Bottom Billion - Chaps. 1 & 6

1. Chapter 1
- 1.1. Traps, and the countries caught in them
- 1.2. The role of growth in development
2. Chapter 6

So far, our efforts have been paltry: through inertia, ignorance, and incompetence, we have stood by and watched them lose.

What are Sub-Saharan’s challenges to development?

1 Chapter 1

Shrinking Third World
However it is also getting harder to go out of the Third World
- Group of countries "falling behind, falling apart"

Development biz:

Aid agencies (IMF, etc) and companies that come for contracts
They prefer to define the world by omitting the last billion - because they aren't going there

The World Bank has large ofﬁces in every major middle-income country but not a single person resident in the Central African Republic.

Development buzz:

Created by celebrities & NGOs
They do want to help these countries, but have to simplify their message for its wide audience

Governments of failing countries: extremes

Corrupted
Military leaders / murderers
Are represented in world organizations, but are completely useless
- Can't do anything, nothing to negotiate

1.1 Traps, and the countries caught in them

Development can be achieved in a normal fashion - as long as you don't fall into traps

The conflict trap

The natural trap

The trap of being landlocked with bad neighbors

The trap of bad governance

Traps can be escaped but you have to catch up after
- However now it has become very hard to catch up (ex Madagascar and Mauritius)
Defining traps is tricky

Problems:

Average life expectancy is 20 years less
Infant mortality is 14%
Malnutrition, etc

1.2 The role of growth in development

Data:

We don't see problems because of how averages are made
- We have to consider population
Have not benefited from the 1990s boom
Countries that are fractured politically have no data
- And they're the ones who make the average plummet
The only improvements we see is likely due to the short-lived effects of resources discoveries

Picture this as a billion people stuck in a train that is slowly rolling backward downhill.

An accelerating divergence between the two worlds

Before globalization, countries had their chance

People are more concerned with social measures

However Brazil is a good example of countries

Suspicion towards general growth:

Yet overwhelmingly, the problem of the bottom billion has not been that they have had the wrong type of growth, it is that they have not had any growth

2 Chapter 6

All countries have been through one or more traps
- Depend ant on natural resources
- Civil war
- Landlocked / Resources scarce / Bad neighborhood
- Bad governance
However they are not infinite, nor unavoidable
Convergence: great example is the EU
Also countries like China

However convergence is becoming harder:

I think the sad reality is that although globalization has powered the majority of developing countries toward prosperity, it is now making things harder for these latecomers

2.1 Trade and the Bottom Billion

Transition from land-based economy to labor-based
Developing countries had problems because of trade barriers imposed by the rich in the 1970s
- Developing countries are less surrounded with good industry: low labor costs doesn't compensate for that because specific labor is impossible to find
- They need a spark to start the fire
- Madagascar almost got this spark for example, but politics got in the way

It suggests to me that there was a moment—roughly the decade of the 1980s—when the wage gap was sufﬁciently wide that any low-wage developing country could break into global markets as long as it was not stuck in one of the traps

When the wage gap is just right, the bottom billion countries weren't ready (still stuck in traps) and didn't hop onto the train
This vision is quite dark as it suggests fate and that countries cannot do much themselves

The most depressing reaction is for people to see the society as intrinsically ﬂawed

Asia trying to secure natural resources and thus preventing the bottom billion from rising

The Chinese are all over the countries of the bottom billion, securing natural resource deals. Superﬁcially this is good news: it is certainly raising prices, most obviously of oil, which some countries of the bottom billion export.

The growth of global trade has been wonderful for Asia. But don’t count on trade to help the bottom billion. Based on present trends, it seems more likely to lock yet more of the bottom billion countries into the natural resource trap than to save them through export diversiﬁcation.

2.2 Capital Flows and the Bottom Billion

Public and private capital are needed
- Aids only give public
- Africa has twice as much public capital as private (opposite of Asia)
  - Private investment required

2.2.1 Private Capital Inflows

Capitalism: low capital should attract investors
- However it doesn't, go more to middle income countries
- Risk taking it too high

The answer is that the perceived risk of investment in the economies of the bottom billion remains high.

Even when countries do significant reforms (Angola going from 18 to 23 in the scores for risk taking)
- We must still get to ~30-40 to get good investments
Stuck in a vicious circle

There are ﬁfty-eight countries in the bottom billion, and investors do not track them individually but think of them collectively as “Africa” and dismiss them

2.2.2 Private Capital outflows

Corruption & Capital flight

This allows you to discover, for example, that by the end of military rule in Nigeria in 1998 Nigerians were holding around $100 billion of capital outside the country.

By 1990, 38 percent of its private wealth was held abroad. (Africa)

Credibility problem is not only scaring off foreigners, but also local investors
The money is also lost from the inside

2.3 Migration and the Bottom Billion

Brain drain: many educated people leaving
- Short of qualified people, and its getting worse

Meanwhile, back in the countries of the bottom billion, the ﬁnancial sectors are run by people whose understanding of ﬁnancial economics does not equip them to manage much more than a piggy bank.

2.4 Life in Limbo: Out of the Frying Pan . . .

To play in the global economy, you need to get rid of traps
They don't get capital in, and all of their capital goes out
- Because of risk
Can't converge: even if their growth rate was a sign, it would be way too slow
And they can still fall in the traps
- As long as they are weak