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by William Easterly

  A natural-resource oligarchy is particularly inimical to democracy. Oil is infamous for undermining or preventing democracy. Oil revenues are very easy to redistribute, so wealthy and well-connected insiders who benefit from oil controlled by a dictatorship have a lot to lose from a democracy that would surely result in redistribution. Hence we get oil societies desperate to prevent democracy, ranging from the oil-rich Middle East to Africa.

  NYU politics professor Leonard Wantchekon documented systematically the association of resource wealth with autocracy in Africa, as others did using worldwide patterns.23 Wantchekon shows that new democracies have succeeded in Africa mainly in resource-poor places such as Benin, Madagascar, and Mali, while oil-rich states such as Algeria, Cameroon, Gabon, and Libya still have dictators. Worldwide, oil producers were on average in the worst fourth of the world’s countries in democracy in 2004, as democracy was measured by three World Bank researchers.24 (Unfortunately, foreign aid can be a lot like oil revenues in its negative effect on incentives for democratization, as we see later.)

  The negative effect of oil on democracy could be one of the main mechanisms for the “natural resource curse,” in which windfalls of natural resources, even though boosting income directly, have a negative effect on subsequent economic growth.

  European Minority States.25

  There is one big historical experiment with oligarchy that confirms the Acemoglu predictions, which happens to be indirectly related to one unsavory side of the West’s interaction with the Rest. This was the settlement of relatively rich Europeans as a minority group among poor indigenous people in the Americas and some places scattered throughout Africa. Places of minority European settlement included most of Latin America and the Caribbean, Algeria, Angola, Kenya, Rhodesia, and South Africa. The rich Europeans in Latin America, the Caribbean, and African settler colonies typically awarded themselves a monopoly of political power and privileged access to land and education (albeit to a more extreme degree in Africa than in Latin America, since Latin American racial distinctions were not as sharp). Hence the whites fit almost perfectly the definition and predicted behavior of an “oligarchy.” Although the white minority societies account for only a small part of poor countries today, they illustrate a general problem of oligarchy that is far more widespread.

  The figure below shows indeed that the minority European settlements were richer than the average of Australia, Canada, New Zealand, and the United States in 1820; the latter were democratic places with a large majority of the population European. However, these democratic countries dramatically outperformed the economies of oligarchy over the next two centuries. As Acemoglu predicted, oligarchy can perform well for a while, but tends to stagnate eventually. The Bolivian example given at the beginning of this chapter fits the pattern of oligarchy and stagnation.

  Fig. 14. Minority European Versus Mostly European Colonies

  Illiberal Democracy

  Fareed Zakaria, in his 2003 book, The Future of Freedom, has brought to wide attention the idea of “illiberal democracy.” Why do democracies sometimes produce awful government despite free elections?

  A big problem with democracy and development, particularly with uneducated voters, is that the politicians could appeal to voters’ gut instincts of hatred, fear, nationalism, or racism to win elections. Edward Glaeser of Harvard had the insight that politicians will promote hatred when it helps achieve other unrelated political goals.26 A politician who wants to avoid redistribution to the poor will preach ethnic hatred toward a poor minority that happens to be ethnically distinct. Thus, for example, rich white leaders in the American South defeated populism in the late nineteenth century by persuading poor whites to hate poor blacks. (This is one way that an oligarchy can keep power even in a democracy.) Unfortunately, the political entrepreneurs can pander to the majority’s hatreds as well as (or instead of ) to the majority’s need for public services.

  Without protections for minority rights such as those discussed earlier, majority ethnic groups in a democracy can exploit minority ones. In many ethnically divided countries today, politicians often exploit ethnic animosities to build a coalition that seeks to redistribute income to “us” from “them.” The perpetual distributive contests among ethnic groups in Africa, for example, have complicated African democracy and made it difficult to achieve long-run development there. Even if patronage is not so overt, voters may simply not trust a leader from another ethnic group to act in their interest. Different ethnic groups may have conflicting interests in public services: group A wants a road in their region, while group B wants a road in their region; the more segregated ethnic groups are, the less likely group B voters are to use, or care about, the road in group A’s region. This may cause voters to choose a lower level of public services overall. Researchers have documented links between ethnic divisions and poor schooling and infrastructure, between ethnic divisions and poor-quality government, and between ethnic divisions and lower spending on public services.27

  Ethnic hatreds are at work even when politics are not democratic. For example, Arab leaders may preach incessant hatred of Israel because that hatred justifies a powerful army, which also comes in handy to suppress political dissidents and preserve the autocrats’ hold on power. Pakistani leaders may have preached hatred of India and kept alive the Kashmir dispute for similar reasons. Nationalism may be even more of a popular political platform in poor countries, where the masses have less accumulated wealth at stake when they fight ethnic wars. This is not to deny that many nationalist grievances are genuine; it is just that nationalist leaders seem to pursue such grievances at the expense of future economic development.

  Another problem with the ideal vision of democracy is corruption. Competitive elections are no guarantee against corruption. Politicians can buy votes instead of earning them with good government. They can steal from state coffers to fund payoffs for their supporters. Corrupt politics merge with ethnic politics as parties compete to win resources for their own ethnic group. Politicians can buy off journalists or dissidents who might expose their peccadilloes. Even democratically elected politicians can buy favors from the army and the police to intimidate the opposition in future elections. It could turn out that all political parties are corrupt and that it is just the better-organized machine that wins the election. For example, Pakistani democracy in the 1990s was dominated by two rival political machines led by Benazir Bhutto and Nawaz Sharif, who were both corrupt. The president of Pakistan, Farooq Leghari, even accused Prime Minister Bhutto’s government of complicity in killings of political opponents. (Bhutto denies the charges against her.) Overturning corrupt democracy often takes freedom of speech and freedom of the press, which in turn require many independent sources of power that cannot all be bought off by corrupt politicians.

  Are you worn out by all this to-and-fro about whether free elections will come about, and whether they will work if they do? I hope you are now so worn out that you won’t impose a simplistic democratic blueprint on poor countries! I have not even gotten close to an exhaustive survey of what makes democracy possible or impossible, work well or work badly. But even this superficial sketch of democracy and its vulnerabilities has uncovered several reasons why good government may not take hold—elite manipulation of the rules of the political game, weak social norms, landed wealth, natural resources, high inequality, corruption, and ethnic nationalism and hatreds.

  Unfortunately, the aid agencies have had little idea how to fix these problems from the outside when they have tried to change bad governments into good governments. In fact, we will see in later chapters that during the previous history of Europe’s attempted transformation of the Rest—colonization, European-imposed borders, decolonization, and military intervention—the West often made things worse rather than better on many of these dimensions.

  Problem Governments

  Many countries of the Rest have conditions unfavorable to democracy and good government: they are producers of natura
l resources such as oil, and/or are unequal agrarian societies, and/or are just unequal, and/or have a lot of ethnic conflict. So many countries of the Rest have corrupt and undemocratic governments. Badly governed countries are poor countries.

  We see an association between democracy and income (see figure 15). The graph is logarithmic, meaning that every unit increase on the graph represents a doubling of per capita income. As one moves from the least democratic to the most democratic countries, income increases by a factor of ten.

  Fig. 15. Per Capita Income at Various Levels of Democracy, 2002

  Correlation is not causality—it could be that rich people demand more political rights and, in general, good government. Democracy could also be standing in for some other aspect of good government. However, to deal with the first problem, since researchers know a little bit about the determinants of bad government, studies can explore whether bad government causes poverty, rather than (mainly) the other way around. We can take the part of bad government induced by the factors mentioned earlier—such as commodity and natural-resource endowments—and see if it is associated with poverty. If it is, that would suggest that bad government caused poverty. We can also test whether these noneconomic factors affect poverty directly or only through bad government. Most of the research that takes this line finds that bad government does indeed cause poverty, and that the influence of the noneconomic factors is only through bad government, not directly on poverty.28

  The research is less successful at identifying which aspect of bad government matters, such as democracy versus corruption. Different dimensions of good government tend to come together in packages, so it is hard to tell which one is causing economic development.

  We have already seen that bad government has a lot to do with the low growth of poor countries that were allegedly in “poverty traps.” Now we see some evidence that bad government has a lot to do with their being poor in the first place.

  Along with these formal data, we have plenty of anecdotes of what a poor job the state does in poor countries in enforcing contracts and protecting property and persons. In one poor neighborhood in Thailand, the police were so ineffective that parents reported keeping children out of school to guard the family homes against break-ins.29 Police in Mtamba, Malawi, gave crime victims the unwelcome assignment of catching the thief or murderer and delivering him to the police station.30 Far from enforcing property rights, the police themselves often seize property to extort bribes. The police grabbed the tea shop of Ali Ahmad in Patna, India, and detained him. He bribed the policeman 920 rupees to get his shop back, which his wife borrowed from a neighbor at a high interest rate. In Patna, the police and criminals collaborate in blackmail, harassment, and extortion from shop owners and vegetable sellers.31

  Likewise, traders in food crops in Cameroon describe soldiers and police setting up roadblocks to demand bribes, which the traders must pay or risk seizure of their goods. Not exactly the kind of strong property rights that would facilitate trade.32

  The rich can often count on better treatment from the police than the poor can; the police will back the rich in any dispute between the two. Some poor people in Dangara, Uzbekistan, said, “The police have become the rich people’s stick used against common people.33 Villagers in Bangladesh told interviewers, “Poor people have no access to the police station, government offices, and the judge of the village court. The rich people dominate these institutions.” Illiterate poor people have difficulty with written documents and formal bureaucratic procedures to prove claims to property.

  Reporting a crime to the police is often counterproductive, as the police themselves rob the poor or are in cahoots with the criminals. In Ozerny, Russia, a robbery victim identified the perpetrator and filed a statement with police. The victim was understandably distressed later to see “the policeman drinking with the guy who robbed me.34

  Dealing with Bad Governments

  The foreign aid Planners in the West have never figured out how to deal with bad government in the Rest. We donors are reluctant to admit publicly that some bad governments have deep historical roots, as sketched in the first half of this chapter, even if we know it privately.

  The donor agencies are dealing with a difficult problem: they want to give aid to poor countries, not to rich countries. The rich countries have decided that the donor agencies have to give mostly to the government in the recipient country. For example, the writers of the original charters of the IMF and the World Bank—mainly the United States and the United Kingdom—decided that they could operate only through governments in the recipient countries. If virtually all poor countries have bad governments, then the donor agencies will give aid to countries with bad governments.

  Another problem is that foreign aid is used as a political reward to allied governments, no matter how unsavory they are. U.S. military aid to a poor country, presumably a measure of strategic importance to the United States, helped predict whether that country received IMF and World Bank structural adjustment loans. However, strategic geopolitics explains only a small portion of the variation in aid receipts across countries; many bad governments of no strategic importance whatsoever still get a lot of aid.

  So we had the world’s twenty-five most undemocratic government rulers (out of 199 countries the World Bank rated on democracy) get a sum of $9 billion in foreign aid in 2002. Similarly, the world’s twenty-five most corrupt countries got $9.4 billion in foreign aid in 2002. The top fifteen recipients of foreign aid in 2002, who each got more than $1 billion each, have a median ranking as the worst fourth of all governments everywhere in 2002 (ranked by democracy, corruption, etc.). It would be good to get aid from the rich of rich countries to the poor of poor countries, but what we see happening is that aid shifts money from being spent by the best governments in the world to being spent by the worst. What are the chances that these billions are going to reach poor people?

  Despite these sorry numbers, donors now aim at transforming government. Ten years ago, the aid donors, the World Bank, and the IMF seldom discussed corruption or dictatorship. Since then, donor talk radio has been full of chatter about “good governance.” However, donors have still not figured out what to do to make good governance happen, or how to be selective about whom they give their money. As the figures just cited show, the gangsters are still getting plenty of aid.

  More systematically, Alberto Alesina of Harvard and Beatrice Weder of the University of Mainz have found no evidence that aid donors give less aid to corrupt countries; in fact, in some of their statistical analyses it was found that donors gave these countries more aid.35 Have things changed over the past few years? In 1996, there was no association between how much aid per capita a developing country received and its rating on the World Bank measure of corruption (controlling for other determinants of aid per capita, such as per capita income and population size). Six years later, in 2002, after oceans of ink on corruption, there was still no association between aid given to a country and how corrupt that country was.36 Similarly, there was no association between aid given to a country and how democratic it was, either in 1996 or 2002, controlling for per capita income and population size.

  So donor bureaucracies remain stuck with the recipient government bureaucracy when they try to implement their aid projects, even when that bureaucracy is not customer-friendly to the poor. World Bank economists Deon Filmer and Lant Pritchett report on the results of a survey at government health centers in the Mutasa district of Tanzania. In the survey, new mothers reported what they least liked about their birthing experiences assisted by government nurses. The poor mothers-to-be were “ridiculed by nurses for not having baby clothes (22 percent)…and nurses hit mothers during delivery (13 percent).37

  Good Government in the Tropics

  There have been some cases of foreign aid supporting reform and good government. One happy example is with the aforementioned Botswana. Before independence, Seretse Khama was heir to the most prominent traditional chiefdom. He
shocked the neighboring white South Africans by marrying a white woman, which caused the British colonialists to ban him from Botswana until he gave up his chiefdom. Khama became Botswana’s leader anyway upon independence in 1966.

  Prospects at independence were not great for a country that was mostly desert. Faced with a crippling drought, Botswana accepted large amounts of foreign aid, especially from the altruistic Scandinavians. In the 1960s and 1970s, aid averaged about 16 percent of Botswana’s income. After discovering large amounts of diamonds in the late 1960s, the Khama government managed to avoid the curse discussed earlier that had plagued other mineral-rich nations, such as Angola, Nigeria, Sierra Leone, and Zaire. The government managed both aid and diamond revenues wisely enough to foster economic growth, with the result that the economy expanded at 10 percent every year.

  Rapid growth continued under Khama’s democratic successor, Ketumile Masire, who took over in 1980 and governed until 1998. Masire’s government prevented a famine in 1981–1987 when drought devastated crop production. The government expanded rural villages’ access to clean water, health clinics, and good roads. It decentralized government functions to local authorities to increase democratic accountability.38 The government was not perfect—it failed to prevent one of the world’s worst AIDS crises—but its accomplishments give a hint of how much development was possible in Africa with good government.