Paul Collier, fully Sir Paul Collier

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.

International trade has taken place for several thousand years. However, the most dramatic transformation of the size and composition of trade has been during the past twenty-five years. For the first time in history, developing countries have broken into global markets for goods and services other than just primary commodities. Until around 1980 developing countries? role was to export raw materials. Now, 80 percent of developing countries? exports are manufactures, and service exports are also mushrooming.

One aspect of post-conflict policy is noticeable by its absence from the above suggestions: that relating to elections? Elections during the post-conflict decade seem to shift the risk. In the year before an election the risk of renewed conflict goes sharply down, perhaps because the various groups direct their energies to the electoral contest. In the year after an election the risk goes equally sharply up: presumably whoever has lost the election does not like the result and is inclined to explore other options. So elections may be desirable for all sorts of reasons, but they do not seem to make the society safer. Perhaps as solutions they have been a little overplayed.

Sachs? work suggested that being landlocked clipped around half a percentage point off the growth rate. The standard slick response to Jeff?s concerns was to point to Switzerland, Austria, or Luxembourg ? or, in Africa, to Botswana, for a long time the fastest-growing country in the world. It is true that being landlocked does not necessarily condemn a country either to poverty or to slow growth, but 38 percent of the people living in bottom-billion societies are in countries that are landlocked ? and, as you will see, it is overwhelmingly an African problem.

That is what modern armies are for: to supply the global public good of peace in territories that otherwise have the potential for nightmare.

The fair trade campaign attempts to get higher prices for some of the bottom billion?s current exports, such as coffee. The price premium in fair trade products is a form of charitable transfer, and there is evidently no harm in that. But the problem with it, as compared with just giving people the aid in other ways, is that it encourages recipients to stay doing what they are doing ? producing coffee.

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.

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

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.

It is not just banks. Until very recently, if a French company bribed a public official in a bottom-billion society, the payment was tax-deductible.

Only around 20 percent of the money that the [Ugandan] Ministry of Finance released for primary schools, others than for teachers? salaries, actually reached the schools.

Seventy-three percent of people in the societies of the bottom billion have recently been through a civil war or are still in one.

The 1990s began well for military intervention ? the expulsion of the Iraqi invasion of Kuwait was a triumph of the new internationalism. Kuwait was a pretty clear-cut case for international intervention: expelling an aggressor. But there are three other important roles for external military intervention: restoration of order, maintaining post-conflict peace, and preventing coups.)

The first link we found was between risk of war and initial level of income. Civil war is much more likely to break out in low-income countries: halve the starting income of the country and you double the risk of civil war. One might ask whether we got the causality mixed up ? is it just that war makes a country poor, rather than that poverty makes a country prone to war?

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.

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.

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.

It is time to redefine the development problem as being about the countries of the bottom billion, the ones that are stuck in poverty. When I give this message to audiences in aid agencies people shuffle uncomfortably in their seats. Some of them may be thinking, ?But what about my career?? for it would no longer be in Rio but in Bangui. And when I give the message to an NGO audience they get uneasy for a different reason. Many of them do not want to believe that for the majority of the developing world global capitalism is working. They hate capitalism and do not want it to work. The news that it is not working for the billion at the bottom is not good enough: they want to believe that it does not work anywhere. But we cannot go on sacrificing the bottom billion to either of these self-serving aspirations.

Only with a matching increase in demand are exporters not disadvantaged by the extra aid.

So what causes civil war? Rebel movements themselves justify their actions in terms of a catalogue of grievances: repression, exploitation, exclusion. Politically motivated academics have piled in with their own hobbyhorses, which usually cast rebels as heroes. I have come to distrust this discourse of grievance as self-serving.

The aid agencies are not run by fools. they are full of intelligent people severely constrained by what public opinion permits.

The Gleneagles G8 summit in July 2005 announced a doubling of aid, focused on infrastructure. As this gets implements there is going to be a massive construction boom in many of these countries. Under present circumstances, this will amplify what is already a serious problem of mis-governance.

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.

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.

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.