Why are some countries poorer than others?

Hello readers, welcome back to my blog. I was recently at an economics summer school at the debate chamber and one of the things that we discussed was the issue of poverty.  In this post I thought I would share with you some of these ideas, as well as some of the aspects regarding poverty that I leant from Collier’s book, “The Bottom Billion”. In reality there are hundreds of reasons as to why a country may be poor and the exact reasons may vary from country to country. For example North Korea is poverty stricken primarily because it is led by a morally corrupt bankrupt communist monarchy and it has total state control which results in fear and resentment, with little money being invested in public services. On the other hand countries such as the Democratic Republic of Congo (DRC) is ravaged by internal conflict, and has a weak divided

Screen Shot 2017-08-30 at 18.49.27state. In this post I will be going through 4 of the key factors that can lead to countries being poorer than others. These 4 factors are the same 4 ‘traps’ that Collier describes in his book:

Poor Governance, Conflict, Natural Resources and Landlocked Countries. I will consider each of these individually.

 

 

  1. Poor Governance & Corruption

Three quarters of the bottom billion live in countries that are either failing, or recently were failed states – countries such as Somalia, Haiti, Sudan, Zimbabwe. While governments do not function, or exist only to benefit themselves, development is ultimately impossible. It’s difficult to price these things, but Paul Collier estimates that each failed state costs the global economy $100 billion.

Corruption is a disease which must be cured or at least attempted to be treated since it is fundamentally causing poverty by diverting government funds away from the public and into individual offshore bank accounts. Corruption is frustrating for countries as they are left behind others and is also dis-heartening and dis-empowering.

While the most obvious perpetrators are crooked policemen or customs officials, which everyone knows about, they are the tip of the iceberg. Red tape is where real endemic corruption happens – a slowing and over-complicating of simple processes, from starting businesses, buying or selling property, to the law courts, all require ridiculous amounts of paperwork, interviews, visits to ministry offices. In the Cameroon courts in 2001, when it was rated the world’s fifth most corrupt country, chasing an unpaid invoice took 58 separate procedures.

‘Every procedure is an opportunity to extract a bribe’ says Tim Harford in the “Undercover Economist”. The slower the standard processes, the greater the temptation to pay ‘speed money’.’ Imagine having to bribe your telephone company and all your utility companies, paying an aside for your driver’s license and to pass your exams. Imagine having to bribe the post office every time you bought something by mail order, bribing the bank clerk to let you take money out of your own account, paying your doctor to give you a prescription, and then the chemist to give it to you. That’s the reality of endemic corruption, the abuse of power at every level. For more information on corruption check out my post on Corruption and if you have time to spare, give my EPQ a read which is based on the issue of corruption in Kenya.

2. Conflict

73% of those in the poorest billion of the world’s population are either involved in or recovering from civil war. In the fight against poverty, civil war creates a vicious circle – war causes poverty, and low income contributes to tension. Low growth means high unemployment and thus plenty of angry young men ready to fight. Conflict then destroys infrastructure and scares away investors, leaving even fewer opportunities. In order to tackle this issue, establishing treaties, trust and peace has to be the major goal to reduce conflict.

3. Natural Resources

Another poverty trap is natural resources. It sounds a little paradoxical to suggest that natural resource wealth is a factor in poverty, but you only have to consider that Sudan, Angola, and Zimbabwe all have oil to see how this plays out. It’s rare for natural resource wealth to come back to the people. Sometimes this is simply because the revenues end up in the foreign bank accounts of the elite, or the profits go to large TNC’s who operate in many different countries. A major problem related to this is resource dependency. When oil is discovered for example, the demand for infrastructure and business development in that area will immediately outweigh any other concerns. As the oil is pumped, other sectors of the economy contract, and thus when oil runs out these sectors are left far behind the rest. In Angola, the oil has been labelled a curse since the government and the elite take all the proceeds, meaning they have little incentive to invest in the country.

4. Landlocked Countries 

38% of the bottom billion live in landlocked countries,  and these pose a real challenge to development. Being landlocked doesn’t have to be a disaster, as long as your neighbours have decent infrastructure and allow you to use their ports. Collier gives the example of Switzerland, who can trade through Italy or Germany. If your neighbours don’t like you, or if they are “basket-case countries”, there is no way you can export. Compare Switzerland with Uganda, which shares borders with Kenya, Sudan, Somalia, Rwanda, The Congo, and Tanzania. Without dependable ways to export, landlocked countries such as Uganda or Rwanda are unable to participate in the global economy. Despite this these countries have made efforts to trade and have invested in air-freighted produce.

Collier suggests that the British empire and colonialism could be held responsible to some extent as he says: “A reasonable case can be made that these places should never have become countries”. “However: the deed is done. These countries exist and they will continue to do so.” The best we can do is make sure that landlocked countries are prioritised in aid. That being said in Moyo’s book ‘Dead Aid’, she argues that aid is often proposed as a solution to poverty, yet sometimes a country can actually experience a fall in GDP per capita during a sustained period of aid and that perhaps we should develop other strategies and aim towards an aid-free world.

Here are a few other factors which haven’t been discussed, that can lead to a country being poor:

Natural Disasters, Lack of property rights, foreign exploitation, lack to technological development, literacy, social unrest, lack of productivity, lack of infrastructure, religion & culture, diplomatic relations, sanctions, quality of land, ‘Brain Drain’, poor healthcare, subsistence farming, terrorism & conflict.

 

Sources Used:

https://makewealthhistory.org

https://www.forbes.com/sites/johngoodman/2015/05/21/why-are-some-countries-rich-and-others-poor/#76fd442d3e6e

https://www.weforum.org/agenda/2014/08/countries-development-inequality/

http://evonomics.com/why-are-some-countries-poor-and-others-rich/

The Bottom Billion – Paul Collier – A Summary

https://davidmays.org/BN/ColBott.html

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