Thursday, December 15, 2011

Dead Aid - Book Review

The solutions mentioned in Dead Aid are:

1. African countries borrowing on the global debt markets

2. Foreign Direct Investment - We give you money for resources. We give money but expect something we can use in return. We also expect you to cut rates on your share of the 'stuff' mined or processed.

3. Reduce trade barriers by expanding African econ zones, remove subsidies in the US/Europe/Asia, reduce tariffs.

4. Microfinance - Great idea. I fully support this idea.

In Dead Aid, a former Goldman Sachs employee spends 150 pages ripping on the corruption and lack of education in Africa, saying aid has good intentions but is actually harmful, and that aid only creates more problems that create the need for more aid, that creates more problems.The farm subsidies will not be dropped, and why would the world want to rely on African farmers, who have failed so miserably that they have to import food. Zimbabwe went from a food exporter in 1980 to a food importer now despite 30 years of technological improvement in farming. Her solutions remove Western Govts (usually full of do gooders), Christian charities, NGOs and non-religious charities from positions of power of doling out the cash, and replaces them with Wall St banks (bond sellers and traders) and foreign multinational companies who would provide direct investment for resources. So we used to give Africa developmental aid and aid more designed for humanitarian/medical/health reasons (gifts really). Now she wants us to replace that with $$ designed to develop resources for other countries to use, and Wall St bond traders that will control the flow of cash instead of a sympathetic bleeding heart lib or Christian charity. The charities also work to bring US & Euro MDs to Africa to give them basic care that they can't provide themselves. No way is Goldman doing that! That sounds like a f-cking horrible trade of money masters.

This is pretty exploitive or nefarious. When the African countries default, they will have their collateral open to a vulture fund. You think Goldman or JP Morgan is going to be kind? No way, they will sell the rights to the land or mine to a vulture fund that will develop the resources and make big bucks. This already happens to African countries that have defaulted on debt. It also keeps Africa dependent on foreign money, except now the foreigners are going to get something out of it. This system if put in place would be neocolonialism. What the Chinese are doing is cheap resource removal like those aliens in Independence Day. Instead of Victorian era Brits with a paternalistic view of the Africans, you now have Chinese and Wall St guys looking to squeeze every oz of minerals for as cheap as possible. She kept mentioning Botswana as a success story. Botswana has low pop density, huge diamond mine wealth and is de facto run by the DeBeers mining co. An African non-aid success story is a diamond company running a country.

Wall St found a cute native who has her PhD and just happened to have worked at Goldman for 8 years to write a propaganda piece that sets up a perfect situation for Wall St and their big $$ buddies. She can say things no white writer can say, and of course the TV shows will want her onscreen. The book gets a big bestseller push, and suddenly the dialogue is not 'how much aid?', but 'can we stop aid?'. People have donated less to charity, and what do you think will be one of the first things cut as rich countries trim their budgets? It's so devious that I do believe Goldman has thought this one out completely for the perfect front woman. Gosh, they are so f-cking smart & evil. She very carefully avoided anyhealth or educational issues, which time and time again macroeconomic studies show you need to improve a nation's health and education before you can get good economic growth (all of Asia & Brazil come to mind).

Here's a bunch of things that the author left out that might have to be fixed before a privatization program could work:

1. Lower the birth rate. Africans live in such terrible poverty, but they have the highest birth rates in the world. If the birth rate is above 3.0 and you can't feed your current population, you're in trouble.

2. Reduce the rate of rape and murder. Some countries sell rape insurance to women. The murder rates are scary.

3. Reduce HIV infection rate. 20 years of foreign MDs going there and working with them haven't helped.

4. Polygamy & Farming. I kid you not, the polygamy and the ease of farming (which is a female job) incent men to work enough to get the first wife, and then after that the farm allows him to get more wives, but not much else. Things grow so well there & the land is not as densely populated.

5. Education and intellectual capital. Pre-school age African children score incredibly low on intelligence tests, and the education system there is terrible, which doesn't coach them up. They have a limited class of students that go beyond the 5th grade, and then when they do make it to university, they get their degree in the US or Europe and stay there. Their best and brightest leave & rarely come back.

6. Corruption. She bemoaned the corruption issue, but how does it end? How is corruption eradicated or reduced enough to allow for effective government? Argentina & Chile had to have Truth Commissions that eventually sent many top dogs to jail. Do you think that would happen in an African nation? I have a strong feeling the only solution would be, ahem, neocolonialism that cleaned out their govt systems and worked with Africans for 10-15 years to install checks and balances and then slowly ended. Didn't this all just happen in the 50s and 60s in Africa when Europe left?

7. Reduce intertribal rape, murder and warfare. Many of these countries have multiple tribes in them. The stuff I read about the Congo is horrible, and it's a story of people looking to literally cut the heart out of anyone not in their tribe. You can't build a nation with that constantly present from the ground up.There is no trust in a nation with that foundation.

I have no clue how to fix Africa. I think African leaders, businessmen and academics should be the go to people. I think charities with good intentions are a nice social safety net that have prevented mass starvation die offs and perversely kept the birth rates high. I also think Chinese style investment and throwing them to the wolves of the current bond markets would be terrible and set up a neocolonial system. I do think the world will get a bit more insular, and Africa will be forced to deal with many problems on their own if they do not want the gripping hand of Chinese or Wall St businessmen on their natural wealth. If they do not care enough and corruption is too ingrained in their culture, they will just be a natural resource source for the developed world.

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