Monday, November 24, 2014

Weak States, Poor Countries

PRINCETON – In Scotland, I was brought up to think of policemen as allies and to ask one for help when I needed it. Imagine my surprise when, as a 19-year-old on my first visit to the United States, I was met by a stream of obscenities from a New York City cop who was directing traffic in Times Square after I asked him for directions to the nearest post office. In my subsequent confusion, I inserted my employer’s urgent documents into a trash bin that, to me, looked a lot like a mailbox.

Europeans tend to feel more positively about their governments than do Americans, for whom the failures and unpopularity of their federal, state, and local politicians are a commonplace. Yet Americans’ various governments collect taxes and, in return, provide services without which they could not easily live their lives.

Americans, like many citizens of rich countries, take for granted the legal and regulatory system, the public schools, health care and social security for the elderly, roads, defense and diplomacy, and heavy investments by the state in research, particularly in medicine. Certainly, not all of these services are as good as they might be, nor held in equal regard by everyone; but people mostly pay their taxes, and if the way that money is spent offends some, a lively public debate ensues, and regular elections allow people to change priorities.

All of this is so obvious that it hardly needs saying – at least for those who live in rich countries with effective governments. But most of the world’s population does not.

In much of Africa and Asia, states lack the capacity to raise taxes or deliver services. The contract between government and governed – imperfect in rich countries – is often altogether absent in poor countries. The New York cop was little more than impolite (and busy providing a service); in much of the world, police prey on the people they are supposed to protect, shaking them down for money or persecuting them on behalf of powerful patrons.

Even in a middle-income country like India, public schools and public clinics face mass (unpunished) absenteeism. Private doctors give people what (they think) they want – injections, intravenous drips, and antibiotics – but the state does not regulate them, and many practitioners are entirely unqualified.

Throughout the developing world, children die because they are born in the wrong place – not of exotic, incurable diseases, but of the commonplace childhood illnesses that we have known how to treat for almost a century. Without a state that is capable of delivering routine maternal and child health care, these children will continue to die.

Likewise, without government capacity, regulation and enforcement do not work properly, so businesses find it difficult to operate. Without properly functioning civil courts, there is no guarantee that innovative entrepreneurs can claim the rewards of their ideas.

The absence of state capacity – that is, of the services and protections that people in rich countries take for granted – is one of the major causes of poverty and deprivation around the world. Without effective states working with active and involved citizens, there is little chance for the growth that is needed to abolish global poverty.

Unfortunately, the world’s rich countries currently are making things worse. Foreign aid – transfers from rich countries to poor countries – has much to its credit, particularly in terms of health care, with many people alive today who would otherwise be dead. But foreign aid also undermines the development of local state capacity.

This is most obvious in countries – mostly in Africa – where the government receives aid directly and aid flows are large relative to fiscal expenditure (often more than half the total). Such governments need no contract with their citizens, no parliament, and no tax-collection system. If they are accountable to anyone, it is to the donors; but even this fails in practice, because the donors, under pressure from their own citizens (who rightly want to help the poor), need to disburse money just as much as poor-country governments need to receive it, if not more so.

What about bypassing governments and giving aid directly to the poor? Certainly, the immediate effects are likely to be better, especially in countries where little government-to-government aid actually reaches the poor. And it would take an astonishingly small sum of money – about 15 US cents a day from each adult in the rich world – to bring everyone up to at least the destitution line of a dollar a day.

Yet this is no solution. Poor people need government to lead better lives; taking government out of the loop might improve things in the short run, but it would leave unsolved the underlying problem. Poor countries cannot forever have their health services run from abroad. Aid undermines what poor people need most: an effective government that works with them for today and tomorrow.

One thing that we can do is to agitate for our own governments to stop doing those things that make it harder for poor countries to stop being poor. Reducing aid is one, but so is limiting the arms trade, improving rich-country trade and subsidy policies, providing technical advice that is not tied to aid, and developing better drugs for diseases that do not affect rich people. We cannot help the poor by making their already-weak governments even weaker.

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    1. CommentedFemi Awoyinfa

      Absence of state capacity in Africa is a symptom of a larger problem. The unwillingness or inability of African leaders to rise to the responsibility, to the challenge of personal example which are the hallmarks of true what is lacking. That being said, foreign aid can be helpful and there are classic examples where aid, in the right hands have led to visible progress. However there are many who believe (and rightly so) that absence of aid will force Africa and the developing world to look inwards, plug loopholes, address corruption and live up to expectations. Is that too much to ask?

    2. CommentedLee Crawfurd

      Is there any actual evidence that direct cash transfers from overseas to individuals ( undermine government, or is this just speculation? There are theoretical reasons why aid might undermine governance, but there are also good theoretical reasons to think that aid might improve governance, by modelling what better government service delivery could look like. Ultimately it's an empirical question, and I don't think there is any decisive evidence either way. The one place there is decisive evidence is that giving people cash and healthcare directly improves lives. Should we sacrifice that for an unknown?

    3. CommentedScott Wolfel

      Or is it, "Poor Countries, Weak States"?

      I think Professor Deaton is putting the statist cart before the economic horse. Where exactly does the state get resources? Obviously from the economy.

      The American government, including state and local governments which deliver most of the government services (as opposed to defense and transfer payments), for example is about 40% of its almost $16 trillion GDP. Without the economic growth that separated it. from the pack over the last couple of centuries (for example the U.S. had similar per capita GDP as China and Latin America 150 years ago), the resources wouldn't have been their for the state to capture.

      The strong, large, Leviathan states of developed countries are the result of a few centuries of exponential capitalist growth and a shift to the modern welfare states/social democracies in the decades after the Great Depression. Prior to the Great Depression government spending in the U.S. was 3% of GDP, yet the country experienced some of its most dynamic growth, and became the global economic and geopolitical superpower, in the absence of a strong state.

      The causal arrows are backwards and economic history shows that a strong state is neither a necessary nor sufficient condition for strong economic growth and wealth creation. That said, a basic rule of law and protection of private property rights among other factors most likely are.

      There is a more fundamental flaw in his argument. There are plenty of examples of strong states throughout history that have killed the economic goose. Current exemplars include North Korea and Cuba among others, but the Soviet Union and Maoist China also come to mind and the list is endless.

      While it is probably correct that a certain minimal level of state is necessary for economic development to enforce basic rules of fairness and property rights per John Locke and Adam Smith, more often than not strong states have captured and inefficiently allocated societies' scarce resources often to existing elites, including the state.

      Prior to China, which may be a special case, statist development was an abject failure over time, and it has been economic development that has provided the resources for modern state building. If we look at the current economic problems in Europe and throughout the developed world, they are clearly related to an overreach by the state to extract resources from the private economy.

      In Africa, while part of the problem may be "weak states," which result from the lack of indigenous economic resources, the bigger problem is corrupt states that help capture those limited resources for existing elites. If you create the conditions for pluralistic economic development in terms of the state setting and enforcing the ground rules for a growing economy, the indigeonous resources will be available for state building.

      The right question may not be one of weak state/strong state, but the nature of the state and the robustness of the economy in providing resources for the state to extract.