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Chapter Three: Poverty Traps
In chapter two we explored Ladder Theory of economic development, which said that countries tend to follow roughly the same pattern when they transform from being an extremely poor nation to being a rich one. They first get a boost in wealth somehow which helps them move past subsistence living. It could be that they can suddenly farm more valuable food than ever before (as with Europe, North America, Japan and Australia) or it could be that they suddenly receive an enormous amount of wealth from foreign direct investment (companies moving to poorer nations and hiring citizens to do work). The country then gains the money necessary to make investments in health, education and infrastructure, further increasing productivity and creating more wealth. The country once again uses the new wealth to make critical investments, entering into a cycle in which investments create more wealth and wealth is used to fund more investments. Eventually, the country becomes extremely rich.
But what if the country is never able to move past subsistence living? Or what if the countries receive the wealth, but their government never invests it in health, education and infrastructure? The result is that the countries remain stuck in extreme poverty, unable to attract foreign direct investment (for reasons I will explore shortly) or achieve a large boost in agriculture productivity and advance to the second stage of economic development.
Nations stuck in extreme poverty are characterized by many different trends, including dilapidated or non-existent infrastructure (no roads or ports), extremely poor health, overpopulation, civil war, extremely corrupt governance, and much more. Many of these symptoms of poverty actually make countries poorer through repelling foreign direct investment and decreasing worker productivity. Thus, the poorest nations tend to get even poorer. These symptoms of poverty which reinforce poverty are known as Poverty Traps, and will be the subject of this chapter.
But what if the country is never able to move past subsistence living? Or what if the countries receive the wealth, but their government never invests it in health, education and infrastructure? The result is that the countries remain stuck in extreme poverty, unable to attract foreign direct investment (for reasons I will explore shortly) or achieve a large boost in agriculture productivity and advance to the second stage of economic development.
Nations stuck in extreme poverty are characterized by many different trends, including dilapidated or non-existent infrastructure (no roads or ports), extremely poor health, overpopulation, civil war, extremely corrupt governance, and much more. Many of these symptoms of poverty actually make countries poorer through repelling foreign direct investment and decreasing worker productivity. Thus, the poorest nations tend to get even poorer. These symptoms of poverty which reinforce poverty are known as Poverty Traps, and will be the subject of this chapter.
How the Characteristics of Poverty Can Repel Foreign Investment
I mentioned before that many of the poorest nations remain unable to attract foreign direct investment (companies building factories in poor countries, intent on hiring workers to make clothes or build toys). This seems strange; the whole reason why these rich world corporations go to poor countries and build factories is because the workers in impoverished nations are willing to work for less money (the company can get away with paying them one tenth what they have to pay workers in the rich world, leaving the company with more profit).
So why are the poorest countries with the poorest workers unable to attract foreign companies? For that matter, if companies move away because they can pay workers less wages, why are any companies left in North America? Why haven't they all just moved away to foreign nations, where they can pay their workers so much less money?
When rich companies from North America are considering where (or if) to move abroad, they consider many important factors (not just worker wages) which affect their profitability. For illustration, I'll use the example of a General Motors factory manufacturing cars. This GM factory is currently located in the United States, and currently has to pay its factory workers hefty wages (about $30-40 per hour), large pensions and medical insurance coverage. All of this is very expensive. So the corporate leaders of GM say to themselves, "Why don't we move to Chad (located in Africa)? Chad is one of the poorest nation's in the world; their workers will be willing to work for just pennies per day. If we move to Chad, we'll save enormous amounts of money."
So why are the poorest countries with the poorest workers unable to attract foreign companies? For that matter, if companies move away because they can pay workers less wages, why are any companies left in North America? Why haven't they all just moved away to foreign nations, where they can pay their workers so much less money?
When rich companies from North America are considering where (or if) to move abroad, they consider many important factors (not just worker wages) which affect their profitability. For illustration, I'll use the example of a General Motors factory manufacturing cars. This GM factory is currently located in the United States, and currently has to pay its factory workers hefty wages (about $30-40 per hour), large pensions and medical insurance coverage. All of this is very expensive. So the corporate leaders of GM say to themselves, "Why don't we move to Chad (located in Africa)? Chad is one of the poorest nation's in the world; their workers will be willing to work for just pennies per day. If we move to Chad, we'll save enormous amounts of money."
And so the GM factory moves to Chad. Things begin happily; the factory pays its workers very little wages and initially saves a lot of money. But then other hidden expenses begin to pile up. First, the factory discovers that the residents of Chad are very uneducated; they have no idea how to even read or write, much less build a car. So the company has trouble attracting skilled workers, and eventually must pay money to have the local citizens trained in the art of building cars. Second, Chad is a landlocked nation (it has no borders which touch the Ocean). To get the manufactured cars to the ocean, where they can be shipped to consumers in North America, the company must transport the new cars along the road using large transport trucks. This sounds simple enough, however in Chad the vast majority roads are unpaved; the government was too impoverished to pay for them to be paved. The company tries to transport the cars along the old unpaved roads, but these roads are riddled with enormous pot holes which soon destroy the transport truck. The company must then either pay to get the road paved, or pay to constantly replace the transport trucks. Thus far, the company has lost quite a bit of money.
Then, the company's factory gets attacked by violent rebels. Civil war has been raging in Chad for several years. Many times, the rebels simply go into villages or cities and completely destroy everything in sight; this time, the victim was the GM factory. Luckily, everyone in the factory escapes with their lives; however, the factory is completely destroyed. The company must now pay to replace the factory and all of the destroyed merchandise. After replacing the merchandise and rebuilding the factory (a very costly experience), the company discovers that the violent rebels have overthrown the government. The rebels strongly dislike the rich world (Europe and North America); they remember vividly the dark days of colonialism, in which Europeans and North Americans enslaved their people and committed unspeakable acts of horror. So just to spite the Western world, the new government suddenly bans all exports to North America and Europe. The GM factory can no longer do business, since virtually all of their customers live in North America and Europe. They try to sue someone to get the policy overturned, but who would they sue? The government, who controls the judicial system? Disgruntled, they cut their losses and move back to North America.
Do you see how the characteristics of poverty -an unskilled public, a lack of infrastructure, ongoing violent conflict, spiteful government- can make a poor nation unattractive to foreign investment? Industries don't want to move to unstable countries with no skills, no paved roads and terrible governments. And so they remain in North America and Europe, where they have to pay workers more money, but don't have to suffer the enormous costs and horrendous risks associated with moving to extremely poor nations like Chad. And so Chad remains unable to attract foreign investment, unable to get the sudden burst of wealth it needs to make the critical investments in health, education and infrastructure and enter the cycle of prosperity.
Chad cannot attract foreign investment because it has characteristics associated with being poor -an unskilled public, lack of infrastructure, civil conflict and bad governance- and retains the characteristic of being poor because it cannot attract foreign direct investment.
Chad's poverty thus reinforces itself; a phenomenon known as the Poverty Trap.
For the rest of this chapter, we shall examine various poverty traps -products of poverty which cause further poverty- in an effort to understand how they work and why they have prevented extremely poor nations (such as Chad) from becoming prosperous.
Then, the company's factory gets attacked by violent rebels. Civil war has been raging in Chad for several years. Many times, the rebels simply go into villages or cities and completely destroy everything in sight; this time, the victim was the GM factory. Luckily, everyone in the factory escapes with their lives; however, the factory is completely destroyed. The company must now pay to replace the factory and all of the destroyed merchandise. After replacing the merchandise and rebuilding the factory (a very costly experience), the company discovers that the violent rebels have overthrown the government. The rebels strongly dislike the rich world (Europe and North America); they remember vividly the dark days of colonialism, in which Europeans and North Americans enslaved their people and committed unspeakable acts of horror. So just to spite the Western world, the new government suddenly bans all exports to North America and Europe. The GM factory can no longer do business, since virtually all of their customers live in North America and Europe. They try to sue someone to get the policy overturned, but who would they sue? The government, who controls the judicial system? Disgruntled, they cut their losses and move back to North America.
Do you see how the characteristics of poverty -an unskilled public, a lack of infrastructure, ongoing violent conflict, spiteful government- can make a poor nation unattractive to foreign investment? Industries don't want to move to unstable countries with no skills, no paved roads and terrible governments. And so they remain in North America and Europe, where they have to pay workers more money, but don't have to suffer the enormous costs and horrendous risks associated with moving to extremely poor nations like Chad. And so Chad remains unable to attract foreign investment, unable to get the sudden burst of wealth it needs to make the critical investments in health, education and infrastructure and enter the cycle of prosperity.
Chad cannot attract foreign investment because it has characteristics associated with being poor -an unskilled public, lack of infrastructure, civil conflict and bad governance- and retains the characteristic of being poor because it cannot attract foreign direct investment.
Chad's poverty thus reinforces itself; a phenomenon known as the Poverty Trap.
For the rest of this chapter, we shall examine various poverty traps -products of poverty which cause further poverty- in an effort to understand how they work and why they have prevented extremely poor nations (such as Chad) from becoming prosperous.
Terrible Health as Both a Product and Cause of Poverty
In the home page, I mentioned that over 20'000 people die of extreme poverty everyday because they are too poor to stay alive; this works out to be about 8 million people dead every year. This seems like an extraordinary amount of people; so what is causing so many people to die in such a short period of time?
Consider for a moment what it would be like to live on just $1.25 per day. As mentioned throughout previous chapters, you most likely live in the world's poorest continent, Africa, or perhaps on a South Pacific island such as Papua New Guinea. There are very few manufacturing companies in your country willing to hire workers, so you're forced to survive by growing all of your food on a farm. But attempting to grow food in this part of this world is very difficult; the soil is severely depleted of nutrients from centuries of people farming on the same land. Often, you cannot even grow enough food to feed your family, so they usually go to bed hungry; their malnutrition makes them susceptible to a variety of nutrient deficiency disorders which may be fatal. In addition, the area routinely undergoes droughts which can cause your crop to fail and leave your family without any food entirely (African droughts often cause mass starvation and death).
The source of water for your village is often very unsanitary; full of harmful bacteria waiting to attack your immune system. Unfortunately, your lack of food and nutrition makes you especially susceptible to disease, and drinking the unsanitary water regularly makes you ill. The region which you are living in is also home to mosquitoes and tsetse flies, which often carry diseases including Malaria, African Sleeping Sickness, Dengue Fever, West Nile Virus, and Yellow Fever. You would like to protect yourself from such insects while you sleep using a device known as a bed net; they are essentially nets which you drape over your bed which prevent disease-carrying insects from biting you in your sleep (this is shown in the picture below). Unfortunately, the nets costs five dollars; much too expensive for your family to buy.
If you contract tuberculosis or AIDS in North America or Europe, you would certainly be rushed to a hospital and given medication which can usually save your life. However, many of the hospitals of Africa are without sufficient amounts of medicine; the government is too impoverished to pay for medicines which can save the lives of its citizens. And so the hospitals in extremely poor countries are not so much places where the sick go to get better, but rather are places where the sick go to die.
All of this means that residents of extremely poor countries are much more likely to die of disease or starvation than the citizens of rich nations (such as those in Europe or North America); this is why these countries regularly lose a combined eight million people every year to preventable illness, and why the life expectancy in extremely impoverished regions of the world (such as sub-Saharan Africa) lies at around 46 years.
Consider for a moment what it would be like to live on just $1.25 per day. As mentioned throughout previous chapters, you most likely live in the world's poorest continent, Africa, or perhaps on a South Pacific island such as Papua New Guinea. There are very few manufacturing companies in your country willing to hire workers, so you're forced to survive by growing all of your food on a farm. But attempting to grow food in this part of this world is very difficult; the soil is severely depleted of nutrients from centuries of people farming on the same land. Often, you cannot even grow enough food to feed your family, so they usually go to bed hungry; their malnutrition makes them susceptible to a variety of nutrient deficiency disorders which may be fatal. In addition, the area routinely undergoes droughts which can cause your crop to fail and leave your family without any food entirely (African droughts often cause mass starvation and death).
The source of water for your village is often very unsanitary; full of harmful bacteria waiting to attack your immune system. Unfortunately, your lack of food and nutrition makes you especially susceptible to disease, and drinking the unsanitary water regularly makes you ill. The region which you are living in is also home to mosquitoes and tsetse flies, which often carry diseases including Malaria, African Sleeping Sickness, Dengue Fever, West Nile Virus, and Yellow Fever. You would like to protect yourself from such insects while you sleep using a device known as a bed net; they are essentially nets which you drape over your bed which prevent disease-carrying insects from biting you in your sleep (this is shown in the picture below). Unfortunately, the nets costs five dollars; much too expensive for your family to buy.
If you contract tuberculosis or AIDS in North America or Europe, you would certainly be rushed to a hospital and given medication which can usually save your life. However, many of the hospitals of Africa are without sufficient amounts of medicine; the government is too impoverished to pay for medicines which can save the lives of its citizens. And so the hospitals in extremely poor countries are not so much places where the sick go to get better, but rather are places where the sick go to die.
All of this means that residents of extremely poor countries are much more likely to die of disease or starvation than the citizens of rich nations (such as those in Europe or North America); this is why these countries regularly lose a combined eight million people every year to preventable illness, and why the life expectancy in extremely impoverished regions of the world (such as sub-Saharan Africa) lies at around 46 years.
So we've seen how poverty increases the prevalence of disease; impoverished people are too poor to attain enough nutritious food to stay alive, pay for clean drinking water, buy tools which prevent serious disease (such as bed nets which prevent Malaria) or buy life-saving medicines, and so they are constantly infected with harmful illnesses which (despite the diseases being completely curable) they often die from; malaria alone infects 300 million people every year and kills more than one million (possibly as high as three million).
But does causation also run in the opposite direction; does disease increase the prevalence of poverty as well? In other words, is widespread sickness and loss of life making places like Africa even poorer? The answer is yes.
In 2000, the World Health Organization (a branch of the United Nations) approved a major study exploring how health affects economic development; the study was entitled "The Commission on Macroeconomics and Health". In 2001, the study finally concluded that widespread disease is actually a major cause of poverty. Why is this? Well, if a nation's people are constantly sick, then they are likely to be much less productive (for example, because they are constantly missing days of work due to illness). Disease can also give a large percentage of the population life-changing disabilities; for example, Malaria can cause severe neurological damage which lasts the rest of the victim's life. Since citizens with severe neurological disabilities are likely to be less productive than healthy citizens, the economy once more suffers. Widespread disease also creates dangerously rapid population growth (more on this below) and decreases tourism and foreign direct investment, since people would prefer not to move to an environment where they are likely to contract a serious illness.
All of this means that disease can be very costly for a nation's economy.
So what, in monetary terms, is the cost of several hundreds of millions of people contracting serious illnesses in extremely poor countries? How much more wealth would have been generated had these illnesses been prevented? The Commission on Macroeconomics and Health sought to answer this question and finally concluded that the cost amounts to more than $100 billion annually:
"Eight million lives saved from infectious diseases and nutritional deficiencies would translate into a far larger number of years of life saved for those affected, as well as a higher quality of life. Economists talk of Disability-Adjusted Life Years (DALYs) saved, which add together the increased years of life and the reduced years of living with disabilities. We estimate that approximately 330 million DALYs would be saved for each 8 million deaths prevented. Assuming, conservatively, that each DALY saved gives an economic benefit of 1 year's per capita income of a projected $563 in 2015, the direct economic benefit of saving 330 million DALYs would be $186 billion per year, and plausibly several times that."
-Executive Summary of the Commission of Macroeconomics and Health
Poor health costs extremely poor nations $186 billion every year. This is a gigantic burden to place upon nations who are too impoverished even to build basic infrastructure or have clean drinking water for their citizens. This burden is stopping the nations from reaching the second stage of economic development by eating up an enormous amount of wealth, thereby making them unable to pay for the three critical investments (health, education and infrastructure) and enter the cycle of prosperity.
In summary, extreme poverty is making nations sick, and being sick is making them poor. Unfortunate environmental conditions have caused African nations to experience economic decline, which causes low healthcare spending and higher disease rates, which causes further economic decline, which causes even higher disease rates, etc. Terrible health is therefore a type of Poverty Trap in which a product of poverty (in this case detrimental health) further reinforces poverty.
But does causation also run in the opposite direction; does disease increase the prevalence of poverty as well? In other words, is widespread sickness and loss of life making places like Africa even poorer? The answer is yes.
In 2000, the World Health Organization (a branch of the United Nations) approved a major study exploring how health affects economic development; the study was entitled "The Commission on Macroeconomics and Health". In 2001, the study finally concluded that widespread disease is actually a major cause of poverty. Why is this? Well, if a nation's people are constantly sick, then they are likely to be much less productive (for example, because they are constantly missing days of work due to illness). Disease can also give a large percentage of the population life-changing disabilities; for example, Malaria can cause severe neurological damage which lasts the rest of the victim's life. Since citizens with severe neurological disabilities are likely to be less productive than healthy citizens, the economy once more suffers. Widespread disease also creates dangerously rapid population growth (more on this below) and decreases tourism and foreign direct investment, since people would prefer not to move to an environment where they are likely to contract a serious illness.
All of this means that disease can be very costly for a nation's economy.
So what, in monetary terms, is the cost of several hundreds of millions of people contracting serious illnesses in extremely poor countries? How much more wealth would have been generated had these illnesses been prevented? The Commission on Macroeconomics and Health sought to answer this question and finally concluded that the cost amounts to more than $100 billion annually:
"Eight million lives saved from infectious diseases and nutritional deficiencies would translate into a far larger number of years of life saved for those affected, as well as a higher quality of life. Economists talk of Disability-Adjusted Life Years (DALYs) saved, which add together the increased years of life and the reduced years of living with disabilities. We estimate that approximately 330 million DALYs would be saved for each 8 million deaths prevented. Assuming, conservatively, that each DALY saved gives an economic benefit of 1 year's per capita income of a projected $563 in 2015, the direct economic benefit of saving 330 million DALYs would be $186 billion per year, and plausibly several times that."
-Executive Summary of the Commission of Macroeconomics and Health
Poor health costs extremely poor nations $186 billion every year. This is a gigantic burden to place upon nations who are too impoverished even to build basic infrastructure or have clean drinking water for their citizens. This burden is stopping the nations from reaching the second stage of economic development by eating up an enormous amount of wealth, thereby making them unable to pay for the three critical investments (health, education and infrastructure) and enter the cycle of prosperity.
In summary, extreme poverty is making nations sick, and being sick is making them poor. Unfortunate environmental conditions have caused African nations to experience economic decline, which causes low healthcare spending and higher disease rates, which causes further economic decline, which causes even higher disease rates, etc. Terrible health is therefore a type of Poverty Trap in which a product of poverty (in this case detrimental health) further reinforces poverty.
The Conflict Trap
When activists look at a catastrophic civil conflict, such as the crisis currently happening in Darfur province, they often see the disaster as “a war between Blacks and Arabs”, blaming the violence on Sudan’s pronounced racial division and ethnic tension. Similarly, when reviewing other African civil wars such as the infamous Rwanda genocide which killed close to 800'000 people, activists have blamed the war once more on ethnic tension between to rival races (this time between the majority ethnic Hutus and the Tutsi). Certainly, racial hatred plays a pertinent role in promoting violence; in Africa, racial hatred has often lead to massive civil wars pitting one race against another. Africa's particularly malicious ethnic tension is a legacy of years of colonial rule from richer European nations, who often gave certain races undue favoritism over others; for example, when the Germans and Belgians had ruled over Rwanda, they allowed the Tutsis to essentially enslave the Hutus because they considered the Tutsis racially superior. This lead to profuse racial hatred between the Hutu and Tutsi groups, which eventually came to a head during the 1994 Rwandan genocide mentioned earlier. Had the Europeans not gotten involved, one imagines the crisis would not have been nearly as devastating.
And yet ethnic tension does not seem a sufficient explanation for why Darfur is in the midst of a civil war. Many countries are divided along ethnic lines, but do not go to war with each other. Think of our home country Canada, which has for hundreds of years been divided along linguistic lines — English and French. The cultural tension between these two groups has certainly been prevalent throughout Canadian history; indeed, decades of linguistic and political tension almost caused Quebec to succeed from Canada in the 1970s. Yet it seems unthinkable that both sides would suddenly explode into a violent civil war which might claim the lives of a million people; it simply wouldn’t happen. Belgium is similarly divided among ethnic lines — its majority Dutch-speaking population residing in the Northern Flanders district has often butted heads with the French-speaking Wallonia region— yet this country has not exploded into civil war either. So why is it that some ethnically divided countries, like Sudan or Congo, have had civil wars while others like Canada and Belgium have not?
The answer, I will argue, is that racial tension has little to do with the creation of violence. Rather, countries such as Congo and Sudan break out into civil war because they are living in extreme poverty.
A 2005 study by Paul Collier exploring poverty's affect on violence found that the three biggest characteristics which make a nation likely to engage in political conflict are (1) having a large proportion of the population which are young males, (2) having large amount of people uneducated, and (3) having a large portion of the population which is unemployed. Notably, he found that there is little link between ethnic diversity and civil unrest. It’s important to note that all of the above causes are directly related to widespread poverty; a country which is extremely poor is likely to have a much larger population growth rate than a rich country (we'll explore this more below), meaning it will have a larger proportion of young people between the ages of 18 and 35. In addition, an impoverished government will have little money to spend on education, meaning there will be a higher percentage of uneducated people. An impoverished region is also usually to attract foreign companies which create jobs, meaning that unemployment will tend to be very high (perhaps more than 30%) in poor nations.
So why does poverty make a country more likely to break out into war? Well, the theory is that when a large number of people are starving to death, they are much more likely to risk their lives as soldiers and might be more sympathetic to radical leaders promising something better. In the 1930s, Germany was undergoing exceptionally hard times; its economy was already in rough shape as of 1918, when after losing World War One their government was forced to pay enormous amounts of money to the victors Britain and France. This launched their entire country into a huge debt crisis, causing widespread unemployment, hyperinflation and mass starvation. When the Great Depression came in 1930, their already suffering economy was hit especially hard. Under these conditions, the Germans were much more willing to tolerate the leadership of a radical dictator such as Adolf Hitler, who later launched Europe into World War Two. Had Germany not been under such harsh conditions, quite arguably they never would have tolerated such a tyrant and the war might have been avoided. Similar patterns can be seen throughout the planet; nations whose citizens are suffering from extraordinary poverty are much more likely to turn to violence. Its no accident that three of the world's deadly political conflicts -the Darfur slaughter in Sudan, the rise of Al Qaeda in Afghanistan, and the land dispute in Palestine- happened in some of the most water-deprived, poorest regions on the planet.
So what effect does war have on creating poverty? Civil war, in fact, costs the economy an enormous amount of money and greatly increases poverty. This is because during wartime, vital construction such as roads, railway systems, hospitals and schools are destroyed. Entire villages are often burned to the ground, leaving thousands without homes or crops to feed their families. War also means that the government will spend money on weapons instead of the critical investments in infrastructure and education needed to help the economy become more attractive to foreign investment. And of course, foreign companies are much less likely to build factories in a region of widespread violence and civil disobedience.
It has been estimated that a typical civil war costs about $64 billion to the country that is engaged in war and all of its neighbors. Since about two civil wars start every year, civil war costs the undeveloped world about $128 billion per year. The enormous costs of conflict are therefore a major hindrance to developing nations attempting to escape from extreme poverty.
Thus conflict naturally creates a trap in which poverty fuels war, which costs the country an enormous amount of money, which in turn causes more poverty and civil unrest.
And yet ethnic tension does not seem a sufficient explanation for why Darfur is in the midst of a civil war. Many countries are divided along ethnic lines, but do not go to war with each other. Think of our home country Canada, which has for hundreds of years been divided along linguistic lines — English and French. The cultural tension between these two groups has certainly been prevalent throughout Canadian history; indeed, decades of linguistic and political tension almost caused Quebec to succeed from Canada in the 1970s. Yet it seems unthinkable that both sides would suddenly explode into a violent civil war which might claim the lives of a million people; it simply wouldn’t happen. Belgium is similarly divided among ethnic lines — its majority Dutch-speaking population residing in the Northern Flanders district has often butted heads with the French-speaking Wallonia region— yet this country has not exploded into civil war either. So why is it that some ethnically divided countries, like Sudan or Congo, have had civil wars while others like Canada and Belgium have not?
The answer, I will argue, is that racial tension has little to do with the creation of violence. Rather, countries such as Congo and Sudan break out into civil war because they are living in extreme poverty.
A 2005 study by Paul Collier exploring poverty's affect on violence found that the three biggest characteristics which make a nation likely to engage in political conflict are (1) having a large proportion of the population which are young males, (2) having large amount of people uneducated, and (3) having a large portion of the population which is unemployed. Notably, he found that there is little link between ethnic diversity and civil unrest. It’s important to note that all of the above causes are directly related to widespread poverty; a country which is extremely poor is likely to have a much larger population growth rate than a rich country (we'll explore this more below), meaning it will have a larger proportion of young people between the ages of 18 and 35. In addition, an impoverished government will have little money to spend on education, meaning there will be a higher percentage of uneducated people. An impoverished region is also usually to attract foreign companies which create jobs, meaning that unemployment will tend to be very high (perhaps more than 30%) in poor nations.
So why does poverty make a country more likely to break out into war? Well, the theory is that when a large number of people are starving to death, they are much more likely to risk their lives as soldiers and might be more sympathetic to radical leaders promising something better. In the 1930s, Germany was undergoing exceptionally hard times; its economy was already in rough shape as of 1918, when after losing World War One their government was forced to pay enormous amounts of money to the victors Britain and France. This launched their entire country into a huge debt crisis, causing widespread unemployment, hyperinflation and mass starvation. When the Great Depression came in 1930, their already suffering economy was hit especially hard. Under these conditions, the Germans were much more willing to tolerate the leadership of a radical dictator such as Adolf Hitler, who later launched Europe into World War Two. Had Germany not been under such harsh conditions, quite arguably they never would have tolerated such a tyrant and the war might have been avoided. Similar patterns can be seen throughout the planet; nations whose citizens are suffering from extraordinary poverty are much more likely to turn to violence. Its no accident that three of the world's deadly political conflicts -the Darfur slaughter in Sudan, the rise of Al Qaeda in Afghanistan, and the land dispute in Palestine- happened in some of the most water-deprived, poorest regions on the planet.
So what effect does war have on creating poverty? Civil war, in fact, costs the economy an enormous amount of money and greatly increases poverty. This is because during wartime, vital construction such as roads, railway systems, hospitals and schools are destroyed. Entire villages are often burned to the ground, leaving thousands without homes or crops to feed their families. War also means that the government will spend money on weapons instead of the critical investments in infrastructure and education needed to help the economy become more attractive to foreign investment. And of course, foreign companies are much less likely to build factories in a region of widespread violence and civil disobedience.
It has been estimated that a typical civil war costs about $64 billion to the country that is engaged in war and all of its neighbors. Since about two civil wars start every year, civil war costs the undeveloped world about $128 billion per year. The enormous costs of conflict are therefore a major hindrance to developing nations attempting to escape from extreme poverty.
Thus conflict naturally creates a trap in which poverty fuels war, which costs the country an enormous amount of money, which in turn causes more poverty and civil unrest.
Overpopulation
One might imagine that with all of this war and disease killing millions of people, extremely poor nations would have populations which are dramatically shrinking. Similarly, it is logical to assume that rich nations, which are surviving well into their seventies and early eighties because of excellent public health systems, would have populations which are dramatically expanding. Yet paradoxically, the opposite is true; the populations of extremely poor countries in Africa are growing faster than anywhere else on the planet, while the rich world populations are actually declining.
Strangely enough, when countries get richer and have greater quality of life, their populations tend to shrink. The map above shows the population growth rates of various countries. As you can see, the richest countries in the world -places like Canada, Germany, Italy, France and the United States- have populations which are barely growing at all (an increase of just 0-1% per year). However, the poorest countries in the world, such as those in sub-Saharan Africa, are growing at a much higher rate -the populations of these places will double roughly once every thirty years.
So why are the countries with the lowest quality of life experiencing the highest population growth? The answer is actually quite simple; in extremely poor countries, families tend to have a lot of kids. In Canada, the average couple only has 1.6 children (five couples would only produce 8 children). These eight children are not even enough to "replace" their ten parents, meaning that the population will actually tend to shrink (the only reason why our population is growing at all is because of immigration from developing countries). However, in regions such as sub-Saharan Africa the average couple has about 5 children. Perhaps one of these five children will not live to see adulthood, so we can say that the four surviving children will "replace" their two parents; this means that the population in Sub-Saharan Africa will roughly double once every generation.
So even though the people of Africa are dying rapidly from pandemic disease and bloody civil wars, their populations are still growing faster than those of North America simply because impoverished citizens are having so many more children. As we can see from the maps below, there is a stunning correlation between quality of life (shown left, with horrible quality of life in red) and the "fertility rate", a measure of how many children the average couple has (shown right, with the highest birth rates in pink). Citizens which are extremely poor and have terrible quality of life tend to have the most kids.
Strangely enough, when countries get richer and have greater quality of life, their populations tend to shrink. The map above shows the population growth rates of various countries. As you can see, the richest countries in the world -places like Canada, Germany, Italy, France and the United States- have populations which are barely growing at all (an increase of just 0-1% per year). However, the poorest countries in the world, such as those in sub-Saharan Africa, are growing at a much higher rate -the populations of these places will double roughly once every thirty years.
So why are the countries with the lowest quality of life experiencing the highest population growth? The answer is actually quite simple; in extremely poor countries, families tend to have a lot of kids. In Canada, the average couple only has 1.6 children (five couples would only produce 8 children). These eight children are not even enough to "replace" their ten parents, meaning that the population will actually tend to shrink (the only reason why our population is growing at all is because of immigration from developing countries). However, in regions such as sub-Saharan Africa the average couple has about 5 children. Perhaps one of these five children will not live to see adulthood, so we can say that the four surviving children will "replace" their two parents; this means that the population in Sub-Saharan Africa will roughly double once every generation.
So even though the people of Africa are dying rapidly from pandemic disease and bloody civil wars, their populations are still growing faster than those of North America simply because impoverished citizens are having so many more children. As we can see from the maps below, there is a stunning correlation between quality of life (shown left, with horrible quality of life in red) and the "fertility rate", a measure of how many children the average couple has (shown right, with the highest birth rates in pink). Citizens which are extremely poor and have terrible quality of life tend to have the most kids.
So why do the poorest countries tend to have so many kids? Isn't having kids really expensive? Well, in countries such as sub-Saharan Africa, families often live on farms where they survive by growing their own food. Once children reach they age of five, they can go help their parents work the land. As they grow, they continue helping their parents farm; this added help dramatically increases the amount of food a family can produce.
So kids are not so expensive to have in regions where families survive by farming, since they can help out on the farm and increase food production; in fact, in these regions the children are not a cost but an asset, since the child's added help produces enough extra food to feed himself and still leaves a little left over. At the end of the day, the family is actually better fed (richer) after having the extra child. Since children are assets (rather than costs here in the rich world), families in extremely poor countries tend to have a lot of kids.
There is a second reason why extremely poor families tend to have many kids. Families which survive on farms don't get pensions (retirement funds to live off of when they get old). So when parents get too old to work their farms and grow food, who is going look after them and feed them?
Their children will do this. So it is in the parents' best interest to ensure that they have enough children to take care of them when they get old. Unfortunately, the parents see many children dying of disease and civil war, so they have many children (perhaps five or six) to ensure that at least some of them will survive to adulthood and take care of the elderly parents.
So kids are not so expensive to have in regions where families survive by farming, since they can help out on the farm and increase food production; in fact, in these regions the children are not a cost but an asset, since the child's added help produces enough extra food to feed himself and still leaves a little left over. At the end of the day, the family is actually better fed (richer) after having the extra child. Since children are assets (rather than costs here in the rich world), families in extremely poor countries tend to have a lot of kids.
There is a second reason why extremely poor families tend to have many kids. Families which survive on farms don't get pensions (retirement funds to live off of when they get old). So when parents get too old to work their farms and grow food, who is going look after them and feed them?
Their children will do this. So it is in the parents' best interest to ensure that they have enough children to take care of them when they get old. Unfortunately, the parents see many children dying of disease and civil war, so they have many children (perhaps five or six) to ensure that at least some of them will survive to adulthood and take care of the elderly parents.
So we've seen how poverty affects population growth; extreme poverty tends to cause overpopulation, since extremely poor families living off of farms consider children an asset rather than an expense (because the children can grow enough extra food to feed themselves and still a little bit more) and because having lots of children is a means of ensuring that the parents will be taken care of once they get too old to work the land.
So how does overpopulation affect poverty? Does it make the country richer or poorer? In fact, it makes the country poorer. First, countries which have many children are much more likely to have bloody civil wars. This is because these countries tend to have a disproportionately large number of young people; this can be seen on the graphs left, comparing the population make up of a poor region such as West Africa with a rich region such as Western Europe. In a poor country whose population is rapidly growing, an enormous portion (perhaps 16%) of the population consists of young males between the ages of 15 and 29, who are potential soldiers in civil conflict. There are simply too many young people. A country full these impoverished young men is much more likely to explode into prolonged war which can destroy vital infrastructure and make the country much less attractive to foreign investment.
Second, when a country has a population which is rapidly expanding, it must spend money simply increasing the quantity of infrastructure rather than increasing the quality of current infrastructure. For example, the government must spend its money building more primary schools to keep up with the population, so it becomes unable to build higher quality schools, such as colleges and universities. Or it must spend money building more roads and bridges to keep up with the population, so it becomes unable to build higher quality infrastructure such as satellites or broadband cables for cellphone and internet connection. Or it must spend money vaccinating more people for polio and leprosy, leaving it less money to give each individual high quality treatment for AIDS, Malaria and other illnesses. Because the government wastes money simply increasing the quantity of infrastructure, it becomes unable to invest in higher quality health and education for each individual. Thus instead of a country with a small population whose people have access to internet, receive university education and are vaccinated for a variety of illnesses, extremely poor nations become countries with huge populations, where each individual has no access to internet or cellphones, receives only primary education and only has immunity to a small number of illnesses. The former nation is much more likely to attract foreign investment than the latter, further prolonging the latter nation's poverty and causing it to overpopulate even more.
In summary, extremely rapid population growth occurs most often in the world's poorest nations because children on farming communities are assets to the family (through working on the farm, a child usually gives its family more food than it consumes) and give the parents a kind of pension so that the parents can survive when they become too old to work. In addition, because overpopulation makes a country more likely to experience destructive civil war and gives each individual less quality health and education, it also tends to make the citizens within a country poor. Overpopulation is thus both a product of poverty and a means by which poverty is prolonged.
I mentioned in the "health" section of this chapter that if eight million lives were saved, extremely poor nations would save in excess of $186 billion every year. This seems strange; if a large population is a burden to the economy, then why would saving 8 million people make the nation even more prosperous? Because saving lives, strangely enough, tends to lower population growth.
Many activists (perhaps you are one of them) secretly think that if we save lives, we would simply be creating a population explosion; creating more mouths to feed. These saved children, they believe, would simply die of starvation later in life, and the entire effort to better Africa's quality of life would be squandered. Yet this belief is false; saving lives, paradoxically, actually lowers population growth. I mentioned before that parents often have many children as a substitute for a pension; they need to have surviving adult children to take care of them when they become too old to work the farm and grow their own food. The parents see children dying left and right from disease and civil war (approximately 17% of children die before their fifth birthday), so they often have five or six children just to ensure that at least one male will survive to adulthood and take care of them.
However, if dramatically fewer children were dying of disease and warfare, the parents would not have as many children. One illustration by economist Jeffrey Sachs (based on data from the World Bank) shows that if increases to health and wellness caused the child mortality rate (the proportion of children who die before their first birthday) to fall from 15% to less than 5%, the average number of children each parent has would be cut in half (a total fertility rate decline from 5 to 2.5)! The parents are now confident that at least one child will make it to adulthood, so they have less children; the boost in child health has given parents the confidence needed to lower their fertility rate. This decline in fertility actually more than compensates for the decline in child mortality, meaning that increases in health and welfare which prevent people from dying actually cause the total population to go down (thus benefiting the economy)!
Ironically, Africa's burden of disease and civil war, which kill millions of people, are actually the reasons why its population continues to rapidly expand, since it causes parents to overcompensate and want to have dramatically more children. This helps to explain why the population growth rates are so much larger in Africa, where disease and war are prevalent killers, than in the richer nations of North America and Europe.
So how does overpopulation affect poverty? Does it make the country richer or poorer? In fact, it makes the country poorer. First, countries which have many children are much more likely to have bloody civil wars. This is because these countries tend to have a disproportionately large number of young people; this can be seen on the graphs left, comparing the population make up of a poor region such as West Africa with a rich region such as Western Europe. In a poor country whose population is rapidly growing, an enormous portion (perhaps 16%) of the population consists of young males between the ages of 15 and 29, who are potential soldiers in civil conflict. There are simply too many young people. A country full these impoverished young men is much more likely to explode into prolonged war which can destroy vital infrastructure and make the country much less attractive to foreign investment.
Second, when a country has a population which is rapidly expanding, it must spend money simply increasing the quantity of infrastructure rather than increasing the quality of current infrastructure. For example, the government must spend its money building more primary schools to keep up with the population, so it becomes unable to build higher quality schools, such as colleges and universities. Or it must spend money building more roads and bridges to keep up with the population, so it becomes unable to build higher quality infrastructure such as satellites or broadband cables for cellphone and internet connection. Or it must spend money vaccinating more people for polio and leprosy, leaving it less money to give each individual high quality treatment for AIDS, Malaria and other illnesses. Because the government wastes money simply increasing the quantity of infrastructure, it becomes unable to invest in higher quality health and education for each individual. Thus instead of a country with a small population whose people have access to internet, receive university education and are vaccinated for a variety of illnesses, extremely poor nations become countries with huge populations, where each individual has no access to internet or cellphones, receives only primary education and only has immunity to a small number of illnesses. The former nation is much more likely to attract foreign investment than the latter, further prolonging the latter nation's poverty and causing it to overpopulate even more.
In summary, extremely rapid population growth occurs most often in the world's poorest nations because children on farming communities are assets to the family (through working on the farm, a child usually gives its family more food than it consumes) and give the parents a kind of pension so that the parents can survive when they become too old to work. In addition, because overpopulation makes a country more likely to experience destructive civil war and gives each individual less quality health and education, it also tends to make the citizens within a country poor. Overpopulation is thus both a product of poverty and a means by which poverty is prolonged.
I mentioned in the "health" section of this chapter that if eight million lives were saved, extremely poor nations would save in excess of $186 billion every year. This seems strange; if a large population is a burden to the economy, then why would saving 8 million people make the nation even more prosperous? Because saving lives, strangely enough, tends to lower population growth.
Many activists (perhaps you are one of them) secretly think that if we save lives, we would simply be creating a population explosion; creating more mouths to feed. These saved children, they believe, would simply die of starvation later in life, and the entire effort to better Africa's quality of life would be squandered. Yet this belief is false; saving lives, paradoxically, actually lowers population growth. I mentioned before that parents often have many children as a substitute for a pension; they need to have surviving adult children to take care of them when they become too old to work the farm and grow their own food. The parents see children dying left and right from disease and civil war (approximately 17% of children die before their fifth birthday), so they often have five or six children just to ensure that at least one male will survive to adulthood and take care of them.
However, if dramatically fewer children were dying of disease and warfare, the parents would not have as many children. One illustration by economist Jeffrey Sachs (based on data from the World Bank) shows that if increases to health and wellness caused the child mortality rate (the proportion of children who die before their first birthday) to fall from 15% to less than 5%, the average number of children each parent has would be cut in half (a total fertility rate decline from 5 to 2.5)! The parents are now confident that at least one child will make it to adulthood, so they have less children; the boost in child health has given parents the confidence needed to lower their fertility rate. This decline in fertility actually more than compensates for the decline in child mortality, meaning that increases in health and welfare which prevent people from dying actually cause the total population to go down (thus benefiting the economy)!
Ironically, Africa's burden of disease and civil war, which kill millions of people, are actually the reasons why its population continues to rapidly expand, since it causes parents to overcompensate and want to have dramatically more children. This helps to explain why the population growth rates are so much larger in Africa, where disease and war are prevalent killers, than in the richer nations of North America and Europe.
Lack of Infrastructure
If a country has a widespread lack of physical infrastructure (such as roads, ports, electrical power, satellites and radio towers for cellphone use and broadband cables for internet access) then it will tend to attract less foreign investment. This is because factories often need solid paved roads, electricity and some sort of telecommunication (such as cellphones or internet access) to properly function. The picture to your left, showing an African man bicycling on a dirt road, gives you an idea of the kind of dilapidated physical infrastructure currently in place in extremely poor nations within Africa. Roads such as these make transportation very difficult (and expensive), since they severely damage trucks transporting materials to the ocean. Therefore, a foreign company looking to invest in a third world nation will often choose not to build a factory in a country with terrible physical infrastructure.
Unfortunately, before a country can build infrastructure it needs money, but before sources of money such as foreign investment come, the country needs physical infrastructure.
This is what is known as a chicken an egg problem; a classic trap of extreme poverty.
Unfortunately, before a country can build infrastructure it needs money, but before sources of money such as foreign investment come, the country needs physical infrastructure.
This is what is known as a chicken an egg problem; a classic trap of extreme poverty.
Terrible Governance
Over the past 50 years, it seems terrible governance has been endemic in most of the world's poorest regions. Many of the governments in extremely poor nations have "shot themselves in the foot" by repeatedly passing government policies which repel foreign direct investment. For example, shortly after succeeding from the British Commonwealth, India placed high tariffs (taxes) on most goods imported from (or exported to) the Western world, making it less cost-effective for Western companies to set up factories in India (since a large part of their profit would now be eaten up by huge taxes). Or in other instances, the governments of poor nations have banned imports which benefit the economy; for example, the government of Nigeria has repeatedly banned imports of wheat, rice, maize and vegetable oil, forcing starving city-dwelling Nigerians pay sky high prices for their food. Many impoverished countries tend to like policy which excludes foreigners because they have a general distrust of the rich world; let's not forget that almost all of Africa was colonized and enslaved by Europeans for more than two centuries, leaving Africans feeling allergic to more foreign intervention into their economy. However, in truth, foreign investment is something which will dramatically raise living standards for Africans (not a means of asserting Western dominance), and should be accepted with open arms.
Outright corruption within governments has also cost impoverished nations dearly. Whenever a government is deciding which company it should hire to do a job (such as build roads or give out vaccines), it has to auction off the job, awarding a contract to whichever company is willing to do the job at the lowest price. In this way, the government has to spend as little money as possible. However, in many impoverished nations, contracts are often not awarded to the most cost-effective bidder; companies can often get contracts simply by making sizable bribes to state leaders. This bribery means that an enormous amount of tax money is frequently wasted. In addition, much tax money is wasted when corrupt government officials simply pocket the money (tax embezzlement) instead of spending it on health, education and infrastructure.
Perhaps the worst economic policy in history has occurred over the past twenty years in the African nation of Zimbabwe; there, the detrimental economic policies of President Robert Mugabe (depicted above) have caused annual monetary inflation to rise to approximately 80 sextillion percent (to put this in everyday terms, a loaf of bread which had cost one dollar the previous year would now cost $800'000'000'000'000'000'000). His combination of land reform policy (in which white farmers were displaced and replaced with African farmers), foreign debt repayment strategy (which consisted of paying off the debt all in one shot through rapid printing of money) and changes to price controls and exchange rates have left the country with an astounding 94% unemployment rate. The Zimbabwean economy is now widely considered the world's worst.
It is clear that terrible governance can be enormously costly to extremely poor countries; it is difficult to quantify exactly how much money terrible governance costs a nation (it varies from case to case), but economist Paul Collier has put the number at around $100 billion.
Terrible governance is a poverty trap because widespread poverty tends to foster corruption; impoverished economies have very few educated people, underpaid policemen and judiciary officials (thus promoting police force bribery), few systems to monitor budgetary spending, and weak (or non-existent) independent media, all of which encourage bribery and decrease public scrutiny over the government. This can cause some states to remain stuck in a poverty trap in which bad governance creates poverty, which in turn fosters more corruption.
Many free-market conservatives (notably the researchers and economists at the libertarian Cato Institute) have argued that Africa's poverty is solely the fault of Africa's corrupt governments without acknowledging the role geography plays in determining success. Corrupt governments are certainly part of the problem; as we have seen, corrupt governance can repel foreign direct investment, deprive citizens of badly needed food, and waste multitudes of tax money. However, it is important to remember that Africa is a continent of fifty three different countries; although it has many corrupt governments, it also has many countries of good governance (such as Ghana, Senegal and Malawi) which take part in fair democratic elections and pursue policies that benefit private sector growth and foreign investment. Yet these countries remain poor; this is not because of bad government policy, but because the countries are stuck in a multitude of other poverty traps -including a lack of education and infrastructure, poor health, and overpopulation- which prevent them from attracting foreign investment. Although good policies can help a country realize its opportunities, it cannot create opportunities where none exist; even the best policies by the government of Malawi are not going to turn Malawi into a rich nation if the government has no money to make the critical investments needed to enter the cycle of prosperity.
Outright corruption within governments has also cost impoverished nations dearly. Whenever a government is deciding which company it should hire to do a job (such as build roads or give out vaccines), it has to auction off the job, awarding a contract to whichever company is willing to do the job at the lowest price. In this way, the government has to spend as little money as possible. However, in many impoverished nations, contracts are often not awarded to the most cost-effective bidder; companies can often get contracts simply by making sizable bribes to state leaders. This bribery means that an enormous amount of tax money is frequently wasted. In addition, much tax money is wasted when corrupt government officials simply pocket the money (tax embezzlement) instead of spending it on health, education and infrastructure.
Perhaps the worst economic policy in history has occurred over the past twenty years in the African nation of Zimbabwe; there, the detrimental economic policies of President Robert Mugabe (depicted above) have caused annual monetary inflation to rise to approximately 80 sextillion percent (to put this in everyday terms, a loaf of bread which had cost one dollar the previous year would now cost $800'000'000'000'000'000'000). His combination of land reform policy (in which white farmers were displaced and replaced with African farmers), foreign debt repayment strategy (which consisted of paying off the debt all in one shot through rapid printing of money) and changes to price controls and exchange rates have left the country with an astounding 94% unemployment rate. The Zimbabwean economy is now widely considered the world's worst.
It is clear that terrible governance can be enormously costly to extremely poor countries; it is difficult to quantify exactly how much money terrible governance costs a nation (it varies from case to case), but economist Paul Collier has put the number at around $100 billion.
Terrible governance is a poverty trap because widespread poverty tends to foster corruption; impoverished economies have very few educated people, underpaid policemen and judiciary officials (thus promoting police force bribery), few systems to monitor budgetary spending, and weak (or non-existent) independent media, all of which encourage bribery and decrease public scrutiny over the government. This can cause some states to remain stuck in a poverty trap in which bad governance creates poverty, which in turn fosters more corruption.
Many free-market conservatives (notably the researchers and economists at the libertarian Cato Institute) have argued that Africa's poverty is solely the fault of Africa's corrupt governments without acknowledging the role geography plays in determining success. Corrupt governments are certainly part of the problem; as we have seen, corrupt governance can repel foreign direct investment, deprive citizens of badly needed food, and waste multitudes of tax money. However, it is important to remember that Africa is a continent of fifty three different countries; although it has many corrupt governments, it also has many countries of good governance (such as Ghana, Senegal and Malawi) which take part in fair democratic elections and pursue policies that benefit private sector growth and foreign investment. Yet these countries remain poor; this is not because of bad government policy, but because the countries are stuck in a multitude of other poverty traps -including a lack of education and infrastructure, poor health, and overpopulation- which prevent them from attracting foreign investment. Although good policies can help a country realize its opportunities, it cannot create opportunities where none exist; even the best policies by the government of Malawi are not going to turn Malawi into a rich nation if the government has no money to make the critical investments needed to enter the cycle of prosperity.
The Resource Curse
I have frequently mentioned that to get out of extreme poverty, impoverished nations need to get a sudden boost of wealth, and then the country (either private citizens or the government) must invest in public health, education and infrastructure, creating a more efficient workforce, which creates even more wealth, which is further invested in health, education and infrastructure; this cycle continues until the country becomes wealthy. Unfortunately, many countries can't get the initial sudden boost in wealth, and are often hampered down by poverty traps which make them even poorer. As a result, they remain impoverished.
One might think that one way of getting this sudden burst of wealth would be through a sudden discovery of natural resources; things like oil or diamonds which can be sold (exported) to richer nations, thereby giving the impoverished government the money it needs to make the critical investments. Indeed, some nations have certainly fully capitalized on their natural resource revenues to ascend out of extreme poverty; a notable example is Botswana, which used its abundant diamonds to grow rapidly wealthier (today, it has an average income similar to that of Mexico or Turkey -quite high by African standards). But unfortunately, most of the poor countries which suddenly discover valuable natural resources often break out into violent civil wars and spiral into political instability, an infamous pattern known as the "Resource Curse".
Although resources are not a trap in and of themselves, they do contribute significantly to the conflict trap since a country with abundant natural resources is significantly more likely to break out into civil wars. Often, rebellious groups fighting against the government form not to overthrow the government, but to gain control of state assets such as diamond mines or oil fields. As the rebels slowly acquire more land and gain more and more of these resources, they can sell the valuables on the market and use them to buy guns and missiles to fuel additional warfare; thus the resource wealth becomes both the cause of violence and the source of income which pays for the fighting to continue. One famous example of resource war occurred in Sierra Leone, where the rebellious group Revolutionary United Front (RUF) fought against the government using funds from selling so-called "blood diamonds" it traded on the black market for guns and ammunition. This war lasted ten years, displaced over one million people and killed around fifty thousand citizens. I emphasize that a huge boost in wealth will allow the economy to enter the cycle of prosperity only if the new found money is used to make investments in health, education and infrastructure. If the money is used instead to buy weapons for the soldiers of civil war -as is often the case- then this new found wealth is only used to destroy vital infrastructure and decimate human health, and thus is a burden to the economy which causes the country to sink further into extreme poverty.
An abundance of natural resources also makes a country more likely to have terrible governance for a couple of reasons. First, when your economy is based almost entirely on one export (such as Saudi Arabia's oil) then your economy is at the mercy of "shocks"; rapid spikes and crashes in the value of the country's primary export (such as oil), leading to deep recessions and rapid booms in the economy. The nation's wealth is always on a roller coaster ride. For example, when the price of oil went dramatically up in March of 2008, the economy of Angola (driven primarily by its oil reserves) was on top of the world; when the price of oil crashed in September 2008, the music stopped and Angola's economy tanked. This boom and bust phenomenon makes it very hard for voters to sort out when a government is making good decisions and when it is making bad mistakes; in their confusion, voters often think that corrupt officials are doing a good job and re-elect them.
One might think that one way of getting this sudden burst of wealth would be through a sudden discovery of natural resources; things like oil or diamonds which can be sold (exported) to richer nations, thereby giving the impoverished government the money it needs to make the critical investments. Indeed, some nations have certainly fully capitalized on their natural resource revenues to ascend out of extreme poverty; a notable example is Botswana, which used its abundant diamonds to grow rapidly wealthier (today, it has an average income similar to that of Mexico or Turkey -quite high by African standards). But unfortunately, most of the poor countries which suddenly discover valuable natural resources often break out into violent civil wars and spiral into political instability, an infamous pattern known as the "Resource Curse".
Although resources are not a trap in and of themselves, they do contribute significantly to the conflict trap since a country with abundant natural resources is significantly more likely to break out into civil wars. Often, rebellious groups fighting against the government form not to overthrow the government, but to gain control of state assets such as diamond mines or oil fields. As the rebels slowly acquire more land and gain more and more of these resources, they can sell the valuables on the market and use them to buy guns and missiles to fuel additional warfare; thus the resource wealth becomes both the cause of violence and the source of income which pays for the fighting to continue. One famous example of resource war occurred in Sierra Leone, where the rebellious group Revolutionary United Front (RUF) fought against the government using funds from selling so-called "blood diamonds" it traded on the black market for guns and ammunition. This war lasted ten years, displaced over one million people and killed around fifty thousand citizens. I emphasize that a huge boost in wealth will allow the economy to enter the cycle of prosperity only if the new found money is used to make investments in health, education and infrastructure. If the money is used instead to buy weapons for the soldiers of civil war -as is often the case- then this new found wealth is only used to destroy vital infrastructure and decimate human health, and thus is a burden to the economy which causes the country to sink further into extreme poverty.
An abundance of natural resources also makes a country more likely to have terrible governance for a couple of reasons. First, when your economy is based almost entirely on one export (such as Saudi Arabia's oil) then your economy is at the mercy of "shocks"; rapid spikes and crashes in the value of the country's primary export (such as oil), leading to deep recessions and rapid booms in the economy. The nation's wealth is always on a roller coaster ride. For example, when the price of oil went dramatically up in March of 2008, the economy of Angola (driven primarily by its oil reserves) was on top of the world; when the price of oil crashed in September 2008, the music stopped and Angola's economy tanked. This boom and bust phenomenon makes it very hard for voters to sort out when a government is making good decisions and when it is making bad mistakes; in their confusion, voters often think that corrupt officials are doing a good job and re-elect them.
How the Poverty Traps Affect Africa
We have seen how terrible health (heavily influenced by geography, as some regions are much more prone to disease than others), civil conflict, overpopulation, lack of infrastructure, an economy dominated by resources, and terrible governance all negatively affect growth. The reason why Africa has not developed as fast as other regions of the world (including Asia, as we will see in the next chapter) is because within Africa there is a "perfect storm" of poverty traps which severely hinders economic growth.
In his highly influential development economics study The Bottom Billion, economist Paul Collier notes that Africa is particularly susceptible to various poverty traps. He writes:
"Seventy-three percent of (Africa's extremely poor countries) have been through a civil war, 29 percent of them are in countries dominated by the politics of natural resource revenues, 30 percent are landlocked and in a bad neighborhood, and 76 percent have been through a prolonged period of bad governance and poor economic policies. Adding these up, you will realize that some countries have been in more than one trap, either simultaneously or sequentially."
-Paul Collier, the Bottom Billion
Africa is also home to some of the deadliest tropical diseases, greatly contributing to its terrible health; it houses the type of mosquito (Annopheles) which only bites humans and the deadliest type of Malaria (plasmodium falciparum), making it more vulnerable to Malaria than any other place in the world. In addition, its tropical climate allows other diseases such as African Sleeping Sickness, Dengue Fever, West Nile Virus, and Yellow Fever to thrive. Africa also has unusually abundant natural resources, home to some of Earth's largest diamond mines, rubber tree fields and oil reserves. Africa has more landlocked countries than any other continent, more civil war than any other continent (probably a result of ethnic tensions mixing with excessive poverty and hunger) and is particularly prone to climate fluctuations (such as the El Nino cycles) which cause prolonged droughts.
Africa's geographical proneness to the various "Poverty Traps" has sucked much prosperity out of sub-Saharan Africa; they are the reason why Africa has not become as wealthy as the European nations, and the reason why Africa continues to remain in poverty today.
In his highly influential development economics study The Bottom Billion, economist Paul Collier notes that Africa is particularly susceptible to various poverty traps. He writes:
"Seventy-three percent of (Africa's extremely poor countries) have been through a civil war, 29 percent of them are in countries dominated by the politics of natural resource revenues, 30 percent are landlocked and in a bad neighborhood, and 76 percent have been through a prolonged period of bad governance and poor economic policies. Adding these up, you will realize that some countries have been in more than one trap, either simultaneously or sequentially."
-Paul Collier, the Bottom Billion
Africa is also home to some of the deadliest tropical diseases, greatly contributing to its terrible health; it houses the type of mosquito (Annopheles) which only bites humans and the deadliest type of Malaria (plasmodium falciparum), making it more vulnerable to Malaria than any other place in the world. In addition, its tropical climate allows other diseases such as African Sleeping Sickness, Dengue Fever, West Nile Virus, and Yellow Fever to thrive. Africa also has unusually abundant natural resources, home to some of Earth's largest diamond mines, rubber tree fields and oil reserves. Africa has more landlocked countries than any other continent, more civil war than any other continent (probably a result of ethnic tensions mixing with excessive poverty and hunger) and is particularly prone to climate fluctuations (such as the El Nino cycles) which cause prolonged droughts.
Africa's geographical proneness to the various "Poverty Traps" has sucked much prosperity out of sub-Saharan Africa; they are the reason why Africa has not become as wealthy as the European nations, and the reason why Africa continues to remain in poverty today.
Summary
In summary, the countries of extreme poverty have citizens which are abysmally unhealthy, have populations which are expanding unsustainably fast, may be home to unimaginably violent civil wars which routinely kill tens of thousands, are lacking the money needed to build infrastructure, and are ruled by governments which are exceptionally corrupt. All of these five products of poverty are also prolonging poverty; countries with rapidly expanding, unhealthy populations which are home to violent civil wars, lack vital infrastructure and are ruled by governments which often make ruinous policy decisions are the last places where foreign investors from rich world nations want to build factories. In essence, the poor remain stuck in what is known as the "Poverty Trap", a vicious cycle in which extreme poverty itself causes a country to be unproductive and unattractive to foreign investment, and thus causing the residents of the extremely poor countries to stand still or become even poorer.
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