Week 7: Dead Aid

Dead Aid states the four alternative sources for funding for African economies according to Moyo are foreign direct investment, international trade, microfinance and sovereign and private bond markets. In Lesotho and Zambia the best option would be to microfinance. International trade is difficult for these countries because of the international tariffs and seeing as they are both land locked.

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The Washington Consensus refers to a set of broadly free market economic ideas, supported by prominent economists and international organizations, such as the IMF, the World Bank, the EU and the US.

Essentially, the Washington consensus advocates, free trade, floating exchange rates, free markets and macroeconomic stability.

The ten principles originally stated by John Williamson in 1989, includes ten sets of relatively specific policy recommendations.

  1. Low government borrowing. Avoidance of large fiscal deficits relative to GDP;
  2. Redirection of public spending from subsidies (“especially indiscriminate subsidies”) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
  3. Tax reform, broadening the tax base and adopting moderate marginal tax rates;
  4. Interest rates that are market determined and positive (but moderate) in real terms;
  5. Competitive exchange rates;
  6. Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
  7. Liberalization of inward foreign direct investment;
  8. Privatization of state enterprises;
  9. Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions;
  10. Legal security for property rights.

The Washington consensus was important for determining policy towards economic development in Latin America, South East Asia and other countries. Some implications of the Washington consensus.

Moyo is alluding to Bono when she quotes a critic of the western aid model saying “my voice can’t compete with an electric guitar.” In this section of the book, she refers to this type of aid as the agenda of the 2000s, glamour aid. In the new millennium, crusades like Jubilee Debt Campaign capitalized on people’s desperate desire to be a part of something that would give aid and development policy another dimension. This paved the way for the army of moral campaigners—pop stars, movie stars, new philanthropists and even Pope John Paul II. However, it is scarcely seen that any policymakers in Africa are charged with the development portfolio or to offer an opinion on what should be done in order to save the continent from regression.

Rwanda’s President Kagame’s remark about geopolitical rivalries is in context of post second world war economic interests, much of this aid was spent on creating and sustaining client regimes of one type or another, with minimal regard to developmental outcomes of the continent.

Aid is not working in Africa. According to Moyo, one argument, advanced by geographical determinists such as Jared Diamond, is that a country’s wealth and success depend on its geographical environment and topography. Certain environments are easier to manipulate tan others and, as such, societies that can domesticate plants and animals with relative ease are likely to be more prosperous. At a minimum a country’s climate, location, flora, fauna and terrain affect the ability of people to provide food for consumption and for export, which ultimately has an impact on a country’s economic growth. Diamond notes that all societies and cultures have had approximately similar abilities to manipulate nature, but the raw materials with which they had to start were different.

Dead Aid also states that the historical factors, such as colonialism, have often been put forward as explanations for Africa’s underachievement; the idea being that colonial powers delineated nations, established political structures and fashioned bureaucracies that were fundamentally incompatible with the way of life of indigenous populations. Colonialism forced traditionally rival groups to live together under the same flag, which makes building a nation difficult.

  • The Berlin Conference is an example of this
    • In 1885, the gathering of 14 nations produced a map of Africa littered with small nations whose arbitrarily drawn borders would make it difficult for them to stand on their own two feet—economically and politically

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Democracy is a solution suggested by Moyo in Dead Aid. She states that democracy is seen as Africa’s economic salvation, erasing corruption, economic cronyism, and anticompetitive and inefficient practicing, and removing once and for all the ability for a sitting incumbent to capriciously seize wealth. Democracies pursue more equitable and transparent economic policies, the types of policies that are conducive to sustainable economic growth in the long run. Lesotho would benefit from changing to a democracy, but Zambia is already a republic.

Sachs refers to the poverty trap as the people who are currently in that state has no opportunities for growth and are stuck in the social class with not many solutions. A poverty trap makes it impossible for sustainable growth. He suggests using the ODA in order to break this problem. Moyo states that aid is not benign—it’s malignant. No longer part of the potential solution, it is part of the problem—in fact aid is the problem.

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