The bottom billion Paul Collier

[Music]

so can we dare to be optimistic

well the thesis of the bottom billion is

that a billion people have been stopped

living in economies that have been

stagnant for 40 years and hence

diverging from the rest of mankind and

so the real question to pose is not can

we be optimistic it’s how can we give

credible hope to that billion people

that to my mind is the fundamental

challenge now of development what I’m

going to offer you is a recipe a

combination of the two forces that

change the world for good which is the

Alliance of compassion and enlightened

self-interest compassion because a

billion people are living in societies

that have not offered credible hope that

is a human tragedy enlightened

self-interest because if that economic

divergence continues for another forty

years combined with social integration

globally it will build a nightmare for

our children we need compassion to get

ourselves started and enlightened

self-interest to get ourselves serious

that’s the Alliance that changes the

world so what does it mean to get

serious about providing hope for the

bottom billion what can we actually do

well a good guide is to think what did

we do last time the rich world got

serious about developing another region

of the world it just turns out quite a

good clue except you have to go back

quite a long time the last time the rich

world got serious about developing

another region was in the late 1940s

the rich world was you America and the

region that needed to be developed was

my world Europe that was post-war Europe

why did America get serious it wasn’t

just compassion for Europe though there

was that it was you knew you had to

because in the late nineteen forties

country after country in Central Europe

was falling into the Soviet bloc and so

you knew you’d no choice Europe had to

be dragged into economic development so

what did you do last time you got

serious well yes you had a big aid

program thank you very much that was

marshal aid we need to do it again

aid is part of the solution but what

else did you do

well you tore up your trade policy and

totally reversed it before the war

America had been highly protectionist

after the war you open your markets to

Europe you drag Europe into the vengal

economy which was your economy and you

institutionalize that trade

liberalisation through founding the

general agreement of tariffs and trade

so total reversal of trade policy did

you do anything else yes you totally

reversed your security policy before the

war your security policy had been

isolationist after the war you tear that

up you put a hundred thousand troops in

Europe for over 40 years

so total reversal of security policy

anything else yes you tear up the

eleventh commandment

national sovereignty before the war he

treated national sovereignty as so

sacrosanct that you weren’t even willing

to join the League of Nations after the

war he found the United Nations you

found the Organisation for Economic

Cooperation and Development you found

the IMF you encouraged Europe to create

the European community all systems for

mutual government support

that is still the waterfront of

effective policies aid trade security

governments of course the details of

policy are going to be different because

the challenge is different it’s not

rebuilding Europe it’s with reversing

the divergence of the bottom billion so

that they actually catch up is that

easier or harder we need to be at least

as serious as we were then now today I’m

going to take just one of those four I’m

going to take the one that sounds the

weakest the one that’s just motherhood

and apple pie government’s mutual

systems of support for governance and

I’m going to show you one idea in how we

could do something to strengthen

governance and I’m going to show you

that that is enormous ly important now

the opportunity we’re going to look to

is is a genuine basis for optimism about

the bottom billion and that is the

commodity booms the commodity booms are

pumping unprecedented amounts of money

into many they’re not all of the

countries of the bottom billion partly

they’re pumping money in because

commodity prices are high but it’s not

just that there’s also a range of new

discoveries

Uganda’s just discovered oil and about

the most disastrous location on earth

Ghana’s discovered oil Guinea has got a

huge new exploit exploitation of iron

ore coming out of ground so mass of new

discoveries between them these new

revenue flows dwarfed aid just to give

you one at one example and Goler alone

is getting 50 billion dollars a year in

oil

new the entire aid flows to the sixty

countries of the bottom billion last

year with thirty four billion so the the

the flow of resources from the commodity

booms to the bottom billion Oh without

precedent so there’s the optimism

question is how is it going to help

their development it’s a huge

opportunity for transformational

development will Italy take them so here

comes a bit of science and this is a bit

of science I’ve done since the bottom

billion so it’s new I’ve looked to see

what is the relationship between higher

commodity prices of exports and the

growth of commodity exporting countries

and I’ve not globally I’ve taken all the

countries in the world for the last 40

years and look to see what the

relationship is and the short-run say

the first five to seven years is just

great

in fact it’s hunky-dory everything goes

up to get more money because he terms a

trade and improve but also that drives

up output across the board so GDP goes

up a lot fantastic

that’s the short-run and how about the

long-run come back 15 years later

well the short-run it’s hunky-dory that

the long run is Humpty Dumpty you go up

in the short run but then most societies

historically have ended up worse than if

they’d had no booms at all that is not a

forecast about how commodity prices go

it’s a forecast of the consequences the

long-term consequences for growth of an

increase in prices so what goes wrong

why is there this resource curses is

called and again I’ve looked at that and

it turns out that the critical issue is

the level of governance the initial

level of economic governance when there

is all spoons accrue in fact if you’ve

got good enough governance there is no

resource boom you go up in the short

and then you are up even more in the

long term that’s Norway the richest

country in Europe its Australia it’s

Canada the resource curse is entirely

confined to countries below a threshold

of governments they still go up in the

short run that’s what we’re seeing

across the bottom billion at the moment

the best growth rates they’ve had ever

the question is whether the short run

will persist with bad governance

historically over the last 40 years it

hasn’t countries like Nigeria which are

worse off than if they never had oil so

there’s a threshold level above which

you go up in the long term below which

you go down just a benchmark that

threshold it’s about the governance

level of Portugal in the mid-1980s so

the question is of the bottom billion

above or below that threshold now

there’s one big change since the

commodity booms of 1970s and that is the

spread of democracy so I thought well

maybe that is the thing which is

transform governance in the bottom

billion maybe we can be more optimistic

because of the spread of democracy so I

looked democracy does have significant

effects and unfortunately their adverse

democracies make even more of a mess of

these resorts films than autocracies at

that stage I just wanted to abandon the

research but

it turns out that democracy is a little

bit more complicated than that because

through two distinct aspects of

democracy

there’s electoral competition which

determines how you choir power and the

checks and balances which determine how

you use power it turns out that

electoral competition is the thing

that’s doing the damage with democracy

where our strong checks and balances

make resource looms good and so what the

countries of the bottom billion need is

very strong checks and balances they

haven’t got them they’ve got instant

democracy in the 1990s elections without

checks and balances how can we help

improve governments and introduce checks

and balances in all the societies of the

bottom billion there are intense

struggles to do just that the simple

proposal is that we should have some

international standards which will be

voluntary but which would spell out the

key decision points the need to be taken

in order for to harness these resource

revenues we know these international

standards work because we’ve already got

one it’s called the extractive

industries transparency initiative that

is the very simple idea that governments

should report to their citizens

what revenues they have no sooner was it

proposed than reformers in Nigeria

adopted it pushed it had published the

revenues in the paper

Nigerian newspaper circulation spiked

people wanted to know what their

government was getting in terms of

revenue so we know it works

what would the content be of these

international standards I can’t go

through all of them but I’ll give you an

example the first is how to take the

resources out of the ground the economic

process is taking the resources out of

the ground and putting assets on top of

the ground and the first step in that is

selling the rights to resource

extraction you know how rights resource

extraction are being sold at the moment

how they’ve been sold over the last 40

years

her company flies in does a deal with a

minister and that’s great for the

company and it’s quite often great for

the minister and it’s not great for the

country there’s a very simple

institutional technology which can

transform that and it’s called verified

auctions the the public agency with the

greatest expertise on earth is of course

the Treasury that is the British

Treasury and the British Treasury

decided that it would sell the rights to

third generation mobile phones by

working out what those rights were worth

now it worked out they were worth two

billion pounds just in time the set of

economists got there and said why not

try an auction it’ll reveal the value it

went for twenty billion pounds through

all if the British Treasury can be out

by a factor of ten think what the

Ministry of Finance in Sierra Leone is

going to be like when I put that from

the president of Sierra Leone the next

day yes the World Bank descend on the

team to give expertise on how to conduct

auctions there are five such decision

points each one needs an international

standard if we could do it we would

change the world we would be helping the

Reformers in these societies who are

struggling for change that our modest

role we cannot change these societies

but we can help the people in these

societies who are struggling and usually

failing because the odds are so stacked

against them and yet we’ve not got these

rules if you think about it the cost of

promulgating international rules is

silly nothing why on earth are they not

there I realized that the reason they’re

not there is that until we have a

critical mass of informed citizens in

our own societies politicians will get

away with gestures the

unless we have an informed society what

politicians do especially in relation to

Africa is gestures things that look good

but don’t work and so I realized we had

to go through the business of building

an informed citizenry that’s why I broke

all the professional rules of conduct

for an economist and I wrote an

economics book that you could read on a

beach however I have to say the process

of communication does not come naturally

to me this is why on this stage but it’s

alarming right I grew up in a culture of

self-effacement my wife showed me a blog

comment on one of my last talks and the

blog comment said Collier is not

charismatic

that is arguments are compelling if

[Applause]

if you agree with that sentiment and if

you agree that we need a critical mass

of informed citizenry you will realize

that I need you please become

ambassadors thank you

[Applause]