Dead Aid: Is foreign aid killing Africa?

By Duggan Flanakin

Dambisa Moyo hails from the tiny southern African nation of Zambia; she transferred to an American university only after a failed coup that shut down her university.  After graduation, she worked for the World Bank for 2 years before pursuing a master’s degree at the JFK School of Government at Harvard.  Next it was Oxford for her Ph. D. in economics – and then eight years with Goldman Sachs.

Bright African women who go to Harvard and Oxford are supposed to honor their mentors as sages – to line their countries up for their fair share of foreign aid and all of the cushy jobs for academics that foreign aid has provided for the past half century.  But something “terrible” happened to Dambisa Moyo: the more she sat at the feet of the world’s leading proponents of foreign aid (such as Jeffrey Sachs, her professor at Harvard, and Paul Collier, her thesis advisor at Oxford), the more disillusioned she became with the conventional wisdom and the “party line.”

The first fruits of her awakening?  Her blockbuster book, Dead Aid, published in 2009, which demonstrates an inverse relationship between receipt of government to government aid and economic growth and prosperity.  Among the many reasons that aid has hurt, rather than helped, ordinary Africans, Moyo lists the following:  (1) aid fuels corruption; (2) aid encourages inflation; (3) aid increases the debt load of recipient nations; (4) aid kills exports; (5) aid causes civil unrest; (6) aid frustrates entrepreneurship; and (7) aid disenfranchises citizens.

Moyo does not just condemn aid; she proposes alternative paths to economic growth for African nations that include freer trade (including ending agricultural subsidies in Europe and the U.S. so as to make African produce more competitive), foreign direct investment, and the infusion of private capital.  The primary need in Africa (oddly enough, the same is true in the U.S.) is job creation.

Not surprisingly, one of her first, and harshest, critics was her former professor, Jeffrey Sachs.  Writing in the Huffington Post,  Sachs accused Moyo of “not offering a reasoned or evidence-based position on aid,” and claimed that she “seems to be unaware that unchecked malaria has long devastated Africa’s economy.”  An unfazed Moyo shot back, also in the Post, beginning by stating, “I intend to rely on logic and evidence to make my argument and show Mr. Sachs the professional courtesy that he has failed to show to me.”

In that article, she posited that, “what kind of African society are we building when virtually all public goods – education, healthcare, infrastructure and even security – are paid for by Western taxpayers?  …. Thanks to aid, a distressing number of African leaders care little about what their citizens want or need – after all, it’s the reverse of the Boston tea party – no representation without taxation.” 

Africans like Dr. Moyo are beginning to learn that government to government aid simply makes government bigger and more powerful and the people more subservient and poorer.  As Independent Institute President David J. Theroux recently stated in Investor’s Business Daily, “Where governments dominate society, enterprising individuals typically are stifled.  Their talents and energies are misdirected into political patronage.”

In her book, Dr. Moyo credits the late Peter Bauer of the London School of Economics for teaching her that aid interferes with development because the money always ends up in the hands of a small chosen few, making aid “a form of taxing the poor in the West to enrich the new elites in the former colonies.”  It is illogical to believe, she argues, that placing huge sums of money in the hands of the political class will do anything but encourage coups, politicize business decisions, and frustrate true entrepreneurship. 

At the 2009 Munk Debates in Toronto, Dr. Moyo was joined by Peruvian economist Hernando de Soto in a spirited, yet amicable, discourse on government aid, with Paul Collier (author of The Bottom Billion) and Canadian socialist professor Stephen Lewis arguing that increasing foreign aid was vital to the future health of Africans.  Collier admits the historical failure of aid policies, but claims, along with Lewis, that aid had been primarily a tool of the Cold War and aid policy has since been refocused on economic growth and should therefore produce much better results.  He also debunks Dr. Moyo’s arguments in favor of trade, investment, and capital infusion, claiming that the private sector is either not interested at all or will take unfair advantage of African weaknesses and rape the continent again – just as (he and Lewis posit) the Chinese are already doing today.

Dr. Moyo contends that economic growth is a prerequisite for the success of democracy, so as to minimize the effectiveness of demagoguery.  She points out that agricultural subsidies for rich nations dwarf the amount they dole out in aid, and that simply cutting those subsidies would be much more beneficial to Africans and to rich nations as well.  Each European Union cow gets, she says, about $2.50 per day in subsidies, which is more than “the bottom billion” have to live on every day.

Dr. Moyo says the key to changing the aid culture lies not so much with Africans – though they will be responsible for improving their own lives in a world after aid – but with Western citizens whose voices are needed to turn off the toxic aid faucets, end protectionist policies, and invest with Africans in their futures. 

Western societies are at risk for failing to act to stop the aid cycle, because corruption (including voter fraud), disease (bedbugs are just the forefront), poverty (an increasing U.S. jobless rate), and war (how soon before troops are needed on the U.S.-Mexican border?) all ride very easily across international borders.  If Al Qaida has, as has been reported, over $1 billion in stolen assets from U.S. aid to Afghanistan, how much more Western aid money is now in the hands of international terrorists? 

Finally, while Dr. Moyo lauds the Chinese for their all-business approach to African investment, she also notes that an increasing Chinese presence in Africa will eventually place the West in economic and even political peril.  Economics, she concludes, comes first.  And when the Chinese own the banks, the land, and the resources across Africa – as they are increasingly doing even in the U.S. and Latin America – their crusade will be over and they will have won the battle for world dominance.

 

Duggan Flanakin is CFACT’s Director of Policy Research.

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