Keeping Africa Poor With Foreign Aid

Dead Aid

By Doug Bandow
Tuesday, April 7, 2009
Courtesy of The Washington Times

DEAD AID: WHY AID IS NOT WORKING AND HOW THERE IS A BETTER WAY FOR AFRICA
By Dambisa Moyo
Farrar Straus Giroux, $24, 188 pages
REVIEWED BY DOUG BANDOW

Africa is a land of tragedy and hope. A continent of poverty and conflict. Filled with entrepreneurial people seeking the same opportunities as the rest of us.

Our moral duty to aid others in need is strong, but good intentions are not enough. In her new book challenging the efficacy of foreign aid, Zambian economist Dambisa Moyo writes that surely one would expect Western moralizers to adopt policies which help those in need rather than hinder them in the long run and keep them in a perilous state of economic despair.

Tragically, the Western moralizers to whom Ms. Moyo refers have done precisely the latter. Not intentionally, of course. But, Ms. Moyo argues, the $2 trillion in foreign aid to the Third World, much of it to Africa, has been not just ineffective, but counterproductive. Only by ending aid will the West give poor countries the chance to develop.

Dead Aid is a blockbuster. Not because its arguments are new. In fact, Ms. Moyo dedicates the volume to Peter Bauer, the late British economist who almost single-handedly challenged the foreign aid establishment decades ago. He wrote eloquently and often, setting the stage for Ms. Moyo. She also cites more recent critics, former World Bank economist William Easterly and Oxford economist Paul Collier.

What makes the book particularly important is Ms. Moyo. Born in Zambia, a consultant to the World Bank and a specialist in sub-Saharan Africa for Goldman Sachs, Ms. Moyo makes an African case against so-called foreign assistance. She has the credibility to challenge glamour aid and how campaigning for more Western money paved [the way] for the army of moral campaigners &8212; the pop stars, the movie stars, new philanthropists and even Pope John Paul II &8212; to carve out niches for themselves.

But her strongest objection is not to celebrity hypocrisy. It is to the negative impact of so-called aid to Third World governments.

Many excuses have been offered for the failure of poor countries to develop: colonialism, geography, culture and more.

While each of these factors may be part of the explanation in differing degrees, in different countries, for the most part African countries have one thing in common &8212; they all depend on aid, Ms. Moyo writes.

Foreign assistance has consistently failed to spark economic growth, she adds.

Individual projects might appear to work, but A short-term efficacious intervention may have few discernible, sustainable long-term benefits. Worse still, it can unintentionally undermine whatever fragile chance for sustainable development may already be in play, she explains.

Independent studies, many by development institutions, long have documented how foreign aid really isn't aid. Sophisticated econometric analyses aren't required, though. Ms. Moyo observes: Even the most cursory look at data suggests that as aid has increased over time, Africa's growth has decreased with an accompanying higher incidence of poverty. Over the past thirty years, the most aid-dependent countries have exhibited growth rates averaging minus 0.2 per cent per annum.

Ms. Moyo contends that foreign assistance leaves recipients, like her home country, worse off. Bad policy by bad governments is the biggest obstacle to development, yet aid makes this problem far worse. Indeed, destructive dictators such as Zaire's Mobutu Sese Seko and Zimbabwe's Robert Mugabe might have disappeared years earlier absent abundant aid from abroad.

Ms. Moyo adds: With aid's help, corruption fosters corruption, nations quickly descend into a vicious cycle of aid. Foreign aid props up corrupt governments &8212; providing them with freely usable cash. These corrupt governments interfere with the rule of law, the establishment of transparent civil institutions and the protection of civil liberties, making both domestic and foreign investment in poor countries unattractive. Greater opacity and fewer investments reduce economic growth, which leads to fewer job opportunities and increasing poverty levels. In response to growing poverty, donors give more aid, which continues the downward spiral of poverty.

This is the vicious cycle of aid. The cycle that chokes off desperately needed investment, instills a culture of dependency, and facilitates rampant and systematic corruption, all with deleterious consequences for growth. The cycle that, in fact, perpetuates underdevelopment, and guarantees economic failure in the poorest aid-dependent countries.

Ms. Moyo does more than criticize foreign aid. She highlights alternative sources of revenue for developing countries: private capital markets, foreign direct investment, trade, micro-enterprise lending, remittances and private savings. Governments still could squander the funds collected but likely could get away with doing so only once. Private actors learn more quickly than government donors, which until recently, at least, never found an oppressive, corrupt, statist regime they didn't want to continue subsidizing, irrespective of its past failures. The open aid spigot encourages the worst governmental irresponsibility.

Thus, in Ms. Moyo's view, the starting point of helping Third World states is to stop pretending that the aid-based development model currently in place will generate sustained economic growth in the world's poorest countries. She suggests telling Third World states that the financial flow will end in five years. Other than temporary disaster relief, there will then be no more Western cash to underwrite African failure.

Would Africans give up? No, she argues: Isn't it more likely that in a world freed of aid, economic life for the majority of Africans might actually improve, that corruption would fall, entrepreneurs would rise, and Africa's growth engine would start chugging? Give Africans a chance to make a better life, and they would grab it and go.

Dead Aid is a wonderfully liberating book. One of the most depressing aspects of the whole aid fiasco is that donors, policymakers, governments, academicians, economists and development specialists know, in their hearts, that aid doesn't work, hasn't worked, and won't work, Ms. Moyo writes. They might not speak the truth, but she will.

In doing so, she shows us the way forward. Breaking the negative aid cycle would finally give the African people a chance to control their own destiny. Grievous political and social problems would remain, and success still would not be easy, but the opportunities so long denied Africa's people finally would come within their reach.

• Doug Bandow is a Senior Fellow at the Cato Institute. A former special assistant to President Reagan, he is co-editor of Perpetuating Poverty: The World Bank, the IMF, and the Developing World (Cato Institute).