Why Poor Countries are Failing and What

We Can Do About It: A Critical Review of

The Bottom Billion by Paul Collier

A term paper submitted by

Swagat Kar

Roll Number: 258

Department of Economics
St. Xavier’s College (Autonomous), Kolkata

Supervisor: Prof. Pia Ghoshal

I affirm that I have identified all my sources and that no part of my dissertation
paper uses unacknowledged materials.

(Swagat Kar)
Abstract
When we consider the problems of developing countries, we must understand that the phrase
‘developing countries’ encompasses six billion of the world’s population. Addressing the issue
of development for the past four decades has seen improvement in the economic performances
of most of these developing countries. However, certain countries went adrift, not following
the development path of most other nations. Thus, there lies a serious challenge of development
for these group of countries at the bottom that are ‘not just falling behind’ but are also ‘falling
apart’. In his book, “The Bottom Billion”, Paul Collier identifies and addresses the factors
behind failing economic development in this minority of developing countries that are now at
the bottom of the global economic system. He accepts the fact that for some countries to do
relatively better, others have to do relatively worse. However, he argues that the decline of the
countries now at the bottom is not just relative but absolute. He furthers his argument by stating
“the countries where development has failed face intractable problems not found in other
developing countries that are succeeding”. Collier suggests that the tools to enhance the
economic situations of these countries are military interventions, international standard-setting,
and trade policy. However, the agencies that control these instruments have neither knowledge
of nor interest in the problems these countries face. The author comes to see that four distinct
traps explain the countries now at the bottom. Between them, they account for around a billion
people who will gradually diverge from the rest of the world and plunge into misery and
discontent if no steps are taken. Through this paper, I shall be critically analysing the work of
Paul Collier and will evaluate its importance in explaining and addressing the problems of the
bottom billion of the world’s population.

Keywords: Poverty, Economic Development, International Trade, Trade Policies

JEL Classification: I32, F10, F13, O10, O40
1. Introduction
Collier believes that for forty years the world has mistaken the challenges of development.
Millennium Development Goals (MDGs) established by the United Nations, encapsulate this
faulty thinking. However, the contemporary way of conceptualizing development has become
erroneous and outdated. Easterly argues that Millenium Development Goals are poorly and
arbitrarily designed to measure poverty and deprivation. [1] He believes that Africa’s relative
performance looks worse because of the particular way in which the targets of Millenium
Development Goals are set. Carlos Oya debates along the same lines.[2] He argues that agendas
of Millenium Development Goals are good only to muster international assistance for the basic
needs of the impoverished countries. They largely fail to achieve development as strategized.
Thus, the real challenge of development is that there is a group of countries at the bottom of
the global economic system that is not just “falling behind” but is also “falling apart”. In his
book “The Bottom Billion: Why the poorest countries are failing and what can be done about
it”, Collier explains that some countries coexist with the world in the twenty-first century, but
their reality is the fourteenth century. He identifies 58 such countries which are concentrated
in Africa and Central Asia. These countries cumulatively account for around a billion people.
Collier calls this group of countries as the “bottom billion countries”. Over time, as the bottom
billion countries diverge from the increasingly sophisticated world economy, their integration
with the world economy becomes harder. The governments of the bottom billion countries
cannot change the course by themselves. The prevailing conditions in the bottom billion
countries are too bad not to foster extremism. Leaders are either psychopaths who shoot their
way to power or crooks who buy it. Even the appearance of modern government in these
nations proves to be a hollow concept. An honest government would also be helpless in the
bottom billion countries. Governments of bottom billion countries sit at the international
negotiating tables but have nothing to negotiate. However, Collier believes poverty is not
intrinsically a trap, otherwise, every country would still be poor.
Hard work, thrift, and intelligence can pull society out of poverty unless it gets trapped. While
some do not believe in the existence of development traps, others believe that global capital
itself generates a development trap. Collier builds on the concept of a development trap as
popularized by the works of Jefferey Sachs.[3] He discusses four development traps that receive
less attention but keep countries impoverished. Though the traps are not inescapable, the
process of breaking free and catching up with the rest of the world has stalled in recent times.
The current global market is far more hostile to new entrants than it was in the 80s. Even if the
bottom billion countries escape the development traps, their opportunities would still be
constrained by external factors. Thus, the bottom billion countries are in limbo. The average
life expectancy for these bottom billion countries is fifty years, whereas for other developing
countries it is sixty-seven years. Infant mortality is 14 per cent in the bottom billion while it’s
just 4 per cent in other developing countries. Similarly, the proportion of children with
symptoms of long-term malnutrition is 36 per cent in the bottom billion while for other
developing countries it is just 20 per cent. The bottom billion countries are thus falling behind
the rest of the world in terms of development. This gap is not innate. It suggests that the
development of the bottom billion countries is trapped. International aid has found little success
in closing this gap over the years. Collier blames the IMF for its usual approach to average
figures relating to the size of a country’s economy for this failure. It describes the economic
scenario from the perspective of the typical unit of the income, not from the perspective of the
typical person. Thus, if one wants to capture the experience of a typical person from the bottom
billion, one needs to work with figures based not on a country’s income but its population.
The developing countries encompassing middle five billion of the world’s population
experienced rapid and accelerating growth in per capita income. In the 70s, these countries
grew at 2.5 per cent per year which was not remarkable but heartening. In the 80s and 90s, their
growth rate accelerated to 4 per cent a year. During the first few years of the twenty-first
century, the growth rate for these countries accelerated to over 4.5 per cent. Such figures imply
that children in these countries will grow up to live very differently from their parents. There
is hope even for poor people. However, the bottom billion countries in the 70s saw their per
capita income rise by 0.5 per cent a year. This made them slightly better off in the absolute
terms but at a barely perceptible rate. In the 80s, the per capita income for the bottom billion
countries started declining at 0.4 per cent a year. By the end of 80s, they were back to where
they had been in 1970 in absolute terms. The only economic experience was of individual
volatility wherein some individuals became relatively richer and some relatively poorer. In the
golden decade of the 90s, the rate of absolute decline accelerated to 0.5 per cent a year. By the
turn of the millennium, the bottom billion countries were thus poorer than they had been in
1970. In the first few years of the twenty-first century, the per capita growth of the bottom
billion picked up to 1.7 per cent a year. Far below than the rest of the developing world yet
markedly better in absolute terms. So, divergence and not development has been the main
feature of the societies in the bottom billion. In the 70s, the bottom billion countries diverged
in growth from the rest of the developing world by 2 per cent per annum. The situation became
alarmingly worse in the 80s when this divergence accelerated to 4.4 per cent a year. In the 90s
it appreciated further to 5 per cent a year. Given the power of compound growth rates, these
differences will rapidly sunder the bottom billion countries and the rest of the world economies
into two different worlds. Collier explains that though some initially poor countries like China
and India broke free in time to penetrate the global markets and are now growing pretty well,
there still lingers an unforeseen problem. Over the next two decades, the true problem will
show up because the countries trapped in stagnation or decline back then are now the poorest.
It is like ‘a billion people stuck in a train that is slowly rolling backwards downhill.’ Though
MDGs were focused to address the problems of development in the developing countries,
Collier believes the central problem of the bottom billion countries is that they have not grown.
In his views, failure of growth in these societies should be our core concern, and curing it
should be the core challenge of development. Furthermore, the problem of the bottom billion
countries has not been that they have had the wrong type of growth. The problem is that there
has not been any growth.
Poverty cannot be abolished unless the bottom billion countries start growing. However,
growth cannot be achieved by turning the stagnant low-income countries into egalitarian
countries with good social services like Cuba. If the bottom billion countries emulated Cuba,
the vast majority of the people living in the bottom billion countries would see it as a continued
failure. Collier views development as giving hope to ordinary people that their children would
live in a society that would have caught up with the rest of the world. Taking this hope away
would result in mass exodus wherein the smart people would use their energies not to develop
their societies but to escape from them. A situation which is similar to “brain drain”. Collier
gives hope when he states that the problem of the bottom billion is serious, but it is fixable.
According to him coherent development policies to tackle the issues of the bottom billion
would require a “whole-of-government” approach. The only forum, he thinks, where the heads
of the major governments routinely meet is the G8. Collier also provides an insight for the G8
to deal with each of the development trap he addresses in his book.
This paper is a humble approach to revisit and review the traps mentioned by Collier and their
effectiveness in capturing the deplorable plight of those billion people who are stuck at the
bottom rungs of the development ladder. The paper is structured as follows. In the second
section, a concise summary of the content is presented. The third section provides analysis and
criticisms of the literature. Finally, the fourth section presents the conclusion.

2. Summary of Content

2.1 The Conflict Trap:

Society and conflict are inseparable, veritably so when people are many and resources scarce.
It is no surprise then that poorer nations are no strangers to social strife. However, a peculiar
problem that the bottom billion countries face is not the political conflict itself but the nature
thereof. Some of these countries are stuck in a pattern of violent internal challenges to their
respective governments. Sometimes the violence is prolonged, as in a civil war, and at other
times it all comes to an abrupt and swift end, as in a coup d’état. Both these forms of political
conflict, however, are expensive, and can often be repetitive.

2.1.1 Civil War:

A civil war is defined as an internal conflict that involves at least 1000 combat-related deaths,
with each side incurring at least 5 per cent of these deaths. As many as 73 per cent of the people
living in the societies of the bottom billion nations have recently been through a civil war or
are still in one. This is perhaps one of the biggest boulders on their path to prosperity. However,
Collier argues that wars are not necessarily trapping. He further argues that the American,
Russian, and British civil wars, while ghastly at the time, ended fairly quickly and did not recur.
For low-income countries, however, the chances of war becoming a developmental trap are
significantly higher. War is one crucial factor that impedes growth. The author investigates
growth and war from a different angle. Instead of explaining whether a country grows faster
with or without war, he tries to find out if proneness to war is explicable in terms of differences
in growth. In the author’s belief, rebel movements themselves justify their actions in a
catalogue of grievances; namely repression, exploitation, and exclusion. The author, however,
does not believe this discussion of grievance to be self-serving. Owing to the multiple causative
factors for most civil wars a root cause analysis is rendered onerous. The author’s approach is
to try to explain civil war statistically, looking at a foray of feasible causes viz. social, political,
and economic. He uses a comprehensive list of civil wars produced by the University of
Michigan. The author believes that using data published by other researchers would invariably
bring in their predefined criteria which would exert an adverse influence on the author’s
definitions thereby contaminating the results. He further explains the figure of 1000 combat
deaths, used by the University of Michigan in their definition, while being arbitrary still proves
that there is a difference between low-level communal violence and civil war where thousands
are killed. The University of Michigan’s list of civil wars is then matched by Collier against a
mass of socioeconomic data, country by country, year by year. The goal is to determine the
factors that affected the likelihood of a civil war developing in a given country within the next
five years.
The first link that Collier finds is between the risk of war and the initial level of income. An
outbreak of a civil war is much more likely in low-income countries. One might get mixed up
with the causality, however. It is difficult to say if it is the war that makes a country poor, or if
it is poverty that forces nations into war. The author states that both relationships hold
simultaneously. While civil war can reduce income, low income too can heighten the risk of
civil war. The clearest evidence for this is that during colonialism many countries experienced
decades of enforced peace; the near-simultaneous decolonization of many countries with very
different income levels gave us more about the effect of income on civil war. Slow growth and
stagnation also make a country prone to civil war. Collier approximates that a typical low-
income country faces a risk of civil war about 14 per cent in any five-year period. He further
states each percentage point added to the growth rate knocks off a percentage point from this
risk. Thus, if a country grows at 3 per cent then the risk is cut from 14 per cent to 11 per cent.
One tends to think that it is the anticipation of civil war that causes decline, a notion which
holds to a degree. When a civil war is on the verge of breaking out investors flee and economy
plummets. This gives the impression that economic decline leads to war, however, that
economic decline is often a direct result of anticipation of a civil war breaking out. The author
deals this objection by looking at a factor that affects growth but has no direct connection to
civil war. In low-income countries, rainfall shocks affect economic growth, but they do not
directly alter the risk of civil war. The effects that rainfall shocks exert on economic growth
are usually independent of the effects exerted by the anticipation of civil war. However,
setbacks to growth caused by rainfall shocks can trigger a civil war. Low income leads to
poverty, and low growth brews hopelessness. As a result, young men, arguably the most
efficient fuel for any rebel army, are fairly easy to come by. Life in the bottom billion societies
itself is cheap, and joining a rebel movement gives these young men a small chance of gaining
riches. In 2002, a small fraction of rebels in the Philippines managed to kidnap some foreign
tourists. Their demands to the authorities were ‘one million dollars per tourist’, sacking of the
mayor of Jolo, and two divers’ wristwatches. The list was one of “totally justified grievances”
from that particular rebel group and kidnapping was just an unfortunate necessity to secure
social justice. Young men in bottom billion societies get attracted to such rebel gangs and
practically work for nothing, much like their more fortunate counterparts in the first world buy
lottery tickets every week expecting that they would get lucky.
On top of it all, if the economy is weak, the state is also likely to be weak, and rebellions are
not difficult. Rebel leader Laurent Kabila, who marched across Zaire with his troops to seize
the state, stated that rebellion was easy. He exclaimed all he needed for the rebellion was
$10,000 and a satellite phone. Everyone was so poor that with $10,000 he hired himself a small
army. Kabila required a satellite phone to crack deals with resource extraction firms. Thus,
dependence upon primary commodity exports (oil, diamonds and like) can also substantially
increase the risk of civil war. There have been several cases where international companies
have advanced massive amounts of funding to rebel movements in return for resource
concessions in the event of a rebel victory. Natural resources help to finance conflict and
sometimes even help to motivate it. One such example is “conflict diamonds”. UN defines
conflict diamonds as “diamonds that originate from areas controlled by forces and factions
opposed to legitimate and internationally recognized governments, and are used to fund
military action in opposition to those governments.” Therefore, low income and slow growth
along with primary commodity dependence make a country prone to civil war.
If low income and slow growth are the reasons for a civil war to happen then it becomes
increasingly desirable to know how the rebels are funded. Donations from diasporic
communities have been one of the key sources of finance for rebel movements. The rebels are
well aware of this and frequently employ their propaganda machinery to manipulate public
sentiment. For instance, the Irish Republican Army (IRA) attracted not just money from Irish
Americans but also guns, some of which were stolen from the Boston Police Department. The
Tamil Tigers frequently got money from Tamils in Canada. The bomb that killed or injured
more than 1400 people in Colombo in 1996 was paid for from a Canadian bank account.
Perhaps the best-organized diaspora movement of all was the Eritrean People’s Liberation
Front, which received financing for over thirty years until 1992 when the Front won its
independence. However, this war did not achieve any real liberation of the Eritrean people. The
imprisonment of cabinet ministers and mass conscription of Eritrean youth forced many young
Eritreans to leave their country. The motive and worth of a thirty-year long civil war are thus
left doubtful. Though the rebel movements are good at public relations and use grievance as a
weapon, their underlying grievances are often ill-founded. The evidence supporting the fact
that well-founded grievances provoke rebellion is very weak. Two political scientists from
Stanford University, Jim Fearon and David Laitin, in their work found no relationship between
political repressions of ethnic groups and the risk of civil war.[4] The factors that explain which
countries have been at the risk of civil war do not include their ethnic or religious characteristics
but do include conditions that favour insurgency viz. poverty, political instability, and ease of
rebel recruitment. Poverty, in general, favours political instability and rebel recruitment.
Furthermore, Anke Hoeffler and Paul Collier investigated the effect of income inequality on
the incidence of civil wars and find no real relationship.[5] They were also unable to establish a
relationship between decolonisation and subsequent risks of civil war. Collier believes that
wherever we find conflict today, there were conflicts in the remote past. He states that we are
locked into conflict by history. Most places where there is peace now have had civil wars in
the past. The author also believes that some economic conditions lend themselves to being
taken advantage of by “gutter politicians” who build their success on hatred.
Collier says that genuine grievances should be rectified even if they provoke rebellion, yet he
believes often they are not rectified. The sad reality is that grievances are common and rebels
usually have something to complain about. However, quite often the genuinely disadvantaged
are in no position to rebel and therefore suffer in silence. After the Norman invasion of England
and subsequent subjugation of the native English population by the Normans for two centuries,
there were many civil wars but none of them was a rebellion of English serfs against their
Norman masters. Each of these wars involved one group of Norman barons fighting another to
gain control over more resources. A flagrant grievance is like a business image to a rebellion.
Albeit occasionally, the web of this business image can be disentangled to reveal a rebellion’s
true face. The author cites the example of Fiji, where Indian immigration changed the balance
of the population resulting in better educated and more affluent Indians becoming a small
majority. Subsequently, in 1999, Mahendra Chaudhry, the then prime minister of Fiji decided
to lease out state mahogany plantations to international management. Two of the international
bidders were the Commonwealth Development Corporation (CDC), a British non-profit
organization with huge experience in working with developing countries, and a private
American company. When Chaudhry’s government awarded the contract to CDC, George
Speight, a businessman serving as a consultant to the American firm, began an armed struggle
against the new government. His slogan “Fiji for Fijians” was an emotive rallying cry but
social justice was not his real motive. Asking the people to give the mahogany contract to
Americans would have lacked the thrill of an implied struggle on behalf of the oppressed. In
another example, the author attracts our attention to Sierra Leone, a poor and miserable country
which ranks near the rock bottom so far as Human Development Index is concerned. It is no
surprise then that the people here are saddled with a plethora of grievances. Yet the rebel leader
Foday Sankoh turned down the post of vice president and made it very clear that his goal was
to be in charge of the part of the government which managed Sierra Leone’s diamond
concessions. His preferred recruits were teenage drug addicts who were easily controlled and
did not plunge into moral intricacies of the things they did. Instead of listening to his
countrymen, his strategy was a terror against the civilian population. The author remarks that
it is untrue that all civil wars are based on ethnic strife. He maintains that most peaceful
societies have more than one ethnic group. He also proves the notion that ethnic diversity brings
unrest wrong by citing the example of Somalia. Though societies that have large significant
ethnic groups are at more risk, this effect is not huge in the bottom billion countries. This is
because their societies are too diverse for any particular group to be dominant. In Collier’s
belief, there is a big gap between interethnic dislike and civil war.
Furthermore, Collier argues that the conflict would last longer if the country’s income at the
onset of a conflict is very low. He also argues that the tendency for wars to last longer would
increase as important export products of low-income countries become more valuable. In such
a case war becomes easier to finance. The ultimate resource war was seen in Angola where the
rebel group, National Union for the Total Independence of Angola (UNITA), was financed by
diamonds and the government’s Popular Movement for the Liberation of Angola (MPLA), was
financed by oil. The course of this war broadly followed the price of oil relative to demands
and the establishment of the Kimberly Process. Collier exclaims that civil wars are highly
persistent. The average international war lasts about six months however an average civil war
lasts more than ten times as long, and can even last longer if the nation is poor. Civil wars
continue for so long because conflict becomes normal to society. Given the massive costs of
war, rebels generally decide to continue the struggle rather than risk a flaky peace deal which
they fear the government might later renege on. However, the end of war is often not the end
of the conflict. Only around half of the countries in which conflict has ended manage to make
it through ten years without relapsing into war. Governments of the post-conflict societies are
too alarmed not to react to the risk of further conflicts. They usually maintain their military
spending at an abnormally high level even after the war ends. Military spending during the
decade following the end of the conflict is only around one-tenth lower than during the war.
This, however, does little to maintain peace and order in the post-conflict societies.
2.1.2 The Costs of War:
Collier believes civil war is development in reverse. Civil war not only damages the country
itself but also mars its neighbours. The overall cost to the neighbours easily exceeds the cost to
the country itself. War tends to reduce growth by around 2.3 per cent a year. It is much worse
than a prolonged economic depression as it kills more people. Surprisingly enough, the
multitude of people who die are not killed in active combat but succumb to the disease. The
mass movement of refugees in the event of the collapse of public health systems creates
epidemics. Marta Reynol-Querol found that the migration triggered by civil war sharply
increased the incidence of the disease among the population of the havens where they sought
refuge.[6] She explains that in their cross-country trek they are exposed to disease vectors
against which they have little resistance. Thus, picking up diseases to their place of refuge and
infecting the people already inhabiting there. Collier explains that as much as half of the costs
of civil war accrue after the war is over. Usually, the political scenario that ensues brings about
deterioration of political rights. Rebellion is an immensely reckless way of bringing about
positive change. Rebel controllers who claim to wage civil war for the betterment of the masses
usually are deceiving themselves, others, or both. Their followers, the foot soldiers, are not left
with much choice about joining the rebel movement. The Lord’s Resistance Army of Uganda
used to recruit members by surrounding a remote school with troops and setting it on fire. The
recruitment for the Long March of the Chinese revolution also was at the point of a gun. The
soldiers were not ideologically committed revolutionaries but merely scared farmers. During
the Russian Revolution even, both the Red Army and the White Army recruits were peasant
farmers. In summer, they had crops to attend to so fighting was too costly for them. Thus, the
desertion rate was much higher in the summers. Thus, economic opportunities shape the ease
with which a rebel army can maintain its forces.
Jeremy Weinstein came up with an important as well as depressing result. [7] He found that
some rebel recruits were potential warriors for social justice but others were just attracted by
the opportunity to fool around with a gun. According to psychologists, on an average, 3 per
cent of any population has psychopathic tendencies. So, it is likely that some recruits in the
rebel armies are psychopaths. Others, however, attracted by the prospects of power and
riches. For many a rebel, even a remote chance at a prosperous life is worthy enough to risk
death. Moreover, many rebels believe that death is not much worse than a life of extreme
poverty. The key point of Weinstein’s research is that young men who join rebellion are
motivated much more by the prospects of getting rich than they are by the mission of
delivering social justice. The composition of the rebel group then shifts gradually from
idealists to opportunists and subsequently sadists. Aderoju Oyefusi surveyed 1500 people and
found that people with a sense of grievance were no more likely to take part in a violent
protest than the ones not aggrieved.[8] He also found that there was no relationship between
social amenities that a district possessed and its propensity to political violence. A puzzle is
further hit when the findings show that the risk of violence jumps sharply if there is at least
one oil well in the region. However, with an increase in the number of oil wells in the district,
the risk goes down again. A possible explanation is that in the absence of oil well there is no
scope of extortion so no violent protests take place. With an oil well, however, a protection
racket comes into the business. With increasing oil wells though, there is an incentive for oil
companies to pay and buy peace. A noteworthy point is made by the author when he clarifies
that disputes which started as justified environmental protests soon lost their stream of reason
and an orchestrated instruments of political rent-seeking (money directed by the federal
government and protection money paid by private firms). Grievance has evolved over the
course into greed. Apart from violent protests to ensure easy economic gains, rebels also
contribute to illicit activities. 95 per cent of the global production of hard drugs is from
conflict countries. Conflict generates territory outside the control of recognized governments
which comes in handy for illicit activities. Collier exclaims that “countries in civil war have
what might be called a comparative advantage in international crime and terrorism.”

2.1.3 The Conflict Trap:

The author says that if a country starts its independence with three economic risk factors,
namely low income, slow growth, and dependence upon exports, it might as well be playing
“Russian Roulette” with a one-in-six chance of falling into civil war over the course of a five-
year period. A country might be lucky to grow its way out of peril before being caught up in a
civil conflict. Not only does economic growth directly diminish the risk of a conflict trap, but
it also exerts its influence upon the said risk in indirect ways. Most notably economic growth
cumulatively increases income levels which further diminish the risk of a conflict trap. An
increase in income levels also facilitates diversification of exports thereby reducing
dependence upon primary commodities. This is said to weave stability into a nation’s economy
and is of the essence in preventing a conflict trap. However, if for some reason the growth
stagnates then the peace alone might not be able to reduce the risk of civil unrest. Some
unfortunate countries like Nigeria were trapped in war shortly after independence while some
marginally fortunate ones, viz. Côte d’Ivoire managed to hold peace for a decade before
eventually succumbing to conflict. The author states that its often a combination of
personalities and mistakes brushed aside in an economically sound country that escalates into
rebellion. In such fragile societies, it's harder to contain these triggers than to develop the
economy. Once a war begins economic damage undoes economic growth achieved during
peacetime. Perpetrators find violence and extortion to be rewarding thus making killing one of
the primary ways to make a living. Phil Killicoat in his article explains that guns become
cheaper during conflicts.[9] This is so because a lot of guns are imported from official and semi-
official channels and a proportion of them leak to the informal sector. Collier, along with Anke
Hoeffler, further studies the crime rate in post-conflict societies.[10] They find that political
peace does not necessarily usher social peace. An end of political struggle brings a boom in
homicide rates. Summing up mutual distrust and recriminations over atrocities, the author
suggests that a typical post-conflict country has 50-50 chances of making it through the first
ten years in peace. Indeed about half of all civil wars are just relapses after the initial conflict
is over. The author also provides a case in point of Democratic Republic of Congo stating that
the African nation would need around fifty years of peace at its present growth rate to get back
to the levels of income it had in 1960. However, so far the chances of a peace deal remain slim
as the country braces for another conflict trap.
Poverty, economic stagnation, and dependence on primary commodities are endemic to the
bottom billion countries. It does not mean that all such countries are in a conflict trap, but their
susceptibility to the trap cannot be ruled out. The risk of conflict depends on the economic
characteristics, and the economic characteristics are affected by conflict. The mutually
dependent conditions make a successful catch-22 which condenses down as a vicious cycle.
2.1.4 Coups:
Rebellion is not the only form of violent, illegitimate challenge spurned upon the governments
of the bottom billion countries. Many governments are more threatened by coups than
rebellions. Coups are not as disastrous as civil wars but the political instability that coups
manifest are detrimental to economic development nonetheless. On analysing the data of all
reported coup plots, failed attempts, and successful coups in Africa and around the globe,
Collier concluded that countries are prone to coups for pretty much the same reasons as they
are prone to civil war. Two of the most important risk factors are low income and stagnated
growth. However, the significant difference between civil wars and coups is that natural
resources do not seem to matter in the case of coups. This may be because coups do not need
any external financing. The revolutionary army is already on the government’s payroll. Just
like civil war, coups keep the economic performance of a nation stagnated and the stagnation
then conjures a coup, thereby creating a trap in itself. Once a country has had a coup it becomes
more likely that the country will have further coups.

2.2 The Natural Resource Trap:

A much more paradoxical trap is the discovery of valuable natural resources in the context of
poverty. Resource wealth has occasionally contributed to the conflict trap. However, even
where the country stays at peace it usually fails to grow in the presence of an abundance of
natural resources. It is because the surplus from natural resource exports significantly reduces
growth. Rent, which is the excess of revenues overall costs inclusive of normal profit margins,
seem to cause the damage. Collier propounds that over time, countries with large resource
discoveries end up poorer. The lost growth in these countries more than offset the one-time
gain in income provided by natural resource rents. To develop completely, the resource-rich
countries would need to harness the resource wealth for growth which in itself is pretty difficult.
Collier majorly focuses on the resource-rich countries which are economically poor to better
explain this trap. Resources in such countries loom large because the size of their respective
economies is small. In sooth, the income from their resources would not even take them to
middle-income status. The bottom billion countries are disproportionately in this category of
resource-rich poverty.

2.2.1 Resource Curse:

Export of natural resources cause a country’s currency to rise in value against other currencies.
This rise in value of domestic currencymakes other export activities uncompetitive which
might have been the best to bring about technological progress. This phenomenon is termed as
the “Dutch disease”. The paradoxical situation though substantially appreciates the domestic
currency, it results in a negative impact on the country’s overall economy. Natural resources
bring valuable foreign exchange to the economy, but exports lose value domestically as foreign
exchange comes in. The export items not only cannot be traded internationally but more
resources get diverted into producing them as well. Dutch disease can thus damage the growth
process by crowding out the export activities that otherwise could have grown rapidly. A low-
income country with abundant natural resources is unlikely to be able to break into labour-
intensive manufacturing and service markets because the foreign exchange such markets
generate is not sufficiently valuable within the society. Yet the experiences of China and India
show that these are key activities for a low-income economy to grow rapidly. However, as
explained by Collier, Dutch disease did not seem a sufficient explanation for the problems of
the resource-rich countries until the 1980s. Alternatively, economists reasoned the crises by
showing concerns about shocks i.e. volatility in resource revenues.
Volatility in resource revenues is difficult to manage indeed. During a price boom, government
ministries scent the availability of money and put in outrageous bids for more spending.
Although public spending can be increased rapidly during the boom phase, a reduction is
proven to be very difficult in subsequent crashes. Frivolous items which shot expenditure up
during the boom are not usually cut, rather it is the basic investment which is politically most
vulnerable. Collier believes that “boom-and-bust phenomenon” makes it very difficult for the
electorates to sort out when a government makes mistakes. In 1986, Nigerian oil revenue was
drastically reduced following the crash in the world price of oil. In such a predicament, the
banks were not willing to lend any further to the Nigerian economy rather they wanted to be
paid back. This swing halved the Nigerian living standards. With the much-trumpeted support
of international financial institutions, the Nigerian government launched some limited
economic reforms dressed up into a structural adjustment program. Modest the reforms were
yet they were remarkably successful in growing output. However, the reform induced growth
slightly helped to offset the misery of falling living standards. Nigerians began thinking that
the terrible increase in poverty they experienced was an outcome of the economic reforms.
Such understandable misreading of a boom-bust cycle made building a constituency for
economic reforms in Nigeria extremely hard. Jefferey Sachs and Andrew Warner throw
concern about the problem of natural resource rents and further conclude that countries with
great natural resource wealth tend nevertheless to grow more slowly than resource-poor
countries.[11] Collier further suggests that contrary to the generally seen problem of resource
rents making societies prone to autocracy, the real problem is even worse. Resource rent makes
democracy malfunction. It is wrong to expect that democracy without checks is at its most
useful for the economy rich with natural resources. Until recently, The Middle East (which is
teeming with oil supplies) was uniformly autocratic and this used to reflect that oil rents
substantially reduced the likelihood of a society to be democratic. However, democracy is now
spreading to the oil economies just as the benefits of the oil are being spread to the low-income
democracies. Collier believes that the spread of oil benefits to democracies is a side effect of
the attempt to free U.S. oil supplies from dependence on the Middle East. Although political
institutions are affected by resource riches, countries have gotten their institutions before the
discovery of their resources. Hence, global variation in institutions is pretty much reflected
among those possessing resource wealth. Paul Collier along with Anke Hoeffler found a
consistent pattern that oil and other surpluses from natural resources are particularly unsuited
to the democratic style of governance.[12] The general academic assessment says that
democracy has no net effect on growth. However, in their research, Hoeffler and Collier find
anomalous effects of democracy on growth after controlling for natural resources. Their
findings state that in the absence of natural resource surpluses a fully democratic polity
outperforms despotic autocracy and increases growth rate by around 2 per cent. If natural
resource rents are around 8 per cent of national income, the growth advantage of democracy is
terminated. With resource rents worth 20 per cent of national income, the switch from
autocracy to democracy lowers the growth rate by nearly 3 per cent. Collier explains that the
reason why resource-rich democracies underperform is not that the governments spend too
much but because they underinvest. In Collier’s belief, the fixation of governments on winning
the next election neglects investment. In resource-rich societies investment is particularly
important since it helps resource surplus to transform into sustained increases in income.
Underinvestment thus becomes an even bigger mistake. Resource-rich democracies not only
underinvest but they invest badly on too many white-elephant projects.

2.2.2 Resource Surpluses and Political Bungle:

The concept of democracy can be unbundled into two parts- one which determines how power
is achieved and another which limits the use of power. Collier exclaims that both sets of rules
are undermined by the resource rents. He explains an abundance of resource rents lets in the
politics of patronage. Electoral competition forces political parties to attract votes by delivering
public services such as infrastructures and security more effectively than rivals. On the other
end of the spectrum, politics of patronage bribe voters with public money. Tragic it is that
where bribery becomes acceptable it can be effective. This is because using one’s vote to
support a party offering public services is not in one’s self-interest. Further, Collier explains
that patronage becomes cost-effective for political parties if numerous votes can be bought by
bribing a few opinion leaders. It is then rational for a political party which is buying votes
through patronage to concentrate its money on buying community leaders. Collier further
maintains such wholesale patronage is most likely to bear fruits where voter loyalty to the
ethnic communities is strong and where the objective information available to a voter is weak.
Unfortunately, such conditions are typical to societies of the bottom billion countries. Further,
Collier finds that ethnic diversity and press censorship worsens the performance of democracy
in resource-rich countries.
One key difference between using resource revenues to supply public services and using them
to supply private patronage is that the latter breaks the laws of how public resources should be
managed. The government needs to embezzle public money out of the budget to finance
patronage. Collier believes that if restraints upon embezzlement are sufficiently tight,
patronage politics becomes too expensive to be feasible. Where patronage politics is not
feasible, people attracted to politics are more likely to be interested in the core affairs of the
provision of public services. However, where patronage politics is feasible electoral
competition leaves the corrupt and crooks as the victors. Big resource revenues weaken
political restraints because resource-rich countries do not need to tax which in turn keeps the
unprovoked citizens from scrutinizing the government expenditure. This undermining of
accountability used to explain why resource-rich countries are more likely autocratic. However,
Collier believes that same undermining of accountability operates within the countries that are
democratic wherein the political restraints on the use of power get undermined. He introduces
measures of electoral competitions and political restraints into his explanation of growth and
finds that both interact with resource rents in precisely opposite ways. He further finds that
electoral competition significantly worsens the contribution of resource rents to growth
whereas restraints significantly improve it. So, sufficiently powerful restraints can make a
resource-rich democracy an economic success. Collier had established that a democratic
country with resource rents worth 20 per cent of GDP and intense electoral competition in the
absence of checks and balances loses 3 per cent off the growth rate in comparison to an
autocracy. Further, only four of the seventeen possible restraints on a country can eliminate the
disadvantage caused by democracy to the growth rate of the country. With eight restraints
placed upon a country, democracy would outperform autocracy and the growth rate would
increase by 2.8 per cent. Thus, the resource-rich countries are more in need of these checks and
balances.
Collier, however, identifies the shortcoming of such a quantitative index of political restraints.
He explains that the index does not tell which checks and balances matter the most. To probe
further, Collier uses the data on global scoring of press freedom as furnished by Freedom House
to investigate whether press freedom matters as an important restraint to improve the economic
situation of resource-rich democracies.[13] He finds that free press is quite generally associated
with a faster growth rate. Moreover, the effect is significantly larger in the context of resource-
rich countries. Collier further claims that restraints raise the return on investment which in turn
improves the economic growth. Collier defends his claims by two practical illustrations. After
a decade long rule of military dictators, in 1979 Nigeria returned to democratic civilian rule
with Shehu Shagari as the elected president. His regime, unfortunately, turned out to be a
textbook case of patronage-driven electoral competition which was unconstrained by checks
and balances. One of the government’s first acts was to recall a massive public investment
project for a dam but its cost as per the new contract rose from $120 million to an astounding
$600 million. Politicians who spent a fortune buying the votes urgently needed to recoup their
investments and their means was the profit from the dam project. In another instance, at the
start of his second term in 2003, President Obasanjo introduced competitive bidding of public
investment projects as one of the first restraints. The process of competitive bidding reduced
the cost of public investment projects by an average of 40%. The two Nigerian instances thus
illustrate the sheer dangers face by resource-rich democracies.
The resource-rich societies sticking with autocracy would be a distasteful result as well. Collier
states democracy is desirable for powerful reasons irrespective of its effect on the economy.
He further maintains that ethnic diversity is a powerful reason why autocracy does not work
well in most countries. There is little link between ethnic diversity and an elevated risk of
conflict however, its wider effects on the economy are less benign. Collier states autocracy
seems to work well for economies that are not ethnically diverse viz. China. However, he
claims, autocracy in ethnically diverse societies reduces growth. One plausible explanation
furnished by Collier is that diversity narrows the support base of an autocrat. In ethnically
diverse societies autocrats depend upon the support of their own ethnic group however diversity
in society reduces the support base. This changes the incentives for the autocrat who then
sacrifices economic growth to redistribute income to the support base. Hence, in the context of
ethnic diversity, autocracy fails to generate conditions conducive to growth. However, Collier
also states that in the context of ethnic diversity and resource rents, electoral competition is
necessary but not sufficient. In Collier’s belief, the resource-rich ethnically diverse societies
need a democracy that has strong political restraints relative to electoral competition. Though
the mix seems rare, Collier states it exists. Botswana has been a democracy since its
independence and has managed to preserve adherence to due process. A remarkable feature of
this has been that all public investments there have been required to meet a minimum rate of
that. The direct effect of such enforcement is that a very large number of surplus funds has
been gathered in foreign assets. Collier lauds Botswana for their stringent policies which have
transformed Botswana into a middle-income country thereby escaping the bottom billion.

2.2.3 The Natural Resource Trap:

Volatility in prices of natural resources and Dutch disease inhibit growth even if a country’s
politics are reasonable. They almost completely impede a country’s chances of diversifying
into manufactured and service exports. Resource rents are likely to induce autocracy. However,
in the ethnically diverse societies of the bottom billion, autocracy is highly detrimental for
economic development. Replacing autocracy with democracy is necessary but unlikely to be
enough. Bland democracy in the resource-rich societies of bottom billion would be
dysfunctional for economic development. In the transition to democracy, there are strong
incentives for electoral competition but no corresponding incentives to build constraints; a
public good in nobody’s particular interest to supply. Either of the abovementioned forms of
polity is likely to misuse its opportunities and thereby result in the failure of economic growth.
Failure to grow closes off the path developed countries have taken to build a balanced form of
democracy through economic development. Thus, under a dishonest regime, natural resources
form a trap to the economic development of a country. Though the resource trap can extend
beyond the bottom billion countries, the plight of people living in the bottom billion countries
is worse.

2.3 The Trap of Being Landlocked with Bad Neighbours:

Economists believe that geography matters for growth and development of a nation. The
importance of geography in economic development has had two distinct pioneering lines of
analysis. One line of analysis explored by Jeffery Sachs focuses at geographic differences
between places and their implication on growth and development.[14] The other line of analysis
developed by Paul Krugman and Anthony Venables discusses the matter of certain countries
capitalizing on the growth opportunities poised by their geographical features. [15] Both these
set of ideas are of great importance in understanding certain hindrances to growth in the bottom
billion countries. Sachs suggests that the state of being landlocked diminishes a country’s
growth rate by 0.5 per cent. The economic successes of Switzerland, Austria, and Botswana
rebuke Sachs’ claims and indeed prove that being landlocked doesn’t necessarily condemn a
country to poverty or slow growth. Notwithstanding the above economic successes, Collier
finds that a striking 38 per cent of the people living in bottom-billion societies inhabit in
landlocked countries. As the rest of the world has not got the problem of being landlocked,
Collier further believes the difficulties the state of being landlocked generates are underplayed.

2.3.1 Neighbours Matter:

Venables finds that capital cities of landlocked countries incur much higher transport costs
when compared to those of their littoral counterparts.[16] The big surprise in this finding is that
the enormous transport costs for landlocked countries were not because of the distance, but
rather they depended on the transport infrastructure of the coastal neighbours. Therefore,
landlocked countries in a way are hostages to their neighbours. Even though the result holds,
it is intriguing that Switzerland is rich and Uganda is poor while both are landlocked. This
partly is answered by the fact that Switzerland accesses the sea through advanced German and
Italian infrastructure whereas Uganda’s access to the sea depends upon ill-equipped and
substandard Kenyan infrastructure. As Venables has established, being landlocked with poor
transport links to the coast makes it very difficult for a country to integrate with the global
markets more so for products that require rapid transport. Thus, countries landlocked with ill-
equipped neighbours have to forgo the export of manufacturing good which is the most reliable
driver for rapid development. Another reason for Switzerland’s economic success is that its
neighbours, namely France, Germany, Austria, and Italy, prove to be its greatest market. In
effect, Switzerland was not cut off from its market, it was surrounded by it. Unfortunately for
Uganda, it is surrounded by Kenya, Sudan, Rwanda, Somalia, Democratic Republic of Congo,
and Tanzania. All of its neighbours are stuck in one or the other growth trap themselves and
thus provide little impetus to Uganda’s market.
Along with Steve O’Connell, Professor of Economics at Swarthmore College, the author tries
to analyse the extent to which being landlocked matters to the growth opportunities of a
country.[17] They find that the presence of large natural resources overshadows the implications
of being landlocked. Ergo, a landlocked country rich in resources is less disadvantaged in
comparison to a landlocked country which is poor in resources. This is because the natural
resources are so valuable that they can be exported despite the higher transport costs. Resource-
rich landlocked countries can capitalize on this rare opportunity and can succeed economically.
The urgent problem is to address the serious impediments to growth in landlocked countries
that are not teeming with natural resources. Such countries comprise 30 per cent of the bottom
billion category. Countries generally benefit from their neighbours’ growth through spillovers.
Collier finds that the global average suggests that if an economy grows by an additional per
cent, its neighbours would grow by an additional 0.4 per cent. He further finds that resource-
scarce landlocked countries seem to make special efforts on the growth of their neighbours.
Growth spillover for such countries is 0.7 per cent.
Resource-scarce landlocked countries must depend on their neighbours for growth. This
viability further depends upon whether the neighbouring countries are stuck in developmental
traps themselves. So where fast-growing neighbours proved to provide positive impetus for
Swiss growth, Uganda had a rather dull experience from its neighbours. It neither was able to
access the global market due to the high transport costs from neglected Kenyan roads nor could
it reorient its economy to its neighbourhood, as the neighbours were stuck in traps too. So,
being both resource-scarce and landlocked with neighbours who themselves are in an economic
turmoil condemns a country to slow growth and economic stagnation. The tough plight of the
African landlocked countries is worsened by the lack of orientation towards the neighbouring
states. In such countries, both the infrastructure and the policies are oriented either completely
inwards or towards the global market. So, even if the more fortunate neighbours start to grow,
African landlocked countries receive little growth spillover.

2.3.2 Agenda for Landlocked Countries:

Collier believes that a resource-scare country landlocked in a bad neighbourhood can still
develop if its government undertakes the right policies. Though the governments would need
to be ingenious to grow economically, there are a few policies recommended by Collier
himself. In a first attempt, Collier suggests that resource-scarce landlocked countries should
try to increase growth spillovers from neighbours. One way to do this is to vouch for the lowest
possible trade barriers. Regional trade barriers generate an invisible transfer from the poor
landlocked countries to their more industrialised and richer neighbours. Within a regional trade
bloc, the landlocked countries should thus lobby for the lowest possible trade barriers. Growth
spillovers in better-integrated landlocked economies imply that the economic performance of
neighbouring states should be decent as well. The faster the neighbours grow, the faster would
the landlocked country grow. Therefore, the resource-scare landlocked countries need to help
more fortunately endowed neighbours in framing better economic policies. Access to the sea
is another vital interest in landlocked countries. Since the neighbouring governments provide
a regional public good, it is usual for them to have an insufficient incentive in providing as
much of it as is needed. Thus, landlocked countries should constantly ponder about improving
their coastal access.
Another way a resource-scarce landlocked country can resolve its plight is by adopting policies
that would help it to become a centre of business services in the region. Most business services
are traded regionally rather than globally. These services often depend upon a good policy
environment. If one country in a region manages to set policies superior to those of its
neighbours, it will attract such services and export them around the region. An alternative
aspect having great potential in delivering rapid economic growth is E-commerce. E-services
make distance irrelevant and therefore are attractive. To be competitive in e-services, Collier
believes, a country needs good telecommunications infrastructure and skilled workers with
postprimary education. Good telecommunications depends upon getting regulatory and
competition policies right while investing in human capital would bring in skilled workers. A
combination of both can make e-services a success in resource-scarce landlocked countries.
Sizeable emigration is very likely in landlocked countries because they have fewer options for
growth. Emigration leaches out society’s talent. However, Collier believes, emigration can be
advantageous for a landlocked country if migrants can make a large remittance. Collier states
maximizing remittance requires several and simultaneous policies. The first step is to educate
people so that they are employable in higher-income economies. The second step to encourage
emigrant workers to remit part of their incomes is framing conducive banking systems and
setting exchange rates favourable for the inflow of remittance. The bigger picture is to
encourage the diaspora to invest in the country.
Collier is hopeful that there are valuable resources in landlocked countries yet to be discovered.
The main impediment to prospecting is likely to be the risks sensed by resource extraction
companies. Therefore, creating a transparent and investor-friendly environment for resource
prospecting can help ease the economic problems of landlocked countries. Collier also argues
that the bulk of the population of landlocked countries remains rural for a long time. This is
because landlocked countries, especially those which are resource-scarce, do not have the
option of rapid industrialization. Hence, policies for rural development adapted to local
circumstances should receive higher priority in such economies.
2.4 The Trap of Bad Governance:
Governance and economic policies play a key role in shaping the economic performance of a
country. It is however interesting to note that there exists an asymmetry so far as the
consequences are concerned. Although good governance and economic policies help the
process of growth, economies cannot grow any faster than 10 per cent. On the contrary, terrible
governance and policies can destabilise an economy at an alarming rate. There is no floor value
assigned to the decline rates caused by ill governance and bad policies. In this sense, the
implementation of restraints is more important than the promotion of growth effectiveness.
Good governance and policies cannot generate opportunities where there is no scope. They
also cannot defy the gravity of boom and bust cycles. Admittedly, bad governance and policies
can ruin even the most promising prospects of economic growth and steady development. If
however, the external shocks such as export prices are sufficiently favourable, a country can
get away with the ill effects of bad governance. Governance and policies are multidimensional,
however, there are only a few important ones. According to the Transparency International
ratings of corruption 2005, Bangladesh and Chad were adjudged as the most corrupt
countries.[18] Interestingly though, being the most corrupt country in the world did not prevent
Bangladesh from adopting fairly reasonable economic policies thereby helping their economy
grow. One might then rationally think that economic policies matter more than the honesty and
competence of public officials. This rationality, however, is wrong in Collier’s view. He
believes that differences in opportunities matter in sooth. Bangladesh is a classic case of a
resource-scarce, coastal, low-income country. Since the 1980s, the development path for such
countries has been pretty clear. Such countries should export labour-intensive manufactures
and services. This kind of development strategy need not be very demanding of the
government. The government merely has to avoid doing any harm rather than actively doing
much good. Moderate taxation and macroeconomic stability along with few transport facilities
made Bangladesh an efficient export processing zone (EPZ). The advantage of being an
efficient EPZ kept bad governance from choking off export activity which in turn led to
economic growth. On the contrary, Chad is a landlocked country with aid and oil. It has hardly
any scope for exporting. To make the best use of revenues generated by oil and international
aid, the government should spend efficiently. Thus, Chad’s government needs to be more
ambitious than just to adopt a minimalist state policy. Collier explains that the government
must transform its money into public services. Corruption does impede development in light
of such disadvantages. As against Bangladesh, Chad’s only option to thrive is by providing
services. Sadly enough, corruption closes off this last option.
Bad governance and poor policies need not be a trap as countries can learn from failure. The
most dramatic error correction of modern times occurred in China. After Zedong left China in
ruins the Chinese political elite undertook some crucial economic policies to get out of their
plight. Despite this, bad governance is very persistent in some environments. One reason is that
bad governance does not make everyone worse off. The top brass of many of the poorest
countries indeed prefers things the way they are, which keep their citizens uneducated and ill-
informed. Economic reform is not just a matter of political will. In the bottom billion countries,
there is, therefore, a shortage of people who have the requisite knowledge to devise such
reforms. Only a few citizens get the training needed and those who do usually emigrate. Due
to this definite inadequacy, brave reformers are overwhelmed by the opposition forces even
before a strategy comes to completion. Furthermore in the 1980s, international financial
institutions tried to coerce governments into reform through “conditionality”. It effectively
meant that governments could get extra aid only if they agreed to change some of their
economic policies. The newly powerful local elites saw their gravy trains threatened and quite
naturally didn’t like the idea of being coerced. As a result, governments only promised the
reforms but never actually brought them into practice.
Paul Collier and Lisa Chauvet analyse the preconditions and sustainability of policy
turnarounds in ‘failing states’.[19] In simpler terms, they try to find the determinants of speedy
and successful economic reforms in countries suffering from bad governance. To accomplish
their purpose, they use the Country Policy and Institutional Assessment index furnished by the
World Bank.[20] Collier and Chauvet impose a low cutoff in defining the bad. The low-income
countries that fell below the cutoff level for governance and economic policies for a continuous
period of four years were termed as failing states. By this definition, Collier found that more
than three-quarters of the bottom billion population resided in countries that had at some time
been failing states. Failing states seldom turn around of their own accord. Successful
turnarounds are uncommon and require courage. Collier recalls that by warning President
Hastings Banda, the dictator of Malawi, against his failing policies, a courageous man once
earned twelve years of imprisonment. Reformers are often oppressed and pay a high price for
their efforts. The ill-treatment of reformers explains the rarity of turnarounds.
To study turnarounds statistically, Collier and Chauvet first define them. Given the subjective
nature of the index, small improvements in failing states would not only be spurious but would
hardly constitute a significant event as well. Moreover, they allowed a turnaround to be
achievable over any period. They further defined an improvement for over five years as a
sustained improvement. After defining turnaround in a failing state, they investigated the
preconditions and tried to determine reasons for the progression of turnarounds into a decisive
escape from being a failing state. They found that only three characteristics were significant in
determining if a turnaround occurred. A failing country was more likely to achieve a turnaround
if its population was large and a greater proportion of the people had secondary education.
Surprisingly, recent emergence from a civil war also increases the likelihood of the country
experiencing a turnaround. On the other hand, democracy and political rights do not seem to
help bring about a turnaround. The success of a turnaround depends upon the progressive
capacities of citizens. Failing countries require a critical mass of educated people to work out
and implement a reform strategy. Thus, the impetus for change must come from within
societies. Both, China under Mao Zedong, and Tanzania under Julius Nyerere failed their
respective economies through somewhat similar strategies. However, the Chinese elite was
able to rethink and adopt a radically different economic strategy readily. Though Tanzanians
of ability and courage too pressed for change and eventually triumphed, they had a tough time
in the 1980s when there was an acute shortage of them. The odd finding that reform is more
likely after a civil war is true because change is relatively easy to fetch in postwar societies.
Collier suggests that the uprooting of old interests makes postconflict society unusually fluid
to change. Collier and Chauvet find the probability of a sustained turnaround starting in any
year to be a mere 1.6 per cent. Therefore, countries are likely to continue being failing states
for a substantially long time. They further calculated that the average length of time taken by a
country to stop being a failing state is 59 years.
Setting up the correct preconditions for turnarounds alone won’t help the failing countries.
Improvements might continue right through to a decisive escape from the trap or they might
collapse and the country might just stall, thereby staying in limbo for years. Collier chalks out
characteristics that help in explaining the sustainability of incipient turnarounds. An incipient
reform is more likely to progress to a sustained turnaround if the country has a higher income,
larger population, and a greater proportion of educated masses. In contrast, it is less likely for
a country to progress if: its leader has been in office for a long time, it experiences a favourable
shift in the terms of trade, or it has recently emerged from a civil war. Countries with large and
educated masses are doubly blessed. The turnarounds in such countries are both more likely to
get launched and more likely to succeed once launched. Post-conflict countries are highly fluid.
It is easier to initiate reforms but its harder to sustain any continuous course of change in post-
conflict societies. Therefore, there is an important difference between post-conflict situations
and other failing states. Usually, failing states get stuck because of the high persistence of bad
governance and poor policies. However, post-conflict countries are failing states where change
is relatively easy. Policy interventions to help failing states thus need to differentiate between
types of situations.

2.5 Cri de Coeur to the G8:

Wars and coups keep the low-income countries from growing, and dependent on exports of
natural resources. The triad of poverty, economic stagnation, and high dependence on primary
commodities make low-income countries prone to civil wars and coups. Wars and coups feed
on themselves. The author says that the costs that civil unrest generates are not predominantly
borne by those who perpetrate it. The costs of war often spread beyond the temporal and
geographical boundaries of a nation thereby making development more difficult in the entire
region. The author disregards the thought that peace should be a struggle waged by citizens of
a nation itself. Instead, he is confident that democratic rights do not reduce the risk of civil war
or coup. In his belief, failure of the growth process in low-income societies exposes them to
the risks of conflict which are hard to contain. Therefore, without growth peace is more
difficult. However, economies of the bottom billion countries are stuck in stagnancy. The
author states fear breaking the conflict trap is not a task that the economies of bottom billion
countries can accomplish by themselves.
Failures in resource-rich countries tell upon the rest of the world. Such failures represent
massive wastage of money that the world pays to buy their resources. Collier explains that
these payments are far larger than aids and far less effective to generate economic development.
The rich world also needs to worry about the resource curse if it wants to shift its dependency
of oil away from the Middle East. Collier believes that shifting the supply source would not be
a security measure if the resource curse shifts with it. Rich countries are also involved in the
resource trap as its paymasters, thus being stuck at one end. Until a proper agenda is set to help
cure the perils of the resource curse, each rich resource-hungry country will be locked into a
prisoner’s dilemma of inaction.
Collier confesses that most of the strategies suggested to take a country out of its failing
neighbours’ curse are not under the full control of a country’s governance. A good government
can surely make a difference. However, landlocked resource-scarce countries are largely
dependent on their neighbours and international donors for turning things around economically.
These nations would be stuck in poverty unless the advanced economies make a combined
agenda to help them far more than they have to date.
The typical failing state would continue to fail for a long time. Collier defines a failing state in
terms of its bad policies and governance. Policy and governance failures cause the core costs
of negligence which accrue not only to the failing states but to their neighbours also. The costs
of bad governance in a failing state build up year by year. Consequently, not only the growth
rate of the failing state but also the growth rate of its neighbours is sharply reduced. Since
failing states take such a long time to turn around, the costs of bad governance continue way
into the future. Collier estimates that the cost of a single failing state over its entire history of
failure, to itself and its neighbours, is around $100 billion. There is a good case for saying that
it is too low because it only considers costs to itself and its neighbours. To infer how rich
countries value turnarounds Collier takes the instance of Iraq. US military intervened in Iraq
with a clear purpose of changing the regime. Iraq was a classic example of a failing but
politically secure state. The costs of state failure were likely to be highly persistent. The
military intervention cost around $350 billion. The decision of intervention in Iraq implies that
the expected benefit from military intervention must have exceeded the costs of the
intervention. Even after discounting the prospects of a new Iraqi regime failing, if
administration under George W. Bush decided to strike a military intervention then its clear
that the valuation placed on a successful turnaround was higher than the cost of military
intervention. This suggests that the value of a successful state turnaround to the international
community is very large. However, military interventions are not the best tools to reap the most
benefits out of turnarounds of failing states. Nonmilitary interventions that support local efforts
at reform unambiguously increase the net benefit from turnarounds as compared to the military
interventions. However, nonmilitary interventions have a flipside too. Intelligent external
support raises the chance of a turnaround, but any particular reform effort is nevertheless likely
to fail. One way to interpret this is that external support can shorten the time for which a failing
state is stuck. Both military interventions, as well as nonmilitary interventions, cost money.
Their worth, to the failing countries as well as the rest of the world, depends upon their
effectiveness in increasing the sustainability of a turnaround and the worth of a successful
turnaround itself.
3. Criticisms
So far as the debate on The Conflict Trap is concerned, Collier establishes that poverty and
hopelessness from low income makes a country vulnerable to civil war. His arguments about
the stickiness of the conflict trap and how it brings about degradation are fairly convincing.
However, there are many alternative thoughts put forth in the context of how conflicts are
perceived and bring bout downfall. Doyle propounds that international peacebuilding can
improve the prospects of resolving a civil war. [21] He finds that multilateral United Nations
peace operations make a positive difference in mitigating civil wars. UN peacekeeping is
positively correlated with democratisation processes post-civil war and multilateral
enforcement operations are usually successful in ending violence. However, higher-order or
democratic peacebuilding finds more success after non-identity (non-ethnic or non-religious)
wars. The success is also limited to countries having relatively high development levels and
when UN peace operations along with financial assistance are available. Moreover,
strategically designed peace enforcement operations do make a difference in ending the
violence but alone they cannot promote durable, democratic peace. Sambanis distinguishes
civil wars into identity and non-identity types and systematically analyses the differences. [22]
He argues that identity wars are predominantly due to political grievances rather than lack of
economic opportunity. He finds that inhabiting in a bad neighbourhood with undemocratic
neighbours significantly increases a country’s risk of experiencing ethnic civil war.
Furthermore, Sambanis finds that ethnic heterogeneity is significantly and positively correlated
with the onset of war. Collier, on the other hand, maintains ethnic heterogeneity either
decreases the risk of war onset. Thus, it becomes important to unpack the concept of ethnic
heterogeneity and to better understand which components of it are not linked to the onset of
conflict. In another article ,Collier finds that though conflict tends to be dominated by group
grievances beneath which inter-group hatreds lurk, it is far more likely to be caused by
economic opportunities.[23] It is likely that some groups are benefiting from conflict and
therefore have an interest in initiating and sustaining it. Nathan highlights that Collier’s
analysis of civil wars and its causes ignores the dynamics of politics, history, ideology and
government decisions which are deemed critical to the causes and incidence of civil war. [24]
Hegre et al claim that coherent democracies and harshly authoritarian states have few civil
wars.[25] They also conclude that intermediate regimes are most prone to civil war, even when
they have had time to stabilize from a regime change. Further, Hegre and Collier analysed the
evolution of conflict onset and found that rich countries have a very low risk of the civil war
so much so that none gets into trouble for a long period. [26] The bulk of the countries that are
threatened to repeatedly fall into civil wars are from the bottom billion group. David K.
Fieldhouse in his work “Black Africa, 1945-1980” describes that decolonization around the
world came at a time when the colonies were exhibiting comparatively robust economic
performance.[27] He argues that the main motive behind was political, to avoid growing
liabilities that would flow from attempts to keep the lid on nationalist sensibilities In effect,
Fieldhouse argues, the colonial powers concluded that economic development of their African
territories would prove in budgetary terms too expensive for them to carry out, while political
development provided a much more affordable substitute. Fieldhouse further states that the
unity with which the nationalists faced the struggle for independence was illusory. Public
resources were used to reward supporters, to punish the opposition or to buy off potential
opponents rather than any actual development. Fieldhouse argues that the combination of
policy mistakes and the non-policy barriers caused the self-evident economic weakness in the
decolonised states. He too maintains that recovery from these errors will not be easy and will
have to involve serious attention to underlying structural inadequacies. Further, Barbara Walter
in her analysis of civil wars between 1945 and 1996 produces results which are consistent with
Collier’s claims that conflict begets conflict.[28] She also finds that a higher quality of life and
greater access to political participation has a significant negative effect on the likelihood of
renewed war. In her belief, countries that provide higher levels of economic well-being to their
citizenry and create an open political system are less likely to experience multiple civil wars
regardless of past experiences.
Collier successfully explains his paradoxical result that resource wealth hinders development.
He also establishes the crucial link between resource abundance, democracy, and economic
development. His instruments, to battle the natural resource trap, are well received, but they
are not absolute in themselves. There is much debate on the links between resource abundance,
the performance of democracy, and economic growth. There are even more remedies
prescribed by various economists. Robert Putnam uses objective measures of government
performance, from cabinet stability to budgetary promptness to legislative innovation to
explain why certain democracies flourished while other withered. [29] He explains the wealth,
education, party politics, urbanisation, or social stability are not directly correlated with
government performance. Putnam scrutinizes and analyses the regional government
experiment that Italy laid out in 1970. He finds that the citizens of regions of Italy which have
a high network of community associations have a higher inclination to engage in public
services and take an active role in politics. They trust each other to act fairly to obey the law.
Putnam explains that in such “civic communities”, which organise social and political structures
horizontally, democracy works. On the other hand, communities where the social structure is
hierarchical, socio-cultural engagement is meagre and trapped in vicious circles of anarchy and
fear, people feel exploited; democracy in such communities fails miserably. Putnam further
finds the correlation between civic engagement and effective government to be virtually
perfect. He further explains that “tower societies”, where the socio-political structure was
horizontal, did not only relish in a higher degree of democracy but they made the conditions
conducive for the invention of impersonal credit. Impersonal credit is amazingly valuable as it
allows effective utilization of money-making everyone better off by adding in more jobs, more
goods and more wealth. Putnam furthers that this invention of impersonal credit made Italy the
most advanced economy in the world. Putnam believes that impersonal credit is a direct
consequence of trust. The root of such social trust is civic engagement in public services and
politics. Hence, communities with many choral societies are also advanced economically.
Putnam clarifies that communities don’t have choral societies because they are wealthy rather,
they are wealthy because they have the traditions of engagement, trust, and reciprocity that
choral societies symbolize. This suggests wealth is the consequence and not the cause of
healthy civics. Much like training and education forms human capital, networks and norms of
civic engagement form the social capital. So, a decline in social capital helps explain the
economic and political troubles of a democracy. In contrast to putting up checks and balances
blatantly as suggested by Collier, reforms must be induced into the societies such that they
would find a need for political restraints. This is what Putnam argues and further propounds
that to revitalize democracy, a country needs to begin rebuilding social capital in its
communities by renewing civic connections.
Karl propounds that Petro-states rely on an unsustainable development trajectory fuelled by
an exhaustible resource.[30] He furthers that the very rents produced by the resource form an
implacable barrier to change as the Petro-states fall into the “paradox of plenty”. He explains
that as economic performance worsens and debt dependence increases, most oil exporters
become politically unstable. Petroleum booms are likely to produce poverty, inequality, and
political crises inside oil-exporting countries. Karl maintains that these crises subsequently
produce new oil shocks that have great unforeseen consequences. He appeals that it is important
to understand such crises within the oil exporters because powerful reverberations through
world markets can threaten global peace. Much like Collier’s argument on the misutilization
of resources under autocracy in ethnically diverse countries or democracy without political
restraints, Karl too argues along the same lines. He believes that the fiscal advantage oil rents
provide to the state tends to promote consumption linkages while overwhelming the productive
linkages necessary to make the economy sustainable. It also blocks self-correcting
mechanisms, thereby fostering continued dependence on petrodollars. Petromania and
addiction to oil rents make the moral hazard problem and the dangers of crony capitalism
apparent. Further, Karl believes that the problems of resource-rich countries that are constantly
deferred by their governments pile up to conjure political and economic crises.
Ross establishes that oil impedes democracy, even when exports are relatively small,
particularly in poor countries.[31] He argues that oil wealth has made democratization harder in
the oil-rich states of Africa and Central Asia. He also finds that non-fuel mineral wealth
impedes democratization. He suggests three causal mechanisms that link oil and
authoritarianism. First is the rentier effect, through which governments use low tax rates and
high spending to dampen pressures for democracy. Second is a repression effect, by which
governments build up their internal security forces to dismiss democratic pressures. The third
is the modernisation effect, in which failure of masses to move into industrial and service sector
jobs renders them less useful in pushing for democracy. Rodrick argues that domestic social
conflicts are key to understanding the lack of persistence of growth rates and the growth
collapse that countries experience.[32] He states that countries that experienced sharpest drops
in growth post-1975 had divided societies with weak institutions of conflict management.
Rodrick believes the integration of developing countries with international economy increases
their exposure to shocks. Thus, its all the more important to develop institutions that mediate
social conflicts. He concludes that participatory and democratic institutions, the rule of law,
and social insurance are all components of a strategy to enhance resilience to volatility in the
external environment. Isham et al show that export concentration in “point-source” natural
resources i.e. resources that are extracted from the narrow geographic or economic bases such
as oil, minerals, and plantation crops is strongly associated with weak public institutions which
in turn are associated with slower growth. [33] They argue that institutional capacity to handle
shocks is a determinant of economic growth and institutional capacity varies across economies
with different sources of export revenue. They further claim that institutional capacity to handle
shocks further are influenced by socioeconomic and political institutions.

Bond et al suggest there exists a subtle relationship between natural resources and private
investment with oil and other fossil fuels having a distinctive effect.[34] They argue that a higher
share of fuel exports in total merchandise exports is associated with higher investment levels.
However, they find a negative association between export concentration and investment shares.
Further, they explain it is the structure of exports rather than natural resources that are relevant
for explaining investment. They also find that the relative price of capital and ethnic diversity
is negatively associated with private investment. However, strikingly their study suggests that
direct effects of political institutions, political instability, and macroeconomic volatility appear
to be limited on private investment in natural resources. Maloney and Lederman find that the
negative effect of trade structure on growth dominates the negative effect of natural resources
on growth.[35] Manzano and Rigobon attribute the resource curse effect to debt overhang and
suggest that the weak economic performance of resource-rich countries is a result of the
accumulation of foreign debt during periods of high commodity prices. [36] Hausmann and
Rigobon argue that a resource curse tends to be weaker in countries with more diversified trade
structures.[37] Thus, apart from vouching for democracy with political restraints, a country can
clamber out of the natural resource trap by diversifying its export base. Robinson et al argue
that political incentives that resource endowments generate are key to understanding if or not
they are a curse.[38] They also argue that politicians tend to over-extract natural resources
relative to the efficient extraction path because of excessive future discounting done by them.
Resource booms raise the value of being in power and enable politicians with more foreign
exchange. Robinson et al argue that politicians use this foreign exchange to influence the
elections which increases resource misallocation. This result of theirs is consistent with
Collier’s argument that politicians of resource-rich economies embezzle national funds and
follow the politics of patronage. Robinson et al further explain that the overall impact of
resource booms depends critically on political institutions since they determine how the on
their political incentives how the resources should be used. Further, theysuggest that countries
with institutions that promote accountability and state competence will tend to benefit from
resource booms. Countries without such institutions may, however, suffer from a resource
curse. Gunning suggests that freedom of the press and the creation of independent centres of
authority in central banks and revenue authorities help to reinforce openness in a democracy
which in turn is supportive of economic reform.[39]

Economic thinkers are divided on the issue of a country being stuck with bad neighbours as
well. Adam Smith argued that geographically remote areas have difficulty realizing gains to
specialization and associated benefits because of the difficulty in trade. [40] His analysis was
based on the difficulty to transport via land over great distances. It is true that high
transportation costs typically place landlocked countries under a distinctive disadvantage.
Despite technological improvements in transport, landlocked countries continue to face
structural challenges in accessing the world markets. In effect, landlocked countries often lag
behind their maritime counterparts in terms of trade growth and prosperity. Faye et al (2004)
argue that relatively poor performance of many landlocked countries can be attributed not only
to distance from the coast but on certain aspects of dependence on transit neighbours as well.[41]
The issue of dependence is explained along four broad lines. Landlocked countries depend
upon the infrastructure of the transit countries. Weak infrastructure imposes not only direct
costs on trade but it also limits the return on investment on landlocked countries’ internal
infrastructure. Faye et al believe that landlocked countries are extremely vulnerable to their
political unpredictability as well. Even if relations with transit neighbours are good and the
core transit infrastructure is sound, a landlocked country is still left vulnerable to peace and
stability within the transit countries. To address the challenges that limit landlocked countries’
potential trade gains, Faye et al place particular emphasis on developing internal transport
infrastructure. Instead of lobbying for low trade barriers as propounded by Collier, they believe
investments should be made by landlocked countries in their railways and roads for both
construction and maintenance so that the countries could keep costs down locally. Landlocked
countries should also come up with regional infrastructure integration strategies in association
with international organisations to develop active trade routes and expand access to their
markets. Landlocked countries along with their neighbours should develop regional integration
strategies aimed at administrative coordination. And in the last bid, Faye et al express that
landlocked countries need to invest in developing industries less affected by transport costs.
They hint that the strategies should develop the service industries and manufacturing sectors
for export. The remedies therefore prescribed by Faye et al are in stark contrast to those
prescribed by Collier. Collier drives the resource-scarce landlocked countries to the backseat
while recommending policies to their problems. Though Collier captures the problems of
resource-scarce landlocked countries pretty well, his remedies are little better than asking the
landlocked countries to beseech internationally. On the other hand, the remedies to the
problems prescribed by Faye et al put the landlocked countries in an active role in their fight
against economic stagnation and overall development. In their work “Policy Turnarounds in
Failing States”, Collier and Chauvet make use of Country Policy and Institutional Assessment
index produced by World Bank to analyse political turnarounds.[19] The main drawback of
using this index is that it is subjective. This index can be manipulated for attracting larger
lending program which can be advantageous to the staff handling the index. Thus, use of such
a subjective measure can lead to abysmal results. Further, keeping the cut off low doesn’t
ensure capturing all countries suffering from bad governance. Some countries suffering from
severe governance problems may still be above the cutoff.
For instance, despite being highly corrupt, on this Bangladesh overall has economic policies
that keep Bangladesh comfortably above the cutoff. Using the low cutoff to determine poorly
governed countries would invariably exclude some of the badly governed states from the
analysis. Policy prescriptions from such an analysis could not only be faulty but may
completely miss the point as well.

Finally, Chauvet and Collier in their estimation of bad governance and poor policies in failing
states leave out certain consequences of state failure that are legitimate objects of concern.
They omit costs implied by an increased risk of civil war and costs implied by the high
mortality rate. Omittance of costs can overestimate the total valuation of a turnaround in
failing states. The peculiar result, that reform is more likely to occur after civil wars, should
be further scrutinized. Although the first decade after the war sees sustained improvement, it
is very cumbersome to decide when a civil war has ended. Collier admits that the end of war
necessarily does not mean the end of the conflict. Once a civil war is over it is alarmingly
likely to restart. Thus, it is very difficult to comprehend that end of a civil conflict would
bring sustainable turnarounds by itself. Collier’s argument that a turnaround would benefit
the rest of the world more than the failing countries and its neighbours is just a conjecture. The
argument is backed by the rationale that if a country decides to intervene militarily in another
failing country, then it must do so only if the benefits from such intervention are more than the
costs. However, he does not establish that the benefits from turnarounds necessarily accrue to
the rest of the world directly. He does not establish whether turnarounds in failing states are
the end goal in itself or just mere channels to reach the end goal.
Moore states that it's generally the poorer countries of the world that suffer from bad
governance.[42] He believes that the diverse poor states tend to be underdeveloped due to their
political failure. Political scenario in these countries is neither authoritative nor effective nor
legitimate. The political underdevelopment of much of the poor nations largely results from
the vile manner of its creation by the colonial supremacies. It is furthered by the economic and
political interactions with the rich countries of the world. Moore believes political
underdevelopment is an outcome of uneven development across the globe. Pande suggests that
voters in low-income countries are receptive to new information about political performance
and are willing to vote based on new information. [43] Education can thus help voters influence
the choice of politicians even in societies with weak institutions and electoral malpractice.
However, she also suggests corrupt politicians react to the anticipation of improved voter
information by limiting the chances of education. Educated voters can demand policy
interventions that can threaten the inflow of easy money to the politicians.
4. Conclusion
In his book “The Bottom Billion: Why the poorest countries are failing and what can be done
about it”, Paul Collier discusses the causes of development failure in the world’s poorest of
countries who he terms as ‘the bottom billion countries’. His book reveals that the bottom
billion countries face development failure as they are stuck in certain socio-political and
economic traps. Collier argues that being trapped at the bottom aggravates the income gap between
the economically immobile bottom billion countries and the rest of the world which is fast growing.
Perhaps, the initial motivation for Collier to write this book was a realization that politicians only
move beyond gestures once there is a critical mass of informed citizens. This book’s purpose is
therefore to find poverty-reducing solutions that would lift these countries from the bottom. In
Collier’s belief, the conventional definition of development is “outdated”. Following the definition of
the bottom billion, Collier discusses four development traps that prevent these countries from escaping
the bottom. The four development traps are the conflict trap, the natural resources trap, the trap of
being landlocked with bad neighbours, and the trap of bad governance. The big story for many bottom
billion countries is the commodity booms which are their best opportunity for transformation. Collier
finds it vital for the bottom billion countries to harness these booms and get out of their misery.
However, Collier misses out health and education as powerful development traps. Low education
levels and poor health conditions lower the quality of human capital due to which growth will be low
and development would be reduced. Growth doesn’t necessarily reduce income inequalities. Acountry
can be growing yet never reach development. As propounded by Kuznets, growth in certain cases can
be the source of income inequalities. Collier’s arguments are correct but semi- convincing because of
lack of elaboration of his previous work. He does not give much evidence about the success of his
instruments that he advocates so well. Finally, in his quest tohelp the bottom billion countries develop,
he misses out those impoverished people who inhabitin countries with stark inequalities. However, it is
right to believe that helping the bottom billion countries can substantially eradicate underdevelopment
and poverty from our global community. The bottom billion countries are indeed trapped by a series of
structural constraints which often have rooted from the advanced countries of the world. The advanced
countries are not directly responsible for the problems of the bottom billion. However, negligence of
the developed countries has further widened the rift. The developed countries of the world do havethe
responsibility as well as the ability to loosen the grip of the traps which cuff the bottom billion
countries. Collier through his Cri de Coeur to the G8 lays out a grand vision that deserves serious
consideration to abolish the huge gap between the bottom billion countries and the rest of the world.
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