Jan 29 2010
The “bottom billion”, aid, and strategies for achieving economic development
Published by Jason Welker at 4:36 pm under Aid,Development,Economic Growth,IB Economics,Poverty,Trade
In IB Economics unit 5, Development Economics, several strategies for achieving improvements in the welfare of the world’s poorest people are investigated. Foreign aid has been one of the main focuses of economic development strategies over the last several decades. But is aid in the form of development loans and grants from international organizations and foreign governments always beneficial to those who receive it in the poorest countries (the bottom billion as described by development economist Paul Collier)?
In the discussion that follows, Paul Collier of Oxford and Zambian economist Dambisa Moyo argue that the developed world’s focus on aid to Africa, resulting in a trillion dollars in loans and grants over the last 50 years, has missed the mark and completely failed to achieve meaningful economic development. The focus must therefore shift to opening markets, improving governance, achieving security and creating jobs for the poorest people on the African continent. Watch the two videos below, and respond to the discussion questions that follow. [the time in the video where the question is discussed is in brackets]
Part 1:
Part 2:
Discussion Questions:
Part 1:
- What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in? [3:07]
- What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo? [4:45]
- What are the “four horsemen of the African apocalypse?” How does Moyo think these four obstacles to development can best be overcome? [5:14]
- What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
- Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa? [8:30]
- In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive? [10:39]
Part 2:
- Collier makes the claim that aid may create “moral hazard” in Africa. What is moral hazard and how could reducing aid to African governments actually “force good governance”? [5:30]
- Is there any historic record of aid working? What strategies accompanied foreign aid that contributed to its greatest historical success? [8:10]
- What’s the main difference between Europe’s economic successful development during the second half of the 20th century and Africa’s unsuccessful experience during the same period? [9:00]
About the author: Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course.
Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this authorRelated posts:
- Perspectives on Development Aid…
- Does economic growth = economic development? Not for China’s rural poor…
- Dr. Irene Forichi on Agricultural Productivity and Economic Development in Southern Africa
- Education, Sanitation and Entrepreneurship – a WISER approach to Economic Development
- Fair versus Free Trade as means to promote Economic Development
Part 1:
1. What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in? [3:07]
- There is no single trap
- Four: landlocked (can't get to the market), having variable natural resources, weak governments, conflict
2. What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo? [4:45]
- 1. Increase growth, 2. reduce poverty
(aid of one trillion dollars -> failed)
3. What are the “four horsemen of the African apocalypse?” How does Moyo think these four obstacles to development can best be overcome? [5:14]
- War, poverty, disease and corruption
- Best strategy is not aid, but building alliances with other countries (other African countries and other developing countries)
4. What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
- Message of trade – engine out of poverty
- Not just traditional trade (primary products), but he sees Africa more in manufacturing
5. Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa? [8:30]
- Security is very hard in small and poor countries -> development hard
- Security is better in large and rich countries -> development easy
6. In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive? [10:39]
- Health/medical aid (e.g. mosquito nets)
- Aid that reduces short them suffering
Part 2:
1. Collier makes the claim that aid may create “moral hazard” in Africa. What is moral hazard and how could reducing aid to African governments actually “force good governance”? [5:30]
- Moral hazard: you give them money and you get very bad behavior – incentive to be immoral and take risks -> the worse the country, the more money they get
- Reduced aid -> more taxes and the people want good governance for it
- Government makes own budget
- Creates development
2. Is there any historic record of aid working? What strategies accompanied foreign aid that contributed to its greatest historical success? [8:10]
- Yes, aid was invented to reconstruct Europe after the second world war – America helped Europe (to govern itself better)
- Marshall plan after World War 2
3. What’s the main difference between Europe’s economic successful development during the second half of the 20th century and Africa’s unsuccessful experience during the same period? [9:00]
- Countries worked together
- Community formed, cooperation, communication – in Europe but not Africa
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Part 1:
1. What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in? [3:07]
1. Landlocked, when market is not
2. Variable natural resources
3. Weak governments, violent conflicts
1. What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo? [4:45] trillion dollars
1. Reduce poverty
2. Increase growth
3. It's not working, Africans became worse off
2. What are the “four horsemen of the African apocalypse?” How does Moyo think these four obstacles to development can best be overcome? [5:14]
1. War, poverty, disease, corruption
2. Building alliances with each other and foreign countries
1) HER MESSAGE: TRADE not AID
2) Foreign aid = dumping foreign goods on africa –> taking jobs
3. What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
1. Trade – Moving beyond the primary commodities (raw materials)
2. He sees Africa as a source of manufacturing – untapped human capital
4. Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa? [8:30]
1.
5. In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive? [10:39]
1. People will die, mosquito nets, fertilizers
Part 2:
1. Collier makes the claim that aid may create “moral hazard” in Africa. What is moral hazard and how could reducing aid to African governments actually “force good governance”? [5:30]
1. You give the money you get bad behavior (the worse my country is, the more money I get)
2. Good leaders have to tax their own criticizes, govern well > create economic development and make own budget from tax payers
2. Is there any historic record of aid working? What strategies accompanied foreign aid that contributed to its greatest historical success? [8:10]
1. Europe after second world war
2. Marshall plan aid went hand in hand with trade governance policies, cooperation, security
3. What’s the main difference between Europe’s economic successful development during the second half of the 20th century and Africa’s unsuccessful experience during the same period? [9:00]
1. Leaders in Africa don’t want to share their success, not with other countries, nor with their citizens
2. No community in Africa
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1. What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in? [3:07]
Valuable natural resource= can be a curse
Landlocked countries= makes it hard to get to the market
Weak governments, small country
Conflict= war, biggest one
2. What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo? [4:45]
Increase growth
Reduce poverty
Africa has received a trillion dollars over the past year (more than the entire GDP of Africa)
3. What are the “four horsemen of the African apocalypse?” How does Moyo think these four obstacles to development can best be overcome? [5:14]
War, poverty, disease and corruption
Focusing on trade, building alliances with new emerging economies. (not the traditional way)
"Trade not aid"
4. What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
Agrees with trade as savior for current situation. Sees China coming in
5. Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa? [8:30]
Without security it can't get going, West Africa is very insecure. Security is hard to achieve in small and poor countries.
6. In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive? [10:39]
Aid medicine and fertilizer aid (example) STILL NEEDED
Part 2:
1. Collier makes the claim that aid may create “moral hazard” in Africa. What is moral hazard and how could reducing aid to African governments actually “force good governance”? [5:30]
Moral hazard= it doesn't matter if leaders screw up country, the more they give, the less incentive the government has to rule country efficiently. If they stop giving aid the people will eventually demand effective leadership. People will hold government accountable.
(huge bailout won't make banks efficient, won't be responsible, can lead to moral hazard (incentive to act immorally and can lead to another collapse)
2. Is there any historic record of aid working? What strategies accompanied foreign aid that contributed to its greatest historical success? [8:10]
Marshall plan–> was part of a bigger plan
3. What’s the main difference between Europe’s economic successful development during the second half of the 20th century and Africa’s unsuccessful experience during the same period? [9:00]
There was a big trade policy during second world war, and new markets being opened, completely new way of governance/thinking. There is no community in Africa unlike the community of the European countries.
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1. What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in?
He said that there is no single trap one can blame but that conflict such as war, landlockage, and weak government are main the main problems. Also great natural resources can be bad for the counrty.
2. What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo?
The 2 main goals of foreign aid were to increase growth and Reduce Poverty.
3. What are the “four horsemen of the African apocalypse?” How does Moyo think these four obstacles to development can best be overcome?
War, poverty, disease and corruption
“Trade not aid” is the best strategy to follow
4. What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
He thinks that trade is the way out of poverty as Africa could use the manufactoring sector to improve its economy. He thinks that traditional trade in primary products is therefore not the way to go.
5. Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa?
He thinks that security is hart to achieve in small countries and larger in developed countries, but it is the basis needed for development.
6. In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive?
-Health/medical aid such as mosquito nets and aid to reduce suffering in short term
Part 2:
1. Collier makes the claim that aid may create “moral hazard” in Africa. What is moral hazard and how could reducing aid to African governments actually “force good governance”?
Moral Hazard means it doesen't matter what the leaders of a country have done to the country. If they give a lot to the country it has less incentive of being ruled efficiently. Therefore one should stop giving aid and help, as people will then demand a strong and functioning leadership.
2. Is there any historic record of aid working? What strategies accompanied foreign aid that contributed to its greatest historical success?
The Marshall Plan after the second world war
3. What’s the main difference between Europe’s economic successful development during the second half of the 20th century and Africa’s unsuccessful experience during the same period?
New markets were being opnend in the second world war due to a new trade policy. The problem is that the community in africa is not like to community in the european countries. Leaders in Africa do not want to share successes and the countries are not connected like in europe. Therefore no development can take place.
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1.What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in? [3:07]
Paul Collier emphasizes that there is no single poverty trap which hinders the development process of African nations. The biggest poverty traps are political instability caused by wars and weak government, abundance of natural resources or geography (landlocked countries).
2.What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo? [4:45]
The two main goals of foreign aid policy have been to reduce poverty and increase growth.
4.What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
He believes that free trade is the best way for African nations to alleviate poverty and spur economic development. He thinks that Africa has great potential for manufacturing products because it has abundant labor force.
5.Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa? [8:30]
Without a good security system, it is hard to achieve economic growth and development in Africa, because foreign countries would not invest in a country which is insecure. Decreasing foreign direct investment means slowing economic growth and development.
6.In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive? [10:39]
He believes that it is important to provide medical/ health aid such as mosquito nets in order to reduce suffering in the short term.
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1.Collier makes the claim that aid may create “moral hazard” in Africa. What is moral hazard and how could reducing aid to African governments actually “force good governance”? [5:30]
Moral hazard means that aid money results in bad behavior because the African governments are not forced to operate efficiently. The reduction of aid to African governments could actually force good governance because the government is forced to make improvements and has to achieve sustainable long run development by its own means.
2.Is there any historic record of aid working? What strategies accompanied foreign aid that contributed to its greatest historical success? [8:10]
The Marshall plan established by America has been an example of successful historic aid. Trade barriers were removed and security measures were put in place so that dumping money could work.
3.What’s the main difference between Europe’s economic successful development during the second half of the 20th century and Africa’s unsuccessful experience during the same period? [9:00]
Sovereignty in European community has lead to good decision making whereas conflicts in Africa have prevented African nations from acting together towards successful development.
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Part 1:
1. What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in? [3:07]
- Some countries are landlocked
- Having invaluable resources
- Weak governments
- Conflict trap
2. What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo? [4:45]
- Increase growth
- Decrease poverty
3. What are the “four horsemen of the African apocalypse?” How does Moyo think these four obstacles to development can best be overcome? [5:14]
- War
- Poverty
- Disease
- Corruption
Start building alliances between African governments
4. What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
- Africa has been a source of cheap natural resources
- Countries in Africa need to go through the stages of development
- Need to start manufacturing and not just exporting
5. Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa? [8:30]
- Increasing the UN presence would establish the groundwork for a stable government
6. In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive? [10:39]
- Medical care/ aid
- Short term recovery
Part 2:
1. Collier makes the claim that aid may create “moral hazard” in Africa. What is moral hazard and how could reducing aid to African governments actually “force good governance”? [5:30]
- You give them money and you get very bad behavior
- Without aid, good leaders are forced to tax people and taxation results in a demand for good governance by the people
2. Is there any historic record of aid working? What strategies accompanied foreign aid that contributed to its greatest historical success? [8:10]
- Marshall plan after WW2
? Reduction of trade barriers
? Thousands of troops
3. What’s the main difference between Europe’s economic successful development during the second half of the 20th century and Africa’s unsuccessful experience during the same period? [9:00]
- Europe managed to pool their resources (sovereignty) by combining to form the EU
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What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in? [3:07]
4 factors: landlocked, having valuable natural resources, weak governments, and conflict.
What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo? [4:45]
Increase growth and decrease poverty
What are the “four horsemen of the African apocalypse?” How does Moyo think these four obstacles to development can best be overcome? [5:14]
War, poverty, disease and corruption.
What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
It has natural resources.
Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa? [8:30]
Without security development cant happen. Security is hard in which countries are small and poor.
In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive? [10:39]
He argues for more medical aid.
Part 2:
Collier makes the claim that aid may create “moral hazard” in Africa. What is moral hazard and how could reducing aid to African governments actually “force good governance”? [5:30]
Giving more money to the government creates more hazards. They way to get good leaders is when the government taxes their own leaders. All people want governments
Is there any historic record of aid working? What strategies accompanied foreign aid that contributed to its greatest historical success? [8:10]
Aid was invented to reconstruct Europe after the Second World War.
What’s the main difference between Europe’s economic successful development during the second half of the 20th century and Africa’s unsuccessful experience during the same period? [9:00]
Europe had tight security and free markets. There was also no corruption and the government was willing to share power.
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Part 1:
1. There is no one factor; the four main poverty traps are that they are land locked, have valuable natural resources, bad governance and a conflict trap that keep them in a “poverty cycle”.
2. Increase growth and reduce poverty has been the goal the past 50 years. 1 trillion in aid has already gone to Africa, but it hasn’t done much.
3. War, poverty, disease and corruption
4. Moving beyond the traditional dependence on European aid and selling cheap resources to Europe should now be the focus for economic development in Africa. They have to go through the stages of development, initially producing in the primary sector and eventually becoming a producer of goods for foreign companies.
5. The governments are corrupt and are not able to provide security, he suggests outside security should stabilize the countries.
6. He is arguing for emergency health aid to continue, which it should, but it is not the type of aid that Paul Collier is arguing should cease.
Part 2:
1. The governments in africa don’t strive to create growth, because they are getting aid from Europe, and don’t want that to stop. If there is no aid going to the government, it forces there to be a good government which actually manages to tax its population to make revenues.
2+3. The best example of aid actually working was where the Marshall Plan was used to reconstruct Europe after World War II. Collier stresses though that troops and a removal of trade barriers contributed to this success in Europe, one can’t throw money at the problem.
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1. What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in? [3:07]
A Manufacturing sector must be made in order to escape the poverty trap.
Factors include:
Some countries land locked makes development harder (if you cant get to your market its hard to trade)
a lot of African nations cant get to the coast
Valuable natural resources usually a curse
Weak governments- small country
Conflict trap- usually goes back into violence
2. What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo? [4:45]
1 trillion spent on foreign aid
Increase growth and decrease poverty
3. What are the “four horsemen of the African apocalypse?” How does Moyo think these four obstacles to development can best be overcome? [5:14]
Disease and corruption
Focusing on trade, forcing building alliances with India and china
Focus on participating when markets come back
Disenfranchised
Catering to donors
Cycle of despair
4. What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
Natural resources- foreign countries used to exploit africa
Source of cheap raw materials- it cannot continue to be that way
5. Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa? [8:30]
He does not want recreate colonialism, trying to encourage that without security development cant get going, Africa is insecure
Security is hard in small poor countries, easy in big rich countries
Send in peacekeepers- trying to set groundwork for development
Moral duty rather than structured effort
Different types of aid hasn’t worked
6. In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive? [10:39]
Aid when focused in high priority areas.
Sach says "AID dead" Bad claim by Dambisa.
Money gives food and provides health care for Africa- dangerous to stop aid it would be a Cold and adverse decision
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Part 2:
1. Collier makes the claim that aid may create “moral hazard” in Africa. What is moral hazard and how could reducing aid to African governments actually “force good governance”? [5:30]
Mistakes are made yet no one pays the price
Moral hazard: u give them money and you get bad behavior, aid contribute d to bad leadership
Some governments, 70 per cent of their budget is made of aid
No domestic taxation
Good leaders have to tax their own citizens,
Menace of taxation makes governance
The more messed up the country- the moreaid it gets
If a leader achieves meaningful development the westwill not pump money(aid)
Reducing aid:
Long term development-
Leadership is focused to become sustainability
Focused to get off aid
2. Is there any historic record of aid working? What strategies accompanied foreign aid that contributed to its greatest historical success? [8:10]
Aid was invented to reconstruct Europe- (aid went and in hand with trade-) marshall
Institutions set up- to help Europe (security measures 100 000 troops and the elimination of trade barriers- without those two dumping money will not work)
3. What’s the main difference between Europe’s economic successful development during the second half of the 20th century and Africa’s unsuccessful experience during the same period? [9:00]
Sovereignty in European community, (EC like USA), nations act as one in decision making-
Conflict trap
Bad governance
Etc.
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[...] is an excellent post by Jason Welker, that goes into the evaluation of aid and trade in more depth. The Bottom Billion: Aid and strategies for achieving economic development It also contains the second part of the above [...]
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[...] is an excellent post by Jason Welker, that goes into the evaluation of aid and trade in more depth. The Bottom Billion: Aid and strategies for achieving economic development It also contains the second part of the above [...]
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