Bayesian Investor Blog

Book review: The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It by Paul Collier
This very eloquent and mostly thoughtful book about the world’s poorest countries will offend ideologues of all stripes. Collier’s four different explanations for poverty traps (war, presence of natural resources, bad neighbors blocking trade routes, and corruption) clearly place him as a fox rather than a hedgehog without being complex enough that they can rationalize any result (although they can probably rationalize more results than an ideal set of explanations would). He blames both villains in poor countries and thoughtless voters in wealthy countries.
Collier sees that globalization has benefited most nations, but provides plausible mechanisms by which globalization can harm some (e.g. through enabling capital flight).
Collier mostly thinks like a good economist, but his prior work for the World Bank biases him to be overly optimistic about improving such institutions. He recognizes the incentives that cause bureaucrats to be too risk averse, but then makes a cryptic claim that the British government understands the problem and is spending money to fix it. He vaguely implies that this is a venture capital-like fund, but fails to say whether they replicated the key venture capital feature of providing unusually large rewards to employees who produce unusually good results. His silence on this subject leads me to suspect that he’s asking us to blindly trust institutions that have a long track record of avoiding results-oriented incentives.
He also shows misplaced faith in authority when he tries to calculate the value to the world of rescuing a failed state by using George Bush’s calculation that the benefits of installing a good government in Iraq exceeded the expected $100 billion cost. That might be a good argument if Bush had been spending his own money to help Iraq, but his willingness to spend other peoples’ money doesn’t say much.
Collier says it is “surely irresponsible” to leave Somalia with no government. Yet most evidence I’ve seen says Somalia improved by most standard criteria such as life expectancy when it had no government. I don’t know how reliable that evidence is, but Collier’s apparent assumption that we don’t need to look at the evidence makes his opinion suspect.
The book’s biggest shortcoming is the absence of anything resembling footnotes. Collier implies this is too make the book more readable, but he could have put a section of notes at the end referencing individual pages without altering the main text in any way. Instead he only gives a fairly large list of papers he’s written. But I can’t tell without tracking down and reading a large fraction of them which of them if any support his controversial claims (e.g. that giving money to the poorest countries helps them a bit but that doubling it would reach a limit beyond which further money would be wasted).
But his advice is good enough that its value doesn’t depend much on those controversial claims being right. Following his advice to condition aid on results (e.g. sending money to countries when they stop wars, cutting it off if they have a coup or resume war) would provide incentives that would make aid beneficial.
I had previously suspected that large countries have tended to escape poverty more easily in the past few decades because “aid” organizations had enough money to prop up small corrupt governments but not enough to affect a government such as India’s. Collier presents a good alternative theory: being a large country pretty much guarantees access to the sea, and by increasing the number of neighbors, increases the chance of having a neighbor which is open to trade.
Another good tidbit is this point on Fair Trade: farmers “get charity as long as they stay producing the crops that have locked them into poverty.”