The Poorest Billion People - Case Study Example

Now, thanks to impressive growth in places like China, the world is more like one-sixth rich, two-thirds not rich but improving, and one-sixth poor and going nowhere. Most developing economies are experiencing a rising standard of living. But that still leaves about a billion people trapped in economies that are not only extremely poor but stagnant or getting worse. All told, 58 countries fit into this poorest-billion category, including 70 percent of sub-Saharan Africa plus the likes of Bolivia, Cambodia, Haiti, Laos, Myanmar, North Korea, and Yemen.

Economist Paul Collier, of Oxford Univesity in England, has examined what went wrong with these “trapped countries.” Based on decades of research, he identifies some poverty traps. About 750 million people of the bottom billion have recently lived through, or are still in the midst of, a civil war. Such wars can drag on for years with economically disastrous consequences. For example, the ethnic conflict in Burundi between the Hutus and the Tutsis has lasted three decades, which helps explain that country’s poorest-in-the-world ranking. Unfortunately, the poorer a country becomes, the more likely it is to succumb to civil war. And once a country goes through one civil war, more are likely. Ethnic conflict, or civil war, is Collier’s first poverty trap.

But why, aside from poverty itself, are so many sub-Saharan countries mired in the civil war? He finds that three factors heighten the risk of such conflicts: (1) a relatively high proportion of young, uneducated men with few job prospects (who, thus, have a low opportunity cost); (2) an imbalance between ethnic groups, with one tending to outnumber the rest; and (3) a supply of natural resources like diamonds or oil, which both creates an incentive to rebel and helps finance that rebellion. The presence of mineral wealth in an otherwise poor country can also undermine democracy itself. Government revenue from mineral sales reduces taxes, which dampens public debate about how taxes should be spent. For example, because of oil revenue, the Nigerian government relies less on taxes, so there is less pressure for government accountability, and hence fewer checks and balances on a corrupt government. Thus, the misuse of resource wealth is Collier’s second poverty trap. About 300 million of the poorest billion live in countries that have fallen into this trap.

This leads us to the third poverty trap: a dysfunctional or corrupt government. Government officials who pursue self-glorification and self-enrichment do serious harm to the economy. Much of the public budget disappears through wasteful programs rife with graft and payoffs. For example, a recent survey that tracked government funds for rural health clinics in Chad found that less than 1 percent of the money reached the clinics. About 750 million of the poorest billion live in countries that pursue disastrous economic policies or where government corruption harms the economy.

Can these poorest billion be helped? It will take more than band concerts. Collier doubts that unconditional foreign aid makes much of a difference. He points to the ill effects of oil as an unconditional source of government revenue. International trade may help, but because these countries have difficulty competing with the likes of China or Vietnam, they may need special trade advantages. Another way the rest of the world could help is by requiring Western banks to report deposits by corrupt officials. The rest of the world could also assist these poor countries in developing laws and regulations to ensure the transparent management of natural resources, to help detect fiscal fraud, and to promote a free press. But even with all that, what these countries need most, Collier argues, is about 10 years of domestic peace—backed p by an outside force if necessary, such as the the U.N. All that is a tall order, but the stakes are high for the billion people trapped and going nowhere in these poor nations. Read More