Great Throughts Treasury

"A focus on results can very easily encourage people to avoid failures at all costs. And if this happens aid will increasingly be directed to the safe option of countries where performance is already satisfactory. To its credit the British government has understood this problem and provided the World Bank with the money to launch a fund that can be used to support the turnarounds. Will other governments put money into this fund? To my mind that is one of the critical steps for aid in the next couple of years. If you want your children to grow up in a world with fewer failing states, one of the practical things you can do about it is to urge your government to back this sort of aid finance."

"A charter for post-conflict situations could also usefully draw on the successful experiences of truth and reconciliation commissions."

"A post-conflict charter should include guidance on behavior by donors and the international security regime. Donors should be committed for the decade, not just the first couple of high-glamour years. International security forces should likewise be committed for the long haul. In return, post-conflict governments should reduce their own military spending ? as we have seen, it is dysfunctional. They should have a transparent budgetary process, so that public power does not translate into private profit. They should include opposition groups in power, for example through decentralization. And they should sort out conflicting and confused property claims quickly."

"A large improvement is not enough; it must be sustained. We decided to define ?sustained? as being at least five years. Had we chosen a very long period of sustained improvement, we would have excluded situations such as in Indonesia. The improvement in Indonesia began in 1967 and was broadly sustained until the collapse associated with the Asian financial crisis of 1998."

"Aid does tend to speed up the growth process. A reasonable estimate is that over the last thirty years it has added around one percentage point to the annual growth rate of the bottom billion. This does not sound like a whole lot, but then the growth rate of the bottom billion over this period has been much less than 1 percent per year ? in fact, it has been zero. So adding 1 percent has made the difference between stagnation and severe cumulative decline. Without aid, cumulatively the countries of the bottom billion would have become much poorer than they are today. Aid has been a holding operation preventing things from falling apart. In July 2005 at Gleneagles, the G8 summit committed to doubling to Africa."

"A head of government should not be leading an aid campaign; rather, he or she should be forcing policy coordination across the government."

"A third key pressure point in cleaning up resource revenues is the international companies in the extractive industries. The model here is De Beers and its Kimberly Process for the certification of diamonds. For many years De Beers has been in denial that conflict diamonds were a problem. Then pressure from NGOs persuaded the company that denial was not going to work: if the image of conflict diamonds became entrenched in the mind of consumers, diamonds could go the way of fur. To their considerable credit, De Beers radically changed tack."

"A recent study by the Center for Global Development, a Washington think tank, came up with an estimate of diminishing returns implying that when aid reaches about 16 percent of GDP it more or less ceases to be effective."

"Aid agencies should become increasingly concentrated in the most difficult environments. That means that they will need to accept more risk, and so a higher rate of failure. They should compensate by increasing their project supervision, which means higher administrative overheads. They should become swift-footed, seizing reform opportunities at an early stage. They should intervene strategically, financing big-push strategies for export diversification. They should introduce governance conditionality. At present the powerful force of popular opinion is driving agencies in precisely the opposite direction. They cannot afford failure. They have to be learn with low administrative expenses. They have to prioritize long-term social opportunities for reform and growth. They have to give unconditional debt relief. This is the fault of ordinary citizens who support vociferous lobbies without bothering to get informed. No aspect of domestic policy is run this badly. The aid agencies are not run by fools; they are full of intelligent people severely constrained by what public opinion permits."

"After Iraq it is difficult to arouse much support for military intervention. For me this chapter is the toughest in the book because I want to persuade you that external military intervention has an important place in helping the societies of the bottom billion, and that these countries? own military forces are more often part of the problem than a substitute for external forces."

"Aid is not very effective in inducing a turnaround in a failing state; you have to wait for a political opportunity. When it arises, pour in the technical assistance as quickly as possible to help implement reform. Then, after a few years, start pouring in the money for the government to spend."

"Aid improves the opportunities for private investment, and so money that otherwise would have fled the country gets invested inside it. That is evidently quite possible. The question is which predominates empirically."

"Aid, however, is not the only answer to the problems of the bottom billion. In recent years it has probably been overemphasized, partly because it is the easiest thing for the Western world to do and partly because it fits so comfortably into a moral universe organized around the principles of sin and expiation. That overemphasis, which comes from the left, has produced a predictable backlash from the right. Aid does have serious problems, and more especially serious limitations. Alone it will not be sufficient to turn the societies of the bottom billion around. But it is part of the solution rather than part of the problem. The challenge is to complement it with other actions."

"All the people living in the countries of the bottom billion have been in one or another of the traps that I have described in the preceding four chapters. Seventy-three percent of them have been through civil war, 29 percent of them are in countries dominated by the politics of natural resource revenues, 30 percent are landlocked, resource-scarce, and in a bad neighborhood, and 76 percent have been through a prolonged period of bad governance and poor economic policies."

"Among the companies that pay the bribes two sectors seem to stand out: resource extraction and construction."

"An oil field in a developed country is auctioned off in a transparent process. This should be a basic requirement of an international charter on resource extraction."

"An election campaign costs around four times as much there as it does in the United States, despite Russia?s income being only about a tenth of that in America. In relative terms this is forty times the U.S. level of spending. And look at Nigeria. Never mind the presidential campaign there ? just to get elected as a senator costs around half a million dollars. With spending like that, no wonder the politics is corrupt. To raise that sort of money candidates have to sell their houses, borrow, and beg, and then if they win they have just four years to recoup their investment."

"Astonishingly, he found that people with a sense of grievance were no more likely to take part in violent protest than those who were not aggrieved. So what characteristics did make people more likely to engage in political violence? Well, the three big ones were being young, being uneducated, and being without dependents. Try as one might, it is difficult to reconcile these characteristics of recruitment with an image of a vanguard of fighters for social justice."

"And so a miserable but possible scenario is that countries in the bottom billion oscillate between the traps and limbo, perhaps switching in the process from one trap to another.."

"By 2050 the development gulf will no longer be between a rich billion in the most developed countries and five billion in the developing countries; rather, it will be between the trapped billion and the rest of humankind."

"Another dysfunctional aspect of rich-country trade policy is tariff escalation: the tariffs on processed materials are higher than on the unprocessed materials. This makes it harder for the countries of the bottom billion to diversify their exports by processing their raw materials before exporting them. It hurts us and impedes the development of countries that are already facing enough impediments."

"Capital movements, like trade, normally generate mutual gains. Since political contests are usually presented as zero-sum games ? your gain is my loss ? the people who are most politically engaged have the hardest time believing in mutual gains. Hence, perhaps, the exaggerated suspicions of globalization."

"By contrast, the British intervention in Sierra Leone just mentioned, Operation Palliser, has been a huge success. It has imposed security and maintained it once the RUF was disposed of. The whole operation has been amazingly cheap. I can think of no other way in which peace could have been restored and maintained in Sierra Leone."

"Before globalization gave huge opportunities to China and India, they were poorer than many of the countries that have been caught in the traps."

"Change in the societies at the very bottom must come predominantly from within; we cannot impose it on them."

"Coordination on military interventions, trade policies, and international standards is going to be difficult because of recent history: coordination on military intervention is clouded by the spectacular disagreements over Iraq, coordination on trade policy is clouded by the spectacular disagreements on steel and agriculture, and coordination on international standards is clouded by the spectacular disagreements on climate change and the Kyoto Protocol."

"De Beers demonstrates that big companies can become a key part of the solution rather than being part of the problem. What worked for diamonds may not work for oil, but in one respect the task of transparency is quite a bit easier: it is far harder to smuggle oil than diamonds. There has been some ?conflict oil?: at one stage worth about a billion dollars a year was being ?bunkered? ? stolen ? from the delta region of Nigeria. But because of the trace elements found in oil, its origin is detectable, and so certification could be effective."

"Democracy is designed very differently in different places, so it is pointless trying to set out some grand blueprint that all democracies should follow. There is, however, one other aspect of democracy where international standards would help to curtail massive abuse, and that it [sic] how money is raised and spent on election campaigning."

"Dependence upon primary commodity exports ? oil, diamonds, and the like ? substantially increases the risk of civil war."

"Does an election produce an accountable and legitimate government? What an election produces is a winner and a loser. And the loser is unreconciled."

"Elections determine who is in power, but they do not determine how power is used."

"Electorates tend to get the politicians they deserve."

"Even to distinguish between technical assistance and money to governments was difficult because the donor agencies just have not been bothered to record their activities properly."

"Globalization arouses passions: it is considered either wonderful or terrible. 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."

"Forty percent of all post-conflict situations, historically, have reverted back to conflict within a decade."

"Generally, I do not much care for rich-country wallowing in guilt over development. I find it contrived, and it diverts attention from a practical agenda. Citizens of the rich world are not to blame for most of the problems of the bottom billion; poverty is simply the default option when economies malfunction. However, I am now going to pin some blame on citizens of the rich world, who must take responsibility for their own ignorance about trade policy and for its consequences."

"I am definitely not arguing that we should be indifferent to how an economy grows. The growth of Equatorial Guinea, for example, produces benefits for only a handful of its people, but this is exceptional; growth usually does benefit ordinary people."

"High military spending by the government may inadvertently signal to the rebel forces that the government is indeed going to renege on any deal and rule by repression."

"I was once brought in to talk to a depressingly large group of finance ministers from post-conflict countries, and I put to them this argument that high military spending is likely to be dysfunctional. Despite the fact that military spending is often a taboo subject, there was an enthusiastic chorus of approval led by the finance minister of Mozambique, Luisa Diogo. Now prime minister, Diogo gave us the example of her own country. Completely bucking the usual trend, her government has radically cut military spending to virtually nothing, and the peace had endured. It turned out that, far from favoring big military budgets, finance ministers wanted evidence to defend their spending priorities against the demands of the powerful military lobby. The key implication is that in post-conflict situations risks are high. Governments recognize these risks. Eventually, if they run the economy well, this will bring the risk down, but it is going to take around a decade. There is no magic political fix, and so there has to be some military force to keep the peace during this dangerous period. But if the force is domestic, it exacerbates the problem. In the typical post-conflict situation external military force is needed for a long time."

"I proposed a charter for post-conflict governance. International actors have had huge power in post-conflict situations and have usually been embarrassed to use it because of accusations of infringing upon sovereignty. The international community has so much at stake in these situations that it has to learn to learn to be comfortable with infringing upon sovereignty. But it is far more acceptable for international actors to impose a previously defined international norm than to invent fresh demands on the hoof as a particular situation deteriorates."

"If a country has a lot of natural resources, it is in all likelihood going to be uncompetitive in other exports ? the theory of Dutch disease."

"If nothing is done about it, this group will gradually diverge from the rest of the world economy over the next couple of decades, forming a ghetto of misery and discontent."

"If Western consumers force the big-brand oil companies to adopt international standards, then in turn the oil companies will pressure their governments ? the United States, Britain, and France ? to come to an arrangement with China. The West has to offer China greater inclusion in power in return for adherence to international standards. It has to be made in China?s interests for the bottom billion to develop rather than to fall apart."

"If you want to understand why some countries of the former Soviet Union have done well while others are becoming failing states, a pretty good guide is geography. The further away from the EU and so the less credible the prospect of US membership, the worse they have done."

"In 1999 the OECD managed to organize the necessary coordination to escape this dilemma: an agreement among its member governments that they would all legislate to make bribery of a public official in a foreign country an offense."

"If you combine a number of poor, slow-growing individual economies, you have a poor, slow-growing regional economy. Trade is really generated by differences, and the big opportunity for low-income countries is to trade with rich countries, harnessing the advantage of their cheap labor. Within a group of poor countries there simply are not sufficient differences to generate much trade. Worse, the differences that do exist between poor countries will get reinforced rather than reduced. The model of the European Community is unfortunately deeply misleading."

"If there was an international charter on standards along the lines of the five points laid out above, NGOs could start to demand that companies adhere to it. For example, a company that entered into an extraction contract won without competitive bidding would be censured. Potentially it is even possible for oil companies to be required to display at their gas stations where the oil used in the gasoline is from. Obviously, oil from different sources gets mixed together, but for the purposes of consumer pressure the source of oil is a financial contact, not a physical one. If a thousand barrels of oil from Angola go into a storage tank, one thousand barrels of the oil that comes out could be designated as being from Angola. If consumers refused to buy gasoline ?from? Angola, the companies would be reluctant to put it into the storage tanks in the first place. Angolan oil would become harder to sell, except at a discount, and this would create a financial incentive for the Angolan government to be transparent."

"If we made the reporting of any potentially corrupt deposits a requirement of banking, and if we made the freezing and repatriation of those deposits radically easier, would it seriously damage our financial system? I doubt it, because if the money is suspected of having a connection to terrorism we already do it. The West?s current concern is terrorism, so we do something about it. The problem of governance in the bottom billion is not seen as ours, and so we do the minimum. Consequently, corrupt politicians in the bottom billion continue to stack their money away in Western banks."

"In 2005 the rules were changed so that extra money now lasts for seven years, a much more reasonable time frame."

"In order to break into global markets for manufactures it is necessary to get over a threshold of cost-competitiveness. If only a country can get over the threshold, it enjoys virtually infinite possibilities of expansion: if the first firm is profitable, so are its imitators. This expansion creates jobs, especially for youth. Admittedly, the jobs are far from wonderful, but they are an improvement on the drudgery and boredom of a small farm, or of hanging around on a street corner trying to sell cigarettes. As jobs become plentiful they provide a degree of economic security not just for the people who get them but for the families behind the workers. And gradually, as jobs expand, the labor markets tightens and wages start to rise."