Collier on development in dangerous places

Paul Collier makes a case for intervention (military and aid) because of lack of security (internal rebellion) and accountability. A mouthful of discussion and provocative recommendations that sound as bizarre as it could get but is probably one in the right direction.

Chad is not alone. It is one of a group of about 60 small, impoverished, post-colonial countries that “came unnatural into the world.” With neither the social unity needed for cooperation, nor the size to reap the benefits of larger scale, they are structurally unable to provide the public goods—such as security—that are critical for decent quality of life and imperative for economic development. They have diverged from the rest of mankind. They will never tap their vast reservoir of frustrated human potential unless the international community, at least for a time, supplies basic public goods that go beyond the typical aid agenda. This, stated baldly, is the thesis of my new book, Wars, Guns, and Votes. It is a troubling thesis. I have come to it reluctantly, and the international community has shied away from it, as have the societies of the bottom billion themselves.

Size matters: the production of public goods, by nature, is characterized by economies of scale.Security and accountability are two public goods that make economic development possible. […]Poverty, stagnation, abundance of valuable natural resources, and ethnic diversity made rebellion easy. Further, governments faced a dilemma: a large and well-equipped military might help to discourage rebellion, but it might also increase the risk of a coup d’état.

[…]The costs of civil war are, as Hobbes observed, enormous: life is solitary, poor, nasty, brutish, and short, and even the possibility of war is enough to deter investment and stunt growth. Thus, without security, economic development is extremely difficult. […]for the bottom billion the accountability of government to citizens may be more than a nice bonus: it may substantially improve the chances of development. If countries of the bottom billion are structurally unable to supply security and accountability, then some form of international supply is required. Below a threshold per-capita income of around $2,700, democracy actually appears to increase the risks of many forms of political violence, including rebellion. The societies of the bottom billion are way below this threshold. This is not an argument against the pursuit of democracy, but it does imply that security and accountability are distinct needs.

[…]ordinary people are still befuddled by an outdated rhetoric: international pressure for accountability is presented by threatened elites as a return to colonialism. Protected by this conveniently emotive assertion, presidents grandly claim that they are defending national sovereignty. However, since they are usually not accountable to citizens, what they are really defending is presidential sovereignty. […]As public goods, security and accountability are like that malaria vaccine: those who need them cannot adequately supply them.

[…]Any international intervention should be acceptable both to the citizens of the recipient society and to citizens of the providing societies, and most suggestions for action fail this test. Most, but by no means all. […]Peacekeeping and “over-the-horizon guarantees” (a promise of military intervention if it becomes necessary) are effective ways to provide security.

Making aid conditional on government actions can also help. But those actions should relate to the accountability of government to citizens rather than to the adoption of economic policies, which was the past practice of donors. Policy conditionality detracts from the accountability of government to citizens because it relives government of responsibility for some economic decisions.

Bill Easterly argues that Collier “wants to de facto recolonize the “bottom billion”” and that his research is based on “one logical fallacy, one mistaken assumption, and a multitude of fatally flawed statistical exercises.” When Easterly uses the word “recolonize”, I feel he is speaking like a desperate leader in developing country who wants to cling to power by any means, often by drumming up support for his rule by blaming ‘foreigners attempting to recolonize their nation and sovereignty’ (say, blame-of-last-resort argument). Collier (indirectly) addressed this issue in his piece. Easterly fails to see it.

Given that Collier’s evidence base collapses when subject to scrutiny, it is all the more disturbing that his policy recommendations are remarkably interventionist. Collier tells bottom-billion societies that are recovering from civil war that they must accept international “peacekeepers” (a nice euphemism to help us forget that these are soldiers who kill people), whose deployment is decided by the Western powers.

Foreign armies invade and control the whole political process—yes, the word “neocolonial” is overused, but with Collier’s recommendations I think one could drop the “neo.” Such aggressive interventions will almost certainly have unintended negative consequences. Will Western violence beget more local violence? Will there be a violent backlash against foreign intervention? Foreign armies will likely kill some innocents in the process of peacekeeping. The motto “first, do no harm” puts the burden of proof on the academic interveners. Collier falls short by intercontinental ballistic missile range.

Larry Diamond disagrees with Collier:

None of these endemically poor countries can climb out of misery without better governance. Collier appreciates this, but he does not fully grasp the vital distinction between Asia’s developmental dictatorships and Africa’s dictatorial disasters. The classic authoritarian Asian tigers—Korea, Taiwan, Singapore, Indonesia—all had near-death experiences with communism that led them to realize it was time to “develop or die.” None faced ethnic complexity as daunting as in Nigeria or Ethiopia, but Singapore and Indonesia did have to work to forge an overarching national identity. Whatever their other faults, all of these countries’ ruling elites (and later the regimes in China and Vietnam) came to identify their own political interests with generating the public goods necessary for transformative development.

By contrast, the typical African ruling elites have settled into a different pattern of behavior and expectations. Security—for the individual ruler and his family, clique, and party—derives from generating private goods and stashing them away in real estate and numbered bank accounts abroad. To say that the West has indulged this pattern does not begin to capture our complicity in the problem. When foreign aid funds up to half the recurrent budget of many of these morally bankrupt states, it is not hard to draw a nearly straight line from aid to venality.

Nancy Birdsall likes three S’s-- sovereignty, size and security-- but is skeptical about over-the-horizon military guarantee.

I am less confident, however, about Collier’s endorsement of over-the-horizon military guarantees. I would recommend other interventions, less exciting but better grounded in experience and evidence.

An arrow towards Easterly:

[..]speaking of evidence, there has been plenty of grousing about Collier’s reliance on econometric results to “prove” that one thing (peacekeeping, democracy) causes another (growth, increased violence). I am inclined to be more tolerant. He is putting big issues on the table, and in reality the issues get more attention because he is purporting to show they matter. Would there be a Collier TED talk and an essay in Boston Review if he had never published a “scholarly” article?

The kind of internal security guarantees Collier suggests need not be off the table. Even if the empirical work behind his assertions is flawed, the story he constructs starts from first principles and is compellingly consistent with history and current experience. You never know where and under what conditions over-the-horizon military guarantees would be the best solution. But there are other proposals the development community should advocate as well, and first. Even though they do not involve guns and war, we ought not ignore and underfund them.

Edward Miguel’s note of dissent:

Africa is still lagging behind the most successful Asian countries, and many of its gains are fragile. Still, I disagree with Collier: the past decade surely offers hope.

Mike McGovern’s disagreement:

Culture and history interact with political economy, regional and international political dynamics, and the personalities of key actors in complex ways. This is why, even though I suggested for Liberia and Sierra Leone many of the recommendations Collier proposes, I reject his strategies when applied generally to the “bottom billion.” […]Rather than coercing potentially rogue leaders into governing responsibly, this policy primarily emboldens military officers to stage coups.

Collier’s response to these criticisms here (especially directed at Easterly)

In presenting his own optimistic case for autonomous recovery and convergence, William Easterly utterly misrepresents the argument of The Bottom Billion as being that of a “poverty trap” and then argues at length that there is no such trap. Indeed, he is so eager to criticize that he appears to have confused me with Jeffrey Sachs, the true evangelist of the poverty-trap thesis, which I explicitly reject. Certainly, growth is complicated. My argument is that a few salient factors have been important in the persistent divergence between rich and poor countries, while in no sense suggesting that this is an exhaustive account. An example is dependence upon natural-resource wealth, which makes the politics of development more difficult. Another is being landlocked without natural resources and surrounded by bad neighbors. Does Easterly deny that these are intractable problems that have contributed to the current stark disparity in living standards? […]It is important to recognize that behind expressions of statistical fastidiousness lurks a recognizable philosophical hostility to public action that has no statistical foundation whatsoever. In critiquing the scope for international action, Easterly simply trots out disaster stories.

But since Easterly has mounted an aggressive critique, I will take a moment to defend myself. Eight years ago my colleague Anke Hoeffler and I proposed that three economic characteristics—low income, slow growth, and dependence upon natural resources—all made conflict more likely. Each of these propositions has since become considerably more robust. The balance of the statistical evidence suggests that the propositions are correct.

As to method, my colleagues and I adopt the statistical approach of “general-to-specific,” in which insignificant variables are systematically and progressively deleted by the rule of stepwise deletion: this is not data mining. If it were, our results would not have been accepted by professionally refereed economics journals. Easterly’s twists on my remarks concerning new results—where a doubling of the sample and other improvements led to a minor refinement in our previous results on the effect of ethnic diversity—typify his bias. If doubling a data set should not lead to any changes in results, he should not have titled one of his papers, “New Data, New Doubts.” Our more recent results on peacekeeping are, as we readily admit, a first attempt. We very much hope to encourage or provoke other researchers to work on the question. But it should be said that in 2008 this work was assessed by a panel of Nobel-laureate economists who found it a sufficiently solid basis for their policy recommendation: peacekeeping was a good use of public money.

Nothing could better illustrate the true nature of the disagreement about peacekeeping than Easterly’s accusation of colonialism. This accusation is founded on coarse thought, not statistical rigor. Colonialism was an oppressive system in which non-democratic empires conquered territories and ran them according to the interest of their own elites. International peacekeeping is temporary, sanctioned by democratic governments whose electorates have no appetite for empire, and aimed at establishing governments that are accountable to their own citizens. Conflating peacekeeping with colonialism is too crude to constitute abuse.

Pranab Mukherjee’s budget for FY2009/10

The Indian Finance Minister Pranab Mukherjee presented fiscal budget for this year. It focuses on generating GDP growth rate of 9%, investing in infrastructure projects, and social welfare (inclusive development). More here and here. It is of Rs 10 trillion, India’s biggest-ever budget.

It is, not surprisingly, a continuation of the Congress party-led government's left-of-centre, pro-poor and populist policies.

There will be a sharp rise in deficit financing to pay for welfare schemes such as the landmark jobs-for-work programme - which has seen a near 150% rise - in the villages and social security schemes for unorganised workers.

So the bulk of the money to fund all this will come from printing currency and borrowing from India's central bank. There is also an implicit assumption that some money - nearly $10bn - will be raised by auctioning electromagnetic spectrum for telecommunications and divesting minority government holdings in state-run companies.

There are a few sops for the middle class though. Modest relief has been given to income tax payers, a small (only 3% of Indians pay income tax) but influential section of the country's middle class.

High on the list of policy priorities of the government is the enactment of a new food security law that envisages providing 25kg of rice and wheat each month at a subsidised rate of three rupees (or six cents) a kilo to each poor family. This was one of the pre-election promises made by the Congress.

More here. The budget is very much (and rightly) Keynesian.

"My primary objective right now is to come back to high growth rate. My target is to touch 7% GDP growth this year and take it to 8% to 9% thereafter," Mukherjee said. "If we are supported by a good monsoon this is more than possible," he added.

"When external trade is in bad shape and revenues are going down, I'm providing stimulus (through extra spending) to pull up growth domestically," he said. He added that between interim Budget and now, the government has increased spending by Rs 60,000 crore - Rs 40,000 crore by the Centre and Rs 20,000 crore by the states.

The FM said, "It will be a domestic demand generated growth. Since the contribution of direct tax to GDP is high, once demand revives and industry is back on a high growth path, we can expect higher revenue." He added, "I have spoken to all states and the industry and sought their contribution. With the help of the states we will be able to roll out GST, a major reforms in indirect taxes on schedule," he said.

The way Indian budget is being allocated will have an impact on the Nepalese budget, which is set to be unveiled later this month.

Does imposed institutional reform work?

A very interesting article about the consequences of French imposed institutional reforms in Europe and, most importantly, if it worked? The authors show that it did work in fine-tuning institutions that later contributed a lot in economic growth of the European countries.

The French institutional reform intervention in European:

After 1792, French armies invaded and reformed the institutions of many European countries. The package of reforms the French imposed on areas they conquered included the civil code, the abolition of guilds and the remnants of feudalism, the introduction of equality before the law, and the undermining of aristocratic privilege. […]They were imposed “Big Bang” style from the outside. And, institutions such as the civil code were self-consciously designed and were not necessarily “appropriate” for the lands on which they were imposed. If externally-imposed and “Big Bang” reform is generally costly or if designed institutions like the civil code create major distortions, the reforms should have had negative effects on nineteenth-century Europe.

French intervention in Europe worked:

In particular, our results are strongest for the later part of the nineteenth century, which we see as evidence for the fact that French-induced reforms created an environment favourable to the Industrial Revolution, which reached Continental Europe precisely in those decades. French reforms involve no effort to be “appropriate” to local conditions and were imposed from the outside “Big Bang” style. Nevertheless, they appear to have spurred significantly faster economic growth in the second half of the nineteenth century, once the process of industrialisation throughout Europe was underway.

Why did the intervention work?

[…] success may have been due to the fact that the reforms it imposed were much more radical than is typically the case. Many reforms fail because they are de facto reversed shortly after the implementation. The French, instead, reformed simultaneously several aspects of economic, social and political institutions of the “ancient regime” of Europe, thereby significantly weakening the powers of local elites and making a return to the status quo ante largely impossible. Even when some pre-revolution elites returned to power after 1815, there was a permanent change in the political equilibrium. This scope and radicalism of the French reforms are common with the post-war reform experiences in Germany and Japan and stand in contrast with many other reform experiences.

It would be interesting to contrast the French (reform) intervention in Europe and the current reform programs imposed on developing countries by the aid and development agencies. The way French “Big Bang” reforms worked in Europe (after 1850) and the way institutional reforms are imposed upon developing countries right now are very different in methodology, intent and interest!

The reason why French intervention worked is that the institutional reforms were “radical” that shattered power centers with vested interests that were constraining growth. The French Revolution “destroyed (the institutional underpinnings of) the power of oligarchies and elites opposed to economic change; combined with the arrival of new economic and industrial opportunities in the second half of the 19th century, this helped pave the way for future economic growth.” One interesting finding is that evolved institutions are not inherently superior to those ‘designed’.

Short-term fiscal love!

Paul Krugman makes a case for a new fiscal stimulus and why we should worry more about decreasing unemployment rather than debt.

Right now the risks associated with additional debt are much less than the risks associated with failing to give the economy adequate support.

Views from the bottom: Listen to what the poor people are saying

My latest op-ed (Views from the bottom) is based on ODI Working Paper#301 (Governance and citizenship from below: Views of poor and excluded groups and their vision for a New Nepal). There is a lot more to write about the voices of the poor, the evolution of their relation with the local administration officials, their assimilation in the ‘mainstream’ society, and what they think are their priorities to solve the problems plaguing their progress in the society. I will discuss these issues in greater detail in blog posts later this week. For now, I think it is worth posting the whole article below.

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Views from the bottom

Politicians and policymakers argue that they are working on to ensure that in “New Nepal” poor people and marginalized classes will have adequate representation and say over things that matter to them the most. On a regular basis, we hear politicians bragging about the work they do in favor of poor people, even if the policies they advocate have little to do with priorities of poor people. What exactly are the priorities of poor people and excluded groups and what do they think about the evolution of local power relations between citizens and state in the post-revolution era?

The findings of a recent study on national participatory governance show considerable differences in priorities identified by poor people and policymakers. The voices (published as a report by Overseas Development Institute (ODI), Working Paper #301) of people at the bottom of income and social strata indicate the level of disconnect between state and its citizens. “A poor Bahun/Chhetri squatter settlement in Kanchanpur district emphasized that they had never been visited by government, NGOs, donors or the media, while a Dalit community in Bhaktapur asked the telephone number of the National Planning Commission in order to follow-up once the study report is released,” the report, which is based on research carried out in 21 communities in 10 districts, notes.

It is not surprising that the priorities of communities across the country are not homogenous and are often hinged on religious, gender, economic and social issues. For instance, Gurungs in Tanahun wanted a Buddhist temple while Mushar Dalit community in Siraha wanted a community house to conduct community activities and to house guests. Meanwhile, women in Western mountain districts aspired for an access to a flour mill and smokeless stoves. For some communities in Makawanpur, control of soil erosion and bridges were the most important priorities.

That said, on major issues there are commonalities in priorities, which are often missed by politicians and policymakers “working” for them from the capital. The major (tangible) priorities, in descending order, outlined by the poor and marginalized people are roads, education, health, water, electricity, irrigation, land, toilet and veterinary services. Their priorities are as simple as it could get and don’t require a grand, multi-year project to initiate them.
People wanted roads in order to establish connection between markets and production sites, to overcome geographic isolation and to promote local destinations as tourist attraction. They wanted removal of user fees in health services and public education as well as an end to unequal access to scholarships and an expansion of range of treatment and medicines.

Meanwhile, Dalits – who make up 13 percent of the population – not only yearned for expansion of access to water services but also an end to discrimination and humiliation in the usage of water and an end to vulnerability caused by land insecurity. For instance, due to ownership of scattered land plots among ‘upper caste’ in Achham, in the case of a Dalit’s death, families were forced to take “a long circuitous route through the hills to avoid sullying ‘upper caste’ properties.”

Furthermore, poor people felt a sense of deprivation and inconvenience to use kerosene in the absence of electricity. The study states, “The demand for electricity was linked to a sense of frustration at the inefficiency of government—in many places poles had been erected a number of years earlier, symbolizing the promise of electricity, but the wiring had never been provided. Even in cases where lines came, house connections were often beyond the financial means of poor households.”

Partly because of their willingness to freely assimilate with Dalits, the Maoist party had more supporters from Dalit community in Pyuthan. Still now ‘lower castes’ such as Sarkis and Dalits are forced to use separate sitting arrangement and utensils in local tea shops and hotels in the name of preserving ‘ritual purity’. Note that though discrimination against Dalits was outlawed in 1960s, it is yet to be reflected in practice.

Rural communities were concerned about augmenting production through better irrigation and expanded veterinarian services for their livestock, which is an important domestic business for some households. For instance, the report notes that poor Bahun/Chhetri community in Achham district refused to cooperate unless the researchers were connected to irrigation service providers. This depicts the level of disconnect between policymakers and poor people.

In some districts, poor people were resorting to illegal occupation and smuggling in the absence of income-generating opportunities and microcredit services. A Mushar community in Siraha resorted to illegal timber collection while some households in Kanchanpur involved in smuggling goods from India to sell at lower prices in the local market.

Muslims, who comprise 4.3 percent of the total population, felt vulnerable to multiple and overlapping sources of exclusion based on religious identity, status as minority language speakers, and identity as Madhesis when dealing with government officials from the hilly region. This is sensitive and alarming issue because “religious tensions exist beneath the surface”. There should be a measured monitoring of this sensitive issue. Note that Muslims had the lowest drop in poverty rates (6 percent) as opposed to Bahun/Chhetri (42 percent) and Dalits (21 percent) between 1996 and 2004, according to National Living Standard Survey II.

The study also identifies key supply-side constraints such as corruption (local administration officials explicitly demanding bribes to register deaths and births in VDCs), limited information flows about public services and development programs, lack of consultation, capture of community user groups by elites, human rights abuses by government agencies, lack of knowledge about legal rights and communal unity fractured by caste-based alliances with varying interests that constrain effective interaction between poor people and local administrations. How to break these constraints? The poor people and excluded groups offer solutions as well – there needs to be equal treatment with respect while seeking public services, improved communication and access to information, larger role for supportive brokers between different groups and local administrations, and increased representation in public offices.

The poor people and marginalized groups need a workable idea that addresses their immediate needs and helps them not only become financially stronger but also gives an opportunity to break socio-economic barriers and engage in state building. This does not require lengthy assessment by experts and grand ideas dogged in an established ideology. It requires listening to the grievances of the poor people and workable ideas proposed by them. The tarnished credibility of politicians and the effectiveness of aid industry would improve if they actually listen to the voices of the poor people and marginalized groups.

(Republica, July 1, 2009)

Interesting debate between Krugman and Taylor

Watch Paul Krugman and John Taylor argue about fiscal stimulus, debt, inflation, interest rates, healthcare and more…

Indonesia: Economic crisis and the developmental state

Degol Hailu argues that policy responses to the economic crisis is turning Indonesia into a developmental state. I think the same can be said about pretty much every country that initiated some trade restrictions and implemented fiscal stimulus in the past two years. We are becoming more Keynesian than ever!

In the first quarter of 2009, rubber exports fell by 32 per cent. Farmers have suffered most. In some provinces tapping has completely ceased. The policy response was to cut shipments of rubber exports by 700,000 tons, a cartelist measure that was taken in concert with Thailand and Malaysia. The hope is to keep prices high and maintain constant income levels, just as the Organisation of Petroleum Exporting Countries (OPEC) does.

The price of tin, another major Indonesian export, fell from US$23,595 per ton in July 2008 to US$12,355 in April 2009. The government suspended the quota system that set minimum limits on tin exports. When prices were high, provinces such as Bangka Belitung and the Riau Islands were required to export at least 90,000 and 15,000 tons of tin, respectively. By suspending the minimum quota, the government is encouraging producer to cut their output and keep prices stable in the face of slow global demand. As a result, tin production fell from an average of 120,000 tons between 2005 and 2007 to 80,000 tons in 2008.

The target for the footwear and textile industry is to switch the above percentages: 60 per cent for domestic consumption and 40 percent for exports. As part of its stimulus package, the government is providing direct subsidies for the purchase of machinery under the Machinery Revitalisation Programme.

Rcently, the footwear industry received a cash subsidy of US$5.17 illion, and US$22.1 billion was provided to the textile industry. The government stepped in and launched a scheme to increase cotton output to 48,000 tons in the next few years, and to double the area under cultivation to 40,000 hectares. The provision of subsidised seeds and farm inputs has already started in Gunung Kidul, Yogyakarta, Pati, Kudus, Blora, East Java, and South Sulawesi provinces.

The government’s response to the crisis has also included macroeconomic policy changes. The interest rate was cut to 7.8 per cent in 2009 from 9.5 per cent in 2008. A fiscal stimulus of US$7 billion, or 1.4 per cent of GDP, has also been announced. The stimulus comes in the form of tax cuts (76.5 per cent of it), infrastructure expenditure (16.8 per cent) and direct subsidies (6.7 per cent). Fortunately, 2009 started with a fiscal deficit of 1.2 per cent of GDP, which gave the government room for deficit financing.