Ten years after the publication of The Bottom Billion, Jack Aldane met with the author Sir Paul Collier to discuss the impact his first book had at a time of global upheaval. Collier offers his reflections on the current state of development finance and how the past decade has changed his perspective as an author
“And so I say, let 2008 be the year of the bottom billion.”
Ban Ki Moon’s first New Year’s message as the United Nations’ secretary general had been building up to this moment. His pledge was to raise the income of the world’s poorest to more than one dollar a day.
As the media listened from within the UN’s headquarters in New York, the inflated US housing market was turning radioactive. Nine months later, Wall Street banks that together held more than US$8 trillion in mortgage-backed securities would race to shed their toxic assets. The resulting systemic failure produced the worst global financial crisis since the Great Depression. By December of 2008, “bottom” and “billion” reflected the status and losses of banks with firms like Lehman Brothers filing for bankruptcy with debts of US$630 billion, around 20 times the GDP of the Democratic Republic of Congo. It was the start of a new era in which stagnant growth, hyper-connectivity and the decline of Western dominance would reconstitute the UN’s task of charting a forward path for international policy. Moon’s image as the doyen of diplomacy, whose Confucian good nature and benign smile the media liked to caricature, was later derided in the press with the nickname: “invisible man”. Yet the bottom billion had not disappeared.
￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼A new approach to poverty alleviation
The phrase in Moon’s speech was coined from a book of the same title published a year earlier. Its author Paul Collier had dedicated the book to his then six-year-old son, Daniel. The Bottom Billion won broad acclaim for its concise analysis of extreme poverty in the 21st century. Its neatly sewn together argument for a better approach to aid policy followed years of research compiled by Collier and his field partner Anke Hoeffler. Together, the pair outline four poverty traps that stop fragile states from achieving even modest growth. These include the trap of living with abundant natural resources; of being landlocked by other fragile states; of living with bad governance, and as recent events in the Democratic Republic of Congo show, the trap of living in recurrent states of conflict.
To lift the bottom billion out of these traps, Collier argues that developed countries must first genuinely want to help the billion at the bottom. That means getting proponents on the political right and left to abandon moral platitudes and wade into the practicalities of solving the issue. It also means working to eliminate constraints on growth, including the West’s generalist approach to intervention. Governments of the poorest countries must decide for themselves how best to grow, based on their circumstances. As Collier argues bluntly, such governments must equally want their people to prosper.
The book was a breakthrough set of findings, yet had barely a year to inspire new thinking before the financial crisis caused countries to turn inward. The US Federal Reserve’s decision to bail out Wall Street’s surviving banks sparked civic movements such as Occupy Wall Street, which pitted an angry public against the exploits of the super-wealthy. Adult and youth ￼￼￼￼unemployment spread across many of the world’s largest economies. Three weeks before the collapse of the investment firm Lehman Brothers, China had regaled the world with its opening ceremony of the 2008 Beijing Olympics. By 2009, China held more than US$1 trillion in US debt.
A multipolar world now seemed the inevitable fallout of such immense oversight. Collier reflects that in the
years immediately after the crisis, developing economies were largely spared the misery. He doubts he would have produced a different book had he seen what was coming. Rather, his lasting regret is that the book did not wake policymakers up to the enormous opportunity low-wage economies faced as commodity prices surged throughout the 2000s.
“I underestimated the importance of the commodity booms. I didn’t realise how big they were going to be,” he says. “This was the big opportunity for the poorest countries in the world to get money which they could choose to use for themselves.”
The commodities ‘super-cycle’ as it was later called, ended in mid-2009. Its legacy proves much of what Collier wrote with respect to natural resource revenues. Collier set up the Natural Resource Charter with economists Robert Conrad and Tony Venables to avoid a repeat disappointment. The 11-point charter gives governments the power to harness their resources for economic development. Collier even taught a course on the subject at the Blavatvik School in Oxford, where he still educates ministers and top government officials. The charter is now part of an NGO known as the Natural Resource Government Institute. At the time, the project proved too late to salvage what the boom years had produced.
Collier moved on to other projects concerning development in fragile states. Wars, Guns and Votes: Democracy
in Dangerous Places was published in 2009, shortly followed by The Plundered ￼Planet , a book about the need to reconcile global population growth with our fragile ecosystems. The Plundered Planet was used to form the basis of a development agenda for the G8 (now the G7). This time, the plan worked.
“It managed to get an amazing amount of stuff done on transparency and better management of natural resource and taxation,” he says, adding: “We needed that 10 years earlier.”
Poverty and the race for private capital
Collier mentions having recently met with a team of researchers who, together with the Commission for Fragility and State Development, will publish a report in April 2018 that reassesses international policy on aid.
“A lot of the ideas from The Bottom Billion are there, but they are a lot more developed,” he says. “Aid needs to be focused on getting firms in countries that definitely need more proper jobs. Aid has diverted into a Band Aid social agenda.”
This is a point made throughout The Bottom Billion. To shed their fragility, countries need businesses that offer their citizens employment. This is the main strength of the private sector, though private investment tends to go everywhere except for fragile states.
The Addis Ababa Action Agenda set out in Ethiopia in 2015 galvanised public and private institutions to tackle this very problem. There, leaders discussed poor countries’ need for access to education, healthcare, clean energy and affordable finance for small business owners. The results were laid out in 17 objectives now known as the Sustainable Development Goals (SDGs). A priority among the SDGs remains ending poverty and hunger by 2030, which needs governments and investors to pursue common interests by driving private capital towards humanitarian ends. The SDGs show just how intolerant the world has become towards economic injustice, and importantly provide an alternative to the purely cathartic culture around aid Collier warns against.
The rise of DFIs
Development finance institutions are still relatively obscure to the public yet play a vital role in mobilising private sector capital for impact in the poorest regions. Fortunately, many are starting to heed the message that Collier says he has been promoting for some time.
“The latest round of International Development Association [IDA] funding in January last year incorporated something I’ve been pushing for a long time, which is a tranche that goes to IFC [International Finance Corporation] for it to use to help firms operate in fragile states,” he explains. “Around US$2.5 billion from IDA has been earmarked for this over the next three years. IFC takes this to firms, then the Multilateral Investment Guarantee Agency [MIGA] to risk insurance.”
Collier calls this systematised approach to creating jobs “a sensible start”, though adds that the amount IDA has mobilised ought to be closer to 30 percent of its funds, as opposed to the current three percent this represents.
The problem as Collier sees it is that first movers in these markets face an overwhelming disadvantage when ￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼they enter fragile states. This makes compensation necessary in order to crowd in the private sector.
“Firms that move into fragile states are pioneering, and they’re incurring a lot of cost which, if they succeed
and other firms copy them, the other firms won’t have. But there just aren’t enough pioneers.”
According to Collier, CDC, the UK’s private arm of the Department for International Development (DfID), is one of few agencies that is excelling. “It has changed so rapidly that it’s the agency that has done the most in fragile states and has got the right ideas. It shows you can get a lot done fast if these agencies get a good sense of purpose.”
Though largely ignored, institutions such as CDC can spend periods under intense public scrutiny when the media starts looking into where aid budgets are being spent. In 2014, CDC was criticised for spending more than US$260 million on the construction of gated communities and luxury apartments in Latin America, Africa and Asia. According to several mainstream media outlets, these projects contravened the UK’s annual aid commitment of 0.7 percent of GDP. CDC later told Development Finance that these projects were strategic and had been taken out of context of CDC’s broader
aim of delivering jobs. To date, CDC portfolio’s consists of more than 1200 investee businesses responsible for creating more than 1.2 million jobs in Africa and South Asia. Collier’s approval however does not extend across the board.
While an agency’s mandate places a premium on impact as well as capturing tax dollar value, many development finance institutions err too much on the side of the latter.
“They think they’re quasi-commercial enterprises which have to make a profit. Actually, they’re development agencies whose jobs it is to get firms to go to places that they don’t want to go to, but which are where they are needed.”
The past business model of international agencies was, he argues, “ludicrous, vis-à-vis fragile states”. Agencies would lend fixed interest as the senior creditor before seeking to move the risk off their books. Collier recalls a colleague asking a representative at MIGA to disclose its loss rate in fragile states. The representative proudly responded that MIGA had no recorded losses in these countries. If this was true, MIGA wouldn’t be doing its job.
“The international community lives in a sort of warm milk of happy talk, and then occasionally drowns in the warm milk when reality overwhelms it. It’s got to get out of that and focus for a moment on the fact that it’s really been making big mistakes for a long time.”
By contrast, Collier says, he is impressed with the IFC’s current agenda, which seeks to create new markets in fragile states. Philippe Le Houerou, IFC’s CEO, “really gets it”, he comments.
Collier is an advocate of blended finance and other instruments that take public money and use it to catalyse business growth. Doubts around this type of financing tend to emphasise the dangers of subsidising the private sector, but Collier sees no workable alternative.
￼“If you want to call it a subsidy, call it a subsidy. I’m perfectly comfortable with that, because it is a very good use of public money. This is a first-order use of aid, and the fact that we’ve not put public money into it just shows we’ve not been serious,” he says.
Upstream investors go mainstream
Collier’s call to governments from the very beginning has been for them to ‘get serious’, though he admits to having lived solely by his principles as a young man. Collier graduated from Oxford University in 1970, where, as he writes in the preface to The Bottom Billion, he was a member of the university’s Revolutionary Socialist Students society: “a name now beyond parody”.
Collier is able to recall however a time when political ideas were shared on paper among small groups as opposed to on laptops with millions of Facebook users. The World Bank’s colour panel chart for the SDGs resembles the way a modern person’s touchscreen device allows them to sort and digest complex global problems. Technology has made impact investment seem less like the job of state-backed agencies and more like a job for mobile individuals. Collier has some advice for this new type of investor.
“If you really want to see social impact, there’s nothing better than getting a fragile state to produce its staple food,” he says.
In Sierra Leone, he explains, around 95 percent of the staple rice consumed is imported. Sierra Leone is wet and hot, both perfect conditions for growing the very stuff it consumes. So why doesn’t Sierra Leone grow rice? Because, Collier says, in addition to growing rice the country must also be able to mill, package, brand and distribute it. Rice cannot just be a crop – it has to be a business.
“It’s a very dangerous strategy to be dependent on imported rice. If the price of rice goes up and down, Sierra Leone’s capacity to finance importing does the same,” he adds.
Collier’s son is now 17. While perhaps not yet old enough to invest in scalable projects in Africa, Daniel has already seen more of the lives of people on the continent than his father had at his age. For Daniel, as for a generation of young people, money is seen less as a tool for conspicuous consumption and more as one used to familiarise with others and collaborate on meaningful projects. “Young people today are much more aware than the guys for whom I wrote The Bottom Billion in the first place,” Collier confesses.
A paradigm shift
Since The Bottom Billion, Collier’s work has increasingly focused on the struggle of governments to form policy on migration that ensures mutual prosperity among indigenous and migrant populations. His 2013 work Exodus: How migration is changing our world, deals directly with this issue. A year after the book was published, Collier received a knighthood for promoting research and policy change in Africa.
“I think Exodus is seen as a very prescient book. It was definitely ahead of its time. Refuge  was almost on time. It’s the book I’m most proud of, because it has led to massive change in international refugee policy,” he says.
Collier says his next book explores “the intellectual revolutions emerging from economics and social psychology”. Where The Bottom Billion analysed growth through the lens of geography, statecraft and diplomacy, his next work looks more closely at the identities, narratives and norms from which trust and cooperation evolves among social groups. It is an approach to policy Collier wishes he’d taken a decade ago, though the shift says everything about where we are in 2018.
Readers of The Bottom Billion still send him emails from all over the world quoting their favourite passages. The financial crisis can hardly be said to have discouraged developed nations from looking around them. If anything, it made it harder for them to look away. The UK’s decision in 2016 to vote in favour of leaving the European Union was, regardless of interpretation, one made in response to the painful new challenges of a post-Lehman world. Yet those who rise to challenges on feel-good words such as ‘hope’ will find no ally in Sir Paul Collier. The poorest countries are simply tired of the West’s headless heart, he says, and are even more wary of its heartless head. What we need, at long last, is to combine the two.
“I’m in the business of practical agendas that people who have the power of decision can actually use
to make a better fist of it. They really need to make a better fist of it, because the last 15 years has not been a success for the bottom billion.”