Overblown argument

In rich countries, parts of the public feel the strong desire to declare the complete failure of development aid. The latest example is the media’s phenomenal reception for Dead Aid, a slim 154-page book by investment banker Dambisa Moyo.

Die Zeit, an influential German weekly, dedicated an entire page to Dambisa Moyo. The Financial Times first spent days discussing her ideas in the print and online editions – before concluding that Moyo’s proposals are unrealistic.

The Zambian economist’s argument is indeed weak. In passing, she even contradicts herself. Her core thesis is that aid is a – if not the – cause of poverty since it leads to a mentality of dependence and corruption, making economic success impossible. She has a point in refuting the thesis that South Korea’s success would prove that all Africa needs to catch up is more aid. She does, however, concede (p. 45) that this country alone received more US aid from the 1950s to 1980 then 53 African nations combined did from 1957 to 1990. So why aren’t South Koreans much worse off today than Africans? Moyo does not address why massive aid did not prevent their economy from growing.

Moyo’s conclusions simply go too far. Yes, it would be desirable that African governments base their policies less on aid and more on capital from the international bond market. But Moyo pretends that private-sector credit is directly linked to good governance, which in turn would stem the corrupt practices that thwart development.

She praises Gabon and Ghana for successfully issuing bonds. Ghana, however, has received ample aid funds, and donors, for good reason, are proud of the country’s success (D+C/E+Z, 2/2008, pp. 65 ff). Ga­bon, on the other hand, is not a model of good governance. Isn’t it rather obvious that international investors are paying attention to oil prospectors, but not necessarily to governance?

Moyo is right to stress the relevance of microcredit schemes and migrant remittances. Emphasising remittances, however, has long since become a standard feature of development agency rhetoric. And it is patently absurd to praise microfinance without mentioning that development agencies have frequently contributed to setting up such systems. Moreover, the dispute over whether financial services can be delivered to the poorest people without any form of subsidies in the long run is still going on (D+C/E+Z, 10/2008, p. 385 f).

International trade matters, no doubt. Agricultural protectionism in North America, Europe and Japan is indeed destructive. It is certainly worth discussing whether aid somehow serves to distract attention from this disgrace, and whether it even partially compensates for the damage. But aid is certainly not the root-cause of the global-trade regime’s distortions.

Whoever assesses the reasons for African poverty, but only mentions the WTO in passing (p. 116 f) cannot be taken seriously. Moyo does, however, find space to elaborate on how multinational bank corporations handle bond issues, and why road shows contribute to attracting investors. She has obviously taken the worldview of Goldman Sachs, her employer of several years, to heart. Considering the 12-hour days common in the industry, that is no surprise.

It needs to be explained, however, why journalists in rich nations have begun quoting Moyo as a star witness in the case against aid. We are living in Year One after the collapse of Lehman Brothers. The ideology of markets always being rational and maximising utility has been discredited internationally. Newspapers that tell donor governments to use this recipe reveal a lack of interest in international development. On top of that, they are probably expressing a subconscious desire to not have to tackle uncomfortable issues such as poverty in far-away countries.

International development, by the way, is not the only field of policy with a yawning gap between aspirations and results. Consider Germany’s Federal Ministry of Finance. Balanced budget? Fair, transparent tax code? Self-sustaining economic take-off in Eastern Germany? Stable financial architecture at the international level? Or at least in Germany? There is no sign of any of this, even though every German finance minister since Theo Waigel 20 years ago had this agenda. If anyone out there believes we are where we are today because finance ministers did not heed the advice of investment banks, please raise your hand.

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