POLS 373 Foundations of Comparative Politics

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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
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   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.




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