Chapter Five is two-and-a-half pages long and mainly serves as a set-up for the next chapters, which Moyo has characterized as the “Dead Aid Approach.” Before we get there, though, it’s worth quoting it extensively on the possibilities of positive systemic aid:
“A reasonable person could, for example, argue that aid in Africa has not worked precisely because it has not been constructed with the idea of promoting growth… That, if executed in a moderate way, Botswana’s experience with aid (detailed earlier) is exactly what we would want to see: a country that began with a high ratio of aid to GDP uses the aid wisely to provide important public goods that help support good politics and sound governance that lays the foundation for robust growth. Over time, the ratio of aid to GDP would fall as a country developed. In this way, Botswana would seem like the poster-child for what aid can do in a well-managed country.”
In the context of this book, that’s a bombshell of a paragraph – it’s the counter-argument to her whole thesis. She fails to note why this couldn’t be the case all the time; or, to put it a different way, she doesn’t show that the example of Botswana can’t scale. This is a huge hole in her argument that she doesn’t take the time to fill.
“Systematic aid will be a component of the Dead Aid proposal, but only insofar as its presence decreases as other financing alternatives take hold. The ultimate aim is an aid-free world”
But that’s kind of a vacuous argument; how many development economists and professionals would disagree with it? I’d venture that most believe an aid-free world isn’t possible, but that it’s still a thing worth striving for.
In the span of two pages, Moyo blows up her thesis by not providing a counter-argument to Botswana, then finishes by including an empty argument that leaves the door open for systematic aid. It’s a strange digression that isn’t fully fleshed out; hopefully future chapters will contend with it.
As mentioned, the next few chapters are on the “Dead Aid Approach,” a series of market-oriented policies that Moyo believes will pull many African countries out of poverty. While all of the policies are reasonable, most appear suited for the highest-performing African countries only; they aren’t solutions for the worst-off. In my opinion, Moyo doesn’t adequately address this; without a solution for the worst-off, her proposal isn’t comprehensive enough to hold water in the debate.
Chapter Six extolls the virtues of the private bond market, arguing that the process of qualifying for a private bond (getting a rating, wooing potential investors, and the like) will force countries to improve their institutions and practices in a way that aid doesn’t. Curiously, she asserts
“There are good reasons to believe that the greater desire of many African leaders to see their countries excel should give investors the comfort that governments will fare better with private debt flows today than in the past.”
I’m not sure what those good reasons are; nor is it clear that the bond market would see the African leaders’ desires as a main driver of institutional improvement. As a counter-argument: even a “good” African leader could be supported by a corrupt regime or military; in that case, why would investors see the “good” leader as strong enough to hold the country together and thus be qualified for a bond issuance? I don’t buy her argument, and it isn’t backed up by anything resembling evidence.
Next, Moyo walks through the reasons why global investors find emerging markets attractive investments – they provide comparatively-high returns and help to diversify a portfolio. All of which is true, but only for countries that are already considered “emerging.” The private bond market would deem the worst off countries as too risky an investment, and they’d be cut off – rendering this solution pretty regressive and ensuring that it fails the comprehensiveness test.
There are a few ways that smaller, riskier African countries could access the bond market. Most notably, they could band together and form “umbrella bond groups” to pool risks; but, as the 2008 global financial crisis showed, pooling together a bunch of risky assets doesn’t make those assets any safer. Without a major fiscal union – a la the European Union, an organization that has shown its faults recently – it’s not clear that the incentives would line up for comparatively better-off countries to join.
That’s the gist of the chapter – take away the option of IMF loans (the proximate cause of corruption and inefficiency in government, Moyo seems to argue) and have countries access the bond market. If they can. If they can’t? That’s a question that is left unanswered.