Billion Ways to Worry

India’s transition, three billion people in Asia and Eastern Europe have integrated themselves into the global economy. If the world now looks economically better and we are closer to attaining the Millennium Development Goals (MDGs), it is largely because of this integration. However, one billion people (mostly in Africa) are still stuck and their conditions are worsening in relative (and sometimes absolute) terms, though this doesn’t always register because global growth indicators are weighted by GDP rather than population. There is increasing divergence not only between this bottom billion (called Africa+) and developed countries, but also between Africa+ and developing countries that have integrated. Before suggesting solutions, one needs to understand what constraints lead to stagnation in these deprived economies.

Collier identifies four traps — conflict, natural resources, landlocked characteristics and bad governance. One might think this identification is obvious enough, but that wouldn’t be fair. The discussion on traps isn’t based on casual empiricism or speculation, but a robust volume of statistical work, attempting to segregate causation from correlation. Consider conflict, which may mean civil wars or coups. Statistically, civil wars are shown to be functions of low income, slow growth and primary-commodity dependence. Contrary to popular impressions, grievance redressal or ethnic strife has little to do with civil war. The average civil war lasts at least five years (with a high probability of recurrence) and reduces GDP by an average of 2.3 per cent a year. Coups are functions of low income and slow growth, but not of primary-commodity dependence. Natural resources constitute a trap as they distort resource allocation, create perverse incentives and make democracy malfunction. Paradoxically, given natural resources, autocracies out-perform democracies, though autocracies are apt to distort political processes in ethnically diverse countries.

The landlocked trap is obvious, it is the quantification that is new. If a country’s neighbours grow at an additional 1 per cent, the spillover on its growth is an additional 0.4 per cent. However, for landlocked countries, it is 0.7 per cent, except that this greater gain for landlocked countries is a global figure. For Africa, it is as low as 0.2 per cent. Finally, the bad governance and bad policy trap. On its own, the probability of a turnaround in policy is 1.6 per cent and the expectation of being stuck with bad policies is almost 60 years. Meanwhile, the cost of a single failed state is $100 billion.

The book is divided into five parts — setting out the issue, the traps, an interlude on globalisation, the instruments for change and an agenda for action. This is stuff policy is made out of and as should be clear now, involves quantification of issues most people would regard as impossible. Not only has this quantification been convincingly done, but it has also been communicated well. The part on globalisation makes the point that because of economies of scale and scope and capital and human capital flight, globalisation doesn’t automatically offer a solution to Africa+.

The discussion now turns to four instruments — aid, military intervention, laws and charters and trade policy — and how they can be integrated and brought together to address the identified four traps. It is much more than an issue of how ODA (official development assistance) can be increased to a certain percentage of GDP. As of now, these four instruments cannot be brought together because in developed countries the four instruments are lodged in different ministries or government departments and these don’t work in coordinated fashion. “Our support for change can be decisive. But we will need not just a more intelligent approach to aid but complementary actions using instruments that have not conventionally been part of the development armory: trade policies, security strategies, changes in our laws, and new international charters.”

Intellectually, this is a much more compelling argument than the simplistic one of increasing ODA. With empirical substantiation, this is the brain and not the heart at work. It is a disturbing book, but also suggests solutions.