The Political Roots of Poverty: The Economic Logic of Autocracy

The Political Roots of Poverty: The Economic Logic of Autocracy

Mini Teaser: Foreign aid misapplied can lengthen the tenure of bad governments. A guide to understanding and engaging difficult development partners.

by Author(s): Bruce Bueno de MesquitaHilton L. Root

Consider, too, the impact on life expectancy at birth of the
coalition size that a ruler uses to govern. Being born in a polity
that scores highest on the inclusiveness index adds nearly fourteen
years to life expectancy, whereas an order-of-magnitude increase in
per capita income adds only five years. Both are significant, but the
impact of coalition size can have dramatic results, both by
increasing life expectancy (because of government spending
priorities) and by creating a more open economic system, since a
competitive political system is a significant contributor to economic
growth. By way of illustration, per capita income in Brazil in 1972,
eight years after the military coup, was $2,907. In the same year in
Jamaica, a functioning if narrowly-based parliamentary democracy, per
capita income was about the same, $3,099. According to the "coalition
size" index of inclusiveness, however, Jamaica scored 1.0 while
Brazil scored 0.25. It is therefore not unusual--though it may be
surprising to some--to find that whereas life expectancy in Brazil in
1972 was 59.8 years, in Jamaica it was 68.6 years, nearly a decade
longer. Similar evidence can be marshaled using other measures of
social welfare: regarding the equality of educational opportunity for
women and men, differences in infant mortality rates, and so on. What
is more, the data also suggest that when a government switches,
whether by choice or the compulsion of circumstances, from being
exclusive to being inclusive in nature, economic growth shows a
marked improvement over the next three to five years.

In designing assistance programs, it is crucial to recognize that the
social welfare improvements sought by donors are best promoted by
encouraging leaders to adopt more inclusive political institutions.
Those who fail to do so signal their unwillingness to put their hold
on office at risk, even when doing so stands to improve the
well-being of their citizens. If assistance programs are not designed
to address the political incentives of leaders, further aid to
autocratic regimes will continue to present the sorry record of the
past: assistance without proper political incentives and inducements
will not bring political civility and prosperity. Instead, donor
assistance will continue to substitute for governmental efforts to
make citizens better off, and may even help pay to keep failed
leaders in office.

Engaging Difficult Partners

Recognizing the political causes of poor economic performance is
critical, but it does not relieve us of difficult choices. It is
correct to say that aid will do more good in consolidating progress
in countries already pointed in the right direction than it will in
those countries still burdened by bad government. But that does not
mean we can walk away from the people who live in those unfortunate
lands where misery, resentment and the potential incubation of
terrorism is likely to be most acute. So what to do? We suggest seven
basic guidelines.

First, donors must take greater responsibility for outcomes. Whose
fault is it when aid is ineffective because external efforts are not
well targeted, well coordinated and rigorous in measuring results? If
money is dispensed without adequate assessment of the potential for
mismanagement? If there is inadequate information about what the aid
is designed to accomplish? Donor countries need to institutionalize a
more credible monitoring system with third-party safeguards that
unambiguously separate disbursement from assessment and monitoring.
The international financial institutions (IFIs) should introduce an
"inspector-general function." A permanent quality control staff,
composed of individuals unaffiliated with any IFI, that sits in on
important decisions and is enhanced with the participation of the
intended beneficiaries, is one way to go.

Second, end the debt trap. Loans to already heavily indebted
countries reduce their opportunities for economic growth. Loans have
been the preferred method of assisting developing countries because
donors believed that loans would foster greater responsibility for,
and ownership of, outcomes. However, the assumption that poor
countries are less likely to squander funds that they must someday
repay has proved wrong. Most non-democratic leaderships have been
more than happy to consume the benefits of the loans--enriching
themselves and their supporters--while passing the future burden of
debt service and repayment onto the countryat large. This is just the
economic logic of autocracy at work across time rather than across
the population at any given moment. The resultant "debt overhang",
not surprisingly, diminishes the appetite of investors for developing
market investments. Even if the society offers otherwise attractive
investment opportunities, the debt burden reduces the means to
capitalize on them. With inadequate cash even to pay current
obligations, little is available to pursue new investment.

The crushing weight of debt is so debilitating that the idea of debt
forgiveness has gained widespread popularity. Debt forgiveness,
however, does not address the central problem of perverse incentives.
Excessive debts exist because the political incentive structure
protects leaders from the consequences of poor economic results.
There is a strong correlation between the magnitude of "debt
overhang" and the degree to which a small coterie of insiders control
government. Inclusive regimes, by contrast, have a much smaller
debt-to-revenue ratio. Statistics collected on 46 countries
concerning the 1946-93 period demonstrate this fact, even after
controlling for other variables such as the impact of previous
inflation and growth rates on indebtedness. Thus, debt forgiveness
must not be misused to wipe the slate clean, only to start a new
cycle of mismanagement under a new clique of autocratic rulers.

Third, use grants to work around governments in order to stay engaged
with difficult partners. It is callous to withhold all aid while
awaiting the establishment of sound political and economic
frameworks in impoverished autocracies. Many of the poorest countries
have governments and institutions that either do not support
development or cannot use development assistance effectively. In such
circumstances, grants may be in order.

Grants are easier to monitor than direct budgetary support because
they are given for a particular project with narrowly defined goals
and, most importantly, they need not be made directly to governments
but can be used as a tool to build civil society. Directly
administered, grants represent just the kind of challenge needed to
overcome the entry barriers set up by governments that survive as
incompetent monopolists. A donor can put the project out to bid,
select the contractor, and then pay for an independent performance
assessment when the project is completed. If properly designed,
grants also enable donors to empower people through building
institutions outside of government. Whereas governments are unlikely
to borrow to build capacity in society, a grant facility will allow
IFIs to contribute to such capacity. The programs supported by grants
can also be used as an incubator of leaders who can help focus
demands for change and give those neglected by their government a
voice. By empowering groups outside the civil service--which is often
racked by patronage and corruption--to administer grants, donors
build moral space that allows citizens to challenge the credibility
of abusive governments. Concrete examples of successful project
completion can lead populations to demand more from their
governments. Unlike loans, grants deprive the government of the
opportunity to channel the money to cronies rather than to those most
competent to satisfy the grantor's objectives.

Fourth, stop trying to address economic questions in isolation from
political considerations. Most causes of poverty in the world can be
linked to leaks in the ship of state. That is why developing tools
for broad stakeholder alliances (such as the World Bank's new poverty
reduction facilities) is so important; otherwise, donors risk
unwittingly collaborating with leaders who have created the
conditions for economic collapse in the first place. Linking the role
of aid in humanitarian assistance to its role in policy reform is
absolutely essential. This requires coordinating two objectives that
require different mechanisms (loans and grants), different partners
(the state and civil society), and different delivery systems (for
example, the multilateral development banks rather than organizations
such as the World Health Organization). Each grant and each project
must serve as a building block toward the creation of a more
inclusive regime.

Fifth, aid disbursement techniques must prevent backsliding toward
exclusive governance. The tendency for an incumbent to shift policies
toward autocracy will be enhanced if unrestricted aid is given before
a country has a track record of good governance. Aid given before
policy results are firmly established allows countries that only
promise reforms to revert to bad policies in order to be eligible for
fresh aid. Countries with bad policies can then perversely obtain
more aid than countries with socially productive policies. Aid could
be used more effectively if donors find ways to reward non-lending
activities, such as designing a change strategy for a country that is
not eligible for assistance because of failed governance, or helping
to create a domestic constituency that favors reform.

Sixth, encourage trade liberalization as an essential component of
global poverty reduction. Full trade liberalization has the potential
to lift at least 300 million people out of poverty by 2015 and can
create domestic coalitions for reform and openness. Mexico's trade
with the United States has more than tripled since the passage of
NAFTA and, as a result, per capita income has begun to rise. In turn,
economic growth has helped to consolidate both democratic and
economic reforms. By creating jobs, it has thinned patronage networks
and eliminated the traditional rents from controlled markets that
once kept corrupt leaders in power. A new and independent middle
class is emerging to demand genuine accountability from Mexican

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