Global Poverty: A Thought (Not Mine*)

When people ask why impoverished countries haven't improved their condition recently, opinions sometimes break down along the following lines: some people point out that the terms of trade are stacked in favor of rich countries, which impedes their efforts to trade their way to increased prosperity, and others point out that many of those countries are very badly governed, which produces the same result. (Myself, I think that both claims are obviously true.) One of the reasons people insist on one or the other point is, I think, that the first implies that rich countries are at least partially responsible for the continued immiseration of poor countries, while the second seems to imply that it's those countries' own fault. (Not the fault of their entire population, obviously, since often those bad governments seize control in coups, but at any rate not something we can do anything about.)

I want to call this last assumption into question, and argue that the fact that poor countries often have disastrous governments is in part the result of an international legal framework that we have put in place, and that we are in a much better position than poor countries to change. But, to be clear at the outset: I am not trying to argue that this is wholly our fault, or anything. Obviously, it's not. The nature of international legal arrangements is, I think, much more the doing of rich countries than of poor ones, but I have no idea how large these arrangements' contribution to bad governance in poor countries is. I am just trying to argue that since it's unlikely that these arrangements don't contribute at all to bad governance in the developing world, changes in international legal principles could lessen the number of thugs who take over poor countries; and thus that when a poor country is taken over by a thug, that's not something we have no responsibility whatsoever for, as if it were a random natural catastrophe.

Consider the following two facts. First, when someone takes over a country, that person can borrow money in the name of that country, which the citizens of that country are legally obligated to repay. Second, when a person takes over a country, that person can legally sell the assets and resources of that country. (By 'legally selling' I mean what the owner of something can do, and a thief cannot: actually transfer title to something without making the recipient liable for receiving stolen property, for instance.) In neither case does this depend on how the person took power, and in particular on whether s/he did so legitimately or by violence.

Consider what it would be like if the policies that now apply to countries applied to, say, houses. Suppose that anyone who took over my house, whether by buying it or by breaking in and holding me captive, were entitled to sell anything s/he found in my house, and in addition to rack up debt in my name, which I was legally obligated to repay. By 'being entitled to sell what s/he finds', I don't just mean that s/he can fence it; I mean, as before, that s/he can legally transfer title to it in exchange for money, which s/he then owns, and which s/he can call on the police to protect her possession of. And by being 'entitled to rack up debt', I don't just mean that s/he could take my credit cards and use them as long as s/he gets away with it; I mean that s/he can legally use them for as long as s/he retains physical possession of my house, that s/he legally owns what s/he buys with them, and that I am legally obligated to repay any debts s/he incurs, and will have to face collection agencies, legal proceedings, or bankruptcy if I don't pay up.

If this were true of houses, it would obviously provide a huge incentive for people to take over houses. And even in the absence of careful empirical studies, I think I can safely predict that if our laws were changed in these ways, there would be a spike in home invasions. That's one reason why it would be really, really dumb to change the laws to allow people who take over houses to sell what they find there and incur debt which the homeowner was legally obliged to repay.

Likewise, I think, the fact that anyone who takes over a country, with or without the consent of its people, can incur debts in its name and sell its resources provides a similar incentive for people to take over countries. This incentive takes two forms: first, a direct one: anyone who takes over a country can loot it and rack up debt in its name. Second, an indirect one: if, when you took over a country, your potential profits were limited to the money you could raise through taxes, then people who were not prepared to put in place the sorts of policies that would make their countries prosperous enough that taxes could raise serious money would have no incentive to take them over. Moreover, anyone who did take over a country would have an incentive to create a government that was efficient enough, and free enough of corruption, to do some sort of reasonable job of tax collection.

Why does our legal system not allow people who take over our homes to sell whatever they find there and run up debts in our names? I suspect that the reason is: because we, the inhabitants of our country, are powerful enough (both as owners of homes and holders of credit cards and as voters) to prevent any such law from being passed. Why does our legal system allow the analogous sorts of laws to bind countries? I suspect that the reason has a lot to do with the fact that countries that are poor and fragile, and therefore vulnerable to being taken over by thugs, are not powerful enough to insist that no such principles be adopted. (Or, more precisely: since the relevant laws governing the sale of resources date from a time when many of these countries did not exist, and most of those that did were not bond by the largely Western laws that form the basis of the present system, the reason they have not been changed reflects poor and fragile countries' lack of bargaining power.) In any case, I think that the relevant laws are both unjust (since we would never agree to be bound by them if our country were at risk of being taken over by thugs) and unwise (since it produces bad consequences.) And therefore I think they should be changed.

When I say this, I mean that the relevant laws should be changed prospectively. Debts that countries have already incurred should be honored, and resources that have already been sold are now the property of those who bought them. (I applaud the debt relief movement, and in particular the recent actions of the UK, but debt forgiveness should not, in my view, be forced on anyone.) But saying that existing debts and sales should be honored is consistent with saying that the rules should be changed as they apply to the future.

In particular, I think it would be a very good thing if, when a country has a government and a constitution that are legitimate, and when that constitution provides both procedures for transferring power and for constitutional amendments, then it should be understood that if in the future someone takes power in that country by any means other than those set forth in its constitution, debts incurred by that government need not be honored by its successors, and that government should not have the right to sell the country's resources and assets. To implement this, one would need a way of certifying that countries do have a legitimate government and constitution, but I do not think it would be impossible to come up with a way of doing this. One would also need some way of tracking the sale of resources, which would be tricky in the case of resources whose provenance is not obvious (like oil). Current attempts to ban the sale of blood diamonds give me some hope that this is not insurmountably difficult; if it is, though, that's a good reason to keep existing policies, and settle for the more tractable reform in debt laws.

The one real problem is: who would propose this, and who would enact it? Individual developing countries could: they could adopt the policy that while they will pay back all their existing loans, and any new loans their existing legitimate governments take out, they will not repay loans taken out by people who take over the country by force. But they might be reluctant to do so, lest lenders think that they are less than fully committed to repaying loans in general. This would be unfair -- I, for instance, am completely committed to paying off my mortgage and credit cards even though I just as completely reject the idea that I should be obligated to repay loans taken out in my name by people who seize control of my house. Still, I can see why poor countries might worry about taking this step. Nor is it clearly a good idea for individual lenders (e.g., banks) to try to do this on their own. It's a change in law, not a change in actions by individuals, that's needed. I would think that the best way to do it would be to have some sort of general agreement among lenders' home countries, along the lines of trade agreements.

It seems to me that this is the sort of change that conservatives might get behind. It would make poor countries better off in the long run -- maybe a lot better off -- but it would do this by changing incentives, not by requiring any sort of redistribution. It would strengthen developing countries' incentives to develop legitimate and democratic governments both directly (by giving them an incentive to qualify for my imaginary program) and indirectly (by preventing coups.) Obviously, though, my grasp of conservatives' thought and motivation is, um, less than perfect, so I'd be interested to hear what you all have to say.

***

* It's Thomas Pogge's idea.

Comments

[hilzoy]

Why oh why can't I edit the title of a post, for instance to capitalize a t?

[Anarch]

FWIW, I was advocating something similar last yet: get the G8 or the Paris Group or some other powerful international economic consortium to declare that any currently-despotic country that becomes a democracy -- as verified by, say, an independent team of UN observers -- will have its foreign debts forgiven. This would encourage currently-despotic regimes to consider democratization (greed is very good) and simultaneously -- and to my mind, more importantly -- cause nations to be much more chary about which despots they choose to bankroll. Which is almost exactly your idea and, once again, you've stolen my thunder; phooey!

[hilzoy]

Not me, it's Thomas Pogge's idea. (Note: he has no idea that I have posted this, nor do I have any idea whether he'd approve of this statement of it.)

This sort of grows out of Rawls' work: his view was that theories of justice are, in the first instance, about what he calls the 'basic structure' of society (its various major institutions, e.g. the law and the Constitution, but also things like private property and marriage), and of all the theorizing about how Rawls' view might be applied to relations between countries, Pogge comes closest to conceiving of it as involving not, in the first instance, redistribution, but an assessment of the justice of the rules of the game.

[Anarch]

Not me, it's Thomas Pogge's idea. (Note: he has no idea that I have posted this, nor do I have any idea whether he'd approve of this statement of it.)

And mine! Me too! I thought of it independently! ...why is it that all the ideas I have that don't immediately suck turn out to be someone else's? Sheesh...

an assessment of the justice of the rules of the game.

Interestingly, what brought me to this idea was what I like to call "enlightened" or "moral" realpolitik. The general scenario is to try to alter the framework of international relations to allow us to universally support moral outcomes, in a transparent and moral way, in foreign countries without simultaneously compromising our national interests. To do so, of course, requires defining what our interests are -- I'm generally interested in long-term interests, for example, rather than short-term ones -- as well as being clear about what constitutes "morality", but I think it's a worthy goal: any policy framework that allows to oppose people like Suharto, Marcos, Saddam, the mujaheddin, that Uzbek guy &c without compromising our interests (or ideals) would be a welcome addition to our arsenal.

[crionna]

Ya know, a while back I floated the idea that the UN (or somebody) should create a "Constitution for the Developing Country" which would be instituted in places where the UN has to send in troops to stop the type of despotism you describe. That way the troops are supporting the Constitution, not one group or another. Got shot down pretty quick.

I'd guess that one would need a way of certifying that countries do have a legitimate government and constitution, but I do not think it would be impossible to come up with a way of doing this would be more difficult than imagined.

[hilzoy]

One of the reasons I thought it might not be insuperably difficult is that one could make the conditions a bit strict. I mean, it's not clear that it should have to decide all cases correctly (e.g., the UK's government is plainly legitimate, but it has no constitution, no clearly spelled out procedures for changing how power is transferred, etc.) But it must identify only legitimate countries as legitimate.

I nominate the Carter Center.

[Don Quijote]

To implement this, one would need a way of certifying that countries do have a legitimate government and constitution, but I do not think it would be impossible to come up with a way of doing this.

What happens when Country X elects a Socialist/Communist goverment fair and square who then proceeds to Nationalize the local copper mines, le local Oil Fields, or redistribute the land to landless peasants? or when Counntry Y elects an Islamist goverment who then procceds to apply Sharia law and make women second class citizens?

[votermom]

This all sort of goes with my theory that we do need a stronger international governing body (i.e. a stronger UN) -- doesn't it?

[Sebastian Holsclaw]

I am just trying to argue that since it's unlikely that these arrangements don't contribute at all to bad governance in the developing world, changes in international legal principles could lessen the number of thugs who take over poor countries; and thus that when a poor country is taken over by a thug, that's not something we have no responsibility whatsoever for, as if it were a random natural catastrophe.

This is almost certainly true, though the devil is the details.

I have a couple of problems with this particulat suggestion. It isn't that I'm reflexively 'pro-bank' or something, I just have a number of concerns that aren't easily resolved procedurally.

The first issue is sovereignty. The same argument that works against invading Iraq hurts this plan. We generally operate as if individual countries are empowered to deal with their own leaders so long as they pose a danger to other countries. This proposal is essentially an assault on sovereignty. I don't care, because my view of which nations should be considered justly sovereign is fairly limited--but it is definitely going to be an objection.

Next, I'm assuming that having access to capital can often be helpful to a country. It sometimes lures countries into overspending (even non-3rd world countries like the US) but in general it is helpful. That said, a developing country with some instability is going to have far more trouble getting money than they do now. This is because when tyrants come to power now, they have an incentive to continue paying the old debts--if they don't the investment tends to dry up. This is why unpaid nationalizations often kill economies. The nationalization may make the country money in the specific area nationalized, but it tends to completely kill off investment in the economy. (See for a non-Communist example, Mexico immediately after the oil nationalization). In a relatively unstable country (without a dictator) lenders will be less likely to invest if the incentives for continued repayment dry up if the wrong side wins.

In the same vein, we risk the propaganda effect of the Iraq sanctions--withholding from the dictator is most likely to hurt the general population. This is especially bad if some trade continues through non-banking channels (especialy with neighboring countries). If this occurs the dictator can continue enriching himself and his cronies while the general population starves. This may not be an infinitely sustainable position, but it probably could last many decades.

Also there is some argument (not wholly convincing to me) that economic prosperity encourages political freedom. If this is true, the loan proposal would tend to undercut the ability of prosperity to encourage political freedom.

We haven't even gotten to the problem of implementation yet. I see three possible (and fairly likely) ways in which the implementation could become seriously problematic. If the ruling body was very strict, there would almost certainly arise a secondary set of institutions which would try to loan and borrow under the old system. After all, the UN doesn't authorize invasions to force repayment of debts so it isn't likely to do so to enforce non-payment. It would only take one major cheater to fund into these parallel institutions for the utility of the idea to be eviscerated. Given past history I suspect that one or more of Russia, China or France would be willing to step into that position in a triangulation move.

If the ruling body was not strict, there would be huge gaming of the system to just skirt the rules while still retaining dictatorship power. See for instance Mugabe and France.

The third implementation applies to either case, if the decision is made by a widely distributed body like the UN, corruption in the decision-making process is almost inevitable considering the large sums of money we are talking about.

And we haven't even talked about how we would decide which countries were which.

[hilzoy]

Sebastian: thanks. About sovereignty: I don't think it's really implicated here. There is no right to have people lend you money under any particular terms, at least none that I'm aware of. Besides, the proposal (in the sketchy way I envisage it) is not to say, no loans except to legitimate governments, or: repayment of other loans is forbidden. It's rather to say: when a country's government is (certified as) legitimate, and provides means of transferring power, then anyone who seizes power by other means (absent e.g. a constitutional amendment authorizing those other means) cannot take out loans which will obligate the nation when that person loses power. (Though they can still take out loans that do not so obligate the country, if anyone will make them those loans.) That is: it's a proposal that affects only certain countries; the rest can take out loans as before. It provides some countries with an option that's not currently available, but leaves existing options on the table. This is why I don't think it harms anyone, and also why I don't think it's a violation of sovereignty.

That's also why I don't have a problem with the certifying body being strict. (Or rather: obviously I'd prefer it to be infallible, but if it must err in some direction, better on the side of strictness.) The whole system would be undone if Mugabe were counted as legitimate; it would not be undone if, say, Sihanouk in 1960s Cambodia were not. And once a country is certified, the definition of 'legitimate' is recursive, and all that's needed are international election monitors and the like.

As to the economic effects, I would hope that the incentive to establish a legitimate government, plus the disincentives to coups, would outweigh the problems you mention.

votermom: we have managed to pass all sorts of trade agreements without a stronger international government, so I don't think one would be needed here.

DQ: When country X elects a socialist government fair and square, then so be it. If that government then cancels elections, it violates the legitimacy requirement, and ceases to have access to loans that obligate the country after it loses power. If it nationalizes the oil fields, I don't think that would be relevant here. (Bad in other ways, including for its access to capital, but not relevant to this question.) The point is not whether we like the government; it's whether there is a legitimate process in place for deciding who runs the country, and whether that process is respected.

When country Y disenfranchises half its citizens, it cannot claim to have any evidence that a majority of those citizens support the government that wins its elections. So it doesn't pass. But again: the point here is not that we are in favor of women's rights, it's that no government is legitimate if half its citizens are denied the right to vote. If men, or people with especially pointy noses, or people who were meaner than average, were excluded, the same result would apply.

And Anarch: I didn't mean to deny that it was your idea; only that it was mine ;)

[Sebastian Holsclaw]

"It's rather to say: when a country's government is (certified as) legitimate, and provides means of transferring power, then anyone who seizes power by other means (absent e.g. a constitutional amendment authorizing those other means) cannot take out loans which will obligate the nation when that person loses power."

But having an outsider choose which governments are legitimate and which aren't is pretty much the definition of ignoring sovereignty. I'm willing to do it. I'm just saying it is an issue.

"As to the economic effects, I would hope that the incentive to establish a legitimate government, plus the disincentives to coups, would outweigh the problems you mention."

I think you are looking at it from a too-narrow view of disincentive. The question you need to ask is "disincentive for whom?" Being able to rape and pillage a country like Iraq would be plenty for a tyrant like Saddam--a fact that we know because under a much the much harder than your position of actual trade sanctions, he hung on just fine. It is a disincentive for countries, but it isn't going to be nearly enough of a disincentive for someone willing to kill large numbers of his own people for power.

[hilzoy]

Sebastian: I think the first problem could be dealt with by making it clear that it means only 'legitimate, for the purposes of this policy'. Maybe choosing some other word. The point should be: if the people of a country choose a government, by whatever means they have instituted, then they are obligated to repay any debts it incurs; if they have instituted some such means and someone takes power in some other way, they need not repay once that someone is gone. If the question whether a government does or does not meet this condition were divorced from all the other things that might seem to turn on its legitimacy, then I think it might work.

I didn't mean to argue that the disincentive would always work; just that it would exist, and might well outweigh any problem of the sort you mentioned in your earlier posts. Certainly my little proposal wouldn't have deposed Saddam all by itself, but then I'm not sure why I'd expect it to.

[Sebastian Holsclaw]

I'm sure it wouldn't have gotten rid of Saddam, but if it is going to be useful it would have to at least lessen the power-gaining ability of people like Saddam.

[Anarch]

This is because when tyrants come to power now, they have an incentive to continue paying the old debts--if they don't the investment tends to dry up.

That isn't true, though. Tyrants will continue to receive money, irrespective of their fiscal reliability, if they can manage to occupy some strategic nook that some other country is willing to finance. It's also possible that a country (e.g. Iraq) will be able to bankroll their tyrant's wishes based off future assets (e.g. oil) that might be limited right now.

The key, IMO, is that there two things acting here: one is the internal incentive towards democratization; the other is the external disincentive to lend to non-democratic regimes, thus removing one of the key bulwarks such regimes possess. It won't do anything to stop people or nations from outright giving to tyrannical regimes, of course, but I suspect -- though I could be wrong -- that such people are far fewer than those who would be willing to lend.

[Sebastian Holsclaw]

What about selling? Or is that what you meant by giving?

[hilzoy]

I don't know what Anarch meant, but: my general idea is to make it much less lucrative to take over countries, and (secondarily, after the prospect of outright looting has been removed) to try to set up incentives in such a way that tyrants have to figure out how to get money. If they can't borrow nearly as much, and can't sell the country's resources, they will have to rely on taxes, which itself provides incentives to adopt policies that are at any rate not completely disastrous. So I'd say: of course people can keep selling to illegitimate regimes; what's affected by my proposal is: where will those regimes get the money to buy? And this, had I been Anarch. would have been why I didn't mention other people selling.

[Sebastian Holsclaw]

"and can't sell the country's resources"

But they can do that right?

[Anarch]

Actually, I didn't mention people selling because I'm not sure that's a loophole that can be closed without violating national sovereignty, for precisely the reason Sebastian suggests. The reason I emphasized "giving" was because I was thinking about the donation of military aid to a repressive regime, or the way in which the US continually threw money at Marcos: if you have no anticipation of getting the stuff back, there's no disincentive in the possibility of your trading partner defaulting on their loans.

I would certainly like to go further and concoct a scheme whereby we'd all agree not to buy, say, oil from repressive regimes... I just have no idea what such a framework would look like nor how it would be implemented.

[hilzoy]

Actually, my modest proposal has two parts: one concerning loans to countries that lose their legitimate governments, and the second concerning tyrants' ability to sell their countries' resources. As I said in the post, the second looks harder, though the ban on blood diamonds gives some reason for hope.