The bottom billion Paul Collier
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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
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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
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