Book-Blogging: Dead Aid – Wrap-Up

Previous chapters of Dead Aid: onetwothreefourfive/sixseveneightnine, ten

Dambisa Moyo’s Dead Aid was a very frustrating book to read; the margins of my copy are lousy with “what?!”, and the pages feel bereft of empirical evidence  to support her assertions. There’s a robust debate to be had about whether systematic aid is the best means to effect positive, sustainable change, but, in my opinion, Moyo’s book doesn’t aid the debate (see what I did there?). Which is unfortunate because of how popular it is and how widespread it was noticed.

Read The White Man’s Burden instead.

The thesis of her book is this: systematic aid has failed – in fact, it makes poverty worse – and therefore should be replaced by free-market-oriented policies that would lead to real development. Let’s take each of these separately.

Counterfactuals are messy. I think it’s genuinely difficult to conclude – one way or the other – what the long-term effects of systematic aid are. A quick glance would have you believing that it’s a total failure – just look at all of the countries that receive aid that fail! But a quick glance isn’t enough.

Quite frankly, it’s unsurprising when aid fails, or when it leads to outcomes we’d find repugnant; it goes into the coffers of some of the worst-run countries in the world! Which is unfortunate, of course, but that’s where the worst-off populations are. It’s a terrible situation and sometimes feels like an intractable problem; do you risk funding a dictator if it means keeping people alive, or do you restrict funding and hope that the dictator works to keep his/her people alive?  If aid only goes to comparatively less-stable countries, then it’s difficult to say whether aid caused failure, or whether failure would have occurred without the presence of aid.

Comparing countries that have received aid to countries that have not is an exercise in futility, too; countries are endowed with varying levels of human capital, natural resources, and histories. Comparing China to Uganda is silly and counter-productive. What’d we need is an answer to the counterfactual: where would Uganda be without aid? And unfortunately, that’s an answer we don’t have – it’s tough to run a rigorous, double-blind Randomized Controlled Trial on a country.

Even stranger is using a country that has received aid to argue that aid doesn’t work, which Moyo does with the case of Botswana. Rather than bolster her argument, Botswana could be the perfect foil – showing that aid can work. I need to do more research on what actually happened in Botswana, but suffice it to say for now that a) in the 1960s, Botswana received about 20% of its national income in foreign aid; b) over the course of four decades, Botswana’s aid fell from 20% to 1.6%; c) Botswana has grown steadily over the same time period. Moyo concludes that it is the reduction in aid that causes the growth, like shackles being removed, Harrison Bergeron-style. But why not conclude just the opposite: that aid was reduced as Botswana grew – in part thanks to the benefits that the initial aid brought. She doesn’t grapple with this possibility, which is odd, as it has the potential to blow up her thesis.

To Moyo’s second point: orienting a nation’s economy around the free market is an important thing to do – it’s the driver of growth and prosperity the world over. But is it an immediate cure for countries in dire straits? Will Foreign Direct Investment (FDI) and trade get to those countries that are not endowed with natural resources? Or will they be left alone until the countries with natural resources are desiccated of them? Again, these aren’t easy questions to answer, but it seems that it’s unlikely those countries without natural resources would be the first to benefit. So, for them: what happens?

A population’s health and education levels are just as important to consider as its market. If a nation is ravaged by HIV/AIDs, malaria, tuberculosis, or another disease, can it be expected to be profoundly productive? A hungry population isn’t as productive as it can be, either. And what about education? Does an uneducated population have the best chance to be productive and to come up with innovative solutions to local problems? In some cases, of course they do – uneducated doesn’t mean unintelligent. But by and large, education (and the resulting increases in human capital) will lead to a better chance at economic prosperity.

All of which is to say: economic growth is reliant on much more than the free market. Don’t get me wrong: the free market is an extremely important component – but it’s not the only component. It’s a necessary but insufficient condition for long-term prosperity.

Finally, the “Dead Aid Approach” and systematic aid aren’t mutually exclusive; in fact, they can bolster one another. Take one example: there are certain types of infrastructure that are unlikely to be privately-financed because of the free-rider problem and the enormous investments required (see: the Interstate Highway System, basic utilities); the government is in a unique position to solve both of these problems and to build the roads, communication networks, and water systems necessary to allow commerce to thrive. Aid can be used to help provide the initial investment, and companies could be taxed to provide the sustainable funding for maintenance and infrastructure improvement over time. Aid and trade are complementary, which Moyo fails to discuss or refute.

This book isn’t a terrible book, but it’s an incomplete, poorly-argued, and contradictory book. To be fair, I think it raises important questions about systematic aid that need to be discussed, considered, and debated; it just doesn’t answer them, or add to that debate, in a real way.

For smart takes on Dead Aid, see William Easterly’s review and Owen Barden’s review

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