The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It (Grove Art)

by Paul Collier

Our work has proved controversial. In part this is because the people attracted to the academic study of conflict tend to be politically engaged and are sympathetic to the acute grievances enunciated by various rebel movements, who often adopt extreme measures to oppose governments that indeed may be unsavory. To such academics, the whole idea of investigating statistically whether there is a relationship between objective measures of grievance and a propensity to rebel is taken to be more or less an insult, since they know there is one.

Take the repression of political rights. Political scientists have measured this sort of behavior, scoring it year by year, government by government. There is basically no relationship between political repression and the risk of civil war. Take economic or political discrimination against an ethnic minority. Two political scientists at Stanford, Jim Fearon and David Laitin, have measured this for more than two hundred ethnic minorities around the world. They found no relationship between whether a group was politically repressed and the risk of civil war. Ethnic minorities are just as likely to rebel with or without discrimination. Fearon and Laitin did the same for intergroup hatreds and again found no relationship to the risk of civil war. Anke Hoeffler and I investigated the effect of income inequality, and to our surprise we could find no relationship. We also investigated the colonial history of each country. We could find no relationship between the subsequent risk of civil war and either the country that had been the colonial power or how long the country had been decolonized.

This suggests that the resource-rich democracies underinvest. In fact, this is no surprise. Other researchers have found that quite generally democracies tend to underinvest: governments are so fixated on winning the next election that they disregard what might happen afterward, and so neglect investments that only come to fruition in the future. In resource-rich societies investment is evidently particularly important since this is how the resource surplus can be transformed into sustained increases in income; underinvesting becomes an even more important mistake. However, the main story turns out to be not the rate of investment but the return on investment. The resource-rich democracies not only underinvest but invest badly, with too many white-elephant projects.

We found that resource rents gradually erode checks and balances. This leaves electoral competition unconstrained by the niceties of due process. Political parties are freed up to compete for votes by means of patronage if they so choose, and in the context of ethnic loyalties and the absence of a free press, this is the most cost-effective means of attracting votes. Any quixotic parties that choose the public service route of appealing to voters simply lose the election.

It is this that creates the possibility of a political development trap. A low-income, resource-rich society that either is an ethnically diverse autocracy or acquires the instant lopsided democracy of electoral competition without checks and balances is likely to misuse its opportunities in ways that make it fail to grow. This in turn closes off the path that most societies have taken to building a balanced form of democracy, namely, through economic development. The resource trap may well extend beyond the bottom billion. Many of the middle-income, resource-rich societies, notably Russia, Venezuela, and countries in the Middle East, could well be caught in it. At least for their citizens life is not as miserable as in the bottom billion, because they are stagnant at middle-income levels rather than being stagnant at the bottom. So I want to suggest not that the resource trap is unique to the bottom billion, just that it is important to them.

Why is Uganda poor when Switzerland is rich? It is indeed partly that Switzerland’s access to the sea depends upon German and Italian infrastructure, whereas Uganda’s access to the sea depends upon Kenyan infrastructure. Which do you imagine is better? If you are landlocked with poor transport links to the coast that are beyond your control, it is very difficult to integrate into global markets for any product that requires a lot of transport, so forget manufacturing—which to date has been the most reliable driver of rapid development.

So to an extent aid does make the conflict trap worse. But it can also make things better. Recall that the key risk factors in rebellions and coups are slow growth and low income. The indirect effects of aid on conflict risk are benign. By raising growth and thereby cumulatively raising income, aid reduces these risks. Is the payoff worth the costs? Anke and I tried to answer that question. We already had an estimate of the costs of the typical civil war—around $64 billion—and we had just estimated how aid would reduce the risk of war through raising growth. So by putting the two together we got an estimate of the payoff to aid from enhanced security. To our surprise, it turned out that the payoff was not big enough to justify the cost. The reason was that aid was not very effective at raising growth in the conditions of poor governance and policies that typified the bottom billion.

The venture capital fund approach is, I think, the right managerial model for dealing with such risks because it reconciles accountability with incentives. A “venture aid fund” preserves accountability for overall performance, but managers can achieve overall success despite a lot of failures. Without this sort of model bureaucracies just cannot cope with risk. Their staff will not take large risks because they imply periodic failure, and failure means a blighted career. Unsurprisingly, people are simply not prepared to take risks on these terms. The situation is getting worse as people are increasingly assessed in terms of the “results” they achieve. Within aid agencies there is a vogue for a results orientation, and up to a point this is sensible—senior managers are trying to get their workforce to focus on outcomes, not inputs. But a focus on results can very easily encourage people to avoid failures at all costs. And if this happens aid will increasingly be directed to the safe option of countries where performance is already satisfactory.

Think of the European Union. Its common external tariff keeps out labor-intensive goods from poor countries. This creates opportunities for the countries within the EU that have the cheapest labor, which are the poorest member countries. The middle, with relatively cheap labor, is protected from the very cheap-labor extreme. Now think it through for a scheme among the bottom billion. The common external tariff keeps out skill-intensive goods from rich countries. This creates opportunities for those countries within the club that have the most skills, which are the richest members. The relatively skill-abundant middle is protected from the very skill-abundant extreme.