THE BOTTOM BILLION Why the Poorest Countries are Failing and What Can Be Done About It PAUL COLLIER
Contents Preface ix Part 1 What's the Issue? 1.Falling Behind and Falling Apart: The Bottom Billion 3 Part 2 The Traps 2.The Conflict Trap 17 3.The Natural Resource Trap 38 4.Landlocked with Bad Neighbors 53 5.Bad Governance in a Small Country 64 Part 3 An Interlude:Globalization to the Rescue? 6.On Missing the Boat:The Marginalization of the Bottom Billion in the World Economy 79 Part 4 The Instruments 7.Aid to the Rescue?99 8.Military Intervention 124 9.Laws and Charters 135 10.Trade Policy for Reversing Marginalization 157
Contents Preface ix Part 1 What’s the Issue? 1. Falling Behind and Falling Apart: The Bottom Billion 3 Part 2 The Traps 2. The Conflict Trap 17 3. The Natural Resource Trap 38 4. Landlocked with Bad Neighbors 53 5. Bad Governance in a Small Country 64 Part 3 An Interlude: Globalization to the Rescue? 6. On Missing the Boat: The Marginalization of the Bottom Billion in the World Economy 79 Part 4 The Instruments 7. Aid to the Rescue? 99 8. Military Intervention 124 9. Laws and Charters 135 10. Trade Policy for Reversing Marginalization 157
viii CONTENTS Part 5 The Struggle for the Bottom Billion 11.An Agenda for Action 175 Research on Which This Book Is Based 193 Index 197
Part 5 The Struggle for the Bottom Billion 11. An Agenda for Action 175 Research on Which This Book Is Based 193 Index 197 viii CONTENTS
Preface I WAS A STUDENT at Oxford in 1968.I remember joining something called the Oxford Revolutionary Socialist Students,a name now beyond parody.But it all seemed simple then.When I graduated I wanted to put my knowledge of economics to use in Africa.Africa's new countries were ill-equipped,and scarcely any Africans had received the sort of education I had just been through.At the time many Oxford students had family con- nections with Africa,as their fathers had been colonial administrators.Not in my case-my father was a butcher in Yorkshire.But some of those colo- nial connections must have rubbed off on me:the father of my friend had been the governor general of a little country called Nyasaland,and so I read up on it.What I read made me resolve to go there.Renamed Malawi,it was the poorest country on the continent.It is easier to rename countries than to change them:thirty-five years later it is still as dirt poor as it was then.In an- other thirty-five years I doubt it will be much different,unless...This book is about that"unless." Malawi hasn't changed much in the last thirty-five years,and in one sense neither have I:I'm still working on Africa,now as a professor at Ox- ford.In between I've been a professor at Harvard,and directed the World Bank's research department,where I was brought in by Joe Stiglitz to strengthen its focus on the poorest countries.Indeed,my first assignment for the World Bank was to go with Joe to Ethiopia.Since I had just married, the trip was my honeymoon,but with Joe instead of my wife.Fortunately
Preface I was a student at Oxford in 1968. I remember joining something called the Oxford Revolutionary Socialist Students, a name now beyond parody. But it all seemed simple then. When I graduated I wanted to put my knowledge of economics to use in Africa. Africa’s new countries were ill-equipped, and scarcely any Africans had received the sort of education I had just been through. At the time many Oxford students had family connections with Africa, as their fathers had been colonial administrators. Not in my case—my father was a butcher in Yorkshire. But some of those colonial connections must have rubbed off on me: the father of my friend had been the governor general of a little country called Nyasaland, and so I read up on it. What I read made me resolve to go there. Renamed Malawi, it was the poorest country on the continent. It is easier to rename countries than to change them: thirty-five years later it is still as dirt poor as it was then. In another thirty-five years I doubt it will be much different, unless . . . This book is about that “unless.” Malawi hasn’t changed much in the last thirty-five years, and in one sense neither have I: I’m still working on Africa, now as a professor at Oxford. In between I’ve been a professor at Harvard, and directed the World Bank’s research department, where I was brought in by Joe Stiglitz to strengthen its focus on the poorest countries. Indeed, my first assignment for the World Bank was to go with Joe to Ethiopia. Since I had just married, the trip was my honeymoon, but with Joe instead of my wife. Fortunately
X PREFACE she was understanding-whether by coincidence or the attraction of like minds,after university she had worked in Malawi. This book is about the Malawis and the Ethiopias of this world,the minority of developing countries that are now at the bottom of the global economic system.Some,such as Malawi,have always been at the bottom. Others,including Sierra Leone,once were less poor than India or China. The countries now at the bottom are distinctive not just in being the poor- est but also in having failed to grow.They are not following the development path of most other nations;they are adrift.As once-poor India and China, and countries like them,surged ahead,the global poverty picture has been confused,concealing this divergent pattern.Of course,for some countries to do relatively better,others must do relatively worse.But the decline of the countries now at the bottom is not just relative;often it is absolute.Many of these countries are not just falling behind,they are falling apart. For the past few years much of my work has been on civil war.I wanted to understand why conflict was increasingly concentrated in low-income Africa.Gradually,I developed the notion of the "conflict trap."It shows how certain economic conditions make a country prone to civil war,and how,once conflict has started,the cycle of violence becomes a trap from which it is difficult to escape.I realized that the conflict trap was one ex- planation for the countries now at the bottom of the world economy.But it was not the whole story.Malawi has been conflict-free for its entire postindependence history,yet it still has not developed.Neither have Kenya and Nigeria,countries on which at different stages in my career I wrote books,and which looked neither like Malawi nor like each other. Nor do I believe that poverty itself is a trap.These development failures occurred against a backdrop of global development success-poverty is something that most people are managing to escape.Since 1980 world poverty has been falling for the first time in history.Nor was it just a mat- ter of Africa.Elsewhere there were also development failures:countries such as Haiti,Laos,Burma,and the Central Asian countries,of which Afghanistan has been the most spectacular.A one-size-fits-all explanation for development failure doesn't ring true against such diversity. Part of the reason single-factor theories about development failure are so common is that modern academics tend to specialize:they are trained to produce intense but narrow beams of light.However,in my career I
she was understanding—whether by coincidence or the attraction of like minds, after university she had worked in Malawi. This book is about the Malawis and the Ethiopias of this world, the minority of developing countries that are now at the bottom of the global economic system. Some, such as Malawi, have always been at the bottom. Others, including Sierra Leone, once were less poor than India or China. The countries now at the bottom are distinctive not just in being the poorest but also in having failed to grow. They are not following the development path of most other nations; they are adrift. As once-poor India and China, and countries like them, surged ahead, the global poverty picture has been confused, concealing this divergent pattern. Of course, for some countries to do relatively better, others must do relatively worse. But the decline of the countries now at the bottom is not just relative; often it is absolute. Many of these countries are not just falling behind, they are falling apart. For the past few years much of my work has been on civil war. I wanted to understand why conflict was increasingly concentrated in low-income Africa. Gradually, I developed the notion of the “conflict trap.” It shows how certain economic conditions make a country prone to civil war, and how, once conflict has started, the cycle of violence becomes a trap from which it is difficult to escape. I realized that the conflict trap was one explanation for the countries now at the bottom of the world economy. But it was not the whole story. Malawi has been conflict-free for its entire postindependence history, yet it still has not developed. Neither have Kenya and Nigeria, countries on which at different stages in my career I wrote books, and which looked neither like Malawi nor like each other. Nor do I believe that poverty itself is a trap. These development failures occurred against a backdrop of global development success—poverty is something that most people are managing to escape. Since 1980 world poverty has been falling for the first time in history. Nor was it just a matter of Africa. Elsewhere there were also development failures: countries such as Haiti, Laos, Burma, and the Central Asian countries, of which Afghanistan has been the most spectacular. A one-size-fits-all explanation for development failure doesn’t ring true against such diversity. Part of the reason single-factor theories about development failure are so common is that modern academics tend to specialize: they are trained to produce intense but narrow beams of light. However, in my career I x PREFACE
PREFACE xi have written books on rural development,labor markets,macroeconomic shocks,investment,and conflict.And for a while I was working for Joe Stiglitz,who really was interested in everything and had something ingen- ious to say about much of it.This breadth has its advantages.Eventually I came to see that four distinct traps explain the countries now at the bot- tom.Between them they account for around a billion people.If nothing is done about it,this group will gradually diverge from the rest of the world economy over the next couple of decades,forming a ghetto of misery and discontent. The problems these countries have are very different from those we have addressed for the past four decades in what we have called"develop- ing countries"-that is,virtually all countries besides the most developed, which account for only one-sixth of the earth's people.For all this time we have defined developing countries so as to encompass five billion of the six billion people in the world.But not all developing countries are the same.Those where development has failed face intractable problems not found in the countries that are succeeding.We have,in fact,done the eas- ier part of global development;finishing the job now gets more difficult. Finish it we must,because an impoverished ghetto of one billion people will be increasingly impossible for a comfortable world to tolerate. Unfortunately,it is not just about giving these countries our money If it were,it would be relatively easy because there are not that many of them. With some important exceptions,aid does not work so well in these envi- ronments,at least as it has been provided in the past.Change in the societies at the very bottom must come predominantly from within;we cannot im- pose it on them.In all these societies there are struggles between brave peo- ple wanting change and entrenched interests opposing it.To date,we have largely been bystanders in this struggle.We can do much more to strengthen the hand of the reformers.But to do so we will need to draw upon tools- such as military interventions,international standard-setting,and trade policy-that to date have been used for other purposes.The agencies that control these instruments have neither knowledge of nor interest in the problems of the bottom billion.They will need to learn,and governments will need to learn how to coordinate this wide range of policies. These ideas open horizons across the political divide.The left will find that approaches it has discounted,such as military interventions,trade
have written books on rural development, labor markets, macroeconomic shocks, investment, and conflict. And for a while I was working for Joe Stiglitz, who really was interested in everything and had something ingenious to say about much of it. This breadth has its advantages. Eventually I came to see that four distinct traps explain the countries now at the bottom. Between them they account for around a billion people. If nothing is done about it, this group will gradually diverge from the rest of the world economy over the next couple of decades, forming a ghetto of misery and discontent. The problems these countries have are very different from those we have addressed for the past four decades in what we have called “developing countries”—that is, virtually all countries besides the most developed, which account for only one-sixth of the earth’s people. For all this time we have defined developing countries so as to encompass five billion of the six billion people in the world. But not all developing countries are the same. Those where development has failed face intractable problems not found in the countries that are succeeding. We have, in fact, done the easier part of global development; finishing the job now gets more difficult. Finish it we must, because an impoverished ghetto of one billion people will be increasingly impossible for a comfortable world to tolerate. Unfortunately, it is not just about giving these countries our money. If it were, it would be relatively easy because there are not that many of them. With some important exceptions, aid does not work so well in these environments, at least as it has been provided in the past. Change in the societies at the very bottom must come predominantly from within; we cannot impose it on them. In all these societies there are struggles between brave people wanting change and entrenched interests opposing it. To date, we have largely been bystanders in this struggle. We can do much more to strengthen the hand of the reformers. But to do so we will need to draw upon tools— such as military interventions, international standard-setting, and trade policy—that to date have been used for other purposes. The agencies that control these instruments have neither knowledge of nor interest in the problems of the bottom billion. They will need to learn, and governments will need to learn how to coordinate this wide range of policies. These ideas open horizons across the political divide. The left will find that approaches it has discounted, such as military interventions, trade, PREFACE xi
xii PREFACE and encouraging growth,are critical means to the ends it has long em- braced.The right will find that,unlike the challenge of global poverty re- duction,the problem of the bottom billion will not be fixed automatically by global growth,and that neglect now will become a security nightmare for the world of our children.We can crack this problem;indeed,we must.But to do so,we need to build a unity of purpose. To build a unity of purpose,thinking needs to change,not just within the development agencies but among the wider electorates whose views shape what is possible.Without an informed electorate,politicians will continue to use the bottom billion merely for photo opportunities,rather than promoting real transformation.This book is an attempt to shift think- ing;it is written to be read,and so I have kept clear of footnotes and the rest of the usual grim apparatus of professional scholarship.I have tried to write something that you can enjoy reading.But don't let that lead you to conclude that what I have to say is just a load of froth.Underpinning the book are a mass of technical papers published in professional journals and subjected to blind refereeing.I list some of them at the end of the book. Research is often like a quest.You start with a question that sounds im- possible to answer:how much aid leaks into military spending,or how much of Africa's wealth has fled the continent.How would you go about answering those questions?Ask each third-world army where it got its money?Knock on the doors of the Swiss banks and ask them to report their African accounts?There is a different way of getting to the answers, and it is statistical.This stands in contrast to the crude images that often provide us with what we think we know about the world.For rebellion,as an example,the image is often that of Che Guevara,ubiquitous in my gen- eration as a poster on student walls.The poster did our thinking for us. Our notions about the problems of the poorest countries are saturated with such images:not just of noble rebels but of starving children,heartless businesses,crooked politicians.You are held prisoner by these images. While you are held prisoner,so are our politicians,because they do what you want.I am going to take you beyond images.Sometimes I am going to smash them.And my image smasher is statistical evidence. In conducting my statistical analysis I have relied on quite a few young collaborators,many of whom you will meet in the pages that follow.One of them,Anke Hoeffler,has been central to much of this work.We have
and encouraging growth, are critical means to the ends it has long embraced. The right will find that, unlike the challenge of global poverty reduction, the problem of the bottom billion will not be fixed automatically by global growth, and that neglect now will become a security nightmare for the world of our children. We can crack this problem; indeed, we must. But to do so, we need to build a unity of purpose. To build a unity of purpose, thinking needs to change, not just within the development agencies but among the wider electorates whose views shape what is possible. Without an informed electorate, politicians will continue to use the bottom billion merely for photo opportunities, rather than promoting real transformation. This book is an attempt to shift thinking; it is written to be read, and so I have kept clear of footnotes and the rest of the usual grim apparatus of professional scholarship. I have tried to write something that you can enjoy reading. But don’t let that lead you to conclude that what I have to say is just a load of froth. Underpinning the book are a mass of technical papers published in professional journals and subjected to blind refereeing. I list some of them at the end of the book. Research is often like a quest. You start with a question that sounds impossible to answer: how much aid leaks into military spending, or how much of Africa’s wealth has fled the continent. How would you go about answering those questions? Ask each third-world army where it got its money? Knock on the doors of the Swiss banks and ask them to report their African accounts? There is a different way of getting to the answers, and it is statistical. This stands in contrast to the crude images that often provide us with what we think we know about the world. For rebellion, as an example, the image is often that of Che Guevara, ubiquitous in my generation as a poster on student walls. The poster did our thinking for us. Our notions about the problems of the poorest countries are saturated with such images: not just of noble rebels but of starving children, heartless businesses, crooked politicians. You are held prisoner by these images. While you are held prisoner, so are our politicians, because they do what you want. I am going to take you beyond images. Sometimes I am going to smash them. And my image smasher is statistical evidence. In conducting my statistical analysis I have relied on quite a few young collaborators, many of whom you will meet in the pages that follow. One of them, Anke Hoeffler, has been central to much of this work. We have xii PREFACE
PREFACE xiii worked together for a decade,a double act in which I play the role of the impossibly annoying professor,while Anke somehow keeps her temper and presses on.If you want a somewhat exaggerated image of how we work,you could do worse than picture Morse and Lewis from the famous British detective series.As with them,our research usually involves a lot of false starts.However,though like Morse I am based in Oxford,unlike him I work with a highly international group.As you will have guessed, Anke is German.But there are also Mans,who is Swedish;Lisa,who is French;Steve,an Irish American;Cathy,an African American;Victor, from Sierra Leone;and Phil,an Australian.This is only part of a long list, but you get the idea.What they all have in common is the patience to be painstaking and the brains to have mastered difficult skills.Without them, there would have been no book,because there would have been no results on which to base the story.This book is the big picture that emerges when you connect the dots.But the dots are a story in themselves.Although this is not a book about research,I hope that along the way you will get some of the flavor of how modern research is done,and a sense of the thrill that comes from cracking intractable questions
worked together for a decade, a double act in which I play the role of the impossibly annoying professor, while Anke somehow keeps her temper and presses on. If you want a somewhat exaggerated image of how we work, you could do worse than picture Morse and Lewis from the famous British detective series. As with them, our research usually involves a lot of false starts. However, though like Morse I am based in Oxford, unlike him I work with a highly international group. As you will have guessed, Anke is German. But there are also Måns, who is Swedish; Lisa, who is French; Steve, an Irish American; Cathy, an African American; Victor, from Sierra Leone; and Phil, an Australian. This is only part of a long list, but you get the idea. What they all have in common is the patience to be painstaking and the brains to have mastered difficult skills. Without them, there would have been no book, because there would have been no results on which to base the story. This book is the big picture that emerges when you connect the dots. But the dots are a story in themselves. Although this is not a book about research, I hope that along the way you will get some of the flavor of how modern research is done, and a sense of the thrill that comes from cracking intractable questions. PREFACE xiii
Part 1 What's the Issue?
Part 1 What’s the Issue?
CHAPTER 1 Falling Behind and Falling Apart: The Bottom Billion THE THIRD WORLD HAS SHRUNK.For forty years the development challenge has been a rich world of one billion people facing a poor world of five billion people.The Millennium Development Goals established by the United Nations,which are designed to track development progress through 2015,encapsulate this thinking.By 2015,however,it will be ap- parent that this way of conceptualizing development has become outdated. Most of the five billion,about 80 percent,live in countries that are indeed developing,often at amazing speed.The real challenge of development is that there is a group of countries at the bottom that are falling behind,and often falling apart. The countries at the bottom coexist with the twenty-first century,but their reality is the fourteenth century:civil war,plague,ignorance.They are concentrated in Africa and Central Asia,with a scattering elsewhere. Even during the 1990s,in retrospect the golden decade between the end of the Cold War and 9/11,incomes in this group declined by 5 percent. We must learn to turn the familiar numbers upside down:a total of five billion people who are already prosperous,or at least are on track to be so, and one billion who are stuck at the bottom. This problem matters,and not just to the billion people who are living and dying in fourteenth-century conditions.It matters to us.The twenty- first-century world of material comfort,global travel,and economic inter- dependence will become increasingly vulnerable to these large islands of
CHAPTER 1 Falling Behind and Falling Apart: The Bottom Billion The third world has shrunk. For forty years the development challenge has been a rich world of one billion people facing a poor world of five billion people. The Millennium Development Goals established by the United Nations, which are designed to track development progress through 2015, encapsulate this thinking. By 2015, however, it will be apparent that this way of conceptualizing development has become outdated. Most of the five billion, about 80 percent, live in countries that are indeed developing, often at amazing speed. The real challenge of development is that there is a group of countries at the bottom that are falling behind, and often falling apart. The countries at the bottom coexist with the twenty-first century, but their reality is the fourteenth century: civil war, plague, ignorance. They are concentrated in Africa and Central Asia, with a scattering elsewhere. Even during the 1990s, in retrospect the golden decade between the end of the Cold War and 9/11, incomes in this group declined by 5 percent. We must learn to turn the familiar numbers upside down: a total of five billion people who are already prosperous, or at least are on track to be so, and one billion who are stuck at the bottom. This problem matters, and not just to the billion people who are living and dying in fourteenth-century conditions. It matters to us. The twenty- first-century world of material comfort, global travel, and economic interdependence will become increasingly vulnerable to these large islands of