Week 7: Moyo

In Dead Aid, a book written by Dambisa Moyo, there are four alternate sources of funding for African economies, since simply giving aid is not an efficient means to build an economy. I happen to agree with Moyo, because basing an economy off of models that work can benefit countries, and also, building sustainable economies are the only way out of poverty. Though, I do think some aid is beneficial.

  1. African governments should learn to resemble Asian emerging markets. Moyo wrote this because, “assessing the international bond markets and taking advantage of the falling yields paid by sovereign borrowers over the past decade,” would benefit the African government.
  2. Moyo suggests that the African government should “encourage the Chinese policy of large-scale direct investment in infrastructure.” Moyo uses the example of China investing US$900 million in Africa in 2004 while the United States invested US$20 million in 1975.
  3. Moyo’s third suggestion is to continue to press for genuine free trade in agricultural products. Meaning, “the US, the EU, and Japan must scrap the various subsidies they pay to their farmers, enabling African countries to increase their earnings from primary product exports.”
  4. The fourth suggestion is to encourage financial intermediation. Moyo also adds, “they need to foster the spread of micro finance institutions of the sort that have flourished in Asia and Latin America, grant the inhabitants of shanty towns secure legal title to their homes, so that these can be used as collateral, and they should make it cheaper for emigrants to send remittances back home.

Bretton Woods Conference (Source: timeinc.net)

The earliest history accounts of the foreign aid “cure” is the Bretton Woods conference in 1944. The goals for this conference were to rebuild a fallen, war-torn Europe who would need “a massive cash injection to spur a return to their previous levels of development” (11).

From this conference, with nearly fifty countries present, emerged three organizations who now act as vital players for foreign aid: the International Trade Organization, the IMF and the International Bank for Reconstruction and Development (The World Bank) These main organizations were established to reconstruct as opposed to develop through facilitation and management of investments or financial structures. (Moyo, 2009, p.11). As more time passed by their roles in foreign aid became a means for Western countries to gain their self-interests when their attentions shifted from European nations to the developing world.

In the 1950s and 1960s, foreign aid was not considered the idea of poverty alleviation. However, “By the end of the 1970s the proportion of aid allocated to social services had crept to over 50 per cent up, from under 10 per cent in the previous decade”(16). Agricultural development and social services such as housing, health and education replaced aid lent towards airports, power stations, and roads.

In the 1980s, high interest rates were increasing to levels to where debt was almost impossible to pay. “Almost inevitably…higher international interest rates led to worldwide recessions” (Moyo, 2009, p.18). When countries were defaulting their loans, the only solutions seemed to be through restructuring the debt owed. Thus, the IMF Structural Adjustment Facility provided more loans to countries to pay off previous debts.

Foreign aid in the 2000s was more entertainment based. Concerts caused a world-wide pity for African countries.

Washington Consensus

The Washington Consensus is a set of free market economic ideas, backed by the World Bank, the EU, the IMF and the US. The critical voices are mostly in the agricultural sector– they wanted to focus on the preservation and privatization in countries with abundant natural resources — and other focus on eliminating trade subsidies, and promoting liberalization of trade.

Source: Dambisamoyo.com

Something that stood out to me after reading George Ayittey’s discussion on Dead Aid was his criticism of the US Taxpayer:

Q:Dambisa Moyo’s new book is drawing new attention to the question of aid in Africa, and her thesis is quite like yours, but aimed at a mass-market audience (as she said on Charlie Rose). Do you think it is risky to sensationalize the issue?

A: I don’t think Dambisa is sensationalizing the issue strong enough. Americans were justifiably outraged when AIG, which received billions in U.S. taxpayer money in bailouts, paid out hefty bonuses to its executives. So where is the outrage when African leaders, who receive U.S. taxpayers’ money in foreign aid, build palaces for themselves while their people wallow in abject poverty?

Source: Photobucket.com

When Moyo says “my voice can’t compete with an electric guitar,” she is alluding to Bono, U2’s front man, and his high-profile campaign boost African aid. In Dead Aid: Moyo says, “ One disastrous consequence of this has been that honest, critical and serious dialogue and debate on the merits and demerits of aid have atrophied,” She suggests that most foreign government aid to Africa should be cut off within the next few years to force African nations out of poverty.

Rwanda’s President Paul Kagame said: “The primary reason [that there is little to show for the more than US$300 billion post-Second World War geopolitical and strategic rivalries and economic interests, much of this aid was spend on creating and sustaining client regimes of one type or another, with minimal regard to developmental outcomes on our continent” (27). He hints that most aid fuels corruption within the government.

Aid is NOT working

Moyo’s argument is clear. She put it quite simply by writing, “Donors, development agencies and policymakers have, by and large, chosen to ignore the blatant alarm signals, and have continued to pursue the aid-based model even when it has become apparent that aid, under whatever guise, is not working” (27).

However, Moyo explains blaming geography, history, culture, tribes and institutions for the failure of aid is a problem. Instead, For example, two reasons Moyo suggests that these issues have occurred over time because of the false belief that a resource-rich country does not mean eminent success for its economy. Instead Moyo writes, “Africa’s broad economic experience shows that the abundance of land and natural resources does not guarantee economic success.” Moyo uses the example of oil-and-mineral-rich countries that “squandered much of their natural wealth through questionable investment and in some cases theft.”

Moyo wrote that this isn’t the first time in history that African’s are described as being the problem for development within Africa because of “cultural norms, social mores, or religious beliefs.” In fact, Moyo exemplifies the German political economist and sociologist, Max Weber, who argued that there are two different types of work ethics. One, is the Calvinists, whom “believed in predestination and, depending on their lot, may or may not acquire wealth. The other was the group that believed in the Protestant work ethic and whom could “advance through the sweat of their brow.” Moyo connects this back to Africa’s development quandary writing, “one [view] in which African’s are viewed as children, unable to develop on their own or grow without being shown how or made to.” The other viewpoint of the development quandary is that “Africans be treated as adults- [in order to] have a shot at sustainable economic development.” Moyo concludes her argument with, “The trouble with the aid-dependency model is, of course, that Africa is fundamentally kept in its perpetual childlike state” (32).

 

Sachs

Sachs claims that “…most of the world [by 2015] will have been freed from the poverty trap onto a path of self-sustaining growth” (303). However, Sachs is referring to “under-developed” countries. Specifically Sachs refers to sub-Saharan Africa, which will, “…have [extreme poverty] decline from around 40 percent of the population today to under 20 percent” (303). It is important to note that Sachs wrote this book during 2003/2004. However, his argument is weak becuse he still believes in countries giving aid to Africa as a main means of eradicating poverty

In the conclusion of her chapter, Moyo says that when Sachs estimated the money needed to meet the MDG’s, he required a doubling of aid for each country. Moyo said Ghana was seen as the country that did not wish to maintain the status quo by beginning to not rely heavily on aid.

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