Economist Dambisa Moyo predicts in her new book that the West's economic dominance will collapse unless some very difficult choices are made.
9:30PM GMT 08 Jan 2011
Dambisa Moyo is that rare type of person – an economist who makes waves. Her first book, Dead Aid, angered many in the charity sector by arguing that foreign aid has harmed Africa and should be phased out.
Her second, which is published in London on Thursday, accuses America and other Western powers of squandering their world economic dominance through a sustained catalogue of fundamentally flawed policies.
How the West Was Lost: Fifty Years of Economic Folly – And the Stark Choices Ahead goes so far as to predict that the US will be a “bona fide socialist welfare state” by the latter part of this century.
“Indeed, if nothing else changes it from its current path,” writes Moyo, “it is almost certain that America will move from a fully-fledged capitalist society of entrepreneurs to a socialist nation in just a few decades.
“The trouble is, it won’t be just any socialist welfare state... the US is on a path to creating the worst and most venal form of welfare state [poorly developed and designed] – one born of desperation from many years of flawed economic policies and a society that rapaciously feeds on itself.”
There’s plenty more. If current trends continue unabated, Moyo goes much further than the usual surveys predicting when China will surpass the US in GDP – she suggests China’s new hegemony could include the “redback” renminbi replacing the “greenback” dollar as the world’s favourite currency.
“Think about it,” she urges Americans. “Foreign exchange share prices, the price of copper, the price of oil, all in Chinese renminbi.”
The US and other Western powers will be reduced to second division players and the new global powerhouses will not just be China. Forget East versus West. It’s now the Rest versus the old West.
If Dead Aid was labelled “provocative and incendiary”, How the West Was Lost will likely see reviewers’ lexicons raided for even more emotive language. However, Zambian-born Moyo, 41, is not afraid of being a pioneer. The London-based former Goldman Sachs economist is arguably one of the most powerful women in British business, sitting on the boards of FTSE 100 constituents Barclays and brewing giant SAB Miller.
Last year, she featured in Time magazine’s list of the world’s 100 most influential people and also appeared in Oprah Winfrey’s power list of “20 remarkable visionaries”. She is also one of the World Economic Forum’s “young global leaders” and last year took part in the power-broking Bilderberg Conference, frequented by the world’s movers and shakers.
So what has led her to aim fire at the West’s leaders, struggling as they are with budget deficits and waning economies? The answer, she says, is that she believes the global economy is at an inflexion point in terms of where it goes from here.
“I wanted to write a book that is one-stop shopping for where we are in the world today,” she says. “There’s so much focus on dealing with tactical issues to do with the emergency solution, which are all necessary of course. But people are missing the bigger issues because the way the political structure is set up encourages you to focus on the immediate, rather than what I would say are the important issues, the structural things which have been going on for 50 odd years.
“I hope the book will be picked up by people who are saying: ‘I don’t want to hear all this noise. I just want a clean perspective on what the heck is going on around the world and how is it that we have got to this point.’ ”
So how have we? Apparently with the best of intentions. Moyo says the idea of unintended consequences is a running theme in both Dead Aid and How the West Was Lost, with policies that Western populations have rallied around as great ideas turning out to produce detrimental results.
In this way, she says, Western governments have implemented laudable notions like the idea that everyone should have a roof over their head, receive access to food and be supported in old age
by pensions. These have led to unfortunate outcomes in terms of capital, labour and productivity, the key ingredients for economic growth.
It’s not just the US. “There are tons of examples of UK and European mistakes,” she says. “A classic one is pensions. That’s obviously not an America-specific thing. The British and European economies are suffering under the weight of what is to come. The next great Ponzi scheme after Madoff is probably pensions. Also, it’s not just the United States where performance is declining in a very detrimental and rapid way in maths and science and reading. It’s also very much a problem in the UK.
“And if you compare 1950-1980 with 1980-2000, in terms of GDP growth in the US and many European countries, it’s been exactly the same. Yet between 1950 and 1980, people were living in pretty protectionist regimes and between 1980 and 2000 there was much more capital and trade flows. In addition, real wages have been relatively flat in the US and Europe, so taken together you have a question about whether globalisation, which is another great idea on paper, has actually worked in practice. Has it helped Americans? Has it helped the British people?”
Is there still time to fix these problems? Yes, she says, but the choices are going to be very difficult and may need to be facilitated through political changes, for example in the terms of governments, so they have more incentives to think longer-term.
“We all know what the problems are,” she says. “Which is why I actually think the coalition Government is brilliant because so far they have been able to implement some of the hardest choices of the austerity measures in an environment where it’s much less politicised than if it was just a left-wing or right-wing government in power. You kind of need to strip out the politics.”
It also may require a change of mindset, with Moyo arguing that governments need people who are absolutely focused on long-term structural issues such as education, deficit management, energy, food commodities, longer-term productivity and infrastructure. “The problems have been highlighted but where’s the plan for those issues? There isn’t one.”
It’s these sorts of awkward questions that Moyo seems to most like posing. In Dead Aid she argued that more than $1 trillion of development aid from Western governments to Africa over the past 50 years has not helped Africa but has ruined it, with millions of people poorer because of aid.Destroying the myth that aid works, she said, means making charity history.
Former United Nations Secretary-General Kofi Annan agreed, saying that Moyo made a compelling case for a new approach to Africa, while Rwandan president Paul Kagame bought copies of Dead Aid for his entire cabinet. Some others were not so complimentary, however, with David Roodman, a research fellow at the Centre for Global Development, calling the book “sporadically footnoted, selective in its use of facts, sloppy, simplistic, illogical and stunningly naive”. The pro-aid organisation ONE claimed Dead Aid was “reckless”.
Moyo is unmoved. “I was actually pleasantly surprised,” she says. “I thought it would be much more fractious and that there would be many more NGOs and governments that would be incredibly hostile to the message, but it was actually to the contrary.
“I think there’s clearly a fringe group. I can probably count on one hand the organisations that took a lot of offence and I would argue that many of them have a bigger agenda than trying to help resolve the Africa problem. But a lot of NGOs have approached me. Some asked me to join their boards.
“Many of them just asked for advice because they genuinely want to see a turnaround. I think there’s no doubt in anybody’s mind, whether you love or hate aid, that there’s clearly something wrong. There’s clearly a problem with a system that has not delivered economic growth and reduced poverty for 50 years. Nobody can tell me that things are working swimmingly in Africa. they ain’t.”
Born and raised in Lusaka, Moyo achieved a chemistry degree and MBA at Washington DC’s American University, a doctorate in economics from Oxford University and a masters from Harvard University’s Kennedy School of Government before working as a consultant at the World Bank and then for nearly a decade at Goldman.
“I don’t think my background in Zambia has really affected my lens because my classical training has been Western-style,” she says. “But it’s fantastically fortuitous to have been born African because I don’t feel I have a vested interest to the US or China or wherever.
I feel like I have an impartial perspective on the way the world works. Coming from a continent that’s arguably on the bottom rung, it’s just amazing to see how things operate.”
It certainly hasn’t stopped her from becoming a pronounced free marketeer.
“I think the markets can work in a managed way,” she says. “If they’re left to run rampant it’s obviously problematic, but I think they are the best way of delivering economic benefits and have been shown to be the method to generate the biggest economic benefits to the highest number of people.”
What does she make of the current furore over banker bonuses? “I think some of the proposals coming from Europe are quite interesting,” she says with understatement.
“I’ve seen that they’re going to require vesting schedules on how you get your bonus and there will be caps on what proportion you can earn in cash. There are some interesting things but bonuses are on the whole a red herring. They were an easy target.
“Yes, there might be a need to change things but I think there are more serious things to be addressed. It may be a negative externality of a system but they’re not illegal.
They’re the creation of a system and the only reason that government might be involved in this type of discussion is because they did bail out the banks.
“But beyond that what relevance is there to a broader economy which has some very serious problems in education and health care? I think they are more interesting [than those issues].”
That will please Barclays’ new chief executive, Bob Diamond, but Moyo won’t discuss her non-executive jobs or her time at Goldman, which she clearly doesn’t view as a “great vampire squid”, as Rolling Stone infamously described the investment bank.
She’s already focusing on her next book. Which urban myths does she want to demolish next? “I know what it will be about but I’m not telling,” she smiles.
First, she’ll have to deal with a backlash from proud Americans who don’t agree that the West has been lost.
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