Wednesday, January 14, 2015

The Bottom Billion

- A paper I wrote in the Fall of 2013 

The Bottom Billion

            The present age of globalization features unprecedented wealth around the world. In the past 30 years over two billion people have been lifted out of poverty in India and East Asia, a miraculous economic growth story. However, there is a part of this economic story that is less talked about, with much less to boast about. The less mentioned fact is that within the previous 20 years, there has also been a bottom billion of the world’s population being left behind, mainly in sub-Saharan Africa. Many countries have actually experienced a decline in economic growth since gaining independence, with some countries boasting a lower GDP per capita than they achieved in the 1970s, a literal reversal in living standards. Why have countries like South Korea and Taiwan being able to experience massive economic growth, even to the point of now being considered a developed economy. In the same time period as all of this amazing growth, countries in sub-Saharan Africa have shown little economic advance and not much room for optimism. First, issues such as ethnic fragmentation and the fact that the vast majority of Sub-Saharan people are destitute and poor may add to the economic feat that these countries face. Next, we must examine how weak states with very poor governance have contributed to the economic problems, or have been led to have weak governing bodies. Lastly, the political logic facing many sub-Saharan leaders forces many decisions to be made due to the incentive structure, leading to the earlier issue of poor governance coupled with policies that may be unfriendly to economic growth.
            Many may feel that ethnic fragmentation within African societies is surely a cause for warfare and violence. Especially after the now much publicized Rwandan genocide of the Tutsis by the Hutus in 1994 that resulted in over half a million people being killed. Today, over half of all Africans can be declared, “minorities at risk” meaning they face political repression and may face discrimination. However, as Paul Collier notes, “there is not much evidence of a relationship between ethnic diversity and the country’s proneness to civil war (Collier 2009). Yet, if you disaggregate the statistical evidence for how polarized the ethnic groups happen to be, there can be some correlation to the chance of war. So overall, ethnic fragmentation in Africa is not a leading cause of conflict, in fact it can be suggested that ethno political conflict is actually a product of poor governance and state failure (Packer Notes(a)). This leads to the crux of the problem facing most African countries and almost all sub-Saharan countries, governance, or a lack of.
            According to the most recent ‘Failed States Index’ collaborated annually; there are 20+ African countries with governments in ‘critical’ condition and another eight declared as ‘in danger’ of becoming a failed state (Sheldon 2012). This huge number of countries with little to no governance is not promising for future economic growth prospects. In order for there to be stable economic growth, a government is needed to provide public goods. These include infrastructure, security for the citizens, and lastly to protect private property from unreasonable and arbitrary seizure. Unfortunately, there is nothing that forces a leader or government to provide these goods, and in fact the incentives facing many leaders in sub-Saharan Africa can work in the opposite direction. A leader faces two distinct options because they control the means to violence, choosing to either provide those public goods mentioned above and protect the citizens, then earning his living through taxation of those citizens. Conversely, the leader can instead choose to prey on the citizens or leave them unprotected from violence (Packer Notes(a)). If a leader decides on the former, whether that is because he feels insecure about his political future or is just greedy and impatient, the citizens are forced to switch from productive activities to self-protection and thus end up worse off in the process. Featuring over 70 military coups in sub-Saharan Africa in the time between gaining Independence and the 1990s, it is no wonder that many leaders choose predation over protection seeing as they do not know how long they will stay in power. In this way, long-term economic growth is almost impossible to gain with a roving bandit government reducing the incentive of any economic productivity if it can be arbitrarily seized at any moment in the future. This leads to less economic growth and more resources going to protection and survival instead.
            The political logic for many of these leaders, as stated previously, can be skewed towards predation and to take on the role of a roving bandit. However, there are also domestic political factors that require leaders to cater to the winning coalition in order to stay in power. Regarding the choice between enhancing social welfare or staying in power by enriching a privileged few, Bruce Bueno de Mesquite said, “Honorable motives might seem important, but they are overwhelmed by the need to keep supporters happy, and the means of keeping them happy depends on how many need rewarding” (Bueno de Mesquita & Smith, 2011). This leads to clientalism and corruption within governments in the African countries, also contributing to the lack of economic growth. When a government first fails to provide infrastructure and other public goods for society, the focus can then concentrate on the resources within the country. This leads the leader of the country to divvy out the rents that the government is able to gain from the resources, using the money to buy up or coerce support for the regime. When the winning coalition of supporters for the leader is small relative to the size of the selectorate, it is easier for a regime to buy off and keep the support through spoils, private benefits and public projects that work as pork projects getting awarded to those in favor of government (Packer Notes(a)). As a supporter of Robert Mugabe in Zimbabwe stated rather candidly, “I am rich because I belong to Zanu-PF [Mugabe’s ruling party]” (Bueno de Mesquita & Smith, 2011). Many leaders partake in similar functions, rewarding those who support them and help them stay in power at the expense of the losing group or the public as a whole in the country. These policies can take the form of many bad economic decisions, such as, government licensing that protects established producers, subsidies to favored corporations, low cost loans to favored companies, and maintaining an overvalued currency that acted as a subsidy to urban manufactures (Packer Notes(a)). An economy that can grow and prosper over a long period of time cannot be sustained if crony capitalism is taken as standard, and every time a new government comes in power, the favored companies switch and wealth changes hands arbitrarily. Furthermore, as leaders feel that they are less secure, the rewards and incentives to protect the citizens and not switch over to predation decline. In extreme cases, some leaders even see infrastructure building as enabling a rebellion the means to move quickly against the government. For example, in Zaire, there was 90,000 miles of road in 1965, yet 30 years later there was only 6,000 miles of road left intact (Bueno de Mesquita & Smith, 2011). This was because the leader of Zaire, allowed only infrastructure that was beneficial to his regime, for example a road that would help him escape the country or allow his forces to maintain power, while destroying roads that would aid any sort of rebellion trying to be put together against him. The problem with this is that in order to stay in power, Mobutu was destroying any hope of economic growth within Zaire by not just providing public goods and infrastructure, but even worse by destroying them. The incentive for a leader unsure of how long he will be in power is to take as much as he can in the present before being overthrown, leading to roving banditry and uneven revenue streams. Together, this leads to a lack of good governance, and a lack of good governance can lead to failing states.
            Ultimately, the governing bodies in Africa can and do fail because they lack the means or ability to tax its citizens. This is important because a steady revenue stream allows a government to provide the public goods necessary to keep an economy growing. A government that acts as a stationary bandit, taking produce from a certain region continuously over time while leaving enough so that people still have an incentive to keep producing is much more effective than if the government acts as a roving bandit. If the government acts as a roving bandit, there will be a major one-time increase in revenue for that government followed by a precipitous decline. The increase occurs when the government initially steals the resources and rents it needs, this is quickly followed by a decline as the incentive to reproduce for the people has been destroyed. This is also where one can get into the lack of political accountability featured by many African governments that rely on resources for their revenue streams. As resource prices can be very volatile, so can the revenue achieved from those resources be just as likely to swing largely in either direction. First, with a revenue stream a leader does not have to rely on being a benign stationary bandit, and can simply ignore the people’s demands while also not building or providing any public goods, using the resource revenue to coerce and coopt supporters to stay in power. The political struggle within the country then becomes one in which the struggle is over the resources, allowing whoever is in control of the resource is buy up or coerce support for power. In this way, a government does not need to tax its citizens and a government that cannot or will not tax its citizens is a very weak state, and when revenue streams are cut off due to volatile global commodity prices, this weak state can fall very quickly.

            In the end, there is a need for policy reconsideration for most of Africa’s governments. Unfortunately, the incentives facing many leaders lead to policies that do not favor long-term economic growth and make it hard for the country to move forward along with the rest of the world in an age of vast wealth increases. With billions of people rising up from poverty elsewhere in the world, weak states and poor governance is holding Africa back from following in East Asia’s footsteps and becoming another economic growth miracle. The potential is there for many countries in Africa to join the rest of the world in the ladder to economic success. Steps need to be taken to strengthen the governing structures, making leaders accountable to the people, and providing the right incentives for leaders to provide for its citizens and lay the foundation to future years of economic growth.

Reference Page

Bueno de Mesquita, B., & Smith, A. (2011). The dictator's handbook: Why bad behavior is almost always good politics. New York: Public Affairs.

Collier, P. (2009). The bottom billion, why the poorest countries are failing and what can be done about it. New York: Oxford University Press, USA.

Packer Notes. The Bottom Billion. 2013 (a)

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