Industrial Strength! Some Advice from Paul Collier and Co.

I’m just back from a briefing with economists Paul Collier (of Bottom Billion fame) and John Page of Brookings. The duo recently co-authored a report for the United Nations Industrial Development Organization (UNIDO) called “Breaking in and Moving Up: New Industrial Challenges for the Bottom Billion and the Middle Income Countries.

For fans of Collier (and I count myself as one) the report offers a follow-up to one of the key arguments of the Bottom Billion: that a robust manufacturing sector is critical to lifting least developed countries out of their poverty trap. Accordingly, the authors write that we should eschew “least developed countries” from our lexicon and instead refer to the world’s poorest countries as “least developed manufacturing countries.”

Why manufacturing?

The report gets a bit technical here, but the answer lies in the fact that the alternatives to manufacturing — agriculture exports or natural resource export — are much less likely to lift a country from poverty over the long term. (I understand that this reasoning seems a bit tautological, but it makes a lot of sense once you read the report. I promise!)

So what can the developed world do to help spur the development of a robust manufacturing center in the world’s poorest countries? First, trade preferences can be used to “pump-prime” least developed manufacturing countries into global markets. Second, the developed world should support capacity building efforts to strengthen national infrastructures so benefits from trade preferences can be realized.

Collier offered an anecdote from a recent trip to Haiti to explain how this works. Haiti’s largest trading partner is the United States. Last year, the United States congress passed the “HOPE II” (Haitian Hemispheric Opportunity through Partnership Encouragement) act, which gave certain tariff and trade preferences to Haitian industries.

While in Haiti Collier visited a garment manufacturing center in Port-Au-Prince, which he surmised would have benefited mightily from HOPE II. What he saw did not impress him. Then, Collier traveled to a garment manufacturing sector in a rural town near the border of the Dominican Republic. That place was booming. What made the difference? The plant near the Dominican border was plugged into the comparatively reliable infrastructure of the Dominican Republic. It drew from Dominican electrical grids and used nearby Dominican ports to export its garments to the United States.

The point is, public policy can be designed in ways that favor manufacturing in the poorest countries on earth. The key now is to get policymakers to make a direct connection between endemic poverty and the absence of manufacturing. This report helps mightily to that end.