Unit 4: Paul Collier on The Traps Facing the Bottom Billion

By | March 4, 2015

As mentioned in a previous post, development economist Paul Collier coined the term Bottom Billion to describe the poor trapped in the poorest nations – the nations we often call “developing nations”.  Collier has a darker, more pessimistic view of the prospects for the Bottom Billion than Hans Rosling does.  Rosling sees the Bottom Billion as being already on the road to development and growth. Collier sees them trapped.  In particular he describes four traps.  The author of the blog makewealthhistory.org summarizes Collier’s four traps.

The first of the four traps is conflict. 73% of those in the poorest billion of the world’s population are either involved in or recovering from civil war. In the fight against poverty, civil war creates a vicious circle – war causes poverty, and low income contributes to tension. Low growth means high unemployment and thus plenty of angry young men ready to fight. Conflict then destroys infrastructure and scares away investors, leaving even fewer opportunities. Building peace has to be a major part of solving poverty.

Natural resources
Another poverty trap is natural resources. It sounds a little paradoxical to suggest that natural resource wealth is a factor in poverty, but you only have to consider that Sudan, Angola, and Zimbabwe all have oil to see how this plays out. It’s rare for natural resource wealth to come back to the people. Sometimes this is simply because the revenues end up in the foreign bank accounts of the elite, but the big problem is this: the rush of investment into one sector draws attention, capital, and skills from all the other sectors of the economy. When oil is discovered for example, the demand for infrastructure and business development in that area will immediately trump any other concerns. As the oil is pumped, other sectors of the economy wither, their costs rising from increased wage competition and the sudden rush of foreign currency into the country that is unfairly shared across the country.

This isn’t just a problem of badly managed African nations. The phenomenon is known as ‘Dutch Disease‘, after Holland’s mis-management of their natural gas stocks. Countries like Angola prove the point. The government and the elite are making a fortune out of the oil. There is no incentive for them to invest in the country more broadly, so Angola’s oil is a curse and not a blessing.

Landlocked countries
A third trap is geographical – the problem of being landlocked with bad neighbours. 38% of the bottom billion live in landlocked countries,  and these pose a real challenge to development. Being landlocked doesn’t have to be a disaster, as long as your neighbours have decent infrastructure and allow you to use their ports. Collier gives the example of Switzerland, who can trade through Italy or Germany. If your neighbours don’t like you, or if they are basket-case countries, there is no way you can export. Compare Switzerland with Uganda, which shares borders with Kenya, Sudan, Somalia, Rwanda, The Congo, and Tanzania.

Without dependable ways to export, landlocked countries such as Uganda or Rwanda are unable to participate in the global economy. Interestingly, both of those countries have invested in growing air-freighted produce such as green beans and mange-tout. I generally disagree with air-freighted food, but you can see why they have chosen to specialize here.

30% of Africa’s population lives in landlocked countries. We have a lot to answer for here, because we drew up the borders. “A reasonable case can be made that these places should never have become countries” says Collier. “However: the deed is done. These countries exist and they will continue to do so.” The best we can do is make sure that landlocked countries are prioritised in aid.

Bad governance
Three quarters of the bottom billion live in countries that are either failing, or recently were failed states – countries such as Somalia, Haiti, Sudan, Zimbabwe. While governments do not function, or exist only to benefit themselves, development is ultimately impossible. It’s difficult to price these things, but Paul Collier estimates that each failed state costs the global economy $100 billion, and since the costs of intervening to fix a failed state would usually be less, he makes a case for more military intervention. That’s going to upset a lot of people, but it doesn’t have to mean Afghanistan or Iraq. What if an international presence had forcibly removed Mugabe when he lost the election recently? Or moved in fast after the Kenyan elections last year, not to occupy, but as a guarantee of democracy?