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The
Bottom Billion: Why the poorest countries are failing
and what can be done about it |
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| Author:
Paul Collier |
Publisher: Oxford University Press, 2008
ISBN 978-0-19-537338-7
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Click to Enlarge
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Review by Erik S. Reinert*
Paul Collier is an Africa expert and a former
director of the Development Research Group of
the World Bank. At the core of the argument in
his bestselling The bottom billion are four 'traps'
that lock Africa into poverty: the conflict trap,
the natural resource trap, the trap of being landlocked
with bad neighbours, and the trap of bad governance
in a small country. Compared to what used to be
'development economics', Collier represents a
new economic genre. |
Collier and his colleagues Jeffrey Sachs and William
Easterly - all former employees of the Washington
Institutions - are the forefront of today's thinking
about economic development. It is interesting
to compare this literature to what, until about
thirty years ago, was 'classical development economics'.
In spite of a good track record of promoting economic
development during the decades following the Second
World War, the field of development economics
was virtually mobbed out of existence. The reason
for this was twofold: first, the field did not
have any 'rigorous models' that became fashionable;
and second, it had built-in doubts that the neoliberal
project of instant global free trade would benefit
the poorest countries of the world.
Collier, Sachs, and Easterly in fact belong to
a new and different academic sub-field, which
we could call 'development aid strategy', that
took over the position once occupied by development
economics. Since no country has ever become wealthy
through development aid (which is not per se an
argument against aid), this development aid literature
represents a problem. It contains little theory
about what causes economic development besides
aid, and - of particular importance - does not
look at the strategies followed by today's wealthy
countries in their transition from poor to rich.
Compared to classical development economics, Collier's
analysis is surprisingly static. Development economics
typically postulated virtuous and vicious circles
in the economy, not static traps. At the core
of the virtuous circles of development lay a large
division of labour, alongside the increasing returns
and technological change found in the industrial
sector. Monoculture, diminishing returns, and
increasing population pressure formed the core
of the vicious circles. Collier also discusses
'traps' that, to a large extent, are a result
of poverty, not their root cause. Had he focused
on an 'unemployment trap', he would have been
able, to some degree, to explain both the conflict
trap and the bad governance trap. It can be argued
that the most important raw material for the kind
of conflict from which Africa suffers is unemployed
young men. But the World Bank has almost consistently
used models assuming full employment, thus assuming
away a huge part of the problem of poverty. Models
including unemployment would have produced situations
where free trade is not always the best policy
- when a country is far from its production possibility
frontier - and during the neo-liberal reign such
policy recommendations were unwanted for ideological
reasons. The bottom billion appears after a long
period of dominance of Washington Consensus policies
in the 'developing world'. Compared to the first
decades after the Second World War, the growth
record of this neo-liberal period has been dismal.
In Africa, in the former Soviet Union, and in
many small Latin American countries, this policy
did not lead to a Schumpeterian creative destruction
but rather to a destructive destruction. Industries
died, but very little new development came instead.
Indeed it is clear that today's most successful
nations - China, India, and Brazil - continued
to grow during the neo-liberal period essentially
as a result of their ideological inertia. They
did not buy the core recommendation of neo-liberalism:
free trade shock therapy and the rolling back
of the state. In this academic field of 'development
aid strategy' a theoretical axis appeared between
the development aid enthusiasts, exemplified by
Jeffrey Sachs, the father of the Millennium Development
Goals (The end of poverty, 2005) on the one hand,
and William Easterly, who, briefly stated, is
of the opinion that development aid does not work
(The white man's burden, 2006), on the other.
From this perspective.
The bottom billion represents a kind of middle
position between Sachs' optimism concerning aid
and Easterly's pessimism. However, all three have
a past in important positions in Washington institutions
whose shock therapies caused so much damage to
the economic structures of many poor countries.
These authors do not come from a position of objectivity
when they attempt to explain what went wrong.
The bottom billion is heavily marked by the need
to defend the past policies of the World Bank.
The most salient misinterpretation of history
is when Collier presents the successes of China
and India as results of the policies of the Washington
institutions. In reality, the basis of these two
nations' success, apart from the size of their
markets, is they have built an industrial sector
consistently for more than fifty years and that,
contrary to the World Bank recommendations, they
opened their economies gradually, not through
shock therapy. Clearly these countries both clung
to the planning paradigm for too long, but history
shows that following this type of industrialization
strategy too long is infinitely better than never
having embarked upon it at all. In spite of internal
differences, classical development economists
all agreed that development required industrialization.
The historical record of all developed countries
- going back at least 500 years - confirms this
policy as a mandatory passage point to development.
It is also not obvious that Collier's book uses
the right criteria for measuring success. He implicitly
sets up maximizing of world trade as a measurement
of economic success. However, in many countries
- Peru being just one example - globalization
has lead to an impressive growth in exports, while
real wages have been halved because manufacturing
industry has virtually died out, and with it the
labour unions that provided 'stickiness' to national
wages.
In the tradition of the Washington institutions,
Collier tends to reverse the directions of the
arrows of causality and even to disregard co-evolution
of economic structure and institutions. Banking
and insurance were invented in cities with a particular
economic structure. It is not that Venice invented
insurance and thus could have long-distance trade.
Insurance was invented to solve a problem of risk
distribution in early capitalism. Reducing risk
by hugely increasing the number of owners of one
single shipload became impractical, and insurance
provided a solution. However, the World Bank approach
has been to focus on institutions disregarding
the underlying economic structures that create
them. Establishing institutions from the industrialized
West in societies based on subsistence agriculture
is futile.
To the economists of the Enlightenment, 'good
governance' or democracy seemed to be a product
of a certain economic structure: diversified nations
and city-states such as the Dutch Republic, Florence,
and Venice were pioneers of democracy, while feudalism
never produced a case of 'good governance'. Landlocked
Florence and Switzerland developed into democracies.
A country's economic structure used to be a key
factor explaining both democracy and wealth. Coming
from a neo-classical tradition where all economic
activities are seen as qualitatively alike, this
point escapes Collier and his colleagues.
Collier is right when he claims that high tariffs
protecting national monopolies create corruption
and high prices, but a solution to that problem
would have been to encourage competition, not
to kill industry as was done. Collier is also
right when he flags the problem of small countries.
Indeed, the minimum efficient size of a moderately
wealthy country has no doubt increased considerably.
But this argument calls for regional economic
integration, not for returning to raw material
monoculture. As one eighteenth-century economist
put it, diversifying the economy away from dependence
on agriculture cured the main ills of mankind:
unemployment, superstition, poverty, and shortage
of foreign exchange. Today's failing states in
Africa all have one thing in common: a minute
industrial sector. In Collier's defence he does
recognize this to some extent, but is seemingly
unwilling to endorse the kind of trade policies
that would lead to the desired results. Apart
from his defence of military intervention in poor
countries, his recommendations are not particularly
original.
Collier does not analyse the mechanisms that lifted
the presently wealthy nations out of poverty.
From the Enlightenment through to twentieth-century
fascism, Nazism, Stalinism, and Western democracies,
all development strategies were based on industrialization.
When the Allies wanted to punish Germany after
the Second World War the cruelest plan they could
come up with was forced deindustrialization: the
Morgenthau Plan. This plan was, however, so effective
in producing mass poverty that it only lasted
two years and was replaced by the Marshall Plan,
a plan for re-industrialization. This point was
completely lost to development economics under
neo-liberalism.
In this longer term perspective, the de-industrialization
caused by the neo-liberalist shock therapy - a
modern Morgenthau Plan - will increasingly be
seen as a folly. Putting Paul Collier, the former
chief economist of the World Bank and one of the
architects of this folly, in charge of explaining
what went wrong with globalization is akin to
putting Attila the Hun in charge of the Ministry
of Roman Reconstruction. Collier's book contains
more attempts to cover up the past than to present
new constructive insights, and more descriptions
of symptoms of poverty than of its root causes.
* Tallinn University of Technology and The Other
Canon Foundation, Norway
March
8, 2011. |
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