Dambisa Moyo: An Economist With A Vision

Zambian-born economist and author Dambisa Moyo, Ph.D., has written two bestselling books: Dead Aid and How the West Was Lost. Her next book, Winner Take All: China’s Rush for Resources and What it Means for the Rest of the World is scheduled for publication in January 2012. Trained at Harvard and Oxford, she’s worked at the World Bank and at Goldman Sachs. In addition to her writing, she sits on the Board of Directors of Barclays, SABMiller, Lundin Petroleum and Barrick Gold.

She wrote her provocative first book, Dead Aid: Why Aid is Not Working and How There is a Better Way For Africa while working at Goldman. The book describes how well-intentioned aid to Africa actually cripples local economies by fueling corruption and dependency. She calls for the West to gradually phase out aid programs, to be replaced with the Chinese development model which focUSes on trade and direct investment.

In her second book, How the West Was Lost: Fifty Years of Economic Folly and the Stark Choices Ahead, Moyo describes how shortsighted policies have set the West on a path of decline. She discusses how the fundamentals of economic growth: capital, labor, and technology have been misallocated because of bad incentives. Moyo argues that the scales of economic power will soon tip in favor of emerging economies if swift and severe corrective action isn’t taken by the West.

Forbes: You studied chemistry as an undergrad. Where did your interest in economics come from?

Moyo: I went into the sciences very early on, but to me economics pervades so much more of our lives and our existence. I was initially very interested in public policy, but then after my masters at Harvard, I felt that it was important to get a better handle on the economics of it as well. I did my PhD in macroeconomics, and my thesis--"Why Is It That Some Countries Save And Others Not?" -- was on savings. The reason that I focused on this is because savings is a key component to economic growth.

Can you talk about your transition from a career as a Goldman Sachs banker to a world-renown expert in economic development?

The lesson here is that one has to be open-minded about everything. I grew up in a poor economy. Throughout my life there have been people who said things like, “You can’t do it. You can’t go to Harvard. You can’t go to Oxford.” But I grew up in a home where my parents never discouraged us from doing anything.

The transition [from Goldman] was borne out of advice from a friend of mine who suggested that I write a book. I was working full time when I published my first book, and they supported me later in terms of the marketing and preparations for its release. I’ve had a lot of help. I knew nothing about the publishing business before I jumped into it.

Your two books are bestsellers. Can you talk their respective messages?

I think there’s an overarching theme in my two books, which is this idea of unintended consequences. So although on the surface of it they may look like two very different topics, when you drill down it’s about the same issues: long term issues like poverty, economic development, growth and pensions and long term growth in developed countries and the dangers of using short term myopic policy to resolve it.

Dead Aid is about the inefficacy and the limitations of large scale aid programs in creating economic growth and reducing poverty in Africa. And How the West Was Lost, which focuses on developed countries such as the U.S., is really about the fact that capital, labor and technology, these three key ingredients of economic growth, are being eroded again by poor policymaking.

Let’s talk about that--why just focus on government policy? Is there anything outside the scope of policy that can be done?

If you take the financial crisis, for example, many people and institutions outside of public policy were culpable in exacerbating the problem. But I strongly believe that policymakers set the tone for what you get, whether it’s economic growth in Africa or in business strategy in the US.

To me, policymaking serves three roles: it has to set the environment to make it conducive for people to invest, be entrepreneurial and to innovate. The second thing is to provide public goods, things like roads, national security, education and so on. And the last thing is that you need government to regulate. The government needs to be the policeman for bad behavior. When people do illegal things, we want government to step in so that people are penalized for it.

Also you want to make sure that government steps in when the markets don’t clear. The subprime crisis is an example of that. We need the government to step in and to make policies to ensure that we don’t have repeats of the crisis.

Can you elaborate on why China’s model is better for the development of Africa than the Western aid model? What is China doing right?

It’s very important that we remember China is in Africa for China, not for Africa. They have a very daunting problem; China has a billion people living in poverty, more than the total population of Africa, and need to deliver sustainable economic growth to that population and reduce poverty. China needs resources--soft commodities like food products--but also harder commodities-- metals, minerals, oil and so on. All of that together means that Africa is well placed to actually benefit from China’s demand for these products.

Traditionally, in contrasting the Chinese model to the Western model, Western countries have shut African produce out through subsidy programs such as the farm subsidy regime in the U.S. and the Common Agriculture Policy in Europe. That has actually decimated Africa’s agriculture markets and has put hundreds of millions of people out of work in Africa.

Now we have a real chance at delivering economic growth, not only because the Chinese are laying down infrastructure and so on, but actually because they want to buy food and resources from Africa. And that is what we need. We need to create jobs. There are a billion people in Africa, 60% of who are under the age of 24, so we’ve got to deliver economic growth by making sure it’s a job-led growth. We need to create jobs, and unfortunately the western model has not succeeded in delivering jobs to the extent that we need in Africa, and the Chinese model is doing that much more aggressively.

To what extent does China actually create jobs though? I’ve read that China prefers to import its own labor for their projects in Africa.

I think that’s exaggerated in the Western media. Those issues absolutely exist in the labor market and there are environmental concerns, but that’s what African policymakers are there for. Just because the Chinese are making mistakes doesn’t mean that we should shut off foreign direct investment.

It’s one very negative message that’s common in western countries and I think it might just be because there’s some ill-feeling about the fact that the Western development model hasn’t delivered for Africa and the Chinese method so far is delivering. In my first book I talk about the PEW survey, taken in 10 to 15 countries in Africa, where they were asked, “What do you think about the Chinese?” Consistently Africans are saying “We like the Chinese, we think they’re doing a good thing.”

How do you envision the aid industry changing in years to come?

Fundamentally, an aid model hurts incentives and discourages people from doing the right thing.  And that is clearly what has happened across Africa. Am I sanguine that the model is somehow going to change? No, because there are so many vested interests in keeping things as they are today.

The two things that make me optimistic that there may be some sort of change to this malaise of development policy are:

1) Traditional donors like the U.S. and European countries are running out of money. They’ve got pension problems, poor education, bad infrastructure and concerns around their own welfare. All of this is going to put immense pressure for them at home. And therefore, I hope it will force African governments to focus on other ways to source development instead of aid.

2) You only have to look at North Africa and the Middle East to see that because the populations in these countries are so young, you end up in a situation where people are agitated. In many African countries, 50% of the population is under the age of 15, and they’re not in the mood for policies that don’t deliver economic growth. This will mean there will be much more pressure on the traditional aid agencies to innovate.

It’s time to re-asses what the goal is. The goal is not to keep things static or make them worse. The goal is to create economic growth and reduce poverty. And to the extent that that is not happening, it’s absolutely essential that NGOs, international aid agencies, African governments sit back, with a critical eye, and ask are we really doing what is necessary to generate economic growth? The answer is very clear. Remember, China reduced poverty immensely in just 30 years, as has India as has Brazil. They’re not doing that by relying on aid. I see no reason why we should not, as an international community, be pursuing their strategies across Africa.

Who’s your greatest inspiration/mentor and why?

The people I admire unreservedly are my parents. They are the real pioneers of Africa in many ways. They were born and raised in rural Africa during the colonial period. They are the ones who came to the U.S. long before I did. Their parents, my grandparents, waved goodbye to them at the airports and that was it; my grandparents hadn’t ever been to the U.S.

I’m in constant awe at what they did. I feel so lucky, but I also feel that compared to them, my life has been a cake walk. They’ve always told me what to do, not in a bullying way but to give me guidance and context. But they certainly didn’t have that; their lives were very pioneering.