Paul Collier lists four instruments for addressing poverty in The Bottom Billion. We have looked at aid and military intervention. We turn now to the third instrument, laws and charters.
Collier writes that far too often, “…the rich countries have been a safe haven for the criminals of the bottom billion.” (136) The idea of a Swiss bank account comes to mind as one example, where thugs can find a harbor for their plunder. There are other less obvious arrangements. For instance, Collier notes that until recently, French corporations were permitted to deduct bribes made in emerging nations from their taxes, which is the equivalent of subsidizing bribery. Over the past decade, international agreements have attempted to address these issues. Collier believes that five types of charters and laws need attention.
Charter for Natural Resources
Charters are needed to regulate contract letting, contract negotiating, transparency of payments, transparency in public expenditures, and smoothing of public spending in the face of revenue shocks for nations heavily involved in natural resource exports. International corporations and developed nations overmatch emerging nations in their legal expertise in negotiating and writing contracts. Lack of transparency in the bidding process creates fertile ground for bribes and corruption. Emerging nations have governments that are too weak or corrupt to ensure legitimate free market transactions consistently.
Transparency in financial transactions is a major theme for Collier. He wants complete transparency concerning government and corporate transactions and full transparency in how the funds received for natural resources are expended for public goods. Additionally, Collier points out that most natural resource contracts, as they are written today, place all the risk of price fluctuation on the emerging nation, which can lead to catastrophic consequences in times of sudden downward price movement. Some price averaging mechanisms would help lessen the shocks and share the risk emerging nations bear.
The goal should be a steady improvement in the prosperity and sustainability of the emerging nation so that it can become a legitimate player in the global market economy. Collier argues against emerging nations developing large reserve funds from natural resource revenue. It provides too much temptation for corruption, and the present needs are too pressing. Instead of parking funds in the U.S. stock market, emerging nations must learn to invest in and develop local markets.
Finally, Collier is critical of developed nations too heavily projecting their environmental and labor agendas. The emphasis must be less on these regulations and more on policies improving governance. As prosperity rises and governance improves, emerging nation citizens will begin to make their demands felt for more reforms effectively.
Charter for Democracy
Probably the most notable feature of democracy is popular elections. Fair elections have been the inordinate focus of developed nations and international activists regarding poor nations. However, as Collier writes, “Elections determine who is in power, but they do not determine how power is used.” (147) Democracy is also about protection for minority views, and it is about checks and balances that keep any one person or branch of government from being able to dominate the rest of government and society.
Collier believes the first place to start is freedom of the press. With freedom of the press, citizens have a means by which to hold government accountable and organize for reform. Without a free press, accountability and peaceful reform are exceedingly difficult. This explains why one of the first things nearly every new government in an emerging nation does is take over media outlets.
Charter for Budget Transparency
Collier tells a story from Chad where a Minister of Finance researched and determined that only 20% of funds intended for primary schools reached their destination. With the next round of funding, Minister Ritva Reinikka announced the amount of funds intended for specific schools to the local media and provided each school with a poster that advertised to the public how much money was allocated. Suddenly, 90% of the funds (up from 20%) found their way to the appropriate destination. Protocols and strategies are needed that keep government accountable to the people.
Charter for Postconflict Situations
Poor nations emerging from conflict need long-term security help and investment (on the order of a decade). Too often, international organizations and developing nations commit for too short a time, believing that once elections are held, an emerging nation should be able to handle things independently. Yet the first year or two after an election are often the most delicate because the losing side tends to revert to destructive tactics. Long-term commitments are needed.
Charter for Investment
Collier’s last charter deals with the need for both foreign and domestic investors to be able to trust that governments will not arbitrarily confiscate their investments without due process. Some corporations from developed nations have insurance policies that protect them against such actions, but domestic investors in poor nations have no such guarantees. Thus, charters are needed that will create standards across nations.
In the late 1990s, the OECD proposed a Multilateral Agreement of Investment that nearly became exposed until anti-corporation, anti-globalization activists managed to block it. Collier writes:
Hernando De Soto points out that over ten trillion dollars of capital are invisible and unproductive in poor nations because most citizens actively avoid participation in formal economic structures. An investment charter can bring trillions of dollars of capital the poor own into productive existence.
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