In this exclusive interview with Global, Dr Moyo forcefully expounds her views on the world economy and on the example being set by China, as well as her vision of the radical action that Africa needs to take if its leaders are serious about wanting their countries to develop as rapidly as their new Eastern partner
Enjoying prominence and influence since the success of her controversial 2009 book, Dead Aid – which argued that aid is failing to achieve its aim of bringing development to Africa – Dambisa Moyo has moved her sights to addressing a far bigger subject: the parlous state of the Western world’s economies. Her new book, How the West was Lost (Allen Lane, 2011), spells out what she describes as the “stark choices ahead” if the West is to recover its former lead in the world economy. Moyo warns of the West’s structural weaknesses in the face of the rising economies of China, India and Brazil. She is also sharply critical of US economic policy over recent decades, especially in the deliberate promotion of domestic consumption and home ownership – an argument underlined by the way the 2008 financial crisis has played out. Born in Zambia, Dambisa Moyo has a doctorate from the University of Oxford and has worked for the World Bank and Goldman Sachs as an economist. She currently serves on the boards of Barclays Bank, SABMiller and Lundin Petroleum.
Global: Once the dust has settled and Western governments have sorted out their preferred ways out of the crisis – whether via stimulus packages, austerity programmes or, in extreme cases, perhaps debt defaults – do you think there will really be any change in either economic policy or the regulatory or incentive environment that could prevent the same destructive results from recurring?
Dambisa Moyo: The thesis of my book is that the financial crisis is one little bump in the road but, speaking specifically about the financial architecture, a lot of work on the incentive environment is already underway – with the bank levies in Britain, the Basel III rules coming down the pipeline and changes in compensation packages – and so clearly, in terms of capital requirements and so on, changes are happening. But do I think there’s a fundamental change in culture? Let me explain how I see the world. I know that the financial sector in particular gets a lot of flak and a lot of that was clearly deserved. There were definitely inherent problems with the derivatives market growing so rapidly and policy-makers, whose job it was to provide oversight of those markets, simply not being knowledgeable. But I think if we focus only on the financial sector we really haven’t learned anything. This is really more about the manner in which Western society borrows money and uses it to fuel consumption and unproductive investment. That’s it in a nutshell.
Even if you limit and place regulatory caps on lending, there is an infrastructure around the financial sector, which is a means to an end and is not an end in and of itself. The problem, and the culprit, is the culture of borrowing and using it for consumption, and that is where I don’t think we have seen much change and that is where I still have a lot of worries. There is a trade-off between tactical short-term and structural reforms. Debt caps and so on are great but if you’re not encouraging people to cut back on consumption and to invest I don’t think you’ve solved the root cause of the problem. We’ve got so obsessed with the banking sector that we almost think of it as an end in itself.
You say that private equity players and hedge funds have created a kind of “shadow banking system”. Given the role that their trading in derivatives played in magnifying the crisis, do you have a view on how their activities might be effectively regulated by governments, central banks or the IMF in future?
The broader point is that you need to know what you’re regulating. I fear that there is a massive disconnect between the growth, the complexity and the depth of the derivatives market and the understanding of how they actually work, and more importantly of the knock-on implications of the derivatives market. The implications are so dramatic for systemic risk and for the way economies function, the first port of call is to make sure we understand exactly what these things do and what the implications are. Letting Lehman Brothers fail was a shock to many policy-makers, with the knock-on effect of not just bringing down the banking infrastructure and impacting Western economies but the whole global economic infrastructure. It appears to me that we need to be very clear about what the implications of derivatives are. Policy-makers need to understand things inside out. With the private sector, the rubber meets the road every day, you’re either in the black or in the red, and my gut feeling is that the traders understand this much more than the public sector regulators.
You place great emphasis on the need for countries to better manage their available capital, labour and technology. In a globalised world, the vast majority of countries are rather vulnerable in all these areas and so only a few can probably succeed in getting the formula right. Do think there is a way that the majority can eventually become winners? Is globalisation more likely to help them or hinder their development?
Yes. Let’s look at what has happened in the last two decades. We have narrowed the gap in global income inequality in China, India, Brazil and so on and there is clearly an upside for all to be had. The discussion is more mature and warranted in China, India and Brazil – countries that have made significant strides in their economies. But let me single out the African countries, the most desperately poor countries on the planet: they haven’t done the basic things they are supposed to do in relation to the global economy. You cannot start criticising a global economy when you’re not even part of it. Africa has roughly one billion people, or nearly 20 percent of the global population, but represents only 2 percent of global trade, less than the trade of Spain. So there are basic things they need to do in terms of their economies before you can even start to ask questions about winners and losers. These countries, to quote Paul Collier, are shearing off from the rest of the world. It is worth underscoring that until such a time as they’re working off the same sheet, the vast majority are largely disconnected from the rest of the world.
Are African governments in any position to start weaning themselves off aid?
myIn my book Dead Aid, I gave a conditional example: What if we turned off the taps? There is no way that could be done. Government dependency on aid, in terms of revenue, is about 70 percent on average. It would be a completely absurd notion that we turn the taps off. That is not the purpose of Dead Aid. If people have read it like that they either just don’t understand what I wrote or have deliberately misunderstood, because the fact of the matter is that it is not constructive. What is constructive is that we need to think now, where we are today, we need to figure out a way of ensuring that in 50 years, 20 years or whatever time – five years I wish it were – what we can do to make sure that we’ve got the right governance in place, doing the right things to deliver public goods to their people.
I met the head of one of the big development agencies, one of the largest on the planet, and he said that out of the 53-odd countries in Africa, only in two of them do they feel comfortable writing any kind of report on sectors like education and healthcare. As an African, I find this unacceptable. It’s nearly 60 years since independence. What have we been doing for 60 years? There have been generations of Africans who have gone out, gone abroad, got educated and gone back home. We cannot delink the fact that an aid system that is creating a crutch has also allowed governments to abdicate their responsibilities.
My point in Dead Aid is to say: “Guys you’ve got to start today.” It’s an urgency today because our traditional donors, the US and Europe, have serious economic and financial problems. It’s ridiculous to think that Britain and the US should be borrowing to fundaid programmes in Zambia. We live in such a crazy world that we need to have a discussion on logic. Nobody wants to be dependent on aid for any longer than necessary. The whole purpose of an aid programme is that it should come to an end. I am very passionate about economic development. Let the naysayers do their thing but the rest of us should focus on execution and sorting out some of the most intractable problems on the planet.
China may at present offer the most attractive model for other countries to follow, but do you think that China itself is actually helping those countries to follow its lead or simply exploiting their natural resources for its own benefit?
We need capital investment and they are willing to put in capital investment. I remember someone from Kenya saying that criticism of China in Africa was a propaganda campaign by Western societies who want to take all of China’s money! I don’t go that far, but the question should be about what China is doing around the world.
Africa is not the greatest recipient of Chinese foreign investment. Australia is first and the USA is second. But to answer the specific point, there is a big benefit on two levels. First, China has proven that there is another way of economic development. I am grateful to be living at this time because here we have, with the USA and China, two models of politics and economics and arguably both incredibly successful. If you are a laggard and a poor country and see what China has done, you can learn from it. If you focus on five-year plans and their execution, it’s commendable.
I don’t think the Chinese are in Africa for good will only. They have a billion people, many of them in dire poverty. But why have Europeans been in Africa? Why have Americans been in Africa? I think there is an over-emphasis on this issue. We should be happy that Africans have a new place to sell their goods. There are issues around labour and the environment but it is not up to the West to wag their finger. African and other countries around the world, like Chile and Brazil, are trading with China because they recognise there is something that China has done that is worth commendation.
You write about the need for countries to develop not only their capital and labour but also their economic efficiency and use of technology, which you say makes a vital contribution to their so-called ‘total factor productivity’. How can developing countries, such as perhaps your own, Zambia, get to enhance these elements in their economic structure?
There are lots of natural resources with a high capital value and we need to unlock that capital. As for labour, 60 percent of Africans are under the age of 24 – strong, young and vibrant. Total factor productivity is one of the simplest things we should be gaining from this, with importation, transportation and the speed and efficiency with which we do things. But we have to remember that technologies and innovations will only go to places where they will be beneficial. Unfortunately in an environment where there is a lack of incentives, where there is too much corruption, where there is a lack of transparency, where doing business is a challenge, you’re not going to see an easy transfer of productivity. Total factor productivity accounts for about 60 percent of why some economies grow and why others don’t and so getting it right is crucial, but that is the one Achilles’ heel in African countries. But they could change it tomorrow if they wanted to.
