Absentee teachers, negligent doctors, high transport costs, missing fertilizers, and elite-captured industrial policy all stand in the way of poor people’s escaping poverty. While the proximate reason for these obstacles may be a lack of resources or an erroneous policy, the underlying reason is politics.
- In many developing countries, teachers run the political campaigns of local politicians, in return for which they are given jobs from which they can be absent. The situation can be described as an equilibrium, where the candidate gets elected and re-elected, and teachers continue to be absent. The losers are the poor children who aren’t getting an education. The equilibrium has no intrinsic force for change, especially if, as in Uttar Pradesh, India, 17 percent of the legislature are teachers.
- High transport costs in Africa are due not to poor-quality roads (vehicle operating costs are comparable to those in France) but to high prices charged by trucking companies, who enjoy monopoly power thanks to regulations that prohibit entry into the trucking industry. High transport prices and monopoly trucking profits are an equilibrium. In one country, the President’s brother owns the trucking company, so prospects for deregulation there are grim.
- Several countries subsidize fertilizer, sometimes to the tune of several percentage points of GDP, only to find that it fails to reach poor farmers. Thinking that the problem is the public distribution system, some governments have tried to use the market to allocate fertilizer, by giving farmers vouchers that they can redeem with private sellers. A scheme in Tanzania found that 60 percent of the vouchers went to households of elected officials. When subsidies are captured to this extent by political elites, their reform will be resisted—another equilibrium.
- Invoking the experience of East Asian countries, governments selectively protect certain industries to achieve “structural transformation”. Unfortunately, instead of picking winners, they pick family and friends. In a forthcoming paper, my colleagues Bob Rijkers, Caroline Freund and Antonio Nucifora show that the 122 firms associated with former President Ben Ali’s family in Tunisia, while producing 3.2 percent of output, earned 21.3 percent of net profits in the economy. The sectors in which these firms operated received the most favorable regulatory treatment. Worse still, some of these sectors produced non-tradable inputs (such as transport and telecommunications), whose inflated prices undermined competitiveness (and job creation) in Tunisia’s tradable sector. Inasmuch as Ben Ali was in power for 23 years, this situation was an equilibrium, one that was disrupted in December 2010.
If these obstacles to poverty reduction are the result of a political equilibrium, how can they be removed? Money alone is unlikely to dislodge the equilibrium. In fact, it may increase the rents (building roads enhances trucking profits without lowering prices). Even money conditioned on policy reforms may not do the trick. For if there is a political benefit to the distortion—be it a fertilizer subsidy or protective tariff—why would a politician agree to remove it, even for some financial assistance? As one politician said to me, “If you have a choice between a $100 million loan and winning the next election, which would you choose?”
That leaves the last refuge of scoundrels economists, namely, knowledge. Perhaps undertaking a study of the costs of resource misallocation from industrial policy, or the beneficiaries of fertilizer subsidies, or the extent of teacher absenteeism, will convince the government to reform. But if the distortion is a political equilibrium, with people in government, including politicians, benefiting from it, what is the incentive for government to follow the recommendations of the study and upset the equilibrium?
The only way these equilibria will shift is if the incentives facing politicians change. That will happen only if politicians perceive that there is a shift in public opinion, which could be reflected in future elections or protests in the street. Public opinion may shift if the public is better informed about how much they are gaining and losing from current policies. So there is a role for knowledge, but it should be knowledge to inform the public—not just the government—about the evidence, so that they can bring pressure to bear on politicians and, possibly, move to a new equilibrium.
This shift in approach to knowledge is not innocent. It may involve undertaking studies that the government opposes. But a case can be (and has been) made that if the purpose of the study is to collect evidence on an important policy problem, it should be undertaken despite a government’s objection. This approach is also not easy. Disseminating the study to a group of scholars in the capital city is not enough. There should be ways of getting the message and the findings to poor people in rural areas. After all, the study is about their lives.
Bottom line: If we don’t do things differently, we risk leaving poor people stuck in the low-level political equilibrium they’ve been caught in for decades.