Review of the "Bottom Billion"

Review of “The Bottom Billion” by Paul Collier

Over recent decades various countries have developed exponentially while a select few, referred to as the “bottom billion,” are failing to escape poverty. Paul Collier focuses on this group, arguing that through consistent growth, the bottom billion can escape poverty. Unfortunately, poverty traps such as conflict, natural resources, being landlocked with bad neighbors and bad governance; coupled with the lack of productive intervention policies, hinder these economies. These problems as serious but fixable; bottom billion countries must rescue themselves, but they can't and won't do it without help from the outside. This brief will analyze the four distinct poverty traps responsible for hindering economic growth, identify the policy instruments that can effectively stimulate growth in the “bottom billion” countries, and recommend future policy directions.
It is essential to understand who constitute the bottom billion, before evaluating the challenges faced and the subsequent solutions to the issue. According to Collier, the world consists of five billion people that are well off or rapidly getting there and one billion falling further behind. Approximately seventy percent of the one billion people are in Africa, thus highlighting the core of the problem. However, Collier refers to the problem as Africa +, including places like: Haiti, Bolivia, Laos, Cambodia, Yemen, Burma, and North Korea (7). Growth rates in the developing world have risen at historical levels, reaching an average of 4.5% by the 21st century. In contrast, the anemic economies of the bottom billion have experienced a decline in growth of 0.5%; essentially, the poorest countries are now even poorer than they were in the 1970’s (8-9).
I. Poverty Traps
All societies have conflicts but in bottom billion countries, conflict is often cyclical and violent, ultimately trapping them in poverty. Nearly, three-quarters of the bottom billion have been through or are currently experiencing civil war (17). Ominously, once a country has had one civil war, they are twice as likely to have another, and thus a trap exists. Civil wars result in an average 2.3% reduction of growth for every year they last, representing “development in reverse (27).” Conflict discourages investors and leads to capital flight, which only perpetuates a poor macroeconomic situation by further disrupting much needed capital flows for investment. Three economic characteristics make a country prone to conflicts: low income, slow growth, and dependence upon primary commodity exports; thus addressing these issues is a priority (32). Sustained growth directly reduces the risk of conflict thus without sustained peace the bottom billion will remain trapped in poverty.
The presence of natural resources is ironically a poverty trap for they tend to slow economic growth, inhibit diversification and encourage autocracy. This paradox is a result of the “Dutch Disease”, where natural resource exports cause the value of the domestic currency to appreciate and subsequently render other exports expensive and unattractive (39). Diversified economies are pivotal for growth but dependence on natural resource exports makes it difficult to sustain growth since it deliberately leads to the underdevelopment of other industries. Natural resource rents (excess of revenues over all costs) encourage autocracies, which lack accountability for expenditures. This lack of checks and balances results in misuse of revenues in efforts to maintain power rather than invest in development (51). Without a proper macroeconomic foundation, resource rich countries will remain stagnant both politically and economically; thus condemning them to continued poverty.
Geography is critical to economic growth, unfortunately, 30% of countries within the bottom billion are landlocked and share boundaries with poor economies. These landlocked countries are unable to integrate into global markets, or develop strong exportable sectors since transport corridors and nearby markets are expensive or non-existent (54-55). Therefore policy coordination, such as reduced tariffs and restrictions, between landlocked countries and their neighbors is critical to inducing growth. All countries benefit from the growth of their neighbors due to the spillover effect, but resource-scarce landlocked countries must depend on their neighbors for growth (57). The landlocked issue therefore might not be a trap on itself but acts as a catalyst towards stagnating an economy and this makes such an economy more susceptible to the other traps.
Excellent economic policies and governance can be responsible for up to 10% of growth; however, bottom billion countries often experience poor governance, corruption and incompetence. Governments must actively work towards sustaining a favorable economic climate though strong policies and competent leaders if they are to induce growth (65). Unfortunately, the probability of a turnaround in failing states is 1.6%, and rarely successful in the absence of a higher incomes and an educated population (71). The challenge with poor governance and policy is that, like being landlocked, it predisposes an economy to poverty and ultimately more susceptible to all other traps.
II. Policy Instruments
Foreign aid in these countries is highly politicized, badly abused and limited by diminishing returns; it has severe problems and limitations, but it's still necessary. Aid does not induce growth alone; it must be coupled with conditionality’s to promote effective governments and better policies (103). Bottom billion countries simply fail to effectively use aid towards issues like poor infrastructure that could increase private capital investment in related industries. A moderate shift of aid allocation from direct foreign aid to more technical assistance would benefit the turnaround of failing states by providing expertise on the proper use of funds. While most aid efforts will fail, it is still part of solution and if coordinated with other instruments, a few winners will make it overall worthwhile (117).
External military intervention can best be used in post-conflict situations to provide stability and prevent available resources going back into military expenses at a time when opportunity exists for reforms in crucial areas. Militaries of the bottom billion are funded mostly by aid funds; thus the use of external military intervention reduces those losses while inadvertently protecting against further conflicts (125). While benefits to military intervention exist, collier argues, “we should intervene, but not necessarily everywhere (128).” The conditional use of military intervention can provide critical assistance to bottom billion countries in incentivizing growth and escaping poverty traps by protecting progressive regimes from conflicts.
Changing laws and creating international charters also economically benefits the bottom billion. Changing laws to prevent corruption is essential because western banks have been financial safe havens for criminals from the bottom billion (136). Targeting corruption through laws and regulations limits the influence of corrupt leaders and inhibits developed countries industries from further exploiting the bottom billion. Setting international charters would also be beneficial in addressing issues like natural resource extraction, democracy, budget transparency, investment, and post conflict recovery. Coordination in enforcing laws and international charters among developed countries makes their implementation realistic while providing the bottom billion with some thing concrete to demand/expect (143). Laws and charters can potentially be the most effective tool in reducing poverty and promoting growth in the bottom billion.
Improving trade policy in developed countries is key to making the bottom billion more competitive. Policies that aim to promote export diversification and manufacturing from the bottom billion societies should result in economic growth (160-161). Adjustment of the WTO trade target benefits towards the bottom billion must also be made in order to help induce growth. The bottom billion need protection from the giants of Asia to break into manufacturing and services in order to move out of the resource trap (167).
III. Recommendations Although globalization has worked wonders to lift a vast portion of humanity out of poverty, it is now making things harder for latecomers. Policy makers need to shift their focus towards broadening policy instruments in order to truly foster sustained growth. Cost-benefit analysis indicates that targeting instruments such as: better delivery of aid, occasional military intervention, creation of international charters, and smarter trade policy, results in a 15:1 return on investment from $250M a year in aid; a figure substantially higher than current returns on foreign direct investment. Emphasis should also be placed on education reform and reducing human capital flight for coupled with productive interventions, the bottom billion will escape poverty. By improving the economy of the bottom billion, the world benefits from new trade opportunities and the decreased need for foreign aid, both of which are economically beneficial.

Works Citied:
Collier, Paul. The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It. Oxford: Oxford University Press, 2007. Print.