The Munk Debates Page 12

  HERNANDO DE SOTO: But sometimes there are quick fixes, Paul. How did Japan, a feudal country in 1945, become one of the most developed countries in the world ? First, it happened because Japan revamped its feudal institutions by protecting property rights, thereby becoming one of the most powerful countries in the world. Second, how do you explain the development in China? Even though China is still run by the Communist Party, it has adopted capitalist principles and protected property rights. That’s why they are able to attract vast amounts of private capital and investment from around the world.

  PAUL COLLIER: I seem to remember that during the late 1940s there were quite a lot of American troops in Japan.

  HERNANDO DE SOTO: Well, how about China, Paul?

  PAUL COLLIER: Let me finish my story on the World Bank during the 1990s. The former President of the World Bank, James Wolfensohn, a member of the banking community, believed that infrastructure in Africa was going to be financed by the private banking sector. He believed that there wasn’t any role for the World Bank, so the bank closed its lending on infrastructure. And what did Africa get? Did it get a lot of banks coming in and financing infrastructure? No. Eventually China stepped in. But China is a two-edged sword in this context. The Chinese deals are for infrastructure in return for the rights to plunder — and sometimes that’s okay and sometimes it isn’t. But it is not an example of the replication of the Western banking model. The institutional base to provide big private capital doesn’t exist.

  HERNANDO DE SOTO: Every country is a special case. There were American troops in Japan, but that is absolutely irrelevant. There are troops in Afghanistan and nothing has happened. There are U.S. troops in Iraq, and nothing has happened. The reason Japan developed is because, in addition to troops, there was a plan. And what I am saying is that one of the things I get from reading about all of the aid programs is that these programs focus on charity and handouts, not real economic development.

  PAUL COLLIER: There I agree.

  STEPHEN LEWIS: How can you agree? Agreement is betrayal. I am not prepared to sacrifice the African continent for a free market, neo-liberal ideology, which in large measure has not been tested, is unwarranted, and probably won’t work. And the truth of the matter is that Africa has not been able to produce the foreign direct investment which many people — surprisingly enough, myself included — have tried desperately over the years to get from the multilateral and multinational world. Trade is closed to Africa. The world is doing everything it can to shut Africa down. If I may make the point, China’s oil involvement in Sudan is what sustains the genocide in Darfur. Involvement with China is definitely a pact with the devil. Dambisa has said, “I want to have food on the table for a rural woman.” She doesn’t want to wait forever, and she can’t embrace human rights in the process. And I understand that. It is a powerful, visceral feeling. But the truth of the matter is that with China you never know where you stand, and the abrogation of human rights is so fundamental and so extensive that it may compromise entire nation-states down the road.

  All we’re saying about aid is that it can help you with infrastructure and agriculture. Aid can put girls into secondary school and then into universities, so that they can then do the work that Dambisa wants countries to do. And I do not consider it negative to say that people are fighting for survival. It is an objective truth, and it seems to me that it is legitimate in concert and in partnership with Africa to assist that survival through the aid process. It is not about being neo-colonial in the process. It is simply about being decent human beings who respond to a dilemma or a predicament in another part of the world, recognizing that in the course of time — and let it be sooner rather than later — those countries have to take over matters that concern them without interference from abroad.

  DAMBISA MOYO: Sixty years and one trillion dollars. Aid has not delivered. You do not live on aid in Canada. You are pushing a strategy that has no evidence of working anywhere on earth. There isn’t a single country that has meaningfully reduced poverty and achieved long-term economic growth by relying on aid to the extent that African governments rely on aid. And when aid has worked — the Marshall Plan, for example — the interventions have been short, sharp, and finite. Not the open-ended commitments that you are supporting here. With respect to political institutions, democracy, governance, and all of those lovely buzzwords that we like to throw around, the fact of the matter is that we will never get them in Africa until there is a middle class on the ground that can hold governments accountable. It is not good enough to try to shoehorn these types of institutions into a continent where ultimately the governments are not incentivized to cater to their domestic populations.

  Let me give you an example: one of the aid darlings, Ethiopia. Everyone wants to give money to Ethiopia. This is the second largest population in sub-Saharan Africa, a country of 100 million people. Ethiopia has a 2 percent mobile phone penetration rate, and there’s no reason why you should know the significance of this statistic, but let me give you some colour. In Africa today, the mobile phone penetration rate across the continent is about 30 percent. There are at least thirty countries on earth today where mobile phone penetration rates are more than 100 percent. In other words, there are countries where people have more than one mobile phone. If you go to places like Europe, it is very common. Now, we know how mobile phones can help Africans. For example, in Ghana it is a tool people can use to increase their income. Somebody can use their mobile phone to text into town A and find out how much a cow is worth — say, twenty dollars — and then text to town B and to find out how much a cow is — say, forty dollars. So they would then know to take their cow to town B. Mobile phones are also useful in Kenya, where people are using their phones to get information about when the doctor is coming to their village. However, representatives from Ethiopia, an aid darling, skulk around at the G20 meetings looking for additional aid money. Ethiopia has deliberately chosen not to open its market.

  Let me just say this with respect to the question of foreign direct investment. There hasn’t been more foreign direct investment in Africa because doing business across Africa is a nightmare. African governments, by and large, are not incentivized to create the environments that support private investment. In some countries, it takes up to two years to get a business licence. I travelled to Rwanda, Kenya, and Tanzania, three countries that are close to one another. I needed three visas, and I had to change my currency three times. Does this sound like a formula for countries that are interested in encouraging private sector development? No. These countries live and die by donor money. They are not incentivized to do the right thing.

  We know what the right thing is. We know what creates jobs. We know that more trade is better than less trade. We know that countries that have relied on foreign direct investment have meaningfully reduced poverty and created growth, and we know that countries that have consistently sat back and relied on aid have underperformed. We know this. Let’s not pretend. Let us not make up stories. Let’s save the bleeding heart for somebody else. It’s time to change.

  RUDYARD GRIFFITHS: Hernando, I want you to pick up on something that Stephen Lewis said, because I think it’s important. How do the kind of free-wheeling, free market ideas that you’ve espoused in your writing not represent a doubling down on a capitalist model which has been a little tarnished here in the West in the last eighteen months?

  HERNANDO DE SOTO: The first thing is that I do not identify myself as a free-wheeling, neo-liberal. I classify myself as an admirer of socialist form and the free market form of the West. What I’m saying is that these forms are effective in the West. It’s not — like this discussion — left or right. There are certain areas that are grey, and Western countries have been able to work things out. Stephen mentioned Darfur. And yes, the West has to help. But how did the situation in Darfur come about? As a matter of fact, since 1991, there have been fifteen African civil wars and insurrections over territory and property rights. The civil war i
s essentially about tribes fighting over defined pieces of territory.

  Western countries emphasize everything except that which makes them great, which is their rule of law. Don’t forget how violent your eighteenth and nineteenth centuries were. How did the West overcome it? Is there something about the Anglo-Saxon character that allowed you to get over it? Or is it the fact that after the Gold Rush and after the conquest of the west, a social contract with clear definitions of property was established? And, by the way, that social contract was developed by both the left and the right. I don’t want to get dragged into this argument about neo-liberal and other labels. I admire the ability of the West to make both the left and the right function in tandem, which you’ve been able to do so well inside your countries. And, yet, when you go into other countries, you fight, because it gives you a sense of guilt towards your own indigenous peoples. Because you haven’t been able to sort out the conflicts between sovereignty and property. When you do, you’ll also be able to sort out Africa. The wars in Africa are about territory.

  But there is a problem with the term “property rights.” You say “property rights” and everybody thinks, “My God, it’s Ronald Reagan!” “Property rights” is simply the structure of law that sets out ownership, so that Africans can live in peace and no longer depend on the West.

  RUDYARD GRIFFITHS: Paul, why do you think that the China/India model isn’t necessarily open to a lot of African countries?

  PAUL COLLIER: China and India share two characteristics which the bottom billion doesn’t have. One is that they are both huge, and big societies tend to be better governed. We’d like to think small is cozy, but actually small is personalized power and a lot of corruption. Power has to be institutionalized in India and in China, and that helps. The other thing is that neither China nor India are rich in natural resources, and natural resources tend to produce a lot of bad governance. These are the features that are at the heart of the problem of the bottom billion, rather than aid. And there have been examples of aid cut-offs. Zimbabwe, for example, has not received a lot of aid in the last decade; it’s not exactly a model of improved governance.

  DAMBISA MOYO: Zimbabwe received 300 million dollars from the U.K. and U.S. governments in 2006. That’s 300 million U.S. dollars.

  PAUL COLLIER: They have received very little aid in recent years, and similarly Eritrea has tried to cut itself off from aid, but Eritrea is a tragedy of personalized abuse of power. Dambisa started to describe the process of no representation without taxation, but actually the process which forged effective states — which was the process in Europe — was a much more brutal process than just taxation. The process that forged effective states in Europe was military rivalry between political elites in different countries. In order to win the international military struggle, they had to have high taxation to pay for their militaries. And then there was a Darwinian process in which the countries that managed to build the most effective tax system won the international struggle. Europe paid a horrendous price. And we can’t possibly wish that process of international struggle on Africa. In other words, we can understand how the West managed to build effective states and Africa hasn’t. We have to find a different and better way to effective statehood.

  HERNANDO DE SOTO: What about South Korea? What about Hong Kong? What about Switzerland? What about Liechtenstein and Benelux? These countries don’t have to be big to be governed effectively. Why define something different when here in Canada you’ve got something that works? Why not imitate something that works?

  PAUL COLLIER: Countries that are small, poor, and resource-rich have really big challenges in producing an effective state. Some are able to do it. Botswana has managed it. To my mind that shows how tremendously good the early leadership of Botswana was. Social science doesn’t observe hard and fast laws. It works by tendencies. The tendency is for small, poor, and resource-rich countries to fall into a trap. These countries are in a cul-de-sac. And that’s the situation in Africa. It is not due to aid. Aid is a weak instrument that we use to try and get out of that cul-de-sac.

  HERNANDO DE SOTO: We are not against humanitarian aid. We are against the negative externalities that some aid brings with it. We have already said that. Who could be against charity? We are against the negative externalities of aid, and we are trying to improve the system. On that we all agree.

  RUDYARD GRIFFITHS: Dambisa, you know Paul Collier writes quite eloquently in his book The Bottom Billion about some of these large structural factors, including the size of the country, good or poor neighbours, the degree to which natural resources are prevalent or not, and the degree to which they have sea access or not. You offer an interesting rebuttal in your book, Dead Aid. Why is it that the structural factors won’t necessarily overwhelm the types of reform that you’re proposing?

  DAMBISA MOYO: I’m not sure which rebuttal you mean. It’s such an excellent book that there are certainly many rebuttals. The obvious thing is incentives. The West is a society of incentives. The governments and institutions are incentivized to do the right thing. Individuals in the West are incentivized to do certain things. And to the extent that those things fall out of line from the common good, the legal system steps in to manage your behaviour. In Africa, and certainly in the aid system, there is a situation where the donors are incentivized to give money, even though they are aware that the money is not going to the right places. And African governments are incentivized to take the money because it is easier for them to take the money. Who wants to travel around the world pitching bonds to a thousand pension funds when all international investors do is rip you apart and ask you what your agenda is? Why do that when all you have to do is pick up the phone and call the World Bank for the next cheque?

  The question is, how do we get African governments to be incentivized to do the right thing? As I said earlier, African governments have to be on board. They have to get involved. I come from a landlocked country of 10 million people. But in the southern African context we are talking about 200 million people. How do I get my government to be incentivized to be part of the southern African community in a credible and meaningful way that would work to improve the livelihoods of our society? The fact of the matter is, as long as the government has a credible system of aid coming through year in and year out, whether there’s a credit crisis or not, African governments are never going to be fully incentivized to do the right thing. With respect to aid, we have tried many different interventions.

  In the 1960s, we had aid for infrastructure. In the 1970s, we had aid for poverty and growth. In the 1980s, we had aid structured for adjustment and stabilization programs. In the 1990s, we had aid for democracy and governance. And now, in the 2000s, we have glamour aid, where everyone feels like they can adopt a child and start running around the continent with a new scheme. We are not addressing the fundamental point. We will never address the fundamental point by giving money to anyone for free — without any credible conditions. We will have a situation where we get the institutions and the growth and the reduction of poverty that we’re seeking. We know this. We know what China has done. We know what India has done, and Brazil and Russia. Even on the African continent itself, there are countries such as South Africa and Botswana, countries that do not rely on aid to the extent that most African states do. Let’s not try and reinvent the wheel. We know what works. Change your attitude with respect to Africa.

  I’m not letting you — the donor nations — off the hook. I’m not saying go to your homes and don’t do anything with respect to Africa. I’m saying that we know how to intervene. We can provide capital in terms of microfinancing, support entrepreneurship, encourage African governments to open their markets, encourage governements to hold African policy-makers to account, and treat Africans as equals as opposed to children. If we get past that, I’m telling you, my continent will rise and be an equal partner on the global stage.

  STEPHEN LEWIS: Let’s look at a couple of countries which are important. Look at Botsw
ana. For several years in this century, Botswana was receiving four times more aid per capita than the average across the African continent. Why? Because aid made it possible for Botswana to survive the force of the pandemic, and Botswana was able to develop and move to economic growth. The two worked in tandem. Rwanda, a country of which Dambisa is particularly fond — for good reason, because the President of Rwanda, Paul Kagame, summoned his entire cabinet when her book was launched in Rwanda and they all bought copies. And they gave me some aid money in payment for it. I’m going to avoid the obvious. Paul Kagame has been public in his support for Dambisa’s thesis. In fact, he wrote an op-ed in the Financial Times in which he complimented Dambisa on the book. And he wrote that he wanted to reach the day when Rwanda is free of aid — a perfectly legitimate objective. Let me point out that over 50 percent of Rwanda’s present budget comes from aid. Is Kagame happy about that? No. Does he want to release himself from it? Yes. Does he recognize that it’s not possible to do that in a peremptory and abrupt fashion, that if you’re going to build a society with economic and fiscal integrity you have to use aid as the transition point even when you’ve got a country that is pretty autocratic, which everybody agrees has happened within Rwanda? Yes. And there’s no avoiding that.

  You can’t talk in abstractions about where African states will get the money. Aid is used to move those states to self-reliance, to become strong economic entities, and aid is necessary for the transition. Has aid been misused and abused? Sure. I regret that deeply. Has it been used by corrupt oligarchs? Absolutely. I regret that completely. Is the West bereft? There is Citibank, AIG, a number of others, let alone [Bernie] Madoff, that come to mind. I was in the British parliament when the speaker resigned, and I almost had traumatic apoplexy. I went into total withdrawal because the members of parliament had siphoned off so much public money. It bothers me when Africa is singled out as the culprit of corruption. Alas, corruption is an infection internationally which must be dealt with. You would think that it wouldn’t happen in modern nation-states. But it does. And I genuinely believe, Dambisa, we’re not so far apart on this. I want to see the economic growth as much as you do, but I don’t know how they get there without some transitional income to sustain them. And that’s what’s missing.