Crunching numbers, saving people

Collier, Paul. The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It. New York: Oxford University Press, 2007.

Paul Collier deserves -- and has received -- great credit for developing a method of statistical comparison for identifying the very poorest countries and estimating the costs of such poverty to them and potentially to all of us (short life spans, HIV and other devastating diseases, political violence that spreads beyond their borders, etc.). He and his co-researchers are especially keen on finding correlations between such wretched conditions and various geographical, demographic and historical factors, and comparing them to countries which share many such characteristics but that have broken out of poverty -- most notably, India and China, still beset by many problems but developing.

Very briefly: Collier has identified 58 countries, together comprising about 1/6 of the world's population or nearly 1,000,000,000 people, which are not only extremely poor, but which are not developing at all -- that is, they are experiencing no economic growth whatever. He declines to provide the full list, but in the course of the book he names several: most are in Africa, others include "Haiti, Laos, Burma [Myanmar], and the Central Asian countries, of which Afghanistan has been the most spectacular" development failure.

These are all places caught in "traps" of: recurring civil conflict, an abundance of a single natural resource whose exploitation (mostly for the benefit of outside corporations and the local corrupt elite) causes neglect of all other productive areas, being "landlocked with bad neighbors," and/or suffering "bad governance in a small country."

His question: How to get these countries out of the "traps" of undevelopment and get their economies growing?

Aid doesn't work, because too much of it is eaten up in corruption and inefficiency -- though without it, people's lives would be even worse. Collier gives several woeful examples, but also singles out a few heroes who have struggled to limit or end corruption, for example in Nigeria and Uganda.

Military intervention could work very well in those places wracked by civil war and terrorism, if only the richer countries dared to use it and if they avoided the disastrous misuse in the U.S.'s spectacular and self-defeating deployments in Iraq and Afghanistan. The other African countries are themselves too poor to intervene effectively in Sudan, for example, or the Congo, and would need the troops, arms and logistical support of richer countries. To be seen as legitimate, such intervention would have to come at the invitation of groups in the country or region that had wide popular support. And without raising any suspicion that the intervenors' true goal was to seize natural resources, e.g., oil. Unfortunately, in Collier's view, the U.S.'s bungling in Iraq has given intervention such a bad name that when the French, for example, send troops to a civil war zone, they are ordered to stay in barracks when the fighting breaks out. And we all remember the passivity of the Dutch UN troops in Srebrenica. UN troops in the Congo also seem to be more concerned for their own safety than that of the populace.

"By contrast, the British intervention in Sierra Leone [in 2000], Operation Palliser, has been a huge success. It has imposed security and maintained it once the RUF [rebel movement] was disposed of. The whole operation has been amazingly cheap," Collier writes (p. 127). Another example that seems to me to have been very positive (though I think Collier would disagree) was Cuban intervention in Namibia and Angola, saving both countries from far worse fates -- but of course that occurred during the Cold War, which distorted everything and made all sides' motives suspect.

"So we should intervene," says Collier, "but not necessarily everywhere. Sierra Leone rather than Iraq is the likely future of intervention opportunities in the bottom-billion countries. Look at the contrasts between the two situations. In Sierra Leone our [i.e., British] forces were invited in by the government and hugely welcomed by the local population. In Sierra Leone we could not be accused of going in for the oil, as there wasn't any." (pp. 128-9)

We also need to change laws and charters in the developed world, for example, banking secrecy regulations that permit corrupt dictators to steal their countries' wealth and hide it. (He has much more to say about laws and charters, including a proposed charter for world democracy.)

Finally, he proposes "trade policy for reversing marginalization" -- ending, for example, protective tariffs for European and U.S. agricultural interests that make it impossible for African cotton producers, etc., to compete in the only lucrative markets.

There's a lot of good stuff here, and Collier and his team keep on producing more such pointed analyses. Check out the Paul Collier home page. His statistical work is a good starting point for finding solutions, but it is only a starting point. To understand phenomena such as massive corruption, suicidal terrorism (such as in Mumbai this week), and the consequences and contradictions of rapacious global capitalism requires much more than number-crunching. The "traps" he lists are not all really comparable phenomena, though the statistical method showing only their numerical consequences make them appear so. Being landlocked with few natural resources is a geographical and historical phenomenon. As Collier sagely remarks, the reason so many such countries are in Africa is that, in other parts of the world, territories that are landlocked and have few resources don't become countries -- so that is a historical political problem, dating from the way colonial powers carved up the continent.

"The Natural Resource Trap," i.e., being "too rich" in petroleum, or diamonds, or some other valuable commodity, is not a geographical fatality at all. What makes such natural wealth a "trap" rather than an asset is obviously a problem of the way markets are organized and who has the means to exploit someone else's wealth. Bolivia under Morales, for example, is working to turn its natural gas into an asset.

But if we can think along two or more tracks at the same time, keeping in mind the statistical correlations that Collier and other investigators generate while also thinking broadly and deeply about markets and other social process in the manner of, say, Ulrich Beck, Alain Touraine and others, we may seriously address these problems.

One minor quibble: The cover declares the book a winner of the "Lionel Gelber Prize for excellence in writing on international relations." It seems to me that the writing would have been more excellent had Collier found a better metaphor than "traps" to describe those difficulties and had he not repeatedly referred, with no apparent irony, to landlocked countries as "missing the boat" (of development).

Alternatives to and within capitalism

Baumol, William J., Robert E. Litan, and Carl J. Schramm. Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity. New Haven & London: Yale University Press, 2007.

Baumol et al. start from the common premise that, since the collapse of the Socialist bloc, "There is no alternative" ("TINA") to capitalism, by which they mean an economy where “most or at least a substantial proportion of its means of production -- its farms, its factories, its complex machinery -- are in private hands, rather than being owned and operated by the government." (p. 62) Socialized ownership of the means of production and central planning collapsed with the Berlin wall, and what they call “precapitalist” economies, as in Afghanistan and Somalia, where the only property rights are those defended by warring clans, are just not viable.

But, the authors insist, there are at least four alternative forms of capitalism, some much better at promoting growth and prosperity than others.

"Oligarchic” capitalism, where a few rich families own everything that produces wealth and make sure nobody else gets any, is “bad” capitalism. Not just because of its unfairness, but because the oligarchs are too ignorant, too indolent and too self-occupied to invest in anything productive. Of course, they really don't have a lot of margin -- after their country club dues, luxury estate management, imported automobiles, foreign vacations, and other obligations of their class, they have to spend much of their country's wealth on army and police to shoot, beat or intimidate those pesky peasants who want to change things -- which, as we have seen in El Salvador, Nicaragua, Vietnam and other places, can get very, very expensive if those rebels are serious, well-organized, and can get funded somehow.

“State directed” capitalism, where the state picks sectors or even particular firms to favor (e.g. by subsidies or high tariffs against competing imports), hasn't proven efficient either. A major historical example was the "import substitution" policy promoted by Argentinian economist Raúl Prebisch for Latin America. The problem is that governments -- being run by human beings with their own interests and prejudices and corruptibilities -- are not very good at making such decisions. Most likely, the minister of the economy will pick the companies run by his brother-in-law. Or, even absent corruption, the inertia of bureaucracy (and pressure from interest groups) will keep the government supporting a sector whose growth potential has passed.

"Big firm" capitalism, free from the strictures of government, is better (for promoting growth), since big firms have the capital and need to invest. But they tend to be cautious and (with a few exceptions, like Bell Labs in the old days and Apple today) discourage innovation.

"Entrepreunerial" capitalism -- meaning the kind that breaks into the market by inventing new technology or new marketing techniques -- is the real hero of this book. But the wild-eyed entrepreneurs can survive and grow only if they get the backing of capital from big firms, until they turn into big firms themselves. When that happens, they either have to make special efforts to keep the innovation going (e.g., Bell Labs or Xerox) or look outside to back and buy rights to inventions made by new entrepreneurs. That kind of marriage (big firm/small innovator) is what has given the U.S. economy its dynamism in recent years and is the best bet for other economies seeking to grow.

In the real world (as the authors recognize), every economy has some mix of the four forms. The U.S. (like France and other economies) protects its agribusinesses ("state-directed" capitalism), and "big firm" and "oligarchic" systems are sometimes hard to distinguish. (E.g., the big business families of Italy, or the Fords in the U.S., where business power is hereditary.) The important question is which form prevails.

Baumol et al. also lay out four elements (they like that number) that they think are necessary to encourage such big firm/small innovator successes:

1, ease of forming or abandoning a business (if a company cannot declare bankruptcy if things go wrong, then the risks may be too high for anybody to start up in the first place);
2, rewards (they mean big money payoffs) for ”socially useful entrepreneurial activity." They specify "socially useful" to exclude such entrepreneurial activity as cocaine production and distribution, hedge-fund manipulation and other big money-making enterprises.
3, economic growth should be favored over redistribution of existing wealth -- which sounds like, Let the rich get richer as long as they invest in things that will make us all richer.
4, continuing incentives to companies to innovate and grow.

The most important thought I took from the book was what they call their “fundamental proposition”:

that economies are complicated systems that cannot be reduced to one or two central driving forces, and cannot be turned around by applying one or even a few of the policy prescriptions various development economisys or institutions have recommended over the years. (p. 59)

In sum, I found the book useful in clarifying categories (such as those four types of capitalism), though its arguments are too general and abstract, and say too little about the political forces involved, to explain much about the current world recession, or the surge in the price of oil, or what's at stake in the Georgia-Russia conflict (we know economics is a big part of it, but just how?) or other issues.

I'm not convinced that "There is no alternative," that growth and prosperity are impossible unless all major means of production are in private hands. We'll have to see if China, for example, can continue to innovate with its mix of capitalism and socialism. Or if Hugo Chávez's "Twenty-First Century Socialism" (which so far appears to be another mix of state-ownership and private enterprise) matures and survives. But it is obvious that there are many alternative systems within capitalism.

Unequal America

This article from Harvard Magazine asks why inequality of income distribution and life expectancy is so much greater in the U.S. than in other countries with a similar GDP.

Unequal America: Causes and consequences of the wide—and growing—gap between rich and poor, by Elizabeth Gudrais.

The author comes to no clear conclusions as to either the causes (historical? ideological? accidental?) or the possible remedies, but she gives us material to work with to come up with our own. Some of the proposed remedies, including stricter rules on campaign financing (so the favor-the-rich candidates don't get all the money), sound like timid steps in the right direction. A movement mobilizing greater numbers of the poor and non-poor to vote seems to me like the best way to change laws on who gets the tax breaks, which neighborhoods and which institutions get public funds, and so on. And that's the big reason for backing Obama, who is the only one currently able to motivate those folks on a national scale. (Not to slight Kucinich and others, who are working to do the same thing but whose reach is narrower.)

Credit crisis

These two articles from Mother Jones helped me understand. Maybe they'll help you too.

Where Credit Is Due: A Timeline of the Mortgage Crisis. By Nomi Prins

Subprime 1-2-3. By Casey Miner