Dambisa Moyo's Claim of "Dead Aid". Is Aid Really Deadly?

Abstract:

Dambisa Moyo argues in her book “Dead Aid” that systematic aid given to African countries has terrible effects and should be stopped; she regards aid as the problem, not the solution to development issues (Moyo (2009) p.47). Her reasoning is based on the arguments of aid sup- porters. She tries to demonstrate that these arguments are wrong and that aid is therefore harmful. In this paper Moyo’s arguments are analysed and some weaknesses are highlighted. It is also shown that empirical times series data from the World Bank and the United Nations Development Programme (UNDP) do not prove Moyo’s conclusion. Although there are problems re- lated to aid, a different approach to solving the problem is suggested. Instead of stopping aid, a better way to overcome some side effects would be the ne- gotiating of goals and the conditionality of aid in a partnership before aid starts, as proposed in the Poverty Reduction Strategy Papers.

1 Introduction

In 2009 Dambisa Moyo published her book “Dead Aid - Why aid is not working and how there is another way for Africa” (Moyo (2009)) in which she critics very heavily the aid given to Africa. The book made her to some kind of a shooting star (Moyo (2011)) in the group of people who blame African countries itself for their development problems. She is not the first person who takes this path (in 1991 Axelle Kabou wrote the famous book “Et si l’Afrique refusait le développement?” and some work of William Easterly (Easterly (2011)) is more or less similar to the work of Moyo). Today, Moyo seems to be the best known person in this group for the public. Because of this fact it’s worth to take a closer look at her argumentation and highlight some weaknesses.

At first we sketch their argumentation. Then we discuss it but take into account some additional facts not regarded by Moyo. In the next section we compare the empirical data of some African countries to Moyo’s argumentation. Then the approach of the so called Poverty Reduction Strategy Papers is introduced.

2 Moyo’s Arguments

Moyo’s chain of arguments is as follows: She concentrates on systematic help (mainly money given to countries); emergency or humanitarian aid is out of her scope (Moyo (2009) p.7). In a short sketch of the history of aid, she mentions the hope that aid could trigger higher investments and higher income. She also notices that this did not happen, but forgets to discuss why aid was given over a very long time (during the so-called Cold War).

Moyo states that aid is not working and addresses the reasons. These reasons are the very arguments of the supporters of continued aid and she tries to disprove all of them. Something like a Marshall Plan is inappropriate and the original Marshall Plan was quite different from the current given aid (Moyo (2009) p.35). The success of the so call International Development Association (IDA) graduates (countries in South America, the Far East, Turkey, and the three African Countries Botswana, Equatorial Guinea, and Swaziland) is not based on aid (Moyo (2009) p.38), conditionality on aid does not work (Moyo (2009) p.38) and there is the micro-macro dilemma (Moyo (2009) p.44). After stating that aid does not work, she identifies several things that prevent growth. These are corruption, the dependency of the donors to give aid (!), the lack of well functioning civil society organisations at the receivers side, and aid as a cause for armed conflicts. Here Moyo is quite inaccurate in her writing; there are sentences like “Economic studies confirm that ...” (Moyo (2009) p.61) or “Economic researchers have found that ...” (Moyo (2009) p.65).

There is still the question of how to finance development, though.

“Whatever the social, political and economic ideology a country chooses, there is a menu of financial alternatives (all better than aid) that can finance its agenda. Can a government use free-market tools and still maintain its socialist values? The answer is not only yes, it can, but perhaps more importantly, it has to” (Moyo (2009) p.73).

Moyo shows us her very own ideology here: The free financial market and its rule are dominant and everyone has to follow these rules, regardless of ideology. The rules of the financial market are considered natural laws (and therefore unchangeable) and not manmade.

Let’s have a short look at the ways Moyo wants to acquire funds. She suggests using the whole worldwide financial systems of capitalism, like bonds and loans, international investors and so on. In her opinion the “the costs of borrowing come down” (Moyo (2009) p.85). But she forget to mention the debts!

Here we see clearly that reality has disproved some of the arguments of Moyo. Today (2011) it is even hard for countries like Spain, Italy or France to borrow money at an affordable interest rate. How are her suggestions supposed to work for African countries with many more risks? We should not forget the debt crisis around 1995 when we think about the ways a third-world country can get the funds they require.

As a solution to the development problem Moyo suggests some money come from free trade, foreign direct investments, bonds and loans, remittances, micro-finances and savings. She definitely does not regard democracy as a prerequisite; she sees democracy as the outcome of economic growth (Moyo (2009) p.43).

As a summary of Moyo’s argument, we see that she relies completely on the financial market working. She does not differentiate between different African countries which may be in different situations and may have different needs. She also blames the aid system for being the main reason for almost every problem (poor economy, corruption, bad governance, etc.).

3 Weaknesses in the Argumentation

Moyo does not take into account the political background of aid throughout history (e.g. Mobuto Sese Seko did not get aid money from the US in order to improve the living standards of the poor, but for remaining on the side of the West during Cold War (Hochschild (1999) and Wrong (2000)). It cannot be assumed that all aid is identical and speaking about all money in general is insufficient for estimating what was given to the poor. Different donors (the USA, the former USSR, France, United Kingdom, etc.) have different interests, but the living standard of the poor may be the one with the least priority. Richard Nixon, the former President of the USA, said this quite frankly:

“Let us remember that the main purpose of aid is not to help other nations but to help ourselves” (quoted in Hilary (2010) p.80).

This historical aspect is not present in her book.

Moyo’s solution proposal only depends on the free financial market. It is questionable, though, that it really works as she predicts. It is also questionable that the economy is the only key to development. Moyo sees the economy as the driving force, but what drives the economy itself? It is exactly that circle that is missing. Some circumstances keep the economy down, but Moyo suggests money from the free market to push the economy and the economy should bring wealth and democracy along with it. The original exogenous circumstances for a poor economy are not discussed and only some endogenous are mentioned. Thus, poverty is poor countries’ own fault and accepting or giving aid in form of money is a severe mistake.

Some experiences from the last decades are out of Moyo’s scope. She forgets to think about the debt crises, for instance in Argentina (around 2002) and Peru (President García Pérez refused to pay back all debts in 1984). The free financial market does not always work as expected and countries are not always forced to pay back all the borrowed money. Today Greece is a good example. Even countries can go bankrupt. Moyo knows that (Moyo (2009) p.86), but she does not take the effects on the life of average people into account. Thus, the argument that countries are forced by the market to pay back the money and would therefore do anything to push their economies is not as strong as it sounds.

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