THE BOTTOM BILLION
WHY THE POOREST COUNTRIES ARE FAILING AND WHAT CAN BE DONE ABOUT IT
PAUL COLLIER
OXFORD UNIVERSITY PRESS 2007
PART VI
PART 4: THE INSTRUMENTS
Chapter 8: Military Intervention
After Iraq it is difficult to arouse much support for military intervention. For me this chapter is the toughest in the book because I want to persuade you that external military intervention has an important place in helping societies of the bottom billion, and that these countries’ own military forces are more often part of the problem than a substitute for external forces.
What external forces can do
The restoration of order
Maintaining postconflict peace
Protection against coups
Are domestic militaries a substitute?
Peace through strength?
Grand extortion
Chapter 9: Laws and Charters
So far I have looked at aid and at military interventions. Both are useful, but both are pretty costly, one in money and the other in guts: political guts, and sometimes soldiers’ guts. Now I am going to look at a range of interventions that are strikingly cheap. They fall into two groups: changes in our own laws that would benefit the bottom billion, and the generation of international norms that would help to guide behaviour.
Our laws, their problems
Norms for the bottom billion: making international standards and codes pertinent
A charter for natural resource revenues
A charter for democracy
A charter for budget transparency
A charter for postconflict situations
A charter for investment
Changing our laws, promulgating international charters: Global public goods
Chapter 10: Trade Policy for Reversing Marginalization
Generally, I do not much care for rich-country wallowing in guilt over development. I find it contrived, and it diverts attention from a practical agenda. Citizens of the rich world are not to blame for most of the problems of the bottom billion; poverty is simply the default option when economies malfunction. However, I am now going to pin some blame on citizens of the rich world, who must take responsibility for their own ignorance about trade policy and for its consequences. You personally may be well informed about trade, but if so, you are in a minority; in general rich-country electorates are deeply misinformed. Here is an example of the consequences.
In fall 2004, Christian Aid – about the most trusted of the British charities – started a huge and expensive advocacy campaign about trade policy for the countries at the bottom. Under the slogan “Free Trade: Some People Love It,” a capitalist, literally depicted as a pig, sat on top of an African peasant woman. That a Christian charity should be peddling the crudest images of Marxism may strike you as a little strange and it is an interesting line of inquiry, but this ideological cross-dressing is not my point. The key thing is that this message was grotesquely wrong. Trade policy is the area of economics least well understood by the NGO world.
- In the fall of 2005 Christian Aid stepped up its advertising campaign – trade advocacy, it said, was its biggest issue.
- I e-mailed Christian Aid, and they duly sent me the study and the composition of the expert panel.
- The “expert” they had commissioned turned out to be a young man at the School of Oriental and African Studies, the only economics department in Britain that is solidly Marxist.
- The “academic panel” turned out to be two gentlemen whom the author himself had chosen and who were not noted for their expertise on international trade.
- I sent the study to three of the world’s leading experts on international trade. They all decided that the study was deeply misleading. In the end, we sent a joint letter to the Financial Times, issuing a warning.
Rich-country trade policy is part of the problem
- The least defensible aspect of OECD trade policy, from the perspective of both OECD citizens and people in developing countries, is probably the protection of agriculture.
- We waste our money subsidizing the production of crops that then close off opportunities for people who have few alternatives.
- Another dysfunctional aspect of rich-country trade policy is tariff escalation: the tariffs on processed materials are higher than on the unprocessed materials.
- This makes it harder for the countries of the bottom billion to diversify their exports by processing their raw materials before exporting them.
- It is stupid to provide aid with the objective of promoting development and then adopt trade policies that impede that objective.
Bottom-billion trade barriers are also part of the problem
Aid worsens the problem of trade barriers
What are the answers?
Is fair trade the answer?
The fair trade campaign attempts to get higher prices for some of the bottom billion’s current exports, such as coffee. The price premium in fair trade products is a form of charitable transfer, and there is evidently no harm in that. But the problem with it, as compared with just giving people the aid in other ways, is that it encourages recipients to stay doing what they are doing – producing coffee. A key economic problem for the bottom billion is that producers have not diversified out of a narrow range of primary commodities. Raising their prices (albeit infinitesimally, since fair trade is such a small component of demand) makes it harder for people to move into other activities. They get charity as long as they stay producing the crops that have locked them into poverty.
Is regional integration the answer?
- Such schemes have not accomplished much. One reason is that even in the best-case scenario, the resulting markets remain tiny. A famous statistic is that the whole of sub-Saharan Africa has an economy about the size of Belgium’s.
- A second reason is that if you combine a number of poor, slow-growing individual economies, you have a poor, slow growing regional economy.
- The big opportunity for low-income countries is to trade with rich countries, harnessing the advantage of their cheap labor.
- The model of the European Community is unfortunately deeply misleading. Europe’s great success has been convergence: the poorer countries, such as Portugal and Ireland, have caught up with the richer countries.
- Regional integration between poor countries generates divergence instead of convergence.
- In the rich-country clubs the poorest member gains (convergence) while in the poor-country clubs the richest gains (divergence).
- In East Africa the experiment of regional free trade ended with a complete closure of borders and an intraregional war.
- Good access to neighboring markets is vital for landlocked countries without resources.
- Regional integration is a good idea but not behind high external barriers.
Part of the answer: export diversification
How to get export diversification started: Protection from Asia
The other part of the answer: Rethinking the bottom billion in the WTO
PART 5: THE STRUGGLE FOR THE BOTTOM BILLION