?

Collier identifies that the last time the rich world developed a region was in the late 1940’s, in Europe after WWII.  Lead by the USA, Europe was brought back in to economy development through aid and also through strategies including the reversal of (US) trade and security policies and dismissal of national sovereignty.  The United Nations, Organisation Economic Corporation Development, International Monetary Fund were founded and Europe was encouraged to create a European community.  These systems (aid, trade, security and governance) for mutual governance support are still the ‘waterfront’ for effective policies.

This approach is just an important in our world today however as Collier notes the challenge is different.  It is now about the bottom billion catching up, not the rebuilding Europe.  As a Gen X, (and definitely not a baby boomer!), I had never really stopped to consider that the rebuilding of Europe after the war was ‘development’.  Whilst I appreciate that life in Europe post war would have been challenging, they did have institutions in place to assist the rebuild.  Witnessing the livelihoods of developing societies around the world (i.e. Southern Africa, Cambodia, Nepal and India) that form part of the bottom billion, I do wonder how and when we will be able to bring these societies in to our developed world.  Personally I have the view that the lack of (credible) institutions and infrastructure in bottom billion countries indicate that giving credible hope for development will be more difficult than the rebuilding of Europe after the war.

Collier looks at mutual systems of support for ‘governance’ and how we can do one thing to assist the bottom billion.  The optimism is in the commodity booms, which is currently pumping unprecedented money in to many (however not all) of the bottom billion countries.  Examples of this are in Uganda and Ghana where oil has been discovered. What we are seeing is that the new revenue flows from the commodity booms dwarf aid, for example Uganda is receiving $50 billion per year in oil revenue.  Compare this to the 60 countries of the bottom billion were the total aid flow is $34 billion.  This has to provide some optimism, this flow of resources from the commodity boom to the bottom billion is without precedent.  These statistics were interesting to hear and reinforce my personal view that aid alone is not the answer to developing the countries of the bottom billion, economic development and growth is an important strategy to assist these countries.

How will this commodity boom help the development of the bottom billion?

To answer this, Collier examines the relationship between higher commodity prices of exports and the growth of commodity exporting countries for last 40 years.  He found that the first five to seven years is positive, output across the board will increase and so does GDP.  Longer term (15 years later) the data is less positive.  I was surprised to hear that most societies historically have ended up worse off than if they had no boom at all.    The critical issue here is the initial level of economic governance when resource boom accrue.  In countries with good governance (i.e. Norway, Canada and Australia) there is no resource boom; growth increases in the short term and then increases more in the long term.   The resource curse is confined to countries below a threshold of (good) governance.  These countries will still grow in short time as we see today in many countries that are experiencing their best growth rates ever.

The question is where do the countries of the bottom billion fit in this threshold?

Collier identifies that there is one big change since the commodity boom of the 1970’s and that is the spread of democracy.  What he identified is that democracies have had a significant adverse effect – democracies make more of a mess of resource booms than autocracies.  This was another surprise, however Colliers explanation did provide some clarity.  Democracy has two distinct aspects, electoral competition (how you acquire power) and checks and balances (how you use power).

What has been identified is that electoral competition is damaging democracies whereas strong checks and balances will make the resource boom a success.  Countries of the bottom billion are struggling to achieve is strong checks and balances what these countries got in the 1990’s was instant democracy, that is elections without the checks and balances.

We need to consider how we can help improve governance and introduce checks and balances, as in all countries of the bottom billion, there are intense struggles to achieve this.

Collier suggests that one simple answer is the introduction voluntary international standards that spell out ‘key decision points’ to be undertaken to harness the resource booms.  One example already exists today, the Extractive Industries Transparency Initiative where government report to their citizens of what revenue they have.

One example of the content of these international standards includes selling the rights to resource extraction through verified auctions rather than individual deals between companies and government officials.  More often tonight, ‘deals’ occur today in bottom billion countries: this is beneficial to the company and government officials and often does not benefit the countries citizenship.

We know we can’t change the societies of the bottom billion.  What we need to do is assist the reformers in these societies who are currently struggling and failing because the odds are stacked (high) against them.  I agree with Collier in that we need to form a critical mass of informed citizens otherwise politicians of the bottom billion countries will get away with gestures, that is things that look good HOWEVER will not give credible hope to the citizens of the bottom billion to live as we do in the developed world.