NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

A dear friend recently brought up an interesting point when commenting a book we had both read about Afghanistan. She pointed out to me, with some disappointment, a passage that read “the reconstruction of this country has more to do with the fear of the west than with solidarity to our own species.”

My father has a similar point of view. I remember him talking to his friends and students saying that “the Colombian society, not just its government, must think seriously about ways to fight poverty, and must do it for whatever reason is most appealing. Even if you don’t care about the poor, roll up your sleeves and help them, out of selfishness if you like… because any business will be at peril unless the poor see that there are ways different than holding weapons to claim their rights in this country”.Their words came to mind very clearly when I listened to Paul Collier’s talk on the 2008 TED Conference. Along the same lines, says Mr. Collier:

“How can we provide credible hope to the billion people living at the bottom? … what I’m going to offer you is a combination of the two forces that change the world for good, which is the alliance of compassion and enlightened self interest … We need compassion to get ourselves started and enlightened self interest to get ourselves serious.”

So what does it take to actually get serious and end the strife of the bottom billion? Collier’s thesis lies on four pillars (aid, trade liberalization, sound security policies and good governance) which are explained in depth in his book. His TED talk, however, focuses on recommendations to tackle the governance issue.

The talk was timely, as I have been reading “Fixing Failed States: A Framework for Rebuilding a Fractured World” by Ashraf Ghani and Clare Lockhart. I found myself thinking a bit about the parallels between Collier’s arguments and those presented by the authors.

The authors of Fixing Failed States begin by offering some hard facts: “Forty to sixty states, home to almost two billion people, are either sliding backward and tittering at the brink of implosion or have already collapsed.” We at NextBillion have commented on some of the latest events regarding the inescapable relationship between transparent and accountable governments and healthy economies that enable market-based approaches to serve the Base of the Pyramid. I remember being glad to read Abigail’s post about Hugo Chavez last year, because, as Moses says in his recent post, our analysis of BoP initiatives too often takes for granted a number of local factors likely to at least influence their likelihood of succeeding. He was referring to religion, but I believe the same holds true for the existence of an enabling environment from a government perspective.

In fact, a functioning state is critical to the vibrancy of an economy. Its role could be summarized as providing wise management of and accountability for macro level income and investment, while creating an enabling environment for micro level market-based solutions to the specific needs of the population.
Referring to the macro level, Collier offers evidence of the inability of failed states – often enormously rich in natural resources – to capture the benefits, for instance, of record commodity prices. He goes on to remind us that this occurs largely because governments in developing economies lack a sound system of checks and balances to control their functions.

This reminded me once again of the recent Latin American populist movement led by Mr. Chavez. Too often we hear speeches claiming the existence of healthy democracies based solely on elections being held. True, a democracy is, by definition, a system whereby leaders are elected through popular elections. But a healthy and dynamic democracy requires elections as well as a transparent system of checks and balances to guarantee the adequate use of power by those elected. The lack of transparency explains why the majority in this region of the world has seen no improvements in their quality of life and is constantly denied access to any information regarding the use of natural resource profits or tax receipts.

Regardless of its natural resource allocation, a functioning state should also play an enabling role for micro level, market-based approaches to various needs. In the words of Ghani and Lockhart,

“In a developed state, a relationship of creative tension between the state and the market exists in view of the fact that the market can fulfill certain functions better than the state, yet the states provides the architecture within which the market operates”. In developing countries this constellation does not exist. … This freezes capital, which cannot flow through the economy.”

Furthermore, a healthy state provides a system through which market failures can be resolved and individual rights guaranteed. Violence emerges only in the absence of shared trust in a series of steps and institutions designed to enable market dynamics and guarantee individual and collective rights. The evidence that this element is also failing abounds: most of the Base of the Pyramid continues to survive on informal and uncompetitive economies, constantly facing political unrest and living under states that fail to enable opportunity.

This is why I found Manuel’s recent post especially interesting: when dealing with disaster areas, should a BoP movement wait for the emergence of an enabling state to emerge? Or should such a state be the result of healthy market activities spurred, for instance, by well designed aid mechanisms?

In other words, should these areas tackle their difficulties through a top-down or a bottom-up approach? It is an interesting question I’ll be exploring in an upcoming post.

To conclude, both Collier and Ghani/Lockhart emphasize on the importance of engaging citizens in tackling the issue of governance in the developing world. Collier calls it “building a mass of informed citizens” without which “politicians will continue to get away with gestures,” calling for the help of his techie TED audience to build ways for that to occur.

Ghani and Lockhart, on the other hand, go deep into describing what, in their opinion, should be the key functions developed by the state and a framework to spread this model across the world, acknowledging from the very beginning that “… the common people of failing states have no real stake in the success or failure of their countries” although, thanks to technological advance, “they can now truly become principals in state-building by making an agenda for accountability and transparency concrete“.

Indeed, those at the bottom billion increasingly have tools to become the informed citizenry critical to building functioning states that Collier, Ghani and Lockhart speak about. Moreover, we live in a world in which it is easier to connect with, relate to and learn from one another. Thus, I don’t like to think that self-interest is the only force that can make us get serious about the bottom billion. I do like to think that we are starting to realize that our common humanity is strong enough an argument to get us both started and serious about poverty.

Anyhow, we need all the seriousness we can get, no matter where it comes from. I encourage you to read Ghani & Lockhart, as well as Collier and to watch his talk.