Ms Dambisa Moyo’s Dead Aid is about the problems of foreign aid. She not only claims that aid does not work, she also claims that aid is what is retarding the development of poor countries. The book brings together a combination of an indictment of foreign aid and a complex of solutions that have been individually recommended by others.
Dead Aid traces the history of aid to the founding of the Bretton Woods Institutions – the World Bank and the International Monetary Fund. The two organizations were set up to mainly assist in the reconstruction of Europe after World War II. The World Bank was to be in charge of what has come to be broadly known as ‘development’, while the IMF was to ensure the stabilization of international exchange rates the reduction of balance of payment problems, the kind that happened in the decades leading to World War II. In short, the IMF was to ensure that countries operated proper macroeconomic policies.
During the reconstruction of Europe, the Bretton Woods institutions gave way to the United States Marshall plan, which was America’s plan for the reconstruction of Europe. But there is a marked difference between the reconstruction aid and the aid that is currently given to developing countries. In the case of Europe, it was for a brief and defined period, and it was for reconstruction. Europe had infrastructure that was to be reconstructed and institutions that were to be strengthened, elements that are generally lacking in African countries. For Ms Moyo, the kinds of loan that the World Bank and the IMF made, and the grants that were offered by the World Bank and development agencies, are at the base of the underdevelopment.
Anybody who knows about the resource curse argument would be familiar with the way Ms Moyo says aid retards development. Aid, like a natural resource, is supposed to push a wedge between the state and its citizens because the government is not dependent on, and there for not accountable to, the citizenry. It is also supposed to create what The Economist has termed the Dutch Disease, something that was observed after natural gas was discovered in the Netherlands in the 1960s (another link to the resource curse argument). The Dutch Disease is a situation in which the overabundance of money in a country has devastating effects on the rest of the economy, choking off the export sector. Ms Moyo also claims that aid keeps coming to poorly performing countries that are known to the donors to be highly corrupt – much like oil revenue keeps going to the government, no matter who is the head.
The recommendation is that African countries should be totally weaned off aid over a period of five years. Governments should raise money for infrastructural development by the sale of bonds. They and governments of donor countries should focus more on creating an environment where there is more trade than aid. Ms Moyo points to China to reflect this kind of environment, and the kind of relationship that could be developed between developing countries and current donor countries. They should also encourage micro-finance schemes modeled after the Grameen Bank initiatives, institute property rights like Hernando de Soto suggested a few years ago, and make it easier to send home remittances. Not exactly new arguments, like I already observed.
I have a problem with the fact that she bundles together so-called soft loans and outright grants from donor countries and organizations. For her, donor agencies are not only the USAID or DFID but also the World Bank and the IMF. But my main problem with the book is that it has managed – like the general development debate – to write away the individual histories and contexts of each country, just like the development debate wrote away the individual history of countries and packed all of them under the underdeveloped labels.
However, no matter what one has against the book – and there are a lot of issues to be had with it, from the advocacy of benevolent dictatorship to the equation of correlation with causality – there is something to be said for it. It has managed to kindle the discussion on aid, and its place in development. That, for me, is where the merit of the book lies.