So, can we dare to be optimistic?

 Well, the thesis of "The Bottom Billion" is that a billion

people have been stuck living in economies that have been stagnant for 40 years, and hence
diverging from the rest of mankind. And so, the real question to pose is not, "Can we be
optimistic?" It's, "How can we give credible hope to that billion people?" That, to my mind, is
the fundamental challenge now of development. 

00:36
What I'm going to offer you is a recipe, a combination of the two forces that changed the
world for good, which is the alliance of compassion and enlightened self-
interest. Compassion, because a billion people are living in societies that have not offered
credible hope. That is a human tragedy. Enlightened self-interest, because if that economic
divergence continues for another 40 years, combined with social integration globally, it will
build a nightmare for our children. We need compassion to get ourselves started, and
enlightened self-interest to get ourselves serious. That's the alliance that changes the world. 

01:35
So, what does it mean to get serious about providing hope for the bottom billion? What can
we actually do? Well, a good guide is to think, "What did we do last time the rich world got
serious about developing another region of the world?" That gives us, it turns out, quite a
good clue, except you have to go back quite a long time. The last time the rich world got
serious about developing another region was in the late 1940s. The rich world was you,
America, and the region that needed to be developed was my world, Europe. That was post-
War Europe. 

02:26
Why did America get serious? It wasn't just compassion for Europe, though there was that. It
was that you knew you had to, because, in the late 1940s, country after country in Central
Europe was falling into the Soviet bloc, and so you knew you'd no choice. Europe had to be
dragged into economic development. 

02:50
So, what did you do, last time you got serious? Well, yes, you had a big aid program. Thank
you very much. That was Marshall aid: we need to do it again. Aid is part of the solution. But
what else did you do? Well, you tore up your trade policy, and totally reversed it. Before the
war, America had been highly protectionist. After the war, you opened your markets to
Europe, you dragged Europe into the then-global economy, which was your economy, and
you institutionalized that trade liberalization through founding the General Agreement on
Tariffs and Trade. So, total reversal of trade policy. 

03:34
Did you do anything else? Yes, you totally reversed your security policy. Before the war, your
security policy had been isolationist. After the war, you tear that up, you put 100,000 troops in
Europe for over 40 years. So, total reversal of security policy. Anything else? Yes, you tear
up the "Eleventh Commandment" -- national sovereignty. Before the war, you treated
national sovereignty as so sacrosanct that you weren't even willing to join the League of
Nations. After the war, you found the United Nations, you found the Organization for
Economic Cooperation and Development, you found the IMF, you encouraged Europe to
create the European Community -- all systems for mutual government support. That is still
the waterfront of effective policies: aid, trade, security, governments. Of course, the details of
policy are going to be different, because the challenge is different. It's not rebuilding Europe,
it's reversing the divergence for the bottom billion, so that they actually catch up. Is that
easier or harder? We need to be at least as serious as we were then. 

04:59
Now, today I'm going to take just one of those four. I'm going to take the one that sounds the
weakest, the one that's just motherhood and apple pie -- governments, mutual systems of
support for governments -- and I'm going to show you one idea in how we could do
something to strengthen governance, and I'm going to show you that that is enormously
important now. The opportunity we're going to look to is a genuine basis for optimism about
the bottom billion, and that is the commodity booms. The commodity booms are pumping
unprecedented amounts of money into many, though not all, of the countries of the bottom
billion. Partly, they're pumping money in because commodity prices are high, but it's not just
that. There's also a range of new discoveries. Uganda has just discovered oil, in about the
most disastrous location on Earth; Ghana has discovered oil; Guinea has got a huge new
exploitation of iron ore coming out of the ground. So, a mass of new discoveries. Between
them, these new revenue flows dwarf aid. Just to give you one example: Angola alone is
getting 50 billion dollars a year in oil revenue. The entire aid flows to the 60 countries of the
bottom billion last year were 34 billion. So, the flow of resources from the commodity
booms to the bottom billion are without precedent. So there's the optimism. 

06:53
The question is, how is it going to help their development? It's a huge opportunity for
transformational development. Will it be taken? So, here comes a bit of science, and this is a
bit of science I've done since "The Bottom Billion," so it's new. I've looked to see what is the
relationship between higher commodity prices of exports, and the growth of commodity-
exporting countries. And I've looked globally, I've taken all the countries in the world for the
last 40 years, and looked to see what the relationship is. And the short run -- say, the first five
to seven years -- is just great. In fact, it's hunky dory: everything goes up. You get more
money because your terms of trade have improved, but also that drives up output across the
board. So GDP goes up a lot -- fantastic! That's the short run. And how about the long
run? Come back 15 years later. Well, the short run, it's hunky dory, but the long run, it's
humpty dumpty. You go up in the short run, but then most societies historically have ended
up worse than if they'd had no booms at all. That is not a forecast about how commodity
prices go; it's a forecast of the consequences, the long-term consequences, for growth of an
increase in prices. 

08:26
So, what goes wrong? Why is there this "resource curse," as it's called? And again, I've
looked at that, and it turns out that the critical issue is the level of governance, the initial level
of economic governance, when the resource booms accrue. In fact, if you've got good
enough governance, there is no resource boom. You go up in the short term, and then you
go up even more in the long term. That's Norway, the richest country in Europe. It's Australia.
It's Canada. The resource curse is entirely confined to countries below a threshold of
governance. They still go up in the short run. That's what we're seeing across the bottom
billion at the moment. The best growth rates they've had -- ever. And the question is whether
the short run will persist. And with bad governance historically, over the last 40 years, it
hasn't. It's countries like Nigeria, which are worse off than if they'd never had oil.