Week 7: Exploring Moyo Part 1

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Dambisa Moyo (pictured above) describes four alternative sources of funding for African economies in her book Dead Aid:

  1. African governments should learn to resemble Asian emerging markets.
  2. African governments should, “encourage the Chinese policy of large-scale direct investment in infrastructure.”
  3. Establish free trade of agricultural products. This way, African countries could increase their earnings from primary product exports.
  4. Encourage financial intermediation in the sense of spreading micro financial institutions.

In these cases, I feel like they are easier said than done. It’s almost impossible to build something out of nothing, which is the case in many SSA countries. I think these countries would benefit from aid because they could use it to build upon these sources that Moyo suggests. I’m not sure if it’s feasible for an extremely weak economy to set up international trade agreements or encourage investment or establish free trade or start up micro financial institutions when they have such little capital. Moyo’s suggestions are from a very conservative standpoint, in my opinion. In the article, “’Dead Aid,’ Dead Wrong” by Michael J. Gerson, he critiques Moyo’s ideas, saying that she “does not detail the possible outcomes” of her suggestions.

In the history of aid, Moyo discusses three different types: humanitarian, charity-based and systematic. Humanitarian aid is given after a natural disaster, such as the earthquake in Haiti. Charity-based aid is given out through charitable organizations to those affected by whatever they work to help, for instance America’s AIDS and malaria programs. Last, but not least, systematic aid includes bilateral and multilateral transfers, according to Charlotte Flaujac http://www.shabka.org/2013/08/17/critic-of-systematic-development-aid-and-evolution-of-measurement-of-poverty/ .

Gerson says in his article that Moyo has said her book is “not concerned with emergency and charity-based aid.” Moyo does discuss systematic aid, but usually critiques it. For example, Flaujac says that Africa was receiving the most aid in the time period between the early 70s right up until the start of the new millennium. Quite surprisingly, “…during this period, poverty jumped from 11 percent to 66 percent in the African continent,” (Moyo, p.47). Even though multilateral agencies such as the U.N. and World Bank were promoting good ideals such as democracies, government corruption occurring in SSA countries caused the aid to fail. Moyo proposes that these governments need in a stronger economy in order to end poverty, not more aid, but I don’t really understand how that is achieved, and Moyo doesn’t express how to achieve that in what I think to be plausible ways.

 After doing a quick search of the “Washington Consensus” (because I didn’t know anything about it before), I found the following:

“The concept and name of the Washington Consensus were first presented in 1989 by John Williamson … Williamson used the term to summarize commonly shared themes among policy advice by Washington-based institutions at the time, such as the International Monetary Fund, World Bank, and U.S. Treasury Department, which were believed to be necessary for the recovery of countries in Latin America from the economic and financial crises of the 1980s.

The consensus as originally stated by Williamson included ten broad sets of relatively specific policy recommendations:

  1. Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;
  2. Redirection of public spending from subsidies (“especially indiscriminate subsidies”) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
  3. Tax reform, broadening the tax base and adopting moderate marginal tax rates;
  4. Interest rates that are market determined and positive (but moderate) in real terms;
  5. Competitive exchange rates;
  6. Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
  7. Liberalization of inward foreign direct investment;
  8. Privatization of state enterprises;
  9. Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions;
  10. Legal security for property rights.”

Wikipedia

This sounds like a very laissez faire approach in attempting to build economies, something that Moyo would probably agree with. There are many critiques to this topic, which I could probably do an entire blog post about. They are listed here (but I am sure there are many, many more…I’m already over word count),

Sources:

Gerson, Michael J., “Dead Aid,” Dead Wrong, http://www.cfr.org/world/dead-aid-dead-wrong/p19023

Flaujac, Charlotte, Critic of systematic development aid and evolution of measurement of poverty, http://www.shabka.org/2013/08/17/critic-of-systematic-development-aid-and-evolution-of-measurement-of-poverty/

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