This is part of a series ‘Economists Exchange’, featuring conversations between top FT commentators and leading economists
Sir Paul Collier has spent his career advising governments on how to improve lives in the world’s poorest countries. Now, the development economist is telling the richest ones to learn from their example in order to stem the downward spiral of “left behind” communities whose despair is propelling populist politicians.
No country has failed as badly as Britain to lift the life chances of people in poorer places, Collier argues. He points to the social decay of his own home region, South Yorkshire. After the UK election, he wants an incoming Labour government to break the power of the Treasury and come clean with voters about the level of taxation needed to repair and sustain the welfare state.
Collier, a professor at the Blavatnik School of Government, is promoting a new book, Left Behind, in which he aims to set out “a new economics of place-based transformation”. The solutions he advocates are less about economics than social psychology. Some of the arguments are controversial: he believes democracy is sometimes better delayed, and that immigration policy should not put individual freedom ahead of the needs of communities. But his main aim is to show how people can be persuaded to unite around a shared objective, take control of their futures and learn through practical experiment and the example of others.
Delphine Strauss: You describe your book as being about “places that once felt prosperous, but are now left behind”. That was front and centre of the 2019 UK election campaign. Do you think it’s still the crucial issue in the votes that are taking place around the world this year? Or do we now have a more pervasive sense that prosperity is slipping away from all of society?
Paul Collier: I think it still is the central issue. Perhaps less so in Britain than America, in that prosperity overall is not really slipping away from America. The tragedy of America is quite different from the tragedy of Britain. America is growing fast. The tragedy in America is that growth is so non-distributed. And so, in America, there really is this sense of places left behind in a context of rapid growth.
DS: So why has the Biden administration’s huge infusion of money and policy impetus through the Inflation Reduction Act not had more of an impact on voters?
PC: I think it was very unlucky that he came into power with the full onset of the shock of Covid, and the last four years being rocky for everybody. The Biden administration has actually surmounted those shocks a lot better than most. But the left-behind communities themselves look back on the Trump era pre-shock, when you had the economy growing fast. And Trump was saying all the right things.
If we go back to the 2016 election against Hillary [Clinton], if you remember, she was a terrible communicator and openly disdained the poorer people in the country. Trump in the 2016 election was holding up a baby in front of an adoring crowd and saying, “future construction worker” to that baby. Was he going to help that future construction worker? My God, he wasn’t. But it’s really a mistake to disdain poor people who are in communities of distress and are clutching at some ray of hope, because the big tragedy of communities of distress is that they become communities of despair.
DS: You say Biden has done some of the right things to address this, while you’re very scathing about Britain’s record of helping left-behind places. What has Britain got wrong?
PC: First and foremost, we’ve got a unique, highly centralised system of governance in which power is extraordinarily concentrated — first in Whitehall, but within Whitehall, in the Treasury. There is a quite extraordinary degree of micromanagement by very clever young people who come fast-track into the Treasury and don’t have a lot of experience in communities of distress. In fact, they don’t have a lot of experience other than getting a very good degree at a very good university, which targets them to fast-track and it means they tend to come in a little overconfident.
We start with this extraordinarily centralised power and the refusal to devolve. From that leads a point about where does agency lie. In Britain, or at least in England, agency rests overwhelmingly, in governance, with the Treasury. Agency should be devolved to the lowest level at which an objective can be achieved. That’s the principle of subsidiarity.
DS: How much has changed since 2019?
PC: It’s got worse and worse. Such a highly centralised system is bound to fail. It’s bound to accumulate a lot of humiliating failures. But, if you fail, as the Treasury has repeatedly, then you need some sort of diagnosis. In a healthy system, you learn from failure. Why does the Treasury not learn from failure? Because it has an overreaching misdiagnosis of why it is failing, which is that it doesn’t have enough control. So since 2019, we have had more and more centralisation and concentration of power in the Treasury.
DS: Do you think Rachel Reeves is proposing any break with Treasury orthodoxy?
PC: It doesn’t really sound like it. What she’s proposing, and this is not a bad idea, is to at least set cross-Whitehall objectives with somebody appointed to lead that. The real question is who is appointed and how much power do they have? If the person in charge of these objectives has the budget and the legal powers to say, well, you’re going to have to pass a different law to be able to do that sort of thing — real power — then it will work. If the director of Objective Number 3 is just described as the co-ordinator, it will fail dismally. Once I hear, “I’m a co-ordinator”, I know they’re set up to fail.
DS: What do you make of Labour’s promise to boost growth through industrial strategy?
PC: Industrial strategy is a phrase which can mean a lot of different things. It probably doesn’t, first and foremost, mean industry. We can’t retreat into nostalgia of trying to bring back industries which we killed off. I think that what it should mean is that every region should have a city which is world class at some activity, which can employ local people. For local people to take those jobs, they have to be trained.
It would take a lot of money. The example I give of success is the German example. It’s ironic that the Germans look at east Germany and think of it as a huge failure, and they point to the rise of AfD. But if we just look at the numbers, in 1992, east Germany had a productivity which was 20 per cent of west Germany. Now, 30 years on, it’s 85 per cent of west Germany. east Germans see that, and they’re angry. If you think that’s a failure, come and look at Britain.
In 1992, east Germany had much lower productivity than South Yorkshire, my home region, which is now one of the poorest regions in England. Now east German productivity is way ahead of South Yorkshire. That is a disgrace. Who was responsible for what happened in South Yorkshire? It certainly wasn’t the local government of South Yorkshire. They didn’t have any budget. Who was micromanaging South Yorkshire? The Treasury.
DS: What do you think of the arguments a lot of economists make on regional inequality, that not all places have geography in their favour, agglomeration counts and you should help people rather than places?
PC: Not everywhere can be helped, that is true. But every region should have a city that is world class so that people don’t have to leave their region in order to get a decent job. And at the moment, that just isn’t true in Britain.
DS: Moving away from Britain. You range enormously widely in the book — from Singapore to Russia to Rwanda — and give examples of policies that succeed in one place and fail in another. To what extent is it possible to generalise about the right approaches?
PC: First, full context always matters. Not everything will always work anywhere. But that doesn’t mean there are no lessons that can be drawn. Two-thirds of Left Behind is a hopeful book about exemplars of recovery. People struggling in a left-behind place can say: “Which of these examples have sufficient family resemblance to us that we can try to learn from that?” One of the handy concepts in the book is “cognitive gadgets” — ideas you might struggle [with] for a hundred years and not learn, unless you see it done somewhere else.
My favourite example, in urbanisation, is the cognitive gadget called “sites and services”, which is the strategy of putting in place the basic public infrastructure of a road network and individual plots of land with legal rights to the owners. Under the network of roads you put in electricity, water, sewage. Then you sell those individual plots to people coming to the city, or indeed to people already in the city. Then you let them finance the building of the property bit by bit over the years, so that you don’t build social housing.
If you’re a low-income country, it’s too expensive to possibly keep pace with the people coming into the city, the thousands and thousands of people coming in each year. So what you do is you get ahead of the inflow by having these sites and services that are already prepared for newcomers to the city. We know that works. But it’s something you wouldn’t think of unless you either saw it yourself, or learnt about it from reading it.
DS: Where do people trip up when they try to transpose a policy from one place to another?
PC: There is this devastating example of urbanisation in Angola, where the government, which had quite a lot of oil money, decided to create a satellite city outside of Luanda. That’s not such a bad idea. Lagos did that quite successfully. But you don’t need what the Angolan government then did, which was to recreate skyscraper New York. Skyscraper New York makes sense in New York, when you’ve got very high-value land, so you need to build up. If you’ve got a greenfield site, you don’t need skyscrapers. So that was crazy.
The apartments ended up costing $150,000 apiece, wildly above what ordinary Angolans could afford. Then, to compound matters, they didn’t think of how would you get from your apartment, back to your work in the capital, So this ended up being a complete fiasco.
DS: You’re equally critical of the way western donors often operate.
PC: Yes. I have accused the west of a moral imperialism, insisting on the moral norms of contemporary Europe as if, even 50 years ago, we had the same moral norms as we do now. I believe moral norms in Africa will change. They’ll change at the pace of discussion and dialogue within Africa. Outside intervention really impedes that process. It’s liable to become an issue of national pride, that we won’t do what foreigners want us to do. People are all hard-wired to try and recover agency.
I give the example of gay rights in Ghana and the disastrous interventions coming from America. First, the churches of the Christian right in America insisting that government should introduce a law banning gay rights. And then, once the Democrats gained the upper hand in Congress and the presidency, a counterclaim when they used American power over the IMF.
And so this became a condition of the IMF that we will only lend to you, Ghana, if you pass a law guaranteeing gay rights. I have marched in favour of gay rights. But I think these were both morally outrageous — to threaten to veto an IMF loan unless gay rights were enshrined in the Ghanaian constitution, and before that, the abuses of power by the churches of the Christian right. These were shameful in my view.
I think we’ve a lot to answer for. It’s not as if we’ve produced great successes in our own countries. Putting our own houses in order would be a good place to start.
DS: You put a lot of emphasis on the need to build community and build support through whatever social mechanisms there are — whether it’s to persuade people to pay tax or to save or repay their loans. How can you apply that insight in the British context?
PC: First you can do it through a top-down process of good leadership, where leaders have the courage to speak truth to citizens. Some leader in Britain has to say to the people, whatever else we do, we’re going to have to raise more in taxes because we’re trying to run a European welfare system on an American level of taxation, and it just can’t be done.
DS: We’re not seeing [many] signs of this in the UK debate right now.
PC: It’s terrible at the moment. The debate is all about who’s going to cut which taxes. Any self-respecting economist should be ashamed of it.
Three successive governors of Lagos made paying taxes a vote winner because they first breached the notion of no hypothecated taxation, which is a bit of Treasury orthodoxy. So what they did in Lagos, the governors, was link new taxes to specific projects that were popular. Then they said, these new objectives will take time to realise. We can’t build a light railway link in a year. But we will see it being built. There are milestones along the way. And a good leader then reminds people each year to remember why we’re doing this, why we paid our taxes.
DS: We could learn from Lagos?
PC: Let me give a better example. What we really need to be doing is vocational training for the half of the population that doesn’t go to university and doesn’t want to go to university. We have, really, no proper routes to vocational schools. An apprenticeship system, which was never very good, has now virtually disappeared and nothing has replaced it.
What we need is colleges of further education around the country. Those will take time to build. But they are the potentially the institutions which will train people who are at the moment in their early teens.
Who should be doing that? It shouldn’t really be Whitehall. Local government should be empowered with the budget and the legal powers to build these things and explain to people what they are for, and then they would be judged by their local voters. At the moment, turnout in local elections is pathetic in Britain — because they know the government has no powers.
In Germany, 40 per cent of public expenditure is done by local governments. And so voters know what matters is how well a local government performs, and turnout is somewhere between 65 and 85 per cent.
We’ve lost that culture in Britain. We used to have it. Look at the town halls that got built. Or Sheffield university being endowed by a combination of local business, seeing it as its duty to do this sort of thing, and local steelworkers contributing a week’s wages. We used to have this local pride and good sense that we need to invest in our children and their future. It’s not a hard sell for a politician. Yet we’re not doing it. It’s quite extraordinary.
If we don’t do it with a top-down process, we can do it through a bottom-up process. My favourite example of a bottom-up process that was successful is the Basque region of Spain. It took a long time, but it was a local, sort of social Catholic-come-business movement. And the Basque region was an industrial basket case. In American parlance, it was a rustbelt, and it was conflict-ridden with a lot of violence.
DS: This was, I think, Jeremy Corbyn’s favourite model?
PC: It’s a good model. The Basque region is now pretty much the most prosperous region in Spain. The co-operatives that they built . . . Mondragon [Co-op] itself employs 90,000 people but the model is much broader than that. It’s built many, many co-operative institutions around the various businesses that Mondragon created. You’ve got, I think, 15 training institutes around the Basque region. And they came together magnificently to build the Guggenheim Museum.
It was a footloose thing. The Guggenheim was looking for a European outpost. Was the Basque region of Spain an obvious one? It really wasn’t. But the Basque region of Spain, all the towns, they didn’t spend their time arguing. They all said, there’s got to be one place and that will be Bilbao — and so we’ll jointly contribute. They were able to put up €100mn to say if you come to Bilbao, we ourselves will finance €100mn worth of the building. You choose the architect, we will pay for that building. And of course, they then got a fabulous building.
PC: My favourite example of bottom-up is Bangladesh. If we go back to 1971, it was the epicentre of global poverty. Now it’s just on the cusp of middle income. It’s been fantastically successful. And political leadership in Bangladesh has been terrible throughout.
But the bottom-up in Bangladesh is world famous. It’s BRAC, which is the biggest NGO in the world. It’s [social entrepreneur] Muhammad Yunus. It’s a bottom-up movement, which is functioning with these amazing NGOs. And it’s just spawned the Youth Policy Forum, a marvellous NGO which is growing very fast and is trying to create a cadre of young, Bangladeshi civil servants who are learning from examples elsewhere. That’s so exciting because the vital characteristic of a society trying to catch up is the capacity to learn fast. We learn from others where possible and we also learn by trying things out — from failures as well as from successes. But we need experiments in parallel.
DS: You’ve drawn attention in the past for the arguments you made on immigration, in particular some of the terminology. Do you think immigration is either part of the problem or part of the solution for left-behind places?
PC: The last thing we need is a dose of nationalism which could scapegoat immigrants. Nationalism, I think, is never the answer. But the mantra that we need immigrants because they have the skills that we like — that, I think, is a mistaken narrative. That causes deep resentment in a society which is failing to provide the poorer half of its population with any prospect of skills. We can welcome immigrants to contribute to our society. But we’ve got 14 of the top 100 research universities in the world. So we should be pumping out all the university skills to satisfy not just our own needs but for the world. All our top research universities have wonderful medical schools. We should be training far more doctors than we need ourselves.
DS: Is it not better simply to have a bigger pool of labour?
PC: Let’s take the example of doctors. The EU has open borders for doctors. As a result of which, about a third of Romania’s doctors have moved mainly to France. That’s great for Romania’s doctors. It’s not great for Romanian people living in small towns.
So the EU, in introducing free movement of doctors, should have anticipated the consequences and said: “We’re going to have to put money into countries like Romania to train more doctors.” We didn’t do that. And this does breach some basic ethical principles.
Most people want to stay and do stay near their own relatives, in their own community. This goes back to the principle that you shouldn’t have to leave your region to get a decent job. You shouldn’t have to leave your region in order to get medical treatment.
So in willing this great objective — freedom of movement within Europe — we have to first meet the preconditions under which that is not a disaster. Most people will want to stay where they are.
Chancellor [Helmut] Kohl, who built the recovery of east Germany, did put in the preconditions that would give credible hope to east Germans that they could stay in their community. How did he do that? He built a cross-party alliance with the other German political parties and he made it a commitment for 30 years. And he raised taxes by a lot. This was €70bn a year pumped into east Germany for 30 years. It almost worked. If only they had kept it on for another 5 or 10 years, they wouldn’t have AfD.
I think it’s not enough to celebrate individual freedom of movement and say, well, it’ll all sort itself out. It’s not a realistic answer. What will happen is a few skilled people will move and the rest will suffer, unless you put in these preconditions.
And of course, what happened in Britain because of this whole neglect of the poorer regions, was that was we got the mutinies. Every region of England other than London voted for Brexit. In doing so, the poorer regions shot themselves in the foot because they were more dependent upon exporting to Europe than London. So it was a tragic disaster.
Who do I blame for that? The people who neglected the regions of England — who allowed this extraordinary and exceptional divergence.
The above transcript has been edited for brevity and clarity.
