Why can’t Africa get its shit together? That’s a question I’ve had for a while. Economically many of it’s countries rank near the bottom of the scale. I don’t subscribe to the racist notion that Africans genetically are predisposed to this. It’s certainly possible that there’s a cultural reason for it, much like the U.S. has been culturally prone to electing jingo-istic right-wing politicians for the last half century. For instance, because of tribal differences, it’s difficult for an African country to agree on a political system. Though India made many inroads to solving that problem. But it’s certainly possible it’s behind Africa’s problems.
Is racism a factor? Yes. Centuries of slave raids and colonialism doesn’t leave Africa in a good position. But it doesn’t explain everything. India, China, Latin America, and other places have been subject to racism as well, and they are doing better than Africa. Perhaps less racism, or less enduring, however. Haiti, populated by African descendants, also sits near the bottom of most economic rankings. I do think European and American racism works in somewhat of a ranked fashion, so I’m sure it plays a part.
More likely there’s a big economic reason. Economics posits that people choose an option that makes the optimum allocation of resources for themselves. Of course, over the decades the profession has discovered lots of exceptions to that rule, but the general rule explains a lot of human behavior.
One economic explanation for Africa’s chronic problems is that being resource rich is a war and corruption magnet, and so saddles Africa with the likes of Mobuto Sese Seko and Samuel Doe. These despots steal the bulk of the money and leave their citizens in a worse position than ever. But Africa is not homogeneously resource rich, so there’s still something missing from the equation.
Another possible economic reason is the lack of the rule of law and functioning government prevents economic development. While certainly true, Africa has had 60 years to develop these systems. Failure to develop them is more likely a symptom though. Asia has done it. South America has too. So what’s the underlying economic reason?
Dambisa Moyo proposes in Dead Aid that the underlying economic reason is the abundance of unaccountable international aid is the key to Africa’s failure. She’s a Harvard and Oxford educated economist who’s worked on African issues for the World Bank and Goldman Sachs. She’s Zambian by birth as well, which I’m sure is a major reason why her critique of aid has gotten some traction where others have failed to get notice for similar criticisms.
Her argument says that aid works like easy resources, giving corrupt governments and businesses the opportunity and reason to steal the money, and crowds out other sources of economic growth as well. In other words, the developed world doesn’t make anyone truly accountable for the money, so of course it’s taken. To have aid work, at a minimum either we’d need to run the aid ourselves, or we have to have anti-corruption conditions and the spigot turned off when they aren’t met. Moyo doesn’t think the former is a good idea (paternalistic, among other things) and the latter isn’t credible.
In other words, not only is aid not helping, it’s actually the cause of Africa’s economic problems. I don’t know how to evaluate the claim. Aid certainly hasn’t moved Africa on a par with other regions. But it could be ameliorating a real underlying cause. Economics doesn’t often allow for controlled experiments that would solve that confusion. Aid certainly hasn’t all gone to waste, either.
Moyo proposes four alternative sources of financing for development. First, international bonds. Second, foreign direct investment. Third, international trade. And fourth, micro-loans, remittances, and other banking improvements tailored for the poor. If, in fact, aid is the underlying cause of Africa’s problems, these might have some hope of changing the game. But I am skeptical. First, that these methods won’t have the same problems that aid does. And second, that they don’t have their own problems. And lastly, even if they won’t cause the same problems, I see no incentive for the African powerful to switch, if indeed their money-grubbing ways are the mechanism through which aid fails.
International bonds would work according to Moyo because lenders wouldn’t lend money in a second round if they didn’t get their funds repaid in a first round. Aid continues to be sent even if earlier rounds are squandered. This proposal I don’t understand. Here’s why I don’t think it would work. A bond issue gets stolen by a corrupt leader. No one is willing to issue bonds to the country again, and we are back to the point where we are now: either people starve or we send aid.
Her second proposal is foreign direct investment (F.D.I.). In other words, foreign companies buying shares of projects in African countries. I think this has a better chance of success, but I don’t think it will really make much difference. In order to secure scarce opportunities, these companies will need to kick back to corrupt political leaders. There’s no guarantee that the benefits will accrue to citizens of an African country. Look at Nigeria, where foreign oil companies are causing far more damage environmentally than they are benefiting locals economically. And there’s also the problem of nationalization, where the government, for corrupt or not corrupt reasons, simply takes over a foreign companies ownership. Without strong legal protections, this can happen easily. Without addressing those problems, I don’t see F.D.I. being the driver of economic growth. But it has potential benefits and may be a piece of the solution.
The third proposal is increased international trade. Comparative advantage results in large surpluses than benefit the citizenry. I see this as the best opportunity. However, as Moyo notes, there are many barriers to this. The first world would need to drop punitive tariffs. There’s more incentive for African countries to reduce barriers to each other, but there are more jurisdictions involved and they have much smaller economies. It’ll be a lot of diplomatic work to get that established there, and the benefits aren’t huge for each one. But if first world countries get in the act, it could have a huge effect. If.
Lastly, Moyo pushing banking services for the poor. Micro-loans. Removing barriers to remittances. Forms of deposit accounts geared toward small depositors to get local money moving through the economy instead of being hidden under mattresses. Again, while this has great potential, it has high transaction costs. In other words, since individual deposits and loans are small, it takes a lot of them to make a difference. And that takes a lot of bankers to make it work, who cost money and take time.
Lastly, there’s the problem of making the switch to these new methods. Why would a corrupt leader pick a high cost bond with conditions over low cost aid that he can steal easily? Or give up control in F.D.I. when there’s low cost money in aid? And a non-corrupt government would be taking on a lot of risk to use high cost bonds for projects that don’t result in easy ways to pay them off. The only way the switch can happen is if aid is cut off on the other side. But that would entail an ugly period of transition, and it’s hard to watch people suffer in the mean time and do nothing. Moyo recognizes this to a certain extent. Her book’s intended audience (according to the last chapter) is actually the western world’s public. She thinks the only way to change the aid paradigm is by pressure from the West. Which seems pretty paternalistic to me, and that’s something she criticizes. But aside from that, the limit of our influence would be to cut off aid, if we could do that at all. We have little power with investors who would be needed to set up bonds, F.D.I. or micro-banking.
The short version of all this is I think Moyo might very well be on to something here. She’s not the first to make these proposals and I’m sure there’s some very serious study going on about them. But I don’t think her case is convincing, and definitely not convincing enough to make wholesale changes yet. Yet. I’m a big fan of controlled capitalism and using markets to steer the world to good ends. These very well could work, if someone works out the problems with them. You’ll need far more than a 150 page polemic to convince the people who need convincing.
A few other blogged reviews:
Title: Dead Aid: Why Aid Is Not Working and How There Is A Better Way For Africa
Author: Dambisa Moyo
Imprint / publisher: Farrar, Straus and Giroux / Macmillan
Format: Hardcover
Length: 154 p.
Publication date: 2009
ISBN-10: 0-374-13956-3
ISBN-13: 978-0-374-13956-8
Great review, certainly more detailed and thorough than my own (thank you so much for the link!). You bring up some really great points here about limitations to her proposals. I, too, would love to see a longer and more detailed book looking at these issues!