The end of aid, again?

NY Times magazine profiles the economist Dambisa Moyo, a native of Zambia by way of Harvard and Oxford. Her upcoming book, "Dead Aid," calls (apparently) for an end to overseas development assistance, such as that provided by USAID, DfID, the World Bank, and so on, within five years. Ms. Moyo argues that China, which has received small amounts of aid over the past 40 years, has far outstripped African countries during that period based on hard work, and lots of it.

Think about it this way — China has 1.3 billion people, only 300 million of whom live like us, if you will, with Western living standards. There are a billion Chinese who are living in substandard conditions. Do you know anybody who feels sorry for China? Nobody.

Foreign aid, on the other hand, fosters a do-nothing culture that de-emphasizes entrepreneurialism and self-reliance while encouraging corruption on the part of political leaders and bureaucrats. 

Who could argue with her premises?

(I was driving south in Rwanda once, along the eastern shore of Lake Kivu heading down to the border of Congo. The road was semi-bad, we were traveling about 20 km/hr. In one town, kids lined the street and chanted from their French primers, "Donnez-moi un biscuit, donnez-moi un biscuit." The driver, Felix, stopped our vehicle and said to the children, "You have learned a bad lesson.")

William Easterly of course has pushed similar thinking for the past decade or so, citing evidence that only direct foreign investment--not aid--has been linked to improvements in per-capita GDP. And as I've written elsewhere, governments in Indonesia and other parts of Southeast Asia are less than willing to accept World Bank funding--at least, this was the case in summer of 2008--preferring to look for ways to access the Bank's specialists' expertise and that of Bank consultants rather than assuming debt and the strings attached to it.

Does the convergence of these events and opinions signal that we might be reaching an inflection point in our relationship to overseas assistance?

Sure, yeah, maybe. In the U.S., microfinance (don't think large-scale, such as FINCA and Grameen, think micro-donor-driven kiva.org) is still wildly popular, in part because it's more in line with Americans' self-images and bootstrap ethic. But Easterly, IIRC, also demonstrates that micro-finance doesn't lead to economic development. Individuals benefit, but there's no dissemination of the entrepreneurial spirit and, of much greater importance, no significant increase in the money supply. The micro-entrepreneurs make out (although less clearly and less often than is touted by Grameen), but it's at the expense of other, less-well-capitalized or less-well-run local businesses and individuals.

So, per Easterly and per Moyo, the goal is DFI, direct foreign investment. But it's difficult to imagine that a competition among kleptocratic governments in African and Asian countries and multi-national corporations in rich ones, plus China, is the most effective way to generate real benefits for rural and urban poor. The phrase "Race to the bottom" doesn't adequately encapsulate the environmental, cultural and economic costs of this free-for-all.

(I've seen the tailings that flow out of the Freeport-McMoRan coppermines in Timika, West Papua, still. I've been told that the majority Indonesia shareholder in that mine is a single anonymous individual (nee Suharto). The copper, gold and revenues have unimpeded transit out of Papua. Sure, perhaps there's a trickle-over effect when mine-derived capital is reinvested in an Indonesian mobile-phone company, but the local costs clearly exceed the local benefits.)

The answer, I'm sure, isn't telling poor-country governments to "brace up" for an end of aid and a return to private-sector primacy. Nor is it unloading millions in unwanted aid from above. More from Ms Moyo:

‘‘Dead Aid,’’ as your book is called, is particularly hard on rock stars. Have you met Bono? 
I have, yes, at the World Economic Forum in Davos, Switzerland, last year. It was at a party to raise money for Africans, and there were no Africans in the room, except for me.

I contend that the answer lies in a much more nuanced mix of aid and investment, with both types of in-flow subject to greater oversight, much more participation in decision-making by the grassroots, and with measures that balance social spending--on, say, schools and hospitals--with support for small and micro-businesses with large-scale DFI. World Bank personnel, as far as I can tell, have some idea of the problem and of solutions of this style; it's doubtful that they have the skills or mechanisms to pull together such an admixture. 

Admittedly, it's tougher than telling Bono to get stuffed.