Unimpressed by “Dead Aid” (Moyo)

I’ve been occupying myself on long bus rides around Uganda with Dambisa Moyo’s Dead Aid. My notes and reactions are below. This is another late book review, as I never seem to read books when they come out. Despite the delay, writing these summaries/commentaries helps me process what I’m learning, and I hope they’re useful or interesting to some of you.

Overall judgment

I find the basic premise — that the aid system as currently constituted has done as much to undermine developing countries as it has to develop them — to be compelling. So I was predisposed to like the book. From all the press that it has received since being released last year, I assumed it was pretty heavy hitting. Oh, was I let down.

At 154 pages, my paperback copy is literally light. The arguments were partially-formed, the terms were often ill-defined, and the solutions were too hopeful. I like hope, of course. But in a field dominated by “we must do something” rhetoric, proposed solutions that require consensus among many actors should be grounded in more than hope.

Stylistically, I think Moyo couldn’t quite decide whether her audience was technical experts or the lay person. So she split the difference, but in the wrong way: it had the analytical rigor of a pop public affairs book, but the storytelling ability of an academic journal.

Critique of aid: Weaker than it needed to be

The first third of the book sets up the argument against aid. It will be a familiar argument to those studying or working in the industry. Moyo restricts her criticism to bilateral and multilateral support to developing country governments, letting post-disaster humanitarian assistance and private charity off the hook.

She starts by putting the aid system in historical context, with its roots in the post-WWII Bretton Woods institutions and the Marshall Plan. Aid expanded to Africa in the 1950s, and quickly became part of the Cold War geopolitical toolkit. The 1960s prioritized industrialization through large-scale projects, the 1970s shifted the focus to poverty, and the 1980s brought the infamous structural adjustment policies. By the 1990s, development policymakers were starting to recognize the importance of governance and democracy. This focus has carried through today. The past decade has also added what Moyo calls “glamour aid” — the world of Bono and Bob Geldof.

The book follows this history with a chapter titled “Aid is Not Working” — but never really makes that case. It starts with a review of various explanations offered for Africa’s poor economic performance: geography, colonialism, culture, ethno-linguistic diversity, and public institutions (property rights, rule of law, etc.). Moyo makes the expected nods to Jared Diamond, Paul Collier, Max Weber, David Landes, Dani Rodrik and others. She asserts that all of these factors deserve some blame, but that they vary in their impact across African countries. The common denominator is aid. She then discusses how the Marshall Plan was different from aid given to African countries; why the International Development Association “graduate” countries (those that no longer rely on aid) are unique; why conditionalities and aid focused on democracies/good policy environments (e.g. the Millennium Challenge Corporation) fail to live up to expectations; and how short-term evaluations of aid give misleading impressions of the long-term impact.

It’s not until the second-to-last page of the chapter that she cites some evidence for her thesis:

Study, after study, after study (many of them, the donors’ own) have shown that, after many decades and many millions of dollars, aid has had no appreciable impact on development. For example, Clemens et al. (2004) concede no long-term impact of aid on growth. Hadjimichael (1995) and Reichel (1995) find a negative relationship between savings and aid. Boone (1996) concludes that aid has financed consumption rather than investment; and foreign aid was shown to increase unproductive public consumption and fail to promote investment. (page 46, paperback)

Four citations in three sentences is a pretty thin basis for your book’s argument. But it gets worse. Because I was curious (read: huge nerd), I looked up the citations. With my cursory look and terrible internet connection, I could only find the Clemens et al. article, “Counting Chickens When They Hatch: The Short-Term Effect of Aid on Growth“. The abstract states that they are focused on “aid that plausibly could stimulate growth in four years, including budget and balance of payments support, investments in infrastructure, and aid for productive sectors” which they distinguish from “aid that affects growth only over the long term, if at all, such as aid to support democracy, the environment, health or education.” After describing the (positive) short-term impact of aid on growth, they give the kicker: “We make no statement on, and do not attempt to measure, any additional long-run effects of aid.”

So of the four articles cited, at least one doesn’t say what Dead Aid claims it says. Clemens et al. didn’t “concede no long-term impact” — they simply didn’t look for one in this study. That makes it a pretty weak source to lead with.

Moyo wraps up the critique of aid with a chapter on how aid supports corruption and rent-seeking, reduces accountability, encourages conflict, reduces domestic savings, increases inflation, and causes Dutch disease (i.e. increases the value of a country’s currency, making exports more expensive). All these effects of aid work to hinder economic growth, making a country dependent on further aid.

Proposed alternatives: Unconvincing
The remainder of the book focuses on alternatives to aid. It introduces the reader to a fictitious country, the Republic of Dongo, which is a sort of amalgamation of sub-Saharan African nations. It’s an odd rhetorical device that feels a little out of place.

The Dead Aid strategy for Dongo is to ratchet aid down while putting in place other methods of financing a country’s development. The proposed alternatives are all important development tools, but her arguments that they can replace aid are thin. In order from the book, they are:

  1. Issuing debt on capital markets. Moyo concedes that this is only possible for “a responsible government” and “countries seriously intent on transforming their economies for the better.” She marshals some data and anecdotes to show the increasing feasibility of developing countries achieving credit ratings and issuing bonds. However, she glosses over continued obstacles by citing examples of investment in “emerging markets” — a term which usually refers to the Brazils, Indias, and South Africas of the world, but not to the Ugandas and Malawis. It is hard to see how this alternative to aid will be feasible for a vast majority of Africa.
  2. Foreign Direct Investment (FDI). The chapter is titled “The Chinese Are Our Friends”, and it explicitly contrasts FDI from China with aid from the West. Moyo’s assessment of the positive impacts of China’s involvement has no more backing than her assessment of the failures of Western aid: she lists inputs (e.g. amount invested) but not results. As a proxy for comparing aid’s impact with FDI’s impact, she cites survey data to demonstrate that Africans have more positive feelings toward China than toward the US. This is a poor measure of developmental impact. I’m willing to concede that FDI is good, but FDI and aid do different things. They’re like carbohydrates and protein: any nutritionist will tell you to eat both. Following the analogy, Moyo would argue that many African countries are currently FDI-deficient. Unfortunately, her recommendations for how to increase the FDI in their diets (strengthen rule of law and property rights, create attractive tax structures, and invest in infrastructure) are not as straightforward as she makes them sound.
  3. Trade. Moyo’s argument gains some traction here. She describes the political reasons behind farm subsidies and other trade barriers that developed countries construct, and the negative impact they have on growth in Africa. She also proposes more regional integration to overcome trade barriers within Africa, such as tariffs and lack of transportation infrastructure. These are good proposals for encouraging economic growth, creating a domestic tax base, and reducing the need for aid. Bravo.
  4. Banking on the Unbankable.” This chapter combines three important issues: microfinance, remittances, and savings. The last combines Hernando de Soto’s insights into property rights with a vague call for “innovation in the financial sector.” Moyo gives reasons to think each can promote micro-level development. I agree. But if the Dead Aid strategy is about replacing aid, these micro-level mechanisms must be able to generate enough economic growth to create a tax base. It is unclear that they can do this.

These are all good development policies, but none offer a true alternative to aid. Numbers 1 and 2, capital markets and FDI, are not yet feasible for the least developed countries. Moyo may be right that aid is not getting them closer, but she is unconvincing that cutting off aid will do the trick. The various micro-development policies under number 4 are good policies, but their likely impact is too small in the short-run to offer hope of replacing aid. Better trade policies, number 3, offer the most promise. They also offer the largest political hurdles.

A concluding chapter titled “Making Development Happen” suggests a plan of action. First, the multilateral and bilateral donors all give notice that the aid will be shut off in five years. For this, Moyo invokes that old utility player: political will. Got a problem? Political will can overcome it. She concedes that only a handful of African policymakers recognize aid’s failure (after all, they are the elites who benefit from the system), and asserts that the masses of ordinary Africans would change the aid regime if only they could. So it falls to Western citizens to force their governments to turn off the spigot.

Following the announcement of the end of aid, countries must craft an economic plan that ratchets aid down while ratcheting up the alternatives. The country must find the discipline to stick to the budgeted amounts (which will certainly have no negative political effects).

Finally, the country must strengthen institutions and accountability. Moyo calls this last point the Achilles heel of the aid model. However, this is also the Achilles heel of the Dead Aid strategy. She writes:

As long as issues of bad governance linger overhead (guaranteed to be the case in a world of aid-dependency), the cost of investing in Africa will always be exorbitantly high even when the social benefits (such as skill transfer, education and infrastructure) are taken into account. Yet in a world of good governance, which will naturally emerge in the absence of the glut of aid, the cost (risk) of doing business in Africa will be lower (whether the investment is securitized or not). (emphasis added; page 143, paperback)

She is right that aid has historically undermined governance. But she is wrong to suggest that good governance arises on its own, if only aid got out of the way. Good governance is a complicated, multi-dimensional process that takes decades to establish and centuries (or maybe eternity) to refine.

Takeaways and conclusions

Moyo’s simple view of governance points to a more general problem with the book. Dead Aid‘s weakest assumption is to think that ratcheting down aid will automatically make space for the other solutions to rise. This is far from proven. It will take a much more convincing book than this before anyone will give it a shot.

In a way, this was really two books. The first describes the ongoing failures of aid. The second describes several good development policies that are unrelated to aid. Separately, both halves could have been solid arguments (though I don’t think they were). Dead Aid‘s mistake was to combine the two, and conclude that the second part offers a solution to the first. The clear inadequacy of the proposed alternatives actually makes me a bigger proponent of increasing aid (while also reforming) than I was before reading the book.

A better sequence would have been: aid is failing, here’s how to make it better; and also, here are other things that should be getting at least as much focus as aid. That would have been more nuanced and less attention grabbing — but ultimately more useful.

Appendix: Other reviews

Lest you think I am being overly-harsh, several other reviewers have given a similar opinion. Duncan Green calls the book “flawed” and the alternatives “feeble.” Matt at AidThoughts refers to it as “poorly-argued.” Owen Barder is perhaps most damning, writing: “There is a debate to be had about aid, but Moyo’s book, sadly, does not advance it. Dead Aid is poorly researched, badly argued, mendacious in its use of evidence, and pedestrian in its suggestions for alternatives.” Ouch. Note to self: Read other reviews before buying a book.