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POLS 373 Foundations of Comparative Politics Lecture: Why are Poor Countries Poor? February 4 and 6, 2008 To learn more about this photo, click here Why are Poor Countries Poor? Introduction Some Facts and Figures on Poverty A quarter of the world’s population, 1.3 billion people, live in severe poverty (less than $1 a day in PPP terms) 2.8 billion people--almost half the world’s population--live on less than $2 per day (in PPP terms) Why are Poor Countries Poor? Introduction Some Facts and Figures on Inequality The net wealth of the 10 richest billionaires is $133 billion, more than 1.5 times the total national income of all the least developed countries combined; the richest 793 individuals control $2.6 trillion in assets In 1960, the 20% of the world’s people in the richest countries had 30 times the income of the poorest 20% — in 1997, 74 times as much A few hundred billionaires and millionaires now own as much wealth as the world’s poorest 2.5 billion people combined Why are Poor Countries Poor? Introduction Why are poor countries poor? Scenes of poverty in Latin America, Southeast Asia and Africa Why are Poor Countries Poor? Introduction Theory No. 1 Individuals or individual countries (communities, societies, etc.) are primarily responsible for their own economic fates. If a person works hard, saves money, invests wisely, has a decent education, and so on, he or she can achieve economic success; and what is true for the individual, is true for the larger group and for whole countries. In short, the only significant barrier to success to economic prosperity is the failure to do the “right” things. “Lazy people don’t get rich.” - Robert Kiyosaki, Investment Guru Why are Poor Countries Poor? Introduction Theory No. 2 In poor societies, people have learned and internalized habits, attitudes, and practices that keep them poor. These attributes, it is important to understand, are usually a reaction to larger social, political, and economic conditions--conditions that impose poverty on certain groups through no fault of their own. However, even if these conditions change, poor people may remain poor. They may continue to behave in a way that keeps them poor, generation after generation. In such cases, we may say that a “culture of poverty” exists. Why are Poor Countries Poor? Introduction Theory No. 3 Because of the way the economic system is organized, there will always be rich and poor people in the world. However, the reason for this division is not because the poor have less talent, less motivation, or a lesser desire to work hard, but because the economic system is inherently exploitative. In other words, the rich are rich precisely because there are a lot of poor people; the wealth of the rich, in fact, depends on the poverty of the poor. This relationship, unfortunately, cannot be changed unless the system itself is destroyed. Why are Poor Countries Poor? Introduction Theory No. 4 A major source of poverty lies in predictable human behavior. In poor countries, for example, it makes sense for the poorest and the least educated to have a lot of children, because more children means greater economic security for the parents. This rational behavior on the part of parents, however, means that they cannot invest as much in their children’s education or on their health and nutritional needs. This creates a new generation in which the number of unskilled, uneducated people grows faster than skilled, educated workers. This brings down wages for the former group and perpetuates the cycle of poverty. Why are Poor Countries Poor? Introduction Summary of Explanations Theory No. 1: “Lazy people don’t get rich.” Theory No. 2: Poverty is a product of a “culture of poverty” Theory No. 3: The wealth of some depends on the poverty of many Theory No. 4: Poverty is the unintended consequences Which “theory” do you think of rational actions among poor people provides the best answer? Why are Poor Countries Poor? Rational Choice The Rational Choice Perspective Why are Poor Countries Poor? Rational Choice A starting assumption People don't choose to be poor… And a basic observation … and yet, there’s a lot of poverty in the world Why are Poor Countries Poor? Rational Choice A Rational Conundrum … or Contradiction? If people don’t choose to be poor, then why are there so many poor people? Isn’t poverty a fundamentally irrational outcome for both the individual and society? Why are Poor Countries Poor? Rational Choice Another Puzzling Observation The route to economic prosperity is not at all mysterious--that is, it is clear that countries, leaders, and people know, in a general sense, what is necessary to achieve national prosperity. In short, the road to prosperity is well known … … yet poor countries can’t seem to go in the “right” direction poor countries Why are Poor Countries Poor? Rational Choice Basic Argument (Step No. 1) Begin with this basic assumption: Poverty is the result of behavior and decisions made by people who, while acting in an individually intentional and rational manner, generate an unintended and socially irrational outcome at a collective level Why are Poor Countries Poor? Rational Choice Basic Argument (Step No. 2) When rational decisions made by individuals lead to collectively irrational outcomes, we need to identify… the _______________ or interests of preference individual decision makers, and … s constraints the _______________ they face with regard to their strategic environment Why are Poor Countries Poor? Rational Choice Preferences and Constraints in Poor Societies What is the main interest or preference of Survival (severely) poor people? ____________________ What are some constraints (or obstacles) that poor people face in poor countries? Lack of capital, money, resources __________________________ Lack of societal “safety __________________________ net” Why are Poor Countries Poor? Rational Choice Preferences and Constraints in Poor Societies Taking the specific preferences and constraints of (severely) poor people into consideration, gives us the basis for fuller argument. Consider the following example, by Nancy Birdsall, president of the Center for Global Development: “For good reasons, the poor and the less educated tend to have more children. As is to be expected in these poor households, spending per child on nutrition, health, and education declines with the number of children …” Why are Poor Countries Poor? Rational Choice Preferences and Constraints in Poor Societies The practice of scattering plots: Economically and collectively inefficient, but individually rational Small Agricultural Plots in Vietnam Small farms may seem romantic, but small-plot farming is inefficient and labor intensive. Vietnam has 10.5 million household farms and as many as 75 million small agricultural plots of land. By contrast, New Mexico, which is roughly the same size as Vietnam, has only 15,000 farms in total. Why are Poor Countries Poor? Rational Choice Basic Argument (Step No. 3) Steps #1 and #2 allow us to take another, very important step … Poor countries are poor because they are unable to overcome the problem of creating the public or collective goods needed to make development on a national scale possible Why are Poor Countries Poor? Rational Choice Collective or Public Goods What is a public or collective good? Basic Definition: Any good that, once created, is available to everyone, regardless of their individual contribution Examples: National and domestic security; street lighting, clean air and clean environment. Certain infrastructural projects can also be considered collective goods: a national system of railroads and roads, a port system, a communications system and power grid, dams, an interstate highway system, and the like Why are Poor Countries Poor? Rational Choice Collective or Public Goods: Questions General Question Why are collective goods relevant to the question of national poverty? Related Questions If public goods--e.g., a strong infrastructure--are so important, what’s the problem? That is, why don’t poor people just invest in public goods? One Answer: The Free Rider Problem Why are Poor Countries Poor? Rational Choice Collective or Public Goods The “Free Rider” Problem Military service represents a good example of the free rider problem in practice: in a volunteer army, it is very difficult to recruit individuals because most people prefer to free ride on the duty of others. After all, why should I risk death or injury, if someone else will do it for me? In “A Few Good Men,” Jack Nicholson’s character decried free riders who not only benefited from his Why are Poor Countries Poor? Rational Choice The Free Rider Problem: Basic Explanation Individuals will seek to free-ride on the efforts and contributions of others whenever they believe they can “consume” the public good without contributing to the costs of its formation This happens everywhere, but in poor societies, the free rider problem can be a particularly debilitating and pervasive issue Wesley Snipes is a good example of a free rider: QuickTime™ an d a tried to avoid paying any income taxes at all, he Why? TIFF (Uncompressed) decompressor while enjoying all the benefits of living in the are need ed to see this picture. United States. Rational choice tells us that almost all of us would do the same if we thought we could get away with it. Why are Poor Countries Poor? Rational Choice The Free Rider Problem in Poor Societies Preventing the free rider problem is especially difficult in societies where there is not a strong or effective state The logic here is simple: States are the preeminent public institution; as such, they alone have the capacity to secure contributions to the formation of public goods Conditions of severe poverty in Somalia cannot improve without a strong, centralized state capable of restoring order (a public good) and creating an infrastructure Why are Poor Countries Poor? Rational Choice To Sum Up: Why Are Poor Countries Poor? Because they lack an Quic kT ime™ and a T IF F (Unc om press ed) dec ompres sor are needed t o see t his pict ure. effective state This is obviously a very simple, even simplistic way to sum up the rational choice argument, but it encapsulates a fundamental point; it also represents the fourth and final step in our rational choice analysis Why are Poor Countries Poor? Rational Choice A Caveat Is there a problem with the argument that poor countries are poor because they lack a strong and effective state? Why are Poor Countries Poor? Rational Choice The State as the Problem, Not Solution To many observers, states are often the problem, not the solution. The reason is clear: CORRUPTION Why are Poor Countries Poor? Rational Choice Rational Choice and Corruption In the rational choice framework, corruption is easily explained … Begin by identifying the key decision makers. Next, identifypreferences their _______________ or interests, and, third, constraints identify the _______________ they face with regard to their strategic environment In general, once we do this, it become easy to see why those who control the state may face a severe disincentive to engage in socially beneficial goals— such as pursuing policies that promote national development Why are Poor Countries Poor? Rational Choice Rational Choice and Corruption Key Point: Corruption is often rational It is rational because the political leader’s goal is to remain in political power Corruption is also rational when political leaders are generally unaccountable to the citizenry: this is particularly the case in non-democratic regimes, but is also true in democracies Why are Poor Countries Poor? Rational Choice Rational Choice and Corruption: Some Final Questions If corruption is rational, what’s the solution? How can national poverty be overcome given the pervasiveness of corruption? What are the best policy choices? More about this photo Although this photo is shocking no matter what the interpretation, another photographer present at the scene, says that the child, who appears to be entirely alone, was only a short distance away from her mother. The mother had stepped away temporarily to collect from from a relief agency. Return to first slide
"POLS 373 Foundations of Comparative Politics"