Dambisa Moyo’s Dead Aid Debate

Everyone has written about the best way to eliminate poverty.  The International Monetary Fund (IMF) proposes stricter budgets, cuts in government spending, and paying off the national deficit.  Many think we should just throw aide in until it all gets better.  Philanthropists squabble about the best means of providing aide.  Should it be top-down or bottom-up kinds of donations?  Caregivers and charities rarely contemplate the ramifications of their donations, though. 

Will buying 100 mosquito nets to prevent malaria put a local worker out of business?  How could ordering cheap t-shirts or shoes to clothe the poor make the whole economy crumble?  What do my American corn subsidies do to competition from developing nations?  Contributors rarely ask these questions, but they are important.  I can’t help but think: what’s the point of investing in domestic subsidies and trade barriers, and then spending it on foreign aid?  How counterproductive can a government get?  The fact of the matter is that economics is in many ways a zero-sum game.  What I mean is, if you buy undervalued products so that you can economically prosper, that’s money taken out of the hands and mouths of poor Chinese, South American, or African workers, but nobody wants to talk about that side of the economic model.  Few theorists extol the virtues of paying fairly for their goods or even paying a market wage.  No one wants to discuss bringing down the trade barriers that protect American jobs.  The fact of the matter is, it’s not popular and it’s not fair. 

Dambisa Moyo writes in her book Dead Aid, “foreign aide is not benign- it’s malignant.” [i]  She believes that the money the IMF, the United States, and other contributors give props up corrupt dictators.  Moyo certainly is not the first economist to argue that aide props up autocratic dictators.  Economists like William Easterly have been arguing this for years.[ii]  Moyo continues to say that even the IMF knows that the money is not spent well, and writes that Africa’s overall economy has actually shrunk since the onset of increased foreign aide in the 1970s.  She advocates cutting off all forms of foreign aide, and forcing corrupt African dictators to take loans.  In this way private lenders will force corrupt dictators to own up to the wasteful spending they have been doing.  Dictators might not even be able to maintain the control that they have in these nations.  Moyo does not advocate revolution, and is not the biggest friend of democracy.  She writes that a benevolent dictator would be better for any developing economy than a true democracy.  When she published her book in early 2009 her ideas were insightful, instigatory, and unpopular, but that’s why I wanted to write about her. 

            Immediately, authors from newspapers and journals rebutted.  Writer Micheal Gerson for the op-ed section of the Washington Post sardonically criticized Moyo’s “insanity” and statistics.  He argues against her dismissal of AIDs funding and the PEPFAR project, a huge influx of American money George Bush proposed to help control the AIDs outbreak.  Incidentally, Moyo strengthens her argument by conceding that emergency aide is important, but outside the scope of her work and that the PEPFAR initiative has helped many people.  He stated that “if Moyo’s point is that some aide can be bad, then it is noncontroversial. If her point is that all aide is bad, then it is absurd.”[iii]  Authors like Kevin Watkins write that her statistics are wrong, and that the African economy has grown as foreign aide has increased.  He argues that most economists and political scientists link foreign aide with growth.[iv]  Every critic agrees that Moyo’s anecdotes and data are strong and convincing, even if they disagree with a piece here or there.  Most critics admit that dictators are spending money to furnish their own private bank accounts.  Finally, every writer, including Moyo, comes to the same conclusion: not all aide is working.  What do we do about it? 

            Most writers think it comes down to institutional rules.  Moyo argues there must be a benevolent dictator, one who cares about the people’s interests and does what is best for the nation.  Others argue democracy is the way.  Critics of Moyo say that the only way to a successful economy is transparency, and the only way to achieve that transparency is democratization.  The answer is that they’re both right, and they’re both wrong.  A benevolent dictator who cares about the people’s interests can easily and swiftly make decisions about a nation, but does not have to answer for his actions, so this kind of government might lack transparency, and a lack of transparency discourages economic growth.  On the other hand, direct democracy is uncommon even in economically and technologically developed nations.  Direct democracy slows the process,[v] and representative democracy in a previously corrupt developing nation does not guarantee economic transparency.

            So I wrote that they’re both right, but they’re both wrong.  The classification of the institution is unimportant.  The intent and stability of the institution, its rules, and the degree of transparency contribute to a successful economy.  This might be a nit-picky clarification, but political scientists have spent decades arguing about this issue, and still have not realized that a specific governmental structure doesn’t promote economic growth. 

Furthermore, these arguments hold the most credence with top-down aide, but bottom-up aide is less likely to go into the deep pockets of the corrupt or business savvy, and in many ways is more likely to directly benefit the impoverished in the event of corrupt dictators.  Because no ruler is perfect, bottom-up aid poses a better alternative.  William Easterly, a professor at New York University, provides the most convincing statistical counterpoint.  He distinguishes between top-down aid, from the politicians to the people, and bottom-up aid, from a grassroots organization or an NGO to the people.  He uses the analogy of Searchers (bottom-up) and Planners (top-down) in a market, and argues that while Planners dominate the current markets for foreign aid, Searchers excel at fixing problems.  Top-down strategies assume an answer and throw money at it.  They are more susceptible to theft and corruption.  Conversely, bottom-up funding is more likely to end up in the hands of the people, and bottom-up economists are more able to test a causal link between aid and effectiveness for a narrow range of activities.[vi]  According to Easterly, bottom-up is apparently the way to go.

After reading all of the evidence, a few things are clear.  Most aide specialists agree that  money goes to dictators when it should go to the impoverished.  Most agree that democracy is the best way to promote economic growth; however, transparency is at the heart of the issue.  Opinions diverge when economists must select the best way to go about promoting economic aide in developing countries.  Moyo argues that the best way is to cut off all forms of charitable aide- this excludes disaster relief and humanitarian aide- because its unsustainable, props up corrupt dictators, and prevents Africans from finding a way for themselves.  Most writers intuitively argue that aide produces economic growth, but the argument is unfalsifiable.  People cannot prove or disprove a direct causal link between growth and aide.  Finally, while neither Moyo nor the op-ed columnists that attacked her really touch on the best global strategy, this proves to be one of the most important factors in economic growth.  If charitable aid does continue, it should be bottom up.

 By Jane Wallingford

1 Dambisa Moyo, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, Farrar, Straus and Giroux, 2010.

2 William Easterly and Laura Freschi, “British Foreign Aid to Oppressive Governments”  Ethiopian Review (March 2009). 

[1] Micheal Gerson, “’Dead Aid,’ Dead Wrong” The Washington Post, April 3, 2009.  http://www.washingtonpost.com/wp-dyn/content/article/2009/04/02/AR2009040203285.html .

[1] Kevin Watkins,  “ Why Dead Aid is Dead Wrong”  The Huffington Post, (April 24, 2009. http://www.huffingtonpost.com/kevin-watkins/why-idead-aidi-is-dead-wr_b_191193.html.

[1] Robert Dahl, “Democracy and Its Critics” (Yale University Press 1989).  

[1] William Easterly, “Planners vs. Searchers in Foreign Aid” (lecture, Phillipenes, Manilla, January 18, 2006), PDF file, http://people.usd.edu/…clehmann/courses/Ideas/Easterly.pdf (accessed March 9, 2011).

2 William Easterly and Laura Freschi, “British Foreign Aid to Oppressive Governments”  Ethiopian Review (March 2009). 

[iii] Micheal Gerson, “’Dead Aid,’ Dead Wrong” The Washington Post, April 3, 2009.  http://www.washingtonpost.com/wp-dyn/content/article/2009/04/02/AR2009040203285.html .

[iv] Kevin Watkins,  “ Why Dead Aid is Dead Wrong”  The Huffington Post, (April 24, 2009. http://www.huffingtonpost.com/kevin-watkins/why-idead-aidi-is-dead-wr_b_191193.html.

[v] Robert Dahl, “Democracy and Its Critics” (Yale University Press 1989).  

[vi] William Easterly, “Planners vs. Searchers in Foreign Aid” (lecture, Phillipenes, Manilla, January 18, 2006), PDF file, http://people.usd.edu/…clehmann/courses/Ideas/Easterly.pdf (accessed March 9, 2011).