This was originally published on Dan’s blog, Emergent Economics
Prompted by Bill Gates’s annual letter and the response from the Overseas Development Institute I thought I’d list some of the things that in my experience seem to be less understood about poor countries. (I wanted to list 23 things like Ha-Joon Chang on capitalism but I couldn’t think of another two). I use the word poor on purpose because although the word risks sounding patronising or dismissive, euphemisms like developing and less-developed can be worse. Thoughts are welcome.
1. Poverty is the rule, not the exception. For most people life just isn’t as good as it is for you and I, the comfortable people from a country rich enough to allow us the literacy, time and Internet access to read blogs written by well-meaning left liberals. Poverty-as-rule-not -exception is difficult to bend our minds around because we tend to base our views about the world on direct experience. If people around us seem mostly well-fed and content, then why shouldn’t everybody else be?
Although things are improving, a huge chunk of the world’s population remain poor. Over a fifth of humans, 1.29 billion, are considered extremely poor . In effect the equivalent of every man, woman and child in Europe, the United States and the Middle East scrape by on 75 British pence a day adjusted for the cost of living in each country. About a third of the world lives on less than $2 a day. The poorest half of the world – 3.5 billion people – own only 0.71% of the world’s wealth between them.
A billion people live in chronic hunger. Nearly a third of all children are chronically malnourished, which unless addressed before the age of two often leaves them stunted and mentally impaired. A sixth of the world’s adults can’t read or write and many more have only rudimentary literacy. Sub-Saharan Africa has only two doctors for every 10,000 people, which is partly why on average its inhabitants live to an average age of 56.
Rather than a term like “developing” to describe these people and countries, the travel writer Dervla Murphy’s phrase “majority world” is more accurate.
2. Most countries aren’t well-off. The following graph using World Bank data shows that most countries have a relatively low level of national income per capita. 120 nations earn less per person than the world average. When you reach an income per capita of about US$20,000, about half that of the UK, there’s a big jump. Bermudan national income per person is US$104,590, 455 times that of the Democratic Republic of the Congo.
National income per capita, US$
[NB. Not all country labels fit on the vertical graph.]
3. More poor people live in Asia than in Africa. Everybody seems to be wittering on about the Asian Century these days – and Asian development has been miraculous. But about 69% of Indians live on less than US$2 per day: 850 million people. A third of Chinese, 400 million, remain similarly poor despite the country’s amazing success in reducing poverty. Together those two countries contain more poor people than there are Africans.
4. The distinction between “developed” and “developing” countries is meaningless. What’s Brazil got to do with Liberia? Not much, apart from an Atlantic coast. One is a newly-industrialising behemoth with an average income near the world average. The other is one of the world’s poorest, emerging from war. Yet both are officially considered developing. China, Turkey, Russia, Indonesia, Mexico and India are all big and relatively dynamic even if they also contain a lot of poor people. Millions of people in those countries live just like Europeans, and the emergence of these nations is one of the biggest reasons why poverty will continue to drop in the coming decades. Yet plenty countries also called developing are being left behind. I count 41 supposedly developing nations which in 2012 on some criterion had real incomes that were lower than a decade earlier. They’re probably better described as undeveloping.
5. Lying on the beach in Thailand or Gambia doesn’t tell you much about poverty. We still don’t know as much as we should about poverty and we try to ignore poor people. Most people’s experience of the global poor is the waiter at their table or the pool attendant, the ones lucky enough to have jobs. Only by direct experience and immersion in local circumstances is it possible to have a vague inkling of what it might be like to be genuinely destitute. There’s no obligation on holidaymakers to go wandering around in slums, but anybody who claims knowledge about deprivation should experience or observe it first-hand for themselves, ideally for a long time.
6. Our main tool for understanding poor countries – mainstream economics – is woefully inadequate and all about the rich world.A sample of 76,000 economics journal articles published between 1985 and 2005 shows that more papers were published about the United States than on Europe, Asia, Latin America, the Middle East and Africa combined. Like I said in this blog post, that’s as ridiculous as if biologists researched only flowers, or physicists only outer space. It’s no wonder that the mainstream model of human beings bears no resemblance to most people on the planet. Economists start from the assumption that humans are individualistic, utility-maximising and strictly rational in a narrow sense. Actually many people are communitarian, social, non-calculating, uncertain about the future and often act according to sentiment or whim. Mainstream economics allows no theory of power or politics and can’t see the world economy as a system.
7. The economic statistics on poor countries are awful. Which undermines my first four points. As Morten Jerven says in his book Poor Numbers: How We Are Misled By African Development Statistics And What To Do About It, “the most basic metric of development, GDP, should not be treated as an objective number but rather as a number that is a product of a process in which a range of arbitrary and controversial assumptions are made.” Jerven finds that the discrepancy between different GDP estimates is up to a half in some cases. This supports my experience from working in the least developed countries, where statistics offices are usually underfunded and don’t have the resources to collect data often or well enough.
There’s a kind of false scientism: foreign academic economists spend ages refining complicated econometric models despite the raw material being rubbish. In the absence of good numbers, the only immediate alternative is to live in a country, to use good theory and to rely where necessary on case studies and even anecdote.
8. We need somewhere to make our T-shirts. The global development story is all about how wonderful it would be if we could end poverty. But the current economic system relies on cheapness. Capitalism functions partly via its ability to maintain low wages. Why has global inflation been so low over the past decade or more? Partly, the China effect, whereby the opening up of huge untapped labour markets meant that whole Western industries could outsource their manufacturing and that new local manufacturers could emerge. China’s rural poor keep Foxconn workers on their toes – if you don’t like assembling iPhones at US$18 for a 10-hour day (much higher than it used to be) 1000 people are waiting to take your place.
Nairobi’s Kibera slum-dwellers and rural poor keep wages low by functioning as a reserve army of labour willing to work for peanuts. In Haiti garment manufacturers recently argued that a minimum wage rise to the equivalent of five dollars a day would kill their business. Wikileaks published documents showing that the United States government earlier fought to cap daily pay at three dollars. The country’s only major export industry is clothing destined for the United States.
It’d be worth paying a lot more for our t-shirts if it meant that the people who made them had decent lives. An increase in demand via higher wages would support economic growth. But it’s also naïve to think that western consumers would pay much more for their t-shirts or that businesses would tolerate big wage hikes.
9. Inequality matters at least as much as poverty. A report from Oxfam last month pointed out that 85 people, about as many as would fit on a double-decker bus, own as much wealth as the bottom half of the world’s population.
The Spirit Level by Kate Pickett and Richard Wilkinson shows that equality is good for everyone. Redistribution reduces poverty and makes life better for the rich in the form of less crime, better education and a more cohesive society. Global inequality is getting worse, not better. If we don’t radically reduce inequality the poor will eat us, so aid isn’t an option, and it’s not about the rich world “saving” the poor. It’s essential for everyone.
10. Africa isn’t a country. Although sub-Saharan Africa’s economy is still much smaller than Britain’s, some Africans are fat, go to the supermarket and drive cars. Many are very poor. The rise of the African middle class is one of the most under-reported stories of our times. If people in the UK think about the continent at all they think of the Ethiopian famine of the 1980s. Partly this is the fault of the major news media, which have cut back on foreign coverage so much that all they report on is Big Events – a bomb, a famine, a war. Reporters who occasionally fly in from abroad miss the cumulative series of small happenings that amount to a trend. To show only negative TV stories about Africa smears the whole continent. The Central African Republic isn’t Botswana, which isn’t Namibia. Within countries the divide between urban and rural populations is increasingly stark.
11. Not all poor countries are corrupt. Corruption tends to be more obvious in some poor countries because the police aren’t very good, the rule of law isn’t established and small-scale bribery may have become entrenched, but a country isn’t necessarily poor because the wealth has all been stolen. All sorts of other more important reasons explain poverty, like political instability, bad economic policy, colonial history, an over-reliance on tropical commodities, distance from major markets, being landlocked and poor health and education.
Relatively uncorrupt poor countries I’ve worked in or on include Vanuatu, Fiji, Kiribati, Tuvalu, Samoa, Tonga, the Federated States of Micronesia, Bhutan, Cape Verde and Mauritius. Arguably a good hundred others are less corrupt than when the United States or Britain were industrialising.
In the UK until the early 1800s it was perfectly normal for ministers to ‘borrow’ their departmental funds for personal profit. Until 1870, appointments of high-ranking civil servants in Britain were made on the basis of patronage rather than merit. The British government chief whip was actually called thepatronage secretary of the Treasury because distributing patronage was his main job. (h/t M. Ibrahim) This was at a time when Britain became the first superpower.
Arguably the banking industry and its takeover of American and European governments represents a far bigger and more dangerous form of corruption than even the bribery and political theft that blights the likes of Nigeria. In the US and UK lobbying is a multi-billion dollar business which subverts the democratic process. From 2008 onwards , encouraged by lobbyists, the UK government committed to spending a staggering trillion pounds on the bank bailout, which is about ten years’ worth of National Health Service funding. It wasn’t as obvious as baksheesh but it amounted to the same thing only on a vastly larger scale. One academic estimates that by the end of 2012 the UK bailout had cost the taxpayer up to 13% of one year’s economic production.
Corruption doesn’t necessarily cause poverty: that’s like blaming poor countries for their own failures. In some cases quite the reverse can be true. Some people argue that corruption has helped national politicians align their interests with that of their country. Indonesia’s President Suharto understood that if he generated wealth there’d be more to steal, so he installed a team of technocrats whose sole job it was to grow the economy; immoral but effective.
12. Money doesn’t make you happy. Up to about US$75,000 a year it does – and most people aren’t anywhere near that level – but beyond that it doesn’t have any effect, according to Nobel prize-winning psychologist Daniel Kahneman. “The four basic needs: food, housing, clothes and medicine must be cheap and easy for everybody. That’s civilisation”, says Jon Jandai, a farmer from northeast Thailand. I’d add primary, secondary and tertiary education, too.
13. Poor countries can learn from the mistakes of the rich on the environment and life satisfaction. Lower income countries have leapfrogged some technologies. For example many will never install fixed telephone lines because mobile coverage is so good. Vast numbers of people will never touch a PC, doing all their computing on a smartphone or tablet.
The governments of poor countries should be more adventurous, leapfrogging ideologies too. Some proponents of economic growth argue that environmental sustainability and a focus on happiness will handicap poverty reduction. But it could enable some countries to prioritise the important things in life. Endless growth is impossible and undesirable.
Beyond a certain point rich inefficiency is the real problem. Why do developing countries ape the development paths and economic structures of the West? We are wage slaves who perform bullshit jobsso that we can service our mortgages. The advance of the car ruined everyone’s quality of life so that a minority can sit in air-conditioned metal boxes in jams. Clever though-leadership in the majority world could lead the way for the rich. Bhutan’s idea of Gross National Happiness is an example.
14. The world isn’t overpopulated. There’s plenty of food to go round. World agriculture produces 17% more calories per person today than it did 30 years ago despite a 70% population increase, due to rising yields, higher farming intensity and more use of land. The real problems are the system of distribution and energy use. If the rich world didn’t hog all the food and produce it inefficiently there’d be enough for everyone.
15. Governments often do things better than markets. Market fundamentalism is the new global creed, and yet most countries that developed successfully did it initially via heavy government intervention. Markets suffer from serious coordination failure. The global free-flow of capital and trade renders poor countries more vulnerable. As the United Kingdom has proven, natural monopolies like the railways, post office and water and electricity utilities are better off in public ownership. In poorer countries the case for government ownership is even stronger.
16. Most countries that successfully reduced poverty didn’t directly try to reduce poverty. They aimed at economic transformation. A fall in poverty was an indirect result of an increase in productive capacity. Investment rates and capital accumulation were high and aimed at enterprise development and technological improvement, as well as structural change toward developing the non-traditional sectors, including linkages to agriculture and the wider economy.
This sort of obliquity is what John Kay talks about in his book of the same name. If you try to target things directly you often fail.
17. How rich countries behave is often more important than how much they spend on aid. The 2008 global economic crisis, which was caused largely by the financial sector, increased poverty for hundreds of millions of people. The collapse in international trade hurt all countries, developing and industrialised. But while the big and emerging nations might recover, the poorest couldn’t cope. A downturn in exports can be life-and-death. When European orders stopped coming, Kenyan flower farm workers simply sat idle. Foreign investment inflows also dwindled. There is a large group at the global periphery which won’t rebound for a long time — and for many people, it is already too late.
Nicholas Shaxson’s excellent book Treasure Islands suggests that Transparency International’scorruption perceptions index has things the wrong way round: we should rank countries on banking secrecy, not graft. The real economic issue is that rich nations harbour ill-gotten spoils, not that Charles Taylor foists himself on Liberia.
18. Just give them the f-ing money, as Bob Geldof sort-of said. Daily Mail readers seem to think that the world has already given enough aid, but in reality an enormous amount remains to be done, as should be clear from points 1 and 9. More aid should be in the form grants rather than loans. Cash transfers are the best way of delivering some help. For example the British Department for International Development works with Unicef and the Kenyan Government in Korogocho, Nairobi, to improve the lives of orphans and vulnerable children through a cash transfer scheme which gives very poor families 3000 Kenyan shillings (about £25) every two months for help with basic household expenses. It cuts out the middleman and it’s been proven through robust testing to reduce poverty, hunger and inequality.
19. Rich countries don’t spend much on aid. The amount officially spent on each poor person globally is US$20 a year, according to the World Bank. The amount has doubled in the last decade following a dip in the late 1990s. But several opinion polls show that rich country inhabitants think they’re much more generous than they really are. Americans think that their government spends 28% of the budget on aid when it’s really about 1%. Brits are almost as bad. The result of this widespread overestimation of generosity is that many people in rich countries want to cut aid.
20. Aid works: both developmental and humanitarian. It’s not widely known that development aid was instrumental in supporting the growth of Singapore, one of the world’s most remarkable economic success stories. The United Nations Development Programme contributed 744 technical assistants from 1950 onwards and spent US$27 million on development help. In 1960 a visiting UNDP team led by Dutchman Dr Albert Winsemius, who became a trusted adviser to Lee Kuan Yew until the 1980s, wrote a report entitled “A proposed industrialisation programme for the State of Singapore”. This document formed the basis of early development strategy. Other major aid recipients that now receive very little include Botswana, Morocco, Brazil, Mexico, Chile, Costa Rica, Peru, Thailand, Mauritius and Malaysia. Bill Gates reckons that through a combination of aid and spontaneous economic development there won’t be any very poor people left by 2035.
He calculates that 100 million deaths have been avoided since the drop in child mortality since 1980, the start of the “Child Survival Revolution” that made vaccines and oral rehydration therapy much more widespread. Total aid, $500 billion, counts money for vaccines, HIV/AIDS, family planning, and water and sanitation from all donors. That works out at US$5000 per life saved, which he rightly says is quite cheap. Hundreds of millions of people have been immunized against Polio, treated for TB and given anti-retroviral treatment for HIV/AIDS.
21. Charity sometimes isn’t the best way of tackling poverty.Sometimes it is. Just because a service is provided freely or from donations doesn’t mean it is better. Often governments are better-placed to deliver assistance because they have better expertise, economies of scale and political access. Taxation places a similar burden on everyone and makes aid revenues more predictable. Sometimes, though, charities have better access and niche skills. Volunteer organisations often have a long history in certain locations and they can avoid accusations of political interference.