Archives for posts with tag: trade

The Great Surge, Steven Radelet, 2015


The proportion of countries living in extreme poverty has fallen from 42% in 1993 to juts 17% in 2011. The opening of China accounts for a large share of the change, but  the fall also affects dozens of countries in every region of the world (sample of 109 developing countries with population greater than 1 million is considered)

People in developing countries have incomes today that are nearly double those of their parents 2 decades ago.

People born in developing countries live 1/3 longer than they did 20 years ago.

In 1980, only half of the girls enrolled and completed primary education. Today 4 out 5 are.

In 1983, 17 countries had democracies. By 2013 the number had tripled to 56.Violence decline sharply. Since 1980, incidence of civil war in developing countries has been cut by half. Battle deaths in war have fallen by more than 75%.

But there are still 1 billion people in extreme poverty and those just above $1.25 a day are hardly well off. Every year, 6 million children still die of preventable disease.

When the global food crisis struck in 2007, many predicted that poverty would rise sharply, but developing countries showed their resilience, and poverty continued to fall. The financial crisis of 2008 slowed the pace of progress but developing countries rebounded faster than rich countries.

Paul Theroux ‘I can testify that Africa is much worse off than when I first went there 50 years ago’. Evidence points to the contrary. Africa today is less poor, less sick, better educated, and better  governed. Dambisa Moyo charges that ‘evidence overwhelmingly demonstrates that Aid to Africa has made the poor poorer’. The facts are rather different: poverty is falling, incomes are growing, debt levels have plummeted, inflation is at its lowest in decades, investment is pouring in as never before and civil conflict has fallen.

Explaining development through the long term perspective: David Landes “The Wealth and Poverty of Nations”: Europe’ ascendancy had much to do with its culture, work ethic, attitudes toward science and religion, and social organization. Jared Diamond “Guns, Germ and Steel” found that Europe’s prosperity was largely the result of differences in geography, demography and ecology. Daron Acemoglu argues that the repressive institutions set up by European colonizers to extract resources through violence are central to understanding institutions in developing countries today. All these conclusion do not explain why so many developing countries began to turn at roughly the same time in the 1990s.

Explaining development through analysis at the micro level: Esther Duflo focuses at specific impact of actions and programmes in particular context. They help design programs and help understand why people make decisions but fail to explain why a country that was stagnating turns the corner.

Explaining development through the idea of “poverty traps”. Jeffrey Sacks, Paul Collier have refined the model. Sachs shows that developing countries are more prone to endemic disease. Collier argues that poor countries are more vulnerable to conflict and war. Bad governance keeps countries poor and poverty makes it harder to build the legal, government and political institutions necessary to improve governance. Most people in developing countries have been trapped in one way or another for much of the last several centuries. And that some escaped does not mean the traps are not real for those left behind.

Three major catalysts sparked the great surge. First, a geopolitical shift: the end of the cold war and the collapse of Soviet Union. Obstacles to development melted away. Second, globalization and new technologies provided new opportunities. Financial flows to developing countries now top $1 trillion a year, 12 times larger than in 1990. Third, the surge required the right skills and capabilities, in particular leadership to bring about institutional changes. Nelson Mandela, Cory Aquino, Oscar Arias (Costa Rica), Lech Walesa, and many others worked to build new and more inclusive political system. Civil Society gave greater voice to everyday citizens. As effective leadership began to emerge in some countries, it spread to others.

Foreign aid played a supporting role in bolstering development progress. The bulk of the evidence shows that on the whole aid has moderate positive impact on development progress. It had in particular strong effect on improving global health, mitigating impact of natural disasters and humanitarian crises, and helping jumpstart turnarounds from war in some countries. The bulk of the research shows a modest positive relationship between aid and economic growth.  Duke University Sarah Bermeo found that after 1992 foreign aid from democratic donors was associated with an increase in the likelihood of a democratic transition. Aid from non-democratic donors – such as china – did not have that effect.

Economic growth in the world’s leading economies will increasingly depend on growth and prosperity in developing countries. Development in developing countries is good for 3 reasons: it enhances global security; it is good for trade, business and global income growth; it helps spread shared values of openness, prosperity and freedom.

There is no guarantee that the surge that started 20 years ago will continue.

The $1.25 (in 2005 prices) is WB extreme poverty. It is not picked out of the air. It is roughly equal to the average of the national poverty lines in the poorest 15 countries in the world. WB PovcalNet database.

From 1.3bn of people living with less than a $1 dollar a day in 1993 to 600 million in 2011. Abject poverty dropped by more than half in just 18 years.

The decline of extreme poverty ranks as one of the most important achievements in global economic history, with far reaching economic, political and security implications.

The biggest force behind the decline in poverty is clear: China. 84% of the Chinese population was extremely poor in 1981. Deng Xiaoping began to introduce economic reform. In 2011, the number of extremely poor had dropped to 84 million, just 6% of the population.

Sub Saharan Africa is the only region were the total number of extremely poor is not yet falling, but the number essentially level off in 2002. The % went down from 59% in 1993 to 47% in 2011.

Developing countries started to invest in health, education, social safety nets to support the poor and strategies to support agriculture.

For the first time in human history there are more people living on more than $5 a day than on less than $1.25 a day.

In 1980, trade between developing countries accounted for less than 6% of the global total; by 2010 it accounted for more than 21%.

Economist often use 2% per capita growth as a standard because it is roughly equal to the average long term growth rate of the US and major economies and to the average world growth rate since 1960.

21coutries achieved a 2% per capita growth rate from 1977 to 1994. 71 did it from 1995 to 2013. The number more than tripled.

Not only are developing countries more important to the global economy, but it is clear that economic policy makers in developing countries are much more astute and skilled than their predecessors.

Investment and other financial flow peaked in 2007, fell rapidly in 2008 and 2009, but by 2010 they were back to their previous high. Trade was back to its peak within 2 years.

The idea of a turnaround just as a commodity boom is too simplistic.  Turnaround started in 1995, long before the current boom. In fact, late 1990s global commodity prices were falling.

There has been growth, more jobs and higher wages. Growth benefitted the poor: while growth is not the only driver for poverty reduction, there is no force more powerful for reducing extreme poverty than sustained economic growth. This relationship is not automatic and depends a lot on the policies and strategies that country pursue. Cases in which the poor do not benefit from growth are the exception, not the rule.

Public demand for conservation grows in tropical developing countries as they reach upper middle income status.

‘The haves and the Have-nots: a brief and idiosyncratic history of global inequality’ – Branko Milanovic.

It is true that within some countries inequality has gotten worse – such as China – but inequality has improved in others – such as in Brazil. For the majority of developing countries, inequality hasn’t changed much, even alongside the acceleration in growth.

Since so many poor countries have been growing so fast for the last decade, the income gap between rich and most poor countries has been shrinking.

Inequality across countries is not worsening: in 1994 the average income in the world’s richest countries was more than 8 times larger than the average in 109 developing countries, by 2011 the ratio has closed to around 6. Still a large gap, but also a big drop in 20 years.

Malaria mortality declined 47% between 2000 and 2013; AIDS related death reduced by 35% in 8 years to 2013; Tuberculosis death fell 33% in 10 years to 2013; Children death from diarrhea was reduced 7 times between 1990 and 2013 (from 5 millions to 760,000)

Polity IV Project with data on political regime characteristics and transitions, complementary to Freedom House focus on basic rights.

In 1405 Admiral Zheng commenced a 2 year journey to Vietnam, Indonesia, Sri Lanka and India. He had 317 ships and 27,000 men. The fleet included 62 enormous treasure chips which measured 120 meters long. The 4 ships of Vasco de Gama and 3 ships of Columbus could all fit on the deck of one treasure ship.  In 1424 the new emperor of china ended the expeditions and turned China inward (to focus at the defense against the Mongols and avoid the enrichment of merchant that would be hard to control).

Total trade share of GDP in developing countries jumped from 66% to 95% from 1990 to 2012: trade increased 50% faster than GDP. Financial flows are 12 times larger (1990 to today); FDI is up to 600billion a year, up from 26 billion in 1990.

International private capital flows to developing countries (investments, bond, lending) declined during the 1980s in real terms. They doubled from 91 billion in 1990 to 215 billion in 2000, then expanded more than fivefold to 1.1 billion in 2012. A 12 time increase since 1990.

The origins of the Asia economic miracle: it all began with the green revolution and the increases in agricultural productivity and nutrition that came with it.

The Center of Disease Control was originally founded in 1946 to fight malaria. It was located in Atlanta, in the midst of US’s major malarial zone.




Jared Diamond, The world until yesterday, 2013


P2 The first Australians to enter and discover NG highlands in 1931, teeming with a million New Guinean villager using stone tools.

In 1931 no new Guinean born in Goroka had ever visited Wapenamanda a mere 107 miles to the west; the idea of traveling such distance without being killed was unthinkable.

All those similarities misled me into thinking “people are basically all the same everwhere”. No I eventually came to realize, in many basic way we are not all the same; many of my New Guinean friends count differently (by visual mapping rather than abstract numbers), select their wives or husbands differently, treat their parents and their children differently, and have different concept of friendship.

People spent their entire life in or near the village…disputes within the village had to be settled in a way that restored relationships or made them tolerable.

WEIRD society: Western, educated, industrialized, rich and democratic society. Study samples are from the usual WEIRD subjects – mainly American psychology undergraduate, this needs to be changed if we want to understand traditional society.  (WEIRD values are not universal in short)

Traditional society have come up with thousands of solutions to human problems, solutions different from those adopted by WEIRD societies.

Elman Service’s division of human society: band, tribe, chiefdom and state.

Chiefdom have thousands of people: it is impossible for everyone to know everyone else. Stranger in a chiefdom must be able to recognize each other as fellow but individually unfamiliar members of the same chiefdom. Hence chiefdoms developed shared ideologies and political and religious identities (often derived from the supposedly divined status of the chief). Chiefdoms have a chief that makes decisions and has a monopoly on the right to use force against his society’s members.

P19 the explanation for the differences in type of societies coexisting in the modern world depends on environmental differences. Increases in political centralization were driven by increases in human population densities, driven in turn by the rises and intensification of food production. Surprisingly few plant and animal species are suitable for domestication. Those few species were concentrated in a dozen of small areas in the world, whose human societies consequently enjoyed a decisive head start in developing food production, surpluses, expanding populations, advanced technology and state government. European developed, Kung in south Africa or Aborigines did not…

P58 A new Guinean interviewed in 1980’s: We believed that when a person died, his skin changed to white and he went to over the boundary to the place of the dead. So when the strangers came we said ‘these men do not belong to the earth.Let’s not kill them ) they are our own relatives. Those who hav died before and have turned white and come back’. New Guinean highlanders sought to fit these strange looking creatures – the first Europeans – into know categories of their own world view.

P62 Gold lipped pearl shell in New Britain’s Kaulong people or large stone disks from Yap island, cowrie shells of new Guinean highlanders were money but differed from money in that they were used only to pay for certain things (not wasted on potatoes!) and were attractive luxury items to be shown off.

We shall see that the basic fact of market economies often does not apply to traditional small scale society where the party are no professional buyers or sellers…they may consider the exchanged items to be of negligible significance compared to the personal relationship that the exchange serves to strengthen.

P74 what is the point of these conventional monopolies and of arrow for arrow trading, seemingly senseless to us accustomed to trading for objects that we can’t readily provide for ourselves? Traditional trade has social and political as well as economic functions: not to obtain items for their own sake but also to create trade for advancing social and political goal (strengthen an alliance on which one can call if the need arises…(exemple of the Dani buying Jalemo arrow or bag that they could perfectly well duplicate…the Dani can continue to sell salt to Jalemo because they also buy them arrows and bags…) “Trade real function is to maintain alliances”.

P89 reestablishing relationships counts for everything in traditional new guinea, and establishing guilt or negligence or punishment according to western concepts is not the main issue.

Among nomadic hunter gatherers disputes within a group can be settled just by the group dividing so that disputants move apart. That option is difficult for settled villagers/farmers with big investment in their gardens…

Eventually , the chief urges one side to accept the other side’s offer, and the former side does so with a show of reluctance, insisting that it is doing so only to honor the chief. That is, the chief provides a face-saving way to accept a compromise necessary for the good of the community.

The greater the distance between the two lineages involved, the more difficult it becomes to settle the feud (because there is less desire to restore normal relation).

The state’s focus on reducing private violence, forster obedience to state’s laws, protect the public as a whole….tends to diminish the state’s attention to goals of individual citizens involved in dispute resolution in small scale societies: the restoration of relationships and reaching emotional closure (because people can expect to continue to encounter each other for the rest of their lives i.e. they are motivate to find a solution…)


P222 nuclear family, with married couple and dependant children: while this seems normal to us, it is exceptional by geographic and historical standards: only 5% of traditional societies have this. The commonest arrangement is patrilocal household, meaning that a newly married couple comes to live with the groom’s
parents or family.

Also part of this American value cluster is our emphasis on individual privacy, an unusual concept by the standards of world cultures, most of which provide little individual privacy and don’t consider it a desirable ideal.

P235 About 20% of the American population changes residence each year, so that old parents and friends will have moved repeatedly since childhood…. New problem created by retirement: severing one’s life long work relationship, and thereby falling deeper into the social isolation arising from mobility…

P 273 Talkativeness of traditional people: they keep up a running commentary on what is happening now, what happened this morning or yesterday etc. We may be inclined to dismiss such talking as mere gossip. However it has functions: talking is the main form of entertainment, it develops social relationships, it helps new Guinean cope with life in a dangerous world (more information, better preparedness for dangers).

P295 crowd disease could not have existed before 11,000 years ago. Only with the explosive population growth made by agriculture du human population reach the high numbers required to sustain our crowd disease. Unsanitary permanent villages and trade provided ideal conditions for rapid transmission of microbes. Most of the microbes responsible for many and certainly most of the crowd diseases now confined to humans arose from diseases of our domestic animals (pigs, cattle).

Western pharmaceutical companies have extracted drugs from these plants. Ethno-botanist have studied this traditional pharmacological knowledge. Nevertheless the overall effectiveness of traditional medical knowledge tends to be limited.

P299 compared to accidents, violence and disease, starvation receives much less attention. People in small scale society share food, so that either no one starves or else many people do simultaneously.

P305 That’s why field scattering make sense. If you have got just one big field, no matter how good it is on average, you will starve (to death) when the inevitable occasional year arrives in which your one field has a low yield. But if you have many different fields, varying independently of each other, then in any given year some of your fields will produce well even when your other fields are producing poorly. (no point having field that can produce twice more above starvation level if it is in a single location: on a bad year, you will starve.

P342 on people paying dowsers to find water on a field and spend money digging a well unlikely to yield water. The psychology behind such beliefs is that we remember the hits and forget the misses…

P344 diffusing anxiety by prayers, rituals, ceremonies, donations to the gods…all those measures are scientifically ineffective but they preserve the fiction that your aren’t helpless, you haven’t given up, you feel in charge and less anxious.

Small scale society place much less emphasis on salavation and the afterlife than more developed societies. 1.Small society are less inequitable, with less social stratification. Everybody is suffering and there is no visible of good life to aspire to. 2.A second reason: life of the first farmer was harder than for hunter gatherers. More daily working hours to deal with farming, nutrition deteriorated, infection increased and lifespan reduced. 3. Small society have less formalize moral codes: why do law breakers get away with being cruel with you (if you are yourself behaving virtuously).

In New Guinee, religion is never invoked to justify killing.

P371 The world has 7000 languages. The top 70 languages (1%) represent 80% of population. all Europe west of Russia has less than 100 languages. Africa and India more than a 1000 each. Vanuatu has 110. New guinee has 1000. Cut off between language and dialect is when people understand 70% of each other speech. In PNG ecological factor an dissected mountainous terrain explains language diversity. Population experience limited climate change, land is fertile and productive. Population do not move much as they feed themselves. They don’t even have to trade (except for salt). They also never had the language steamroller experience elsewhere (british, roman, quechua then Spanish etc.). PNG never developed state government (this promotes one language, the one of the leader(s)). Basicalle languages developed and were not eliminated by other factor (similar to Caucasus).

P435 Nauru annexed by Germany in 1888, occupied by Australia in 1914, independent in 1968. Epidemic of genetic disease due to environment risk factors (it wanes when the number of potential victims fall).

Traditional way was based on agriculture and fisheries – with occasional episodes of starvation. Nauruans admired fat people and put girls on diet to fatten. In 1906, phosphate was discovered and royalities of production reached the island in 1920’s. sugar consumption skyrocketed – 1 pound/per day/per Nauruan.  Japan invasion, put people on diet, imposed force labor, deport population to Truk where people starve. Survivors returned after the war to make money, shop in supermarket and eat twice more calories than needed. Today they are the most obsese pacific island population. Diabetes increased until 2000 – the main cause of non-accidental death. Then % began to fall – it is probably because all that are genetically most susceptible have died.

P442 genes predisposing to diabetes have been favored and preserved independently dozens of times by natural selection :  they allow for the storing of fat and limit the breakdown of accumulated fat. Allow people to accumulate fat rapidly at times of food abundance and help go through famines. In modern world, with no more famine, no physical exercise, it is only about getting fat…

Interisland canoe voyages : only the fattest survived, leaving the population enriched with diabetes susceptibility genes. (double effect in Nauru with the starvation of Nuaruan by the Japanese, only the fattest survived…

The same genes in European population must have disappeared gradually as food reliability improved gradually (in Nauru, food appeared within 10 year and signs of natural selection happened within 40 years – as the most diabetes prone start to die now. The process was gradual over several centuries in Europe.

 Making Globalisation Works – Joseph Stiglitz –  2006


P X  My research cast doubt on the validity of the general claims about market efficiency but also on some of the belief underlying globalisation, such as the notion that free trade is necessarily welfare enhancing.


P XIV the reason that the invisible hand seems invisible is that it is not there. Without proper regulation and intervention, markets do not  lead to economic efficiency.

P XVI Free market economists believe that the benefits will trickle down to the poor. Interestingly, such beliefs have persisted, even as economic research has undermined their intellectual foundations.


P6 Changes in the thinking of globalisation: in the 90’s discussion at Davos focused on virtues of opening international markets. By early 2000 it centered on poverty reduction, HR, and the need for fairer trade arrangements


Argentina, Mexico saw lending to local companies dry up after many of their banks were taken over by foreign banks in the 90’s.


“the World Commission on the Social Dimension of Globalisation (ILO, 2004 report). Out of 73 countries, 59% of people were living in countries with growing inequalities (rich and poor countries alike). Only 5% in countries with declining inequalities.


P 10  If globalisation is being used to advance the American model, many elsewhere are not sure they want it. Developing world compliant that globalisation has been used to advance a version of market economics that is more extreme and more reflective of corporate interests, than can be found in the US.


China economic growth has lifted several hundred millions out of poverty. But China was slow to open is markets for imports and even today does not allow the entry of hot speculative money.


Dev Countries face more risks has they have no insurance against the insecurity of globalisation: in more advanced countries governments fill in the gap by providing pensions for senior citizens, disability payments, health insurance, unemployment insurance…In DC the poor are left to fend for themselves and so are vulnerable when the economy slows down or job are lost due to competition by foreign countries.


P 14 Poverty has at last become a global concern.


P16 Advanced countries were allowed to levy tariffs on goods produced by DC that were on average 4 times higher than those on goods produced by other advanced countries. While DC were forced to abandon subsidies designed to help their nascent industries, industrialised countries were allowed to continue their own enormous agri subsidies…


By 2003 IMF conceded that  at least for many DC capital market liberalisation had led to no more growth, just to more instability.


P17 Washington consensus paid too little attention to equity, employment, competition, sequencing and pacing of the reforms or how privatization were conducted.


A decade ago, concern about ENV and globalisation was limited to advocacy group and experts. Today, it is almost universal.


At the end of the 90’s there was money to bail out western banks but not for minimal food subsidies for those on the brink of starvation.


P20 While globalisation has put new demands on nation-states – in particular DC – to address the increasing inequality and insecurity that it can cause and to respond to the competitive challenges that it presents, globalisation has, in many ways limited their capacity to respond.

…There has yet to be creatd at the international level the kinds of democratic global institutions that can deal effectively with the problems globalisation has created.


P21 The fact that the institution which make the decisions suffer from a democratic deficit is clearly a problem.  It results in decision that are too often not in the interest of those in the developing world.


P 22 Most of us will always live locally…But globalisation has meant that we are at the same time, part of the global community…we have to think globally…this entails more than just treating others with respects. It will entail thinking about what is fair: what for instance would be a fair trade regime?


P23 China, India in the global economy: this is an event of historic proportions. Even in the most successful years in the west, growth seldom exceeded 3%. China has been three time that over the last 30 years.

…Even developed countries start questioning globalisation ( economic insecurity, inequality…) There may be growth but most people may be worst off


There has been reversal of globalisation before – the degree of economic integration fell after world war I and it can happen again.


P26 Dev is a process that involves every aspects of society, engaging the efforts of everyone…A DC that simply open up itself to the outside world does not necessarily reap the fruit of globalisation.


P29 Today most academic economists agree that markets, by themselves, do not lead to efficiency. The question is whether government can improve matters.


P31 China Vietnam Indonesia in the 90’s achieved growth and stability. They focused not only on price stability but on real stability, ensuring that new jobs were created in pace with new entrants to the labor force.


P35 Critics argue that IMF policies were not designed to protect countries from recession but to protect lenders by rebuilding reserve so that international creditors (such as the IMF) could be repaid.


P 36 in the 80’s  fighting its own problem of inflation, the US initiated interest rate increases that climbed to over 20%. These rates spilled over to latin America, triggering the crisis…


 P44 India did far less well than China in reducing poverty  but it has done better in preventing the rise of inequality, the disparities across region and between the very top and the rest.



P51 Brain Drain: another way in which developing countries wind up subsidising the developed world.  Former Malaysian prime minister referred to this loss, as stealing the developing countries intellectual property.


P55 In Uganda, the government has been publicizing all checks sent to the local level, so that villagers know what they should be receiving – and can make sure that those between Kampala and the village do not take their cut.


P56 IMF conditionality undermines democracy. Many international trade agreements especially bilateral by circumscribing  the legitimate activities of democratically elected government do that too…



P57 And recent Trade agreement  have made those policies – promoting  technology, closing the knowledge gap,  using financial markets as catalysts for growth – more difficult if not impossible to pursue.


P59 The rest of the world cannot solve the problem of the developing countries.  They will have to do that for themselves. But we can  at least create a more level playing field. It would be even better if we tilted it to favour the developing countries. There is a more case to do it There is also a case that it is in our interests. Their growth will enhance our growth. Greater stability and security in DC will contribute to better stability and security in developed world.



Making Trade Fair


P62 Assymetric opening up of markets have put Dc at a disadvantage. … trade liberalisation can help development.

67 Free trade is a substitute for people having to move.  We can sit at home in developed world and buy product made in China. Conversely Chinese can stay in China and buy high tech product made in US. This will push unskilled labor to increase and higher wages…


People may buy cheap good from China instead of from US. Fear of lost job opportunities. High productivity job will be created to compensate for low skilled job lost.  In many country people don’t move to better paid job, this is particularly true in DC were liberalisation was fast and private sector had no time to respond and create new job and with high interest rate could not invest to do so.


P 68 if trade liberalisation works, some groups will still be worse off. Judging from experience in developed countries, it is those at the bottom – unskilled workers – who will be hurt the most.

It is not just those who loose job who are affected – when local industries shut down their suppliers are adversely affected.  Increased insecurity is one of the reasons that opposition to trade liberalisation is so widespread.

Supply side constraints are a big problem thoughout Africa – they may have no infrastructure, they may not have anything to export, interest rate may be too high (as capital market are highly imperfect).


P 71 most successful countries developed behind protectionist barrier.

Infant industries argument: it impose enormous cost on the rest of the economy (and special interest get higher profit).  In Bangladesh protection of textile producers puts apparel makers in jeopardy by raising the cost of raw materials. This is a warning for countries contemplating using protection as a basis for encouraging new industries…but there is nothing inevitable in such a failure. Broad based protection – uniform tariff on say manufactured goods is one option (this is the infant economy approach as opposed to infant industry).  Broad based industrial protection can lead to increase industrialisation which is source of innovation  with spill over effect on the economy (institutions, financial market etc. (this does not work with agricultural products).


It is export – not removal of trade barriers – that is the driving force of growth. Studies on removal of trade barriers show little relationship with liberalisation and growth.


What is fair trade:  it is the trade regime that would emerge if all subsidies and trade restrictions were eliminated.  Note 24 chap 3: stricter rules apply to those countries that want to enter the WTO than for those that are already within. Anyone applying should be welcome and given time enough to adapt. Countries – like Cambodia – were imposed TRIPS to accede to WTO. US is using this practice to enforce the rules it wants to newcomers – Oxfam calls this “extortion at the gate”…

135. Conflict may arise between regions that have resources and those that don’t. Ressources rich region – Ogonilan in Nigeria, Kurdish north of Iraq, Katanga in Congo– have obvious incentives to break away. Why should they share their wealth? The rest of the country will equally be determined to hold on it. The violence that has afflicted resource rich countries represents the extreme of resource curse.


137. Democracy is needed to ensure a fair distribution of wealth. (note: Collier argues that electoral democracy actually is worse than autocratic regimes when it comes to sharing wealth but proper democracy (with adequate checks and balances and informed citizens) is part of the solution).The political dynamics of resource rich countries often lead to high level of inequality: wealth is used to maintain economic and political power.


139 There is now an OECD convention on bribery, but enforcement is difficult and incomplete. As of December 2005, there had yet to be a single prosecution outside the US under national legislation enacted to implement the convention.


139 The Malaysian, the Russian, Indian and Chinese oil companies…have become global players. They do not have to follow OECD agreements banning bribes….

140 Most developing countries are ill prepared to engage in sophisticated negotiations that are multinationals’ stock in trade….[multinationals] want all the risk of environmental damage to be borne by the country rather than themselves. In many cases where natural gas is concerned the contracts are designed to shift ordinary commercial risk – the size of demand for gas – from business to government.

141 after  oil prices skyrocketed in the 70’s, the United States imposed a windfall profits tax on the oil companies. The fact that the typical contract allows oil companies to walk away with windfall profits suggests that something is wrong with the way these contracts are designed.

141: It is the strategy of the oil, gas and mining companies to make sure that governments gets as little as possible…. Too often the only benefit for the country from a mine is the few jobs created….the environmental damage of the mine may simultaneously destroy jobs elsewhere and sometimes impose  enormous budgetary costs as government is forced to pay for the clean up.

142 Before privatization, the amount a government official  can steal is limited by the current sales (of oil etc.). With privatization, the future value of the resources is up for grabs and the stakes increases enormously.

Privatization can lead to lower revenues. With corruption etc. as each bidder believes bidding will be less keen, bidders bid less aggressively and the government may end up accepting a bid that is woefully inadequate. Problem is worse in situation where the number of bidders is very limited…


143 The argument for privatisation is that the private sector is more efficient than the public. The opinion is driven as much by ideology as by hard analysis – there are many efficient government oil and mining companies (note: Sweden, Finland in EU): Malaysia’s publicly owned Petronas has become a global player… Dr Mahathir says his country receives a larger fraction of the value of its resources than countries elsewhere who have privatised….Chile has privatised half of its copper mines yet Government mines are just as efficient….Russia provides a dramatic case of privatisation gone amok…

146 DC do not have the ability to weather the wings in export earnings as well as developed countries do. They do not have the built in stabilizers – progressive income tax, unemployment insurance etc. – that pump money into the economy when economy is weak. Individuals do not have savings. Banks are often not as well capitalized or regulated, so they are more prone to collapse.

International bankers are always willing to lend to resource rich countries when price is high. When resource prices drop, bankers of course want their money back  – just when the country needs it most. The boom and bust lending exacerbates the economic volatility brought on by  boom-and-bust prices.

148 Dutch disease…. Inflow of dollars lead to high exchange rate and loss of competitivity…..natural resources have the perverse effect of harming the rest of the economy……Nigeria was a major exporter of agricultural produce. Today it is a major importer.  Reducing amount (of dollars) converted in local currency  reduces exchange rate appreciation: that means a country must spend some money of the resource money on imports and keep some of the rest abroad. This is an argument for stabilisation funds in which a country can save when prices are high and use when recession comes.

 The major responsibility for getting as much value as possible from natural resources and using it well resides with the countries themselves. Their first priority should be to set up institutions that will reduce scope for corruption and ensure that money derived from …natural resources is invested well. It may be desirable to have some hard and fast rules (% on health, on education etc. ) Procedures needs to be put in place for independent evaluations of the returns on investments. Stabilisation funds are essential …Most importantly DC needs to view their natural resources as their endowment, of which the current government are trustees for future generations.


151Transparency : sunshine is the strongest antiseptic Citizens’s right-to-know laws are necessary (freedom of information acts). Government can set the rules and there are enough honest companies willing to play with rules of transparency. The citizen’s right to know should trump any claims to business confidentiality.


153 Just as a company’s books show depreciation of its assets, so too should a nation’s accounting framework reflect the depletion of its scarce resources. ( Green Net National Product – Green NNP is a measure that subtracts out not just depreciation of capital but depletion of natural resources and degradation of the environment.  A focus on GNNP would induce countries to invest more in conservation.


155 An action agenda for international community

In addition to promoting anti corruption laws, curtailing bank secrecy and compensate DC for the environment services they provided (by keeping the forest etc.) – 7 proposals are made:


1 – EITI – disclosure of what is paid and how much of resource was extracted…

2– Reducing arms sales

3 Certifications (for diamonds and woods)

4 – targeting financial assistance:

            Should tax payers in the developed world subsidize a government that is itself in effect giving away its resources?  Giving aid to countries that have demonstrated ability to pursue appropriate policies

5 Setting norms: design model contract s that ensure DC are treated fairly and assess what fraction of the value of the resource is being received by DC. Try to create a race to the top….

6 Limiting environmental damages: provide incentive for multinational not to despoil the environment: monitoring of damages by international  agency.

7. Enforcement : there is good practices in the business but this should not be left to goodwill. Trade agreement can be used to force good behaviour: trade sanction against companies and countries that engage in unfair trade practices, failing to subscribe to EITI, to OECD anti bribery measures……..these should be seen as unfair trade practice (and sanctioned accordingly)…