The Munk Debates Page 13
DAMBISA MOYO: So you’re right to bring up Rwanda. I really wish that instead of me sitting here, as merely a citizen of a continent of a billion people that nobody seems to really care about, it were a president from Africa sitting here explaining their plan. Rwanda is an interesting case. Actually, over 70 percent of their budget is aid money, and frankly, given what happened and the manner in which the world turned away when they were in the middle of the genocide fifteen years ago, it would suggest to me that they have every reason to guilt trip the whole world. Former U.S. President Bill Clinton still feels bad about that. The Rwandan government could guilt trip us and keep asking for ever more money.
So the question is, what is it that President Kagame sees that puts him at the forefront of the people talking about the ills of aid? I’ll share with you what he told me — I’m going to paraphrase his comments about this whole system. His arguments are mainly philosophical, whereas I have approached aid from an economic perspective. But I think it’s very important to give you his key point, which is that any country in Africa or around the world that would sit back and rely on aid has not experienced genocide. They have not experienced a situation where the Western world, the donor community, turns around and walks away. And the fact of the matter is that, by voting for the motion that aid is a good thing and aid programs should continue, you’re actually asking us as Africans to continue to sit back and rely on your tax money to sustain ourselves. We cannot do that. We will remain vulnerable. We cannot do that, especially when you have your own budgetary pressures in the West. Look at the U.S. borrowing from China. The U.S. doesn’t have money either.
STEPHEN LEWIS: I want to make it clear that I chat with Kagame, too. We’ve had very serious conversations about the genocide in Rwanda, and I understand his reluctance to be reliant on aid in the aftermath. But let me make another analogy. You’ve got President Ellen Johnson Sirleaf, the first woman elected president in an African nation. She is the President of Liberia and she wrote a stirring op-ed for the Washington Post, saying that it would be a terrible mistake to cut back on aid for countries like Liberia when they are attempting to transition into modern nation-states. She is the leader of an African country that is coming out of conflict, and she understands the need for aid. But a lot of countries in Africa are coming out of conflict. And it is terribly important to recognize that they all understand that aid is useful during the transition, just as it was for Botswana, which didn’t experience the conflict — just as it is for Ghana, Senegal, Mali, Tanzania, Kenya, Uganda, and Lesotho. All of these countries rely on aid to get them where they want to go. Please don’t disparage it as a vehicle of emancipation.
DAMBISA MOYO: So when is the exit? It has been sixty years.
STEPHEN LEWIS: You have to speak to both the right and the left.
RUDYARD GRIFFITHS: We’re going to have to move on to a question from the Munk Debates web site. “Are web sites like kiva.org — Kiva is a microfinancing/person-to-person investment site — really the silver bullet? Some argue their benefits are exaggerated and they have their own negative dynamics. Are these concerns substantiated?”
PAUL COLLIER: First of all, there is no silver bullet. As these countries enter middle income, the transformation is going to be a hard struggle. The Kiva web site, yes, of course is a good thing. I think the benefits of microfinance are real, but they are exaggerated. The truth is that these countries will develop predominantly through larger organizations rather than through microfinancing. There’s a lot of romance around the micro, both in the rural areas and in the urban areas. In many ways, rural peasants and these sorts of tiny businesses of the informal sector are a consequence of the larger failure to get the formal urban economy growing. That is what happened in East Asia. The urban formal economy took off. To get that takeoff we need platforms of good infrastructure which the private sector is not willing to pay for. So we need public capital to lead that process.
RUDYARD GRIFFITHS: We have another question from the web site for Hernando specifically. “Is the trade-off between free markets and foreign aid really a false choice, a false dichotomy? Can’t we have both in equal amounts?”
HERNANDO DE SOTO: Oh, absolutely. And let me tie it in with what I was about to say. I’d like to repeat that I haven’t talked about cutting off aid anywhere. What we have said, and I think that’s the emphasis of both Dambisa and myself, is that aid has got to have clear objectives.
Let’s look at the numbers. The West gives 10 billion dollars in concessional aid a year to developing countries. In terms of overseas development assistance, which comes with many guarantees, it’s about 105 billion dollars. If you add the private sector, assisted by export guarantees and others, it is about 472 billion dollars. Now, here is what happens, and this is the kind of thing that I would like people to understand. It is that the market offers the capacity and the possibility of comparing. I admire this; I see it working in Canada, and I see it working in Europe. And although I am so grateful that you have decided to untie your aid, so that you can use Canadian funds to fund projects that happen elsewhere, we are still talking about 10 billion dollars. What interests me is the other 500 billion.
And let me tell you how that’s tied up, and it isn’t through finance. The way it’s tied up is that aside from the people giving charity and doing good and wonderful work all over the world, there are other sectors which are called export credit guarantees. You’ve got La compagnie française d’assurance pour le commerce extérieur [Coface], the [U.K.] Export Credits Guarantee Department [ECGD], and other organizations that give concessional aid to each developing country and fund studies on how a particular country is going to build a hydroelectric plant or their plans for infrastructure or a meat-packing factory, whatever it is. So they have their local company supervising the studies. Of course, what does a Belgian engineer do when he or she draws up the specifications? They get the specifications from Belgians. A French person calls up ses compagnons, and the British call up their friends, because that’s where they get their information. The engineers write up the specifications and they tender them. Fair and square, according to the World Bank. And overall, the average surcharge is 60 percent. Let me tell you, using figures from the Pakistani National Development Commission, prices for projects coming from Germany could go up 392 percent for using so-called assistance aid, over those in the market. And in the case of Italy, it is 240 percent. In the case of Japan, it would be 123 percent. It isn’t that the German government wanted to do this, or that the Japanese government wanted to, it is that the private sector will always seek profit. Countries receiving aid must be allowed to shop for the best prices in an open transparent process. Make aid compete with the private sector. Let’s get the price out in the open instead of tying it.
RUDYARD GRIFFITHS: The next question here is from someone writing about Haiti and saying that Haiti is a country in which Canada has invested a lot. It has various national and other connections to Canada. What are the one or two specific policy prescriptions you prescribe for Haiti? Let me start with Dambisa, and then I’ll go to Paul.
DAMBISA MOYO: I think Haiti is another example of the failure of an aid system. People want jobs. It’s as simple as that. They don’t want charity. They don’t want handouts or sympathy or guilt or pity or whatever you want to call it. They want jobs. The question then becomes, how do we get a situation where we can create jobs in a place like Haiti? There have been a number of interventions over the years. A lot of them have been aid-based interventions in places like Haiti. Of course, the political system there is unstable, but again I would argue that is essentially an artifact of the aid model. And when we start thinking away from the aid model, the obvious alternative is the free market system, which has, whether we like it or not, delivered wealth. I refer you to U.S. President Barack Obama’s inauguration speech. If I may paraphrase, he did say that the free market system is still the best system in creating wealth and creating freedom. So we might all be tempted to t
hrow out the baby with the bathwater, but let us not forget that the free market system has still delivered over the long term. And I would argue that, unfortunately, this is not the system that is applied to places like Haiti. We continue to push aid. It is the easy thing to do. We just send them a little money and keep them out of our hair and, unfortunately, that’s part of the problem.
RUDYARD GRIFFITHS: Paul, Haiti is one of the countries that you’re advising right now, is that correct?
PAUL COLLIER: Yes. I was in Haiti a few weeks ago. I addressed 250 businessmen and women there. I got a standing ovation and someone said to me, “You realize that 80 percent of the entire private wealth of Haiti is in this room.” It is a small economy. But it is a classic case of a country that has not been able to develop its own resources. Haiti needs effective international support across the full range of policies, otherwise it’s in a cul-de-sac. Until recently, Haiti hasn’t had a full range of intelligent international policies. Haiti has had the politics of gestures rather than effective intervention.
But at last in Haiti, the international community is getting it right. The hardest thing has been the Brazilians going in and securing the peace. They’ve been there five years, and have made the difference between large-scale violence and order. Without order, you can’t do anything. But that’s been done. The next thing was to create some economic opportunities. And Dambisa is entirely right. The key thing in Haiti is jobs. Jobs for young people. It has one of the fastest growing populations in the world, and Haitians need jobs. There aren’t any. We know how to create jobs in the private sector through areas like manufacturing. But Haiti is not competitive against China. And that’s where trade policy comes in. America has given ten years’ guaranteed privileged access to its markets for Haitian products. And now with that privilege of access — and Haiti has had it for eighteen months — nothing has happened.
Why has nothing happened? Because the private firms that could have moved in were saying that the infrastructure was terrible. Would the private sector fund the infrastructure? No, the private sector is actually waiting for public sector guarantees to fund the infrastructure. Now, the public sector, which basically means Canada, has a choice as to whether to continue with the old aid agenda, or switch the agenda to financing the infrastructure, which would then unlock private investment. That is the strategic use of aid, and that’s Canada’s decision now. But if Canada and the international community give up on Haiti, if the Brazilians go home, if the U.S. says, “Forget it, we are going to give the same trade deal to everyone,” Haiti will plunge further into despair. So we have an opportunity, as an effective international community, to make Haiti’s future very different from Haiti’s past. I hope we take it.
RUDYARD GRIFFITHS: Hernando, I want to hear from you, because I believe that the government of Haiti is looking at what you’re doing at your institute. And they’re applying some of those ideas to the challenges that they’re facing on the ground.
HERNANDO DE SOTO: Absolutely. First of all, Paul, I would request that you thank the Brazilians and the Peruvians, because the other troops in Haiti are Peruvian. Secondly, what I think is important, before getting into economics, is the politics of it. Haiti needs to be able to represent its own people. There is a tendency in the West to be outfoxed by the Third World. If a Third World country elects a parliament or establishes an executive branch or a judiciary, the West sends in Jimmy Carter to say we did it right. It’s a lot deeper than that. In the West, parliamentarians respond to specific districts. And they have got to address the questions of a specific constituency. In Haiti, like in all of Latin America, there are no real district elections for politicians. They come from party lists, and what happens therefore is that the parties do not know or respond to the grassroots. They respond to the politicians.
So, I would say a fundamental reform in Haiti would be to get real democracy. We can’t invent it. The West has already invented it. So let’s imitate what you’ve got, which is local representation and decentralization, which is making sure that politicians govern according to feedback, which is where we in the Third World are really going wrong.
Third, I think it is important to understand that Haiti isn’t alone. It’s one of two countries on an island called Española, where, you may remember, Christopher Columbus landed. And one of the interesting things is that if you look at the border between Haiti and the Dominican Republic, you’ll notice that the Dominican Republic is all green. And when you look at the Haitian border, you can see a straight line and it’s all brown on the Haitian side. What’s the difference? The difference is that President Leonel Fernández and the Dominican government listened to our advice and created property rights. Dominican citizens are actually able to plant seeds, knowing that it is an investment that will pay off, because they own the land. They don’t have that in Haiti, so the first thing they need is a system of property rights.
I remember when I first met Jean-Bertrand Aristide, the former President of Haiti, and the current President of the Republic of Haiti, René Garcia Préval. The first thing they said was that, because of their socialist origins, they were going to implement agrarian reform. They had had enough of former President François “Papa Doc” Duvalier, former President Jean-Claude “Baby Doc” Duvalier, and their high-flung friends. They wanted to establish a system of distribution in Haiti. They failed because they didn’t know who owned what. How can you distribute and redistribute if there isn’t a property records system? There’s only one way to do it. Record them. Then you can decide whether someone has too much or too little. First of all, give them property. When you do that, what will actually happen? According to our evaluation, the value of extra-legal assets in Haiti, both in the urban and in the rural sector, is no less at replacement value. If you own that hut, what would it take to rebuild it? We’re not even going to put in market value, just replacement value, which is about 15 to 20 billion dollars. What’s 15 to 20 billion dollars? It’s forty times more than what North Americans have offered Haiti. So it goes by internal reform.
There’s nothing wrong with Brazilian troops, there’s nothing wrong with Peruvian troops, there’s nothing wrong with Canadian aid. Just stop trying to invent the wheel when you’ve already got the wheel at home and you don’t even apply it to your own indigenous people. If you don’t want to do that, then don’t do that. But please treat us, in the Third World, as white people.
STEPHEN LEWIS: Let me plug Hernando’s book The Mystery of Capital because at the back of the book there are some absolutely fascinating graphs which measure the worth of properties in various countries, extrapolated to total worth, showing that this property transaction is really quite fascinating. I will admit to you, since I have no background in economics whatsoever — I’ve always believed in [Pierre-Joseph] Proudhon’s dictum that property is theft — but I’m gradually being converted, Hernando. But how does all of that, assuming that it is valid — and I don’t dispute it for a moment — meet Dambisa’s clarion call for jobs and Paul’s recognition that Haiti is on the knife’s edge, and that what must be done is infrastructure now in order to bring the private sector into the job creation business? We can forever discuss the undoubtedly fascinating and important dimensions which may come down the road. But how do you get the infrastructure now, if the only way you can get it is through public aid, and then open up the job markets through private capital? I think that’s the essence of the argument.
RUDYARD GRIFFITHS: I’m going to ask Dambisa to end this question-and-answer session with a response to Stephen’s remarks.
DAMBISA MOYO: Well, if it were so obvious that all we need to do is send money to get some infrastructure, then why haven’t we done it after all this time?
STEPHEN LEWIS: Because it is Canada.
DAMBISA MOYO: I don’t know if you’re aware of this, but there have been some amazing innovations in Africa. The Pan African Infrastructure Development Fund [PAIDF] and the Development Bank of Southern Africa [DBSA] ar
e two initiatives dedicated to raising private capital to finance infrastructure. Aside from the Chinese — and I entitle one of my chapters “The Chinese Are our Friends” — they are building infrastructure that the West has failed to build in sixty years. There are roads now in Africa, bridges, ports, railways, where there have not been for years.
If it is really just about infrastructure, then why don’t you just go in and build the roads? What exactly is the problem? As far as I’m concerned, this is just sitting around and having a nice chat. We know what we can do. We know what has been done to generate growth and reduce poverty. There’s no need to sit around here and start thinking about what it might be. Is it a matter of tribes? Is it a question of being landlocked? No. It is about jobs. You don’t bring about those types of job-creating environments by relying on aid. We know what works. Let’s implement it. Let’s stop talking. The fact of the matter is we get an A for theory and an F for implementation. We know what works. Let’s not forget that.
RUDYARD GRIFFITHS: We are going to have the final four-minute remarks from our speakers. We’re going to do this in the opposite order that the introductory remarks were presented. So, Dambisa, we’re going to give you the microphone first, followed by Paul, then Hernando, and then, Stephen, you’ll conclude.