Wednesday, September 8, 2010

The Naked and the Dead.

When Dambisa Moyo's Dead Aid was published last year, it turned her into something of an insta-celebrity. Here was an economist, a Zambian economist no less, who was willing to commit what many policymakers consider the ultimate act of apostasy: Dambisa Moyo wrote a book about how foreign aid was not helping Africa, but instead contributing to stunting its economy, propping up dictators, contributing to an environment that makes gross abuses of human rights possible and profitable, and destroying the nascent emerging economies.

In short, Ms. Moyo was telling us, everything the West has done vis a vis aid in Africa for the past fifty years is wrong. Which the West, having dumped over a billion dollars into aid programs, probably really didn't want to hear.

I review this book with a lot of hesitancy, the most obvious reason for which is Dambisa Moyo has a PhD in economics and I don't. (Of course, she also worked for Goldman Sachs for nearly a decade, and I could point out that Sachs itself was propped up with government aid not that long ago. But I digress). The point is, Moyo could have told me that instead of sending aid money to Africa we should send shipments of emperor penguins, and I'd be inclined to believe her, since she's an economist and I'm not, nor do I really ever have any hope of being one.

So, I put Dead Aid down for a few days and read Charles Wheelan's Naked Economics, in the hopes that a book about economics written for the economics-impaired would help me get a better handle on Moyo's argument, or at least be able to read her book from a position of not-complete-ignorance.

Naked Economics is really about the psychology behind economics. After all, the global economic system doesn't just react to the markets. It is, for a large part, controlled by government institutions, and those institutions are made up of the collective will of groups of people. So, why do nations make poor economic decisions? Why do economic policies that seem to make sense often have disastrous unintended consequences?

Like the song says, it's human nature.

Much of Wheelan's book is devoted to finding out why we make the economic decisions we make in the economic systems in which we operate. Naked Economics, while touching on economic systems in different countries, is at its heart an America-centric book. Wheelan shows how decisions that affect the economy are made for political expediency, or to pacify a group of special interests, and how those decisions, while postponing some immediate pain, often generate longer-term and more intractable problems.

He also makes a convincing argument for the merits of capitalism. According to Wheelan, capitalism is the one system with enough freedom that allows you to gamble, and when you win, to win big. Of course, the flip side of that is that you can also lose big, which is why even capitalist countries aren't fully capitalist - their governments still exert control over industry, markets, and economic policy. Wheelan's frequent analogy to the idea of the economy as a pie is that in capitalist countries, while the division of the pie may be more unequal, the pie itself is likely to be bigger, so even those with a smaller slice get more.

So, did this help me understand Dead Aid? Yes and no. Yes in the sense that I felt better equipped to find gaps in Moyo's argument, and less in the sense that I still have no idea if the ideas she proposes would actually work.

Dead Aid can't seem to decide quite who its audience is - voters wondering why so much aid is poured into Africa with so little apparent results? Economists? Policymakers? And some of the comparisons that she makes seem downright nonsensical - saying that landlocked African countries are similar to Switzerland and pointing to Switzerland's enviable economic development ignores the fact that Switzerland hasn't experienced decades of civil unrest, recent war, and has the distinct advantage of being surrounded by other strong economies in a relatively stable and prosperous part of the world.

Still, Moyo's ideas certainly demand scrutiny. She argues that the constant flow of aid is actually preventing African countries that are aid-dependent from unlocking their own untapped human potential - the human capital that Wheelan argues is essential for economic development. But what is perhaps most telling about Moyo's book is what she doesn't mention: namely, that's it's very hard to have a viable economic and business system when you are in the middle of a war, or facing a second decade of civil unrest, or dealing with groups of rampaging rebels and/or government soldiers (or both at once, as is the case in Congo). Without peace, there is no stability, and without the rule of law - law that protects human capital - there will be no economic development.

Which, of course, brings us back to Moyo's main point. Is aid working? Well, on a large scale, it hasn't up until now, although more and more nontraditional aid programs, such as microloans and microgrants, are emerging with very positive results. Moyo's book is definitely worth reading, if for no other reason than it forces one to think about whether the current aid policy is really doing what it's intended to do, or if a philosophy developed in the late 1940s is even still relevant to today's global community.

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