Social Entrepreneurship and the Bottom Billion: Why The Poorest Countries are Failing and what can be done about it

Paul Collier, professor of economics at the University of Oxford, speaks at the closing plenary of the 2008 Skoll World Forum. His talk was entitled, “Social Entrepreneurship and the Bottom Billion: Why the poorest countries are failing and what can be done about it.”

With: Paul Collier
Thanks very much. It's a privilege to address you. This audience is full of just the sort of people for whom i wrote the Bottom Billion. Now, I'm conscious that many of you have already read it and the. Quite a few you were [xx] at the, at the [xx] conference where i spoke just a, just a few weeks ago so i got to say something that [xx] Is not in the book of bills on the book and is different from what i said to [xx] and so, so here it goes Those of you who are [xx] will remember that i had thee, the misfortune to be the speaker before Al Gore and i stick to the strategy i adopted then, which is if you are followed by Al Gore, don't try a power point.

But, i must say to be followed by although bumps in a Life time is a misfortune thrice in a month Sounds like a habit. So, how can social entrepreneurs help the bottom billion? Things to be learned. The key issue for today. Let me start with a couple of sort of ideas that are already out there. [xx] is that the bottom billion, these awfully poor people represent a market opportunity.

The the bottom of the pyramid, kind of thing. I'm to be honest bit -- a little bit skeptical of that, but the bottom billion -- a tiny market, a tiny market. And when we look at them as a market, we focus on them as their role as consumers, whereas actually the key opportunity for the bottom billion is not that these people are consumers.

It's that they're producers, and astoundingly unproductive producers. And the opportunity and challenge is to bring entrepreneurship to them in such a way as to make them more productive producers. That is going to be my core message to you.

Now how do we do that? How do we raise their productivity as producers? Well, another big idea that's out there is micro finance, micro credit, and great, great, but. And the but is that that really, I think, doesn't harness your core skill. And your core skill is not just money, it's business expertise.

And that is in short supply in these conditions. So, lets try and harness money with business expertise and raise the productivity of. [xx] is that the bottom of the [xx]. And then my final point before .I get into detail is that we need to do that in a way that is strategic so that the individual efforts at the micro level scale up into a strategy that makes macro sense.

All the opportunities facing the country. Now what do ordinary people need in these societies that are the bottom billion? The bottom billion [xx] 60 or so countries that have been pretty stagnant for the last 40 years. And so of diverged raticarly from the rest of mankind. What do they need? Well they need jobs and they need basic social services.

And let me start with jobs. Less than one in ten of the labor force in the societies of the bottom billion, is in any sort of formal wage employment. That's a disaster. And so first order is jobs. And now lets try and think strategically about how the opportunities for job creation differ according to the conditions in these societies.

I'm going to give you three Strategic opportunities, according to differences in conditions, and let me start with a cluster of countries that are coastal countries and resource scarce take three examples are Senegal, coastal, resource scarce. Kenya, Madagascar. Now, what sort of opportunities are open to that cluster of countries?

Well, the answer is. In a way it's blindingly obvious. It's the East Asia model. East Asia broke in, used its [xx] more scarce characteristics to break into labor intensive [xx] and the genius of that strategy is that it can create millions of jobs was very fast. And that comes out of the basic economics of export money facturing.

Which is clusters. clusters of export activities. I'm going to give you the one thing you'll remember in a years a time. Which is, which is about [xx] and it's that 65% of the worlds buttons are made in one city. Don't you think that's amazing? And it's not because mega buttoning incorporated happens to be located there, alright.

There is no mega buttoning corporated. It's that lots and lot's of little button firms. find that by clustering together, they bring their cost down. That's why [xx] export manufacturing occurs in clusters. there's clusters at a port. And now imagine you're going to be the first button manufacturer in Mombasa [sp?].

It's not going to work is it? No matter how good the government of Kenya manages to make the policy environment in Kenya and in the last couple of months it hasn't doing a great job has it, but no matter how good he gets it, the first button firm not in that cluster is gonna make losses. Now, that tells you that the message from this basic economics of clustering is that there's a coordination problem.

If only firms of eight form a cluster in Decar, in Senegal and ambassador in Kenya. Then they'd mutually bring each others costs down. But nobody wants to be the first. And so it doesn't happen. It's a chicken and an egg problem. So, how do we get the cordination? In the bottom billion and more generally since what I've been trying to promote is the idea that western governments can help that cordination.

through and through their trade policy. Give the bottom billion temporary, privileged access to our markets, by removing all the impediments, the trade barriers, that we currently place there.

America 's already done that to some extent, with scheme called AGOA. And that works. It's increased African garment exports to America sevenfold in five years. Just that America is the wrong market and the goal isn't very well designed.

What we need is a super AGOA that applies across the OECD. But, that is coordination coming from western governments. Another possibility is coordination coming from entrepreneurs. If manufacturers got together and liked with retailers in OECD markets, they could lower the risks of getting started.

By building a cluster in these environments. And this is the, these countries It's small enough that one cluster would make a huge difference. It could create hundreds of thousands of jobs. And make the difference. Between stability and fergility. So, that's the coastal model. Press on to another opportunity group.

Which is not a very good opportunity, it's the countries that are land locked in resource skills. That's Africa about a third of Africa's population is living in Countries with those characteristics outside Africa it's one percent there's a population. Because another way of putting those statistics is outside Africa.

Places that are land locked and resource scarce haven't become countries. But in Africa. [xx] they did. Those sort of countries don't have many options the station model of export manufacturing is out because they can't get Just for the coast. The transport costs are prohibited. They haven't got resource riches and so that option isn't there.

So, what is there? Yes there's agriculture, but agriculture is not the royal rapid road to prosperity. so what else can we do? Is there anything a bit more modern? And of course the answer is yes there is. E-services. You don't need a coast to E-services. Call centers. Where are the call centers of the moment?

They're in India. Where do they indeed to be [xx] in conference [xx] between of e-services are education and telecoms. Again, it's a cordination. The call centers are not there. There's no lobby pressing the government for good education standards and for good telecoms facilities. if the lobby was there it would be sustainable, but the lobby isn't there.

So again, it's a coordination problem. You can do the coordination You can link up with educational charities to raise the standards in education and produce people who are employable in these services. You can link up with the big traditional dinosaurs, the world bank and so on and to create a pressure point for good telecoms.

So, perhaps the second opportunity is taking east services beyond India. East services are actually starting to move out of India. Where are they moving to at the moment? The Philippines. So that's the good news that locations outside India can be competitive. And the bad news is that at the moment the countries that need that jolt opportunity, most are not yet getting it.

We turn to the third jobs opportunity, and this harnesses the two two big shocks that have hit Africa in the last few years. Both favorable shocks. One is the shock of peace. Around the millennium, a lot of civil wars in Africa were settled. And so we've now got post conflict situations, usually pretty fragile.

The other big opportunity is of cause the commodity booms, which was the biggest opportunity that the bottom billion have ever had. Now the problem is that those commodity blooms and post conflict situations are not inevitably good news. Forty percent of post conflict situations goes back into conflict.

The last time there were the commodity booms in the 1970's, they were missed opportunities. So there is no automatic process that harnesses either peace or high commodity prices to benefit the lives of ordinary people in a sustainable way. What's the transmission mechanism One common transmission mechanism both for the post conflict economies and for the commodity boom economies that maps onto job opportunities for ordinary people and its the construction sector.

Post conflict situations produce construction booms, reconstruction booms and commodity booms invariably produce construction booms. We're seeing that across the bottom billion at the moment. The construction booms can be either good news or bad news. In economic terms it depends on how steep the supply curve is in the construction sector.

Typically, the supply curve is very steep, and what that means is that the big increase in demand for output of the construction sector just drives up prices. Those high prices mean that resources are being dissipated, and there are big political ranks that are going to be contested and captured. Price booms are really bad news.

What we want is to flatten that supply curve. Instead of very high prices we get big increases in quanities. What is that mean big increasing in quantities potentially mean jobs. Jobs for ordinary people and in particular for relatively young skilled young man in post-conflict situations, that is the key to re-establishing a secure peace.

Now there is one way that African governments are using to flatten the supply curve. And that is Chinese construction companies. And that is the wrong answer. And if you think about it for You'll realize why. It gets the roads and the building built and it completely bipasses the domestic economy, it produces no jobs at all, and so we needed is action within the society, within the economy to the supply curve.

And that's partly a matter of what are the bottle necks? Just think through the bottle necks in the construction sector. Some of you are experts in this sector. There's a shortage of firms and the contracts are often not appropriate for the firms. There's a shortage of skills. And so, there's a need for training in the basic mundane construction skills.

I advise post-conflict societies that one of the first things they need to sequence is to open a college of construction technology. Because at the moment, during conflict all these skills atrophy. Nobody's constructing anything during a civil war. The society is not in construction mode; it's in destruction mode.

And so, the skill sets get lost. The firms go bust. There's a need to reestablish all the features of that sector as fast as possible. So, that's the third jobs opportunity. Let me close by turning from job opportunities to the provision of basic services: health services, education services, and the provision of basic services in difficult places.

Think Liberia, Sierra Leone, Democratic Republic of Congo. These are the places on Earth where social provision is a catastrophe. What can we do about it? Government provision is broken. It's the supply model which has failed. And in my view, in these societies, it's failed irredeemably. And we just have to face that.

Reconstructing these societies as if they were the Europe of the 1950s with monopoly provision by state supply is just the wrong model for these societies. it didn't work and it won't work. At the other end of the spectrum in the last decade we've suffered the illusion, that by micro-social action at community level, we can just pump prime communities to self supply.

So we pump prime, we set up schools or clinics and whatever, and expect the community then to take over the running. That's the wrong model. There's now cumulating evidence, really hard evidence, that these things are not sustainable.

Of course, they're not sustainable. Just think for a moment. I live in North Oxford. The community of North Oxford is one of the richest on Earth. But if it was given the task of sustaining its own schools and hospitals, it wouldn't happen. All right? And now we are dealing with the poorest societies on Earth.

Societies where the community has been fractured by conflict and poverty. and we expect them to take over social services which, anywhere else in the world, have a sustained element of public financing. So that model is wrong as well. What we need is a model in which there is sustained public financing, but private provision.

Private provision by social entrepreneurs, by not for profits, NGOs, churches, whatever works. Parallel systems of supply. I've been trying to promote this idea in countries like Liberia and Sierra Leona, and there's a lot of interest on the part of the government. The big impediment at the moment is the Delma[xx] community, which is stuck in a very traditional mode of trying to put Humpty back together again, trying to rebuild the European state of the 1950s.

And by NGOs which are happy just to do their own thing, to go to Europe or America get their funding, and then, just do their own thing as a complete bypass for theWhat I advocate, and sketched very briefly in the bottom billion, is to split up the functions that were previously envisaged as monopoly public supply.

The planning of social provision should be left with the ministries. The ministry of health, ministry of education, whatever. At the other end of the spectrum; supply at the retail level should be competitive, multiple channels, whatever works. And in between you need an agency which I call independent service authorities which channels public money to private provision in a sustainable long-term basis.

So that's the model that I think is the future model of social provision in these terrible environments. To close all these ideas, there are three features. First, they harness business skills second, they harness public money. And thirdly, they make strategic sense, that is, if people did them, cumulatively, they would scale up to something that would transform these societies.

Please try them. And please read the book. Thank you very much.
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