Why do poor countries stay poor?
Hey everyone! For today’s round of research I’ll be focusing on what political factors play a role in how poor a country is. Last week I gave you guys sort of an introduction on the difference between poor and rich countries and the characteristics you often see in both. These next few weeks I hope to explore more in depth into the poverty trap, starting off with how corruption, bad governing, tax evasion and war can make a poor country remain poor.
First off, to end poverty you must end corruption. Political mismanagement, corruption and disregard by the authorities for the bulk of the people have prevailed. The effects of corruption on populations are utterly devastating, and the correlation between poverty and corruption is very direct. Half of the wealth of the worlds poorest countries goes into offshore accounts, as lost revenues total between $10 and $20 billion dollars a year. (1) When countries are corrupt, they can not spend as much money on institutions needed to escape the poverty trap. (1,2) Poor people and small businesses have few economic alternatives and because of the serious corruption that occurs, they are more vulnerable to exploitation. A bribe demanded by a police officer may mean that a family can’t afford school fees or even food to eat, therefore these trivial sums of money are actually what’s keeping poor people poor. (3,4) Imagine having to bribe your for your utilities, or to pass exams. Imagine having to bribe the post office every time you bought something by mail order, bribing the bank clerk to let you take money out of your own account, paying your doctor to give you a prescription. That’s the reality of the abuse of power at every level. (4) When governments only exist to benefit themselves without properly functioning for their people, development or economic growth are nearly impossible.
Low-level officials themselves may have trouble earning an honest living. In poor societies, they are often underpaid, when they are paid at all, and must provide a stream of payments to patrons at higher levels. In this environment, bribery and theft are the means of survival. In corrupt markets and public bidding processes, inefficient firms and dishonest bidders have major advantages over honest competitors. Connections and cash, rather than innovation and excellence, become the ways to win contracts. Long-suffering citizens will not get what they pay for, but they will surely pay for what they get: Waste, lousy performance can all be covered up by bribes. (3)
Tax evasion in poor countries has as well been a growing problem. For starters, tax evasion is the avoidance or underpayment of government tax. We are all aware that the taxes we pay go towards the government and building infrastructure, running the country, etc. However, when the government itself is attempting to benefit themselves and big companies are essentially cheating their way through the system, it’s impossible to fully support the country. In poorer countries, since the majority of the population is in fact not able to pay their taxes, the government must rely on foreign investments. However, a report has shown that almost half of all investments done for developing countries have been funneled through tax havens, which are countries or independent areas with a low tax rate.
Institutions are very important for countries. The distribution for political power in a society is in turn determined by political institutions. However powerful groups will often opt for institutions that do not provide any rights to the majority of the population so that they can extract resources or labor from them, or monopolize the most lucrative businesses. There is also very “clan-based” thinking that occur in poorer countries. For example it’s your duty to disregard the so-called best candidate from an anonymous bunch, in order to pick someone from your own team. (1) As a result, the real talented individuals of a population in a country aren’t being used in poorer countries.
War & Conflict
Political rivalry, civil war, tribal disputes, etc. all have an impact on the development of a country. 73% of those in the poorest billion of the world’s population are either involved in or recovering from civil war. (7) Civil war creates a vicious circle – war causes poverty, and low income contributes to tension. Without safety, stability and security, natural resources can’t be collected. War and political instability produce weak governments. And without laws protecting investments and rights, people can not safely incest in their country’s economy. (8) Low growth means high unemployment and thus plenty of angry young men ready to fight. Building peace is therefore a major step to develop infrastructure. Countries with longstanding war conflicts have a much more difficult time developing, such as Somalia and Afghanistan. In others, with heated ethnic divisions, it causes a distraction for the country and therefore de-stabilizes the region. (6) Many of the poorest countries have experienced civil war sometime in the past century.
Again, while governments do not function, or exist only to benefit themselves, development is ultimately impossible. What African leaders such as Amin, Mobutu, Mengistu, Moi and most recently Mugabe have created in their countries are conditions that are distinctly unfavourable for the development of people's abilities, motivations and political institutions. Destructive leaders will only continue this downwards cycle of poverty . It’s difficult to price these things, but Paul Collier estimates that “each failed state costs the global economy $100 billion, and since the costs of intervening to fix a failed state would usually be less, he makes a case for more military intervention.” Cutbacks in health, education and other vital social services around the world have resulted from structural adjustment policies prescribed by the International Monetary Fund (IMF) and the World Bank as conditions for loans and repayment.
As Lord Bauer (British economist) said, aid goes no way towards righting past colonial wrongs.