A Collier’s Tale

Paul Collier certainly likes alliteration. After the Bottom Billion comes the Plundered Planet. Having had relatively little to say about the environment in his previous book, the latest is about “how to reconcile prosperity with nature”. It is, as with much of Collier’s work, well-written, thoughtful, packed with nice turns of phrase and backed up with peer reviewed research.

The book revolves around the diagnosis “nature + technology – regulation = plunder”. Turning the minus sign into a plus generates prosperity rather than plunder.

The regulation gap is manifest in two big governance failures. First, there is bad governance in the countries that have high levels of poverty but are well endowed with natural resources. In the absence of good enough checks and balances, the very invisibility of natural resource income and the weakness of rights of possession invite too much scope for behavior that enriches the elites but not the country. Second, there is a major gap in anyone's ability to manage natural resources beyond national boundaries. There is no institution to redistribute natural assets between nations to counter the principle of propinquity (whereby whoever is closest to the natural asset should benefit). Even more obviously the management of natural liabilities requires global cooperation—unlike natural assets there are not even any claims to be coordinated.

So what is the way forward?

First Collier argues that we need to pay to produce carbon. The price that reflects the true cost (and stabilises aggregate emissions) is around $40 per ton. To avoid all kinds of adverse behavior everyone everywhere would have to pay this price. Obviously the industries using carbon based fuels most intensively and inefficiently and those industries producing the fuels would be hardest hit (including the colliers who work in the coal mines). They would move to lower-cost environments. Also badly hit would be consumers who have been paying a price for fuel that is way below the social price (e.g. auto drivers in the US). How the price of carbon is achieved in each context would be up to each country—a mix of taxes and emissions standards for example. The key thing is to have the same emission per activity wherever one is in the world, not necessarily the same emission per citizen.

Think this sounds pretty implausible? What is going to incentivize this state leadership and inter-state cooperation? Second, in shades of Joe Stiglitz’s last book on globalization, it is citizen cooperation, fuelled by the internet and mobile technologies, that will hold governments to account. Not the G7 but the G7billion.

The most interesting part of the book for me was the on the ethics of nature and the poor fit with economic utilitarianism. Economic utilitarianism says that society seeks to maximize the utility of its members—current and future--and that each amount of income generates the same utility for each member, and extra income generates decreasing amounts of utility. Individuals in the future will be richer (assuming positive real rates of return on savings and investments) and so they generate less utility for a given amount of income (or assets). Collier says that this model—a willingness to sacrifice for the collective good—is more representative of ants than people. In other words, propinquity cannot be wished away-human nature dictates otherwise. He draws on mainstream environmental work to suggest an alternative: the idea of custody. Unlike preservation, custody of the natural world implies that the current generation has to have an answer to the future generation’s question: if you used up these natural resources did you leave us “man made” assets of equal value? Collier argues that if future individuals are wealthier they will be awash with “man-made” assets and will value the natural assets that we have used unsustainably even more highly than we do. While utilitarianism says that the richer the following generations the fewer are our obligations to save assets for them, the custodian principle suggests that their increased wealth of following generations means that we have an even greater obligation to answer their question from the future in a satisfactory way.

The book is refreshing in challenging the ability of neoclassical economics to model intergenerational transfers relating to natural assets (remember, if models do violence to reality we need to get new ones). It is strange however that the $40 price of carbon is determined from neoclassical economic models—what would the price be if they were not used?

As with the Bottom Billion the evidence base is still strangely narrow—why restrict it to your own work and that of your colleagues? Indeed the book would be more influential if coauthored with an environmentalist who could pull in an equally authoritative set of studies from the other side.

Despite the critiques of economics, still only one other discipline is invited in on the action—environmental sciences. For a book that unapologetically zeros in on the need for better governance, where are the political scientists, the anthropologists, and the behavioural psychologists to help us understand how the new collective power can be mobilized to change behavior at all levels?

The political diagnosis (Copenhagen, working through the implications of $40/ton) is clear and realistic, but the political solution (exploiting the new collective power) seems idealistic. Collier’s confidence in his solutions is “conditional upon people taking the trouble to be reasonably well informed about the scientific and economic issues involved”. This is a big condition. He cites the experiences with "peasant" farming, GM crops and biofuels as examples of how narratives can be fought over, contested and distorted. These are all recent stories—how could the collective power have been mobilized to get different outcomes? These issues seem simple compared to climate change and resource plundering—how on earth will people find the time to be well informed? These are important challenges that will have to be faced in a wide number of issues because we know that the internet can be a force for bad as well as good.

Without some mechanisms that align prosperity, natural resource management and national interests, the 21st century will increasingly resemble the Wild West. Personally I believe that mobilizing the collectivizing potential of new technologies for societal good is going to have to underpin many such mechanisms. How this mobilizing can be incentivized should be the subject of Collier’s next book. “The Catalysed Collective” anyone?

COD aid or cod aid?

So I really want to be enthusiastic about COD (cash on delivery) aid. The idea has been developed by the Centre for Global Development.

COD aid "builds on existing initiatives that strive to disburse aid against results, but it takes the idea further by linking payments more directly to a single specific outcome; giving the recipient country full authority to achieve progress however it sees fit and without interference of any kind from donors; and assuring that the recipient country’s progress is transparent and visible to its own citizens. These features could rebalance accountability, reduce transaction costs, and encourage local innovation and learning."

There is a nice frequently asked questions (FAQ) section on the CGD website that addresses 33 questions.

So why do I have my doubts? My main concern is whether there will be demand for it.

1. Which types of countries will be excited by it?

Countries that are "able but not willing" to prioritise human development are surely not going to be incentivised to become more interested by these relatively small amounts of aid.

For countries that are "willing but not able", where are they going to get the resources from to achieve the outcomes to get the cash?

The FAQ relating to this argues that countries are not starting from blank slates--they have the resources--and COD aid is intended to make sure they make the most of those existing resources. But I think this answer applies best to the "willing AND able" country category.

2. Which countries will want to take the risk of not achieving the outcomes?

Countries cannot have complete control over outcomes. The FAQ response to this states that COD aid is not "all or nothing" and that "a country would be paid a set amount for each additional student that completes primary schooling and takes an approved test, regardless of the level of coverage it reached". Completing school and taking a test seems more like an output than an outcome. The outcome should relate to learning and cognitive achievement. But what happens if the student does not do well in the test? The state cannot be held fully responsible for that, surely.

And are other development outcomes as incremental as education?

It would be good to know if any market research has been done on the demand for COD aid. Obviously demand will depend on the alternatives on offer.

I have not thought nearly as hard about this as the folks at CGD have, and they are smart, so I'm bracing myself for a slew of emails from them.

And one other thing, they really should get another name for this approach. Cod is also slang for "sham". And despite my doubts, COD aid is something to be taken seriously and is definitely not sham aid.