Wednesday, July 29, 2009

Dead Aid review

The last 50 years -- and the last 30 in particular -- have seen an amazing amount of economic growth take place around the world. This wind of economic change began to first blow in Asia in the 1960s, where countries like South Korea and Taiwan went from economic backwaters (South Korea's per capita GDP in 1960: $1,226) to "tiger" status seemingly overnight. That wind, which soon became a full blown typhoon, swept around the world, dramatically raising living standards from Chile to Ireland. Huge strides have been made in China and India, where per capita GDP levels roughly quintupled in the former and almost tripled in the latter from 1960-2000.

Conspicuous in its absence from this boom, however, is Africa. While others have boomed the countries that comprise the African continent have typically stagnated or even declined.

The latest attempt to explain this phenomenon is Dambisa Moyo with her book Dead Aid. Whatever else can be said about the West and its role in Africa's plight, it can't be accused of penny-pinching in its aid to the continent, with Moyo citing $1 trillion in development assistance since the 1940s. Indeed, breaking from the usual narratives on the topic Moyo says that Africa's problems persist because, not in spite of, these huge wealth transfers.

While she levels a number of criticisms at foreign aid -- accusing it among other things of harming the export sector, contributing to inflation and crowding out savings and investment -- perhaps her most damning indictment is the role it plays in corrupting government. Just as welfare can remove incentives between work and pay, Moyo says that foreign aid removes the linkage between the prosperity of a country and its economy.

If a ruler no longer has to depend on tax revenue to fill government coffers then incentives to promote economic prosperity are greatly diminished. Perhaps more ominously, foreign aid also creates a prize to be contested and fought over, increasing the chances of open conflict.

Just as reform advocates in the U.S. during the 1990s advocated replacing welfare with work, Moyo prescribes a formula of self-reliance and trade for boosting Africa's fortunes. If African countries need to borrow money for infrastructure and other development projects they can obtain such funds on the international bond market, with Moyo noting that other less developed states have already used such an approach. Meanwhile if Western governments truly wants to play a constructive role she justly calls for them to end their farm subsidies which Moyo claims cost Africa to the tune of around $500 billion per year.

The author also devotes a chapter to the increasingly high-profile role being played by China. Eschewing the aid model Moyo says that China has instead focused on simply doing business, investing in the country and building infrastructure projects in order to gain access to the continent's vast wealth of natural resources. It's an approach that she says has promoted jobs, tangible results such as improved roads and rail and raised the opinion of China in the eyes of many Africans.

While I am not sure that Moyo's approach to Africa's problems can be described as comprehensive -- and I am not even sure that is her objective -- it provides refreshing and bold thinking on current policies badly in need of a change in course while our politicians content themselves with re-arranging the ship's deckchairs.

1 comment:

Jeff said...

Nice review. Moyo deserves a lot of credit for "shaking things up" and for her courage to stick her neck out. The aid system is the only one where the more they fail (for whatever reason), the more money they get.