Why Poor Countries Are Poor

The clues lie on a bumpy road leading to the world's worst library.

They call Douala the "armpit of Africa." Lodged beneath the bulging shoulder of West Africa, this malaria-infested city in southwestern Cameroon is humid, unattractive, and smelly. On a torrid evening in late 2001, I was guided out of the chaotic Douala International Airport by my friend Andrew and his driver, Sam, who would have whisked us immediately to the cooler hillside town of Buea if Douala were at all conducive to being whisked anywhere. It isn't. Douala, a city of 2 million people, has no real roads.

A typical Douala street is 50 yards wide from shack to shack. It's packed with street vendors, slouched beside a tray of peanuts or an impromptu plantain barbecue, and with little clusters of people, standing around a motorbike, drinking beer or palm wine, or cooking on a small fire. Piles of rubble and vast holes mark unfinished construction or demolition work. Along the middle is a strip of potholes that 20 years ago was a road.

Down that strip drive four streams of traffic, mostly taxis. The streams on the outside are usually made up of cabs picking up fares, while the taxis on the inside weave in and out of the potholes and other cars with all the predictability of ping pong balls in a lottery machine. Douala used to have buses, but they can no longer cope with the decaying roads. So the taxis are all that's left: beaten-up old Toyotas, carrying four in the back and three in the front, sprayed New York yellow, each with a unique slogan: "God Is Great, " "In God We Trust," "Powered by God, " "Toss Man."

Nobody who sees a Douala street scene can conclude that Cameroon is poor because of a lack of entrepreneurial spirit. But poor it is. The average Cameroonian is eight times poorer than the average citizen of the world and almost 50 times poorer than the typical American. And Cameroon is getting poorer. Can anything be done to reverse the decline and help Cameroon grow richer instead?

That's no small question. As the Nobel laureate economist Robert Lucas put it, "The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else."

The Missing Jigsaw Piece

Economists used to think wealth came from a combination of man-made resources (roads, factories, telephone systems), human resources (hard work and education), and technological resources (technical know-how, or simply high-tech machinery). Obviously, poor countries grew into rich countries by investing money in physical resources and by improving human and technological resources with education and technology transfer programs.

Nothing is wrong with this picture as far as it goes. Education, factories, infrastructure, and technical know-how are indeed abundant in rich countries and lacking in poor ones. But the picture is incomplete, a puzzle with the most important piece missing.

The first clue that something is amiss with the traditional story is its implication that poor countries should have been catching up with rich ones for the last century or so--and that the farther behind they are, the faster the catch-up should be. In a country that has very little in the way of infrastructure or education, new investments have the biggest rewards.

This expectation seems to be confirmed by the experience of China, Taiwan, and South Korea--not to mention Botswana, Chile, India, Mauritius, and Singapore. Fifty years ago they were mired in poverty, lacking man-made, human, technical, and sometimes natural resources. Now these dynamic countries, not Japan, the United States, or Switzerland, have become the fastest-growing economies on the planet.

Since technology is widely available and increasingly cheap, this is what economists should expect of every developing country. In a world of diminishing returns, the poorest countries gain the most from new technology, infrastructure, and education. South Korea, for example, acquired technology by encouraging foreign companies to invest or by paying licensing fees. In addition to the fees, the investing companies sent profits back home. But the gains to Korean workers and investors, in the form of economic growth, were 50 times greater than the fees and profits that left the country.

As for education and infrastructure, since the returns seem to be so high, there should be no shortage of investors willing to fund infrastructure projects or lend money to students (or to governments that provide education). Banks, domestic and foreign, should be lining up to lend people the money to get through school or to build a new road or a new power plant. In turn, poor people, or poor countries, should be very happy to take out such loans, confident that investment returns are so high that the repayments will not be difficult. Even if, for some reason, that didn't happen, the World Bank, established after World War II with the express aim of providing loans to countries for reconstruction and development, lends billions of dollars a year to developing countries. Investment money is clearly not the issue; either the investments are not being made, or they are not delivering the returns the traditional model predicts.

A Theory of Government Banditry

As our car slowly bumped and lurched through the crowds, I tried to make sense of it all by asking Sam, the driver, about the country.

"Sam, how long was it since the roads were last fixed?"

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  • charles||

    I accidentally arrived at this article because of libraries and Africa and the magic name of TH. I was reminded of a grand new impressive library in East Africa, opened by a British PM. I took notice when several students at that university told me there were no books in it for the students. Of course libraries shouldn't have books. Libraries are buildings; just in case of books. Excuse me, I'm now off to get a sparkling new international airport built with my name on it, from whence no planes will really fly. So what? More importantly, it will bear my name.
    PS Thank you for reminding us of Mancur Olson.

  • SteveMac||

    PRINCE Charles??

  • Richardhg||

    The rest of the world have been complicit in propping up disastrous regimes, providing money to despots without requiring change that would benefit the people.

    If we are going to continue to give them money, we should insist on some changes; a free press, Government transparency (public bids for large projects and Government service providers), and put a permanent office in place to overview progress, staffed by people who understand the projects in hand. Food assistance should be distributed directly without local Government intervention: oversight is OK.

  • SteveMac||

    If they said you have to have free press and transparency, the dictator would probably say keep your money and I'll keep my power. Its not that easy. You're right though, a different approach is needed. I think they should directly invest instead of giving it to the government.

  • bstew||

    Very wordy way to say "it's culture" Culture runs very deep and lasts for generations. If the culture doesn't change neither will the country.

  • ||

    I agree with the whole good piece. Apart from one claim: Cameroon has an average IQ of 70. That is 30 points lower than the US. We know that IQ is very very strongly correlated with other abilities, indeed any moderate success in US college require at least IQ100. Imagine a whole country below that and you do have an explanation for all the bad decisions and institutions. The writer is probably at IQ 120, so for him to say that the average Cameroonean is no dumber than him, is completely false. Otherwise great little piece.

  • ||

    thank you, you have just insulted an entire nation!

    where did you get that fallacious information? It too easy to say "oh it s because they are dumb"; and not look further. taking the easy way and not putting anymore thought into it. Hmmm I wonder, if you don t think too much and take the easy way, what does that make you?...{u actually don t deserve that use the word}

    from a proud cameroonian.

  • ||

    I too disagree with Putty. The reason why IQ is low is the lack of investment in education (and everything in Cameroon). This includes food, which is essential in providing the body with so much) The government are deliberately keeping the population down to satisfy their own desires. If they had one chance for change, we would see a different Cameroon.

  • It isn't fallacious||

    Its based on general intelligence assays which have demonstrated that West African blacks have an average IQ of ~70

    see: Race Differences in Intelligence: An Evolutionary Analysis (2006) Lynn

  • SteveMac||

    It is false. Lynn didn't do primary research to get that figure. He selected a set of ravens iq studies that had been carried out by other people in sub-Saharan Africa and got an average of 70. But his selection was arbitrary and he did not explain his selection criteria. If you look at all the ravens tests that have been done in sub-saharan Africa, the average iq is 80, not 70.

    Incidentally, the average IQ in America in 1930 was also 80. It was been rising ever since due to the Flynn effect. As Africa develops, its average IQ could possibly rise too.

    See Wicherts, Dolan, Carlson, van Der Maas, 'Raven's test performance of sub-saharan Africans: average performance, psychometric properties, and the Flynn Effect'

  • SteveMac||

    ..or rather I should say that its average iq should be expected to rise as it develops.

  • ||

    There is a huge talent drain in countries such as these. People who are smart enough to get out of these countries do. Those who stay should be applauded because in society as corrupt as this, they will never be appreciated or fairly compensated. Any study of West African IQ's will have an extreme survivor bias.

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  • ||

    Nice piece of diagnosis.
    For remedy visit:http://www.toplevelposition.com/bharatkhanal

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  • Jester||

    rebellion? :-S

    it would be difficult, probably even more than that. with so much corruption for so long it could easily escalate into full scale domestic war or bloodbath in the worst case scenario. whit global and massive lack of motivation and probably fear of retaliation for such uprising this task becomes even more hard, verging on the unimaginable.

    but then again, it's either that, or slow and painful death of the country. maybe 'death' it's not the best word here.., well, only if mentioned 'thieves' have enough brain power to recognize that they need someone to steal from.., although, they can always steal from each other, no? :-S
    seem like the 'people' get screwed either way..

    maybe my view is to grim..
    please do comment, I would like to see other opinions too.

  • ||

    Can investors who fund these endeavors set up clauses, etc. that follows the money? Meaning, take part in the planning/regulating of monies spent? All too often, throwing money somewhere and waiting for a return simply is not enough. I suppose we need to further support social responsibility, or at least fight corporate waste. Thanks for the article. Indeed, I am a few years late in reading it.

  • ||

    The developed world and former colonial powers of African countries have to share the blame for some of the problems that Africa is still experiencing.

    With so many Charity Orgs. in the world why do we still have so much suffering in Africa today? Why?

    As a child I saw TV reports of children in Africa dying of starvation and disease. I still see these TV reports today. Utterly shocking, and yet I know the reason why.

    The reason is not that the people cannot help themselves or do not want to, the reason is because of the government in power (dictator).

    Why and how can the international community not erradicate this? Is this all too 'political' for them to intervene?

    I'm so angry that the world still allows one sixth of the worlds population to starve and live in abject poverty and live under violence.

    What is the purpose for all these International groups, UN, NATO etc.

    From my perspective and I'm sure from the perspective of many Africans, is that they are not helping enough.

    I am aware of the help that is provided but the simple fact of the matter is that the world is simply not doing enough.

  • RobS||

    "Why and how can the international community not erradicate this? Is this all too 'political' for them to intervene?"

    Because that would be a return to colonialism.

  • badboy||

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  • RobS||

    "Cameroonians are no smarter or dumber than the rest of us."

    [citation needed]

  • ||

    Countries stay poor for two main reasons: government and culture.

    Elite academia can't state the obvious, and neither can their progeny in big government, as the cannot be critical of foreign cultures or institutions. Multiculturalism and relatvism have stripped the "brain trust" of their ability to state the obvious.

    The second order effect is that if you cannot name something, then you can't look for solutions.

    British colonial efforts got this part right, they were there to reform another society.

    While the US is often in this business, the inability to discuss it directly substantially reduces the ability to achieve a worthwhile result.

  • moop||

    sounds like china


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