Monday, July 07, 2008

Paul Collier: Using Good Governance to Fight Poverty

Really interesting talk by Paul Collier, author of The Bottom Billion, about one way to reduce poverty.

He notes that there is a huge commodity boom going on with vast amounts of money going to many, but not all, of the countries of the bottom billion. The size of this revenue dwarfs aid. Angola alone is getting $50 billion a year in oil revenue while the entire aid flow to the 60 countries of the bottom billion is just $34 billion.

While all countries see economic growth in the short run from resource exploitation, many countries see economic growth go down in the long term, leaving countries worse off than before they found it. This is known as the resource curse (or oil curse).

How do you beat the resource curse? Good governance. Countries like Norway, Australia and Canada have seen both short and long term economic growth while overseeing the sale of large amounts of natural resources. The resource curse just applies to those countries below a certain threshold in governance (that level being that of Portugal in the mid '80s, but I have no idea how this is measured, or any clue as to how Portugal was governed in the mid '80s).

How do you get good governance? Does introducing democracy help?

Surprisingly, when he looked at the data, democracies made even more of a mess of resource booms than autocracies.

But, he looked further as found something very interesting. He broke democracy down into 2 distinct aspects: electoral competition + checks and balances. The first determines how you acquire power and the second determines how you use power. Electoral competition caused damage whereas strong checks and balances made resource booms good.

The problem for the bottom billion was that they got instant democracies in the 1990s: elections without checks and balances.

To help these countries, he suggests one way to improve governance: increased transparency. Getting these governments to publish how much money they are getting from selling resources and where they are spending it would do a lot to reduce poverty. He sees the Extractive Industries Transparency Initiative (EITI) as a model of what can be done.

Too bad George Bush didn't listen to this talk before the invasion of Iraq. Instead of focusing on the purple fingers, the US should have been focusing on checks and balances, and building the institutions required for good governance. Had we done so, Iraq would likely be in much better shape than it is today.

via TED

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