World Institute for Development Economics Research No. 2/2007 Why the Poorest Countries four distinct traps that between them account for the problem, each requiring a distinct remedy. I also argue are Failing and What Can that globalization, though it has been benign for the be Done About it majority of the developing world, is not working for the bottom billion and is not likely to do so. On by Paul Collier the contrary, it is liable to make them increasingly marginalized. So what are the key policy issues? One is that Africa has failed to develop jobs in export manufactures, the strategy that has been transforming Asia. Bangladesh has generated nearly three million jobs by exporting garments. If Kenya could do the same, it would be transformed. But Asia’s success has made it harder for Africa to get started. It will help by granting Africa better access to developed country markets. At present most of the G8 countries impose tariffs on imports of garments from Africa. There is one exception: the US. The US allows Kenya to export shirts duty-free into its market. Europe does not. Even the few African countries that are allowed duty-free access into Europe get blocked by absurd technical © Friedrich Stark / Das Fotoarchiv. / Still Pictures / Still Fotoarchiv. / Das Stark Friedrich © requirements: Lesotho sells thousands of shirts to America, but they do not satisfy the regulations of the European Union. As a result, over the last five years Africa’s garments exports to Europe have declined while increasing sevenfold to the US. The G8 could easily adopt a common set of rules for these African exports that would generate jobs across the region. I proposed this to the G8, but they spent their time posturing over aid commitments. Globalization, though it has been benign for the majority of the developing world, is not working for the bottom billion and is not likely to do so. On the contrary, it is liable to make them increasingly marginalized. large group of smallish countries totalling A second policy issue is that many of the countries about a billion people have sheered off from the of the bottom billion are now in the throes of revenue A rest of mankind. As the world becomes more booms from oil and other minerals that dwarf any socially integrated this giant pool of poverty will be both conceivable aid flows. The last time this happened unacceptable and explosive. It is the world’s biggest was thirty years ago and it proved a disaster. The economic problem and we need to do something about money corrupted the local politics so badly that it. To know what to do we need to start with a diagnosis. not only was it wasted, it impoverished, sometimes While the common fate of the bottom billion has been even leading to civil war. Can the governments of stagnation and poverty there has been no single cause. In developed countries do anything to reduce the risks my recently published book The Bottom Billion I propose of repetition? Well, where do corrupt politicians put United Nations University Falling behind and falling apart: Average growth in GDP per capita Bottom Billion Other Developing Countries 4% 4% 2.50% 0.50% -0.40% -0.50% 1970s 1980s 1990s Source: The Bottom Billion. pp. 8-9. ‘The experience of the societies in the bottom billion was thus one of massive and accelerating divergence’ (p. 10) their money? They certainly do not Quite possibly the most effective needs. The western powers are afraid leave it in their own banks, it comes ‘aid’ Britain has ever provided was that sending troops abroad will be to banks in developed countries. And the troops that have secured peace unpopular, and the governments of what do developed country banks in Sierra Leone. Britain currently the bottom billion fear that western do? Basically, they keep quiet about guarantees the peace there through involvement would license pre- it. Is this a necessary consequence of an ‘over-the-horizon’ commitment: emptive invasions. banking secrecy laws? No it is not. if there is trouble, British troops will If the money is suspected of having fly in. It has not been necessary: the Trade in shirts, the governance of terrorist associations then, very commitment alone is sufficient. Civil resource bonanzas, and security sensibly, we now require the banks wars have been devastating to Africa: commitments are a more sophisticated to blow the whistle on it. But if its the one in Sierra Leone delivered agenda than simply doubling aid. stolen from the ordinary citizens the coup de grace to an economy However, I should stress that I do of the bottom billion, well that is that had already been wrecked by not see them as alternatives to aid just too bad. It cost the reforming revenues from diamonds. Across the but as complements. Think how the government of Nigeria huge legal region there are now several post- US responded to the need to rebuild fees to track down some of the conflict situations that need this sort Europe after 1945. It recognized previous president’s millions in a of commitment. To date, nearly half that the problem was serious and Swiss bank, and even when they of all post-conflict countries revert addressed it through the full range won their court battle the Swiss to war within a decade: we should of possible policies. Yes, there was Minister of Justice blocked sending surely be able to make a difference a big aid programme, Marshall Aid. the money back. here. Unfortunately, along came the But this was complemented by a war in Iraq and closed down serious complete reversal of US trade policy, A third policy issue is security. discussion of Africa’s security from protectionism to integration, through the founding of the GATT. Even the few African countries that are allowed duty-free access into It was also complemented by a Europe get blocked by absurd technical requirements: Lesotho sells reversal of US security strategy: from thousands of shirts to America, but they do not satisfy the regulations isolationism to mutual guarantees of the European Union. enshrined in NATO and over one hundred thousand troops in Europe for four decades. Finally, there Al- was a dilution of the principle of absolute national sovereignty, with the creation of new structures for mutual support of good governance, enshrined in the founding of the Alexander Zachn Zachn Alexander Alexander OECD and the EEC. That is what Zachn Alexander happened when the US became serious. The challenge posed by the divergence of the bottom billion is Paul Collier delivering the evidently more diffi cult than that keynote address at the of rebuilding Europe. It will take WIDER Conference on that same full panoply of policies, although obviously the content of Fragile States – Fragile Groups each policy will be different. on 15 June 2007 in Helsinki. Quite possibly the most He is the co-author of the effective ‘aid’ Britain has ever following recent WIDER provided was the troops that ‘The Bottom Billion is a serious research papers on fragility have secured peace in Sierra book but an easy read. I tried to and development: Leone. make it an easy read because I RP2007/16 Lisa Chauvet, realized that the policies of the G8 Paul Collier, and Anke So, the message is to narrow our governments towards development Hoeffl er: Paradise Lost: focus and broaden our instruments. were increasingly being set by The Costs of State Failure in Narrow our focus to the divergence politicians trying to please their the Pacifi c; of the countries now at the bottom own voters. Inadvertently, the of the world economy: a one-billion same process that has succeeded RP2007/30 Lisa Chauvet, Paul person problem. Our efforts will be in getting development onto the Collier, and Anke Hoeffl er: spread too thin if we continue to fuss political agenda, which has been The Cost of Failing States and about the entire fi ve billion people in the lobbying of rock stars and the Limits to Sovereignty. developing countries. Broaden our NGOs, risked trivializing its policy instruments beyond the exclusive content. It is time for academics to Paul Collier is Professor reliance upon aid, to recognize that set aside our tendency to write only of Economics at Oxford other policies are likely to matter for each other, and to reach out to University and Director of the more. Our aid agencies need to be our fellow citizens, communicating Centre for the Study of rethought as genuinely development our expertise. African Economies. agencies. While the style is light, the content The Bottom Billion: why the is entirely about economic research, essentially pulling together my poorest countries are failing recent research with a number of and what can be done about colleagues. This pulling together it, is published by Oxford is also increasingly rare in University Press. academic behaviour. Our work is now overwhelmingly presented in article-sized nuggets with few serious outlets for more sustained analysis.’ – Paul Collier 3 Applying Behavioural Economics to Development Policy by C. Leigh Anderson and Kostas Stamoulis ehavioural economics Though there are many examples observation and repeated experiments combines the insights of that challenge standard economic suggest that individuals often employ Bpsychology and economics models we consider three that we find ‘fast and frugal’ heuristics; rules that to better understand and predict particularly salient for development: allow them to make decisions either decision making by considering decision making under uncertainty, in the absence of full information or how, for example, emotions and intertemporal choices, and social when they are unable or unwilling to attitudes (psychological tendencies) preferences.