The political roots of poverty: The economic logic of autocracy.

• Author: Mesquita, Bruce Bueno de

The EVENTS of September 111,2001 have led, among many other things, to the revival of an old debate about the relationship between poverty and political extremism. To get at the root of apocalyptic terrorism, many new initiatives to reduce global poverty have been proposed. British International Development Secretary Glare Short advocates a massive international effort to stop poor countries from becoming breeding grounds for terrorism: "The conditions which bred their bitterness and hatred", she has said, "are linked to poverty and injustice." Britain's Chancellor of the Exchequer, Gordon Brown, has called for a fifty-year Marshall Plan that would disperse aid in exchange for an end to bad government, in his words, for "the developing countries pursuing corruption-free policies for stability, opening up trade and encouraging private investment." Some advocates call for spending targets to be directly linked to the GDP of donor nations, overlooking selectivity or effectiveness. Even more ambitious proposals call for an international tax to limit the adverse consequences of globalization by financing global public goods.

The presumed connection between poverty and terrorism raises general fears of global class warfare--but are these fears justified? The argument that poverty directly causes terrorism is simple-minded. A more compelling argument can be made that rising levels of material wellbeing, and with them expectations of social and personal empowerment, actually fuel political extremism and violence. (1) It cannot be refuted, however, that most of the countries incubating terrorism tend to be on the low end of the per capita income spectrum, nor that "poverty and injustice"--and these are not the same-- fuel resentment of the powerful and wealthy to the extent that terrorism can attract admiration and even peripheral support. And it is certainly true that bad government is a problem so serious that no effort at poverty alleviation can succeed without facing it.

Whatever the motives or the depth of understanding underlying them, new efforts are afoot to tackle global poverty through greater funding of economic aid programs, and the Bush Administration is contributing to those efforts. Its proposals on development, if carried out, could represent a significant milestone in the way aid is allocated in the future. The President affirmed that "Poverty doesn't cause terrorism. Being poor doesn't make you a murderer. Most of the plotters of September 1lth were raised in comfort." But he added that "persistent poverty and oppression can lead to hopelessness and despair, and when governments fail to meet the most basic needs of their people, these failed states can become havens for terror." (2) Thus, the administration has agreed to raise the level of U.S. foreign economic assistance considerably, but, at the same time, insists on conditions that can produce some reasonable assurance that the money will not be wasted. In a sense, the administration has adopted a kind of ma rket-based aid program kindred in spirit to that of Gordon Brown's. It proposes, in essence, a contract with the governments of the world's poorest counties: Cease the practices that keep the vast majority of your people poor, and we will help you; persist in those practices and we will refuse to subsidize them--and you.

In general, this approach makes good sense because economic aid cannot truly succeed unless it prompts sound institutional reform. It is the irony of foreign aid that it is used best by the countries that need it least. But it does not solve the problem that many countries are poor because their governments resist such reform, and that such resistance will ultimately generate both humanitarian crises and havens for terrorism. How do we deal with cases in which conditions attached to U.S. economic aid are rejected or ultimately distorted?

This essay has two purposes. The first is to lay out some empirical evidence about the relationship between economic aid and systems of governance. The second is to address the problem of how the U.S. government should deal with difficult partners. On the first task there is a wealth of data that suggests some surprising connections between the length of political tenure, the nature of governance, and the role of aid money. That data and those connections, in turn, can help us to think through the second task.

Political Tenure and Economic Development

OUR STANDARD approach to economic policy reform typically assumes that leaders are rewarded politically if they help their nation improve its economic performance. In reality, politicians succeed by helping their constituents and, in the vast majority of poor countries, politically significant constituencies are not representative of the whole population. It makes perfect political sense for autocrats in poor countries to enrich the clique of supporters around them, even if it means keeping the majority of the population poor. In short, in such situations, political rationality and economic rationality are not in alignment. Under such conditions, external aid money will not help to alleviate poverty; it is more likely to buttress further what is already an economically dysfunctional arrangement.

The economic rationality of autocracy underlies a good deal of what we have learned over the past half century in the experience of giving, monitoring and evaluating foreign aid programs. Two lessons stand out.

First, the amount of aid a poor country receives does not directly correlate with how well it does. Getting external resources into a country, whether by public or private investment, is not the main factor. Second, conditionality--the linking of aid money to macroeconomic reform--does not work as advertised. (3) Aid to low-income African states has been significant, especially since the end of the Cold War, and nearly all of it has been conditional on macroeconomic policy reform. Excluding South Africa and Nigeria, the average African country received the equivalent of 12.3 percent of its GDP in Official Development Assistance, a sustained 5 percent increase in real terms between 1970 and 1995, before declining. This unprecedented international transfer far surpassed the Marshall Plan, which at its peak accounted for only 2.5 percent of GDP in France and Germany. If conditionality had worked, Africa would be the world's stellar performer. Instead of helping the reform process, however, substantial aid incre ases have allowed governments to avoid reforms that might have led to growth and peaceful political change. Aid allocation decisions often reward countries that least follow donor dictates, and it is all too easy to find examples of donor programs that have undermined the very objectives that donors wished to promote.

Put differently, we have the economics of foreign aid right, but we have got the politics wrong. There is a strong consensus about what sound economic policies are at various stages of economic development, and professionals in this field recognize in turn that external aid works best in a good economic policy environment. There is no consensus, however, about the delivery of results in poor policy environments. For example, how do we ensure that programs targeted at reducing infant mortality and making certain that children learn to read achieve their objectives when the "right policies" are missing in many of the poorest countries?

Many economists argue that better dissemination of their own ideas is the solution. In this spirit, Joseph Stiglitz, former chief economist of the World

Bank and Nobel laureate, started an international network "to ensure in one place a comprehensive catalogue of what is at issue, and what is the theory and evidence that underlies positions, so that those in the developing world are in a better position to make decisions for themselves." But with abundant technical assistance being provided by international agencies, the supply...