30. Dambisa Moyo Says Foreign Aid Can’t Solve Problems, but Maybe Corporations Can

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1:04What hasn't my guest M.B. Samoyo done? Born in Zambia at a time when blacks weren't even given birth certificates. She's earned an undergraduate degree in chemistry, an MBA, a second master's degree, this one from Harvard, and an economics PhD from Oxford. She worked at the World Bank and Goldman Sachs. She's written four bestselling books, was named one of Time Magazine's 100 people who shape our world. She runs marathons, and she sits on the board of some of the largest corporations in the world. Welcome to People I Mostly Admire with Steve Levitt. If you know me at all, you know I would never invite someone on this show just because she has a sparkling resume.

1:46What matters to me is that Dambisa has big, radical ideas. Most prominent among these ideas is her claim that the more than$500 billion in foreign aid that has been directed towards African countries over the last 50 years not only hasn't helped Africa, it has actually hurt Africa. Bill Gates vehemently disagreed. When her book Dead Aid came out, laying out her arguments on the topic, Gates described the book as promoting evil. Who's right? I have no idea, but I'm excited to hear what she has to say.

2:24We are both economists, but very different kinds of economists. I study little things and you study big things. So I'm expecting you to teach me a whole lot today. Is that a deal? I will do my best. So let's start with Africa. You've been an outspoken critic of foreign aid to Africa. But before we dive into the specifics of your argument, I was hoping you could fill me in on some facts and understanding about how Africa has been doing economically. What's been going on? In the last 10 years, Africa hasn't really been decoupled from the broader constructs of the world. Trade growth has slowed. Capital flows have been challenged because of capital restrictions and controls for repatriating money.

3:06The advent of China across Africa, but obviously globally, China is today the largest foreign lender, trading partner, as well as the largest investor in many countries. And of course, Africa has been a beneficiary of that with awards and all of what that entails. Where we are today, the situation is precarious, to say the least. Although we have seen a number of COVID cases, Africa has, knock on wood, seen nowhere near the sort of devastation that one might have expected. And indeed, we're not seeing in India. So there's a general impression, or at least my impression, that the economic performance overall, the growth rates in Africa, the incomes are extremely low and that may be surprisingly low given people's expectations over time.

3:55Is that an accurate statement? I know Africa is a big continent with a lot of diversity. Yeah. So listen, as economists, we love numbers. So let's put some numbers on this. In order to double per capita incomes in one generation, a generation being about 25 years, you need to be growing at 3 % per year. And for countries that are a lower economic base, we've seen that we need them to grow at an even faster pace, often around 7 % a year. Before COVID hit in earnest in 2020, pretty much all the large economies in Africa were growing far below that 3%. So take South Africa as an example. It struggled post-financial crisis, was growing around 1 % to 2%.

4:39There are three key drivers of growth, capital, labor, productivity. And in all these respects, Africa had relatively solid capital bases. In fact, before the COVID situation, they had debt, but it wasn't of any worrisome level. Their populations are skewed to the young. And these regions of the world have invested heavily in mathematics and science. And then productivity, really, this is about importing best practices and technology, ability to leapfrog was really supposed to be an additional driver of success. But the truth is we've not seen the outperformance you'd expect from Africa or more generally from the emerging markets.

5:17So thinking about the longer term, if we go back to the 1970s or maybe the 1960s, places like Singapore, South Korea, Indonesia, Malaysia, they would have had incomes per capita that were similar to Africa. Lower even. Lower. China as well. And so they've been this huge success story. And there's really no country on the African continent that has been what you'd call an enormous economic success story. Is that a fair statement? Maybe save Botswana. I think Botswana tends to be put in the same camp as South Korea. They both received aid money. They're what they call aid graduates. But I think the first point is that these tend to be relatively small countries.

6:00Singapore, if everyone could replicate what Singapore has done, we would. But a lot of these aspects and the success story around Singapore is one that is hard to scale. And also, in many respects, I'm really reliant on what I'd call autocratic, non-democratic philosophies, which are hard to replicate more and more in a democratic world. China is still poorer on a per capita income basis than some African countries. But your broader point is correct, that there's clearly been a schism that emerged between other poor regions around the world versus the many countries in Africa. And I explain why I think that is the case in my first book, Dead Aid, which came out in 2009.

6:40And to my mind, it's really that you've had open-ended policies that have perpetuated an aid system which undermines the efficacy of your government. So if you think about places like South Korea, China and Singapore, what they have on many African countries is that they have governments that are incredibly efficient at delivering on very lofty goals. And I like something that Mike Bloomberg would say about the most efficient government. These are governments that are data driven. They're forward leaning. They operate based on measured outcomes and they're not corrupt. And I'm afraid to say, not all, but many African countries, they fall at those hurdles.

7:32So let's talk more about your book, Debt Aid. It has a completely counterintuitive conclusion. And that is not only is foreign aid not helpful, it's actually harmful to Africa's economic workings. And so I know you make a thorough, nuanced argument about it, but do you just want to take a few minutes hitting the high points of why you think that foreign aid to Africa has actually been actively detrimental? A very good friend of mine always says, Dombisa, the numbers don't lie. And I think I'm going to extend that to say the evidence doesn't lie. We've had over 60 years of these large systemic programs going from government to government or multilateral institution to African government.

8:16And look at the performance. What really is disappointing to someone who was born and raised in Africa is that we actually know where economic success comes from. We know that countries that trade more do better than countries that don't trade. We know that countries that have efficient governments do better than countries that don't. countries that are more forward-leaning in terms of how they operate, do better than countries that are dependent on outside external help. So there really oughtn't to be some big mystery about, you know, Africa's failure to develop in a sustained way. But I think that aid in of itself is not a problem.

8:55The problem is that the aid system in Africa is given in perpetuity. It's a completely different model from the Marshall Plan, which was about$100 billion from the U.S. to help reconstruction in Europe. That was a five-year program. It was sharp and finite. It's completely different from the aid graduates that I referred to earlier, the Botswanas and South Koreas, who also received aid and were able to transform into middle-income countries. We're talking about a system that has no evidence in history or prehistory of success as a tool for economic growth in a sustained way. It imbues corruption.

9:33It creates factions. You end up undermining the political environment because very smartly, the local African governments court and cater foreign donors, and they don't really care about the local construct of what their people need because their ability to stay in political office is not determined by the local citizenry. But there's just so many other aspects of how corrosive large foreign aid programs can be. Ultimately, Steve, we can do better. After over 60 years of doing the same thing, and given the counterfactual evidence that we see elsewhere, it just seems to me somewhat foolhardy that we keep going down this route of systemic aid.

10:12Rather fortuitously, I think two things have happened. I say this with a little bit tongue in cheek, but first of all, China has emerged as an alternative suitor. The Chinese model, again, notwithstanding its challenges and its limitations, is a fresh approach and actually creates competition against the traditional aid donors. And the other thing that's happened is that Western donors are pretty much running out of money. They have their own economic challenges. China is the largest foreign lender to the U.S. government. It is a point of irony that the U.S. government is essentially borrowing money from China in order to give aid to Africa.

10:46I'm being a bit flippant, but the sort of circular nature of how the world is functioning today and how back-footed Western economies are in terms of growth, technology, debt burden, suggests to me that this is potentially an opportunity for Africa to reset and do better. Just really incredibly simplifying what you've said, the evidence suggests that Africa has done quite badly. We've been following the same model for 50 years. It hasn't improved things. And then there's government corruption and you draw a causal link between the fact that the foreign aid actually encourages and fosters government corruption.

11:27Now let me step back and talk more generally that on macroeconomic topics, it's often hard to establish causality. There's nothing like a randomized experiment or not even typically a good accidental experiment of the kind that I tend to analyze. Do you think there's room for reasonable people to look at the same set of evidence you just showed us but come to different conclusions? Or do you think people who argue that aid works are just ignoring the facts? So let me just take a step back and say there's tons of research on this that looks at not just correlation but causality. But I think you touch on a much more interesting point.

12:04And I would argue that over the 60 plus years that aid has been a dominant feature of Africa's public policy, we've been moving the goalpost in terms of what exactly aid is meant to do. I have been very clear. I am not talking about interventions to help a catastrophe, emergency aid, and I'm not talking about NGO aid, which is relatively small beer. I'm talking specifically about systemic aid, these large aid programs that go from government to government or from multilateral institution to government in perpetuity. If you look back at the original thinking around aid, and my book was dedicated to Peter Bauer, Lord Bauer, who was a Hungarian-born British economist.

12:51And he, back in the 1960s, cautioned about these open-ended programs. And he was largely dismissed, but he was absolutely right that they would end up really not achieving their fundamental goal of creating sustained economic growth. People who are supportive of the aid regime argue a whole host of things as evidence that aid is working. They would say, yes, it's true, economic growth has stalled, but never mind growth. Because of aid programs, a million girls across the African continent have been able to go to school. or we were able to build health facilities over 20 countries because of aid.

13:29That to me is a cop-out because that very often requires or encourages African countries to remain dependent on the aid system because it's got nothing to do with expanding that GDP pie and making sure that African countries can actually grow and contribute and have a seat at the table in the global economy. Part of the problem is that the metrics for judging the efficacy of aid have tended to move. And if we go back in history, it was supposed to help to jumpstart economic growth. And it's clear from the data that is not what it has done. On a per capita basis, how much is aid per year? I mean, my hunch is that compared to the economies as a whole, foreign aid's pretty small.

14:13What's it? I don't know,$20 per capita or$10 per capita? It is small. You're absolutely right on a per capita basis. But the problem is not that the absolute amount is small. The problem is that it is a large proportion of the government's budget. And those governments are not able to deliver and change in a way that is supportive of longer term growth. I think that really strengthens your point because just thinking common sense wise, if you give$20 directly to every person in Africa, I wouldn't expect it to have a very big impact on anything. But as you're saying, what you end up doing is giving a big pile of money to a bunch of corrupt leaders who now focus all their attention on figuring out how to steal that money instead of how to serve the people.

15:01I definitely started as a skeptic as I read your book. And that was the point to me that was most compelling, that seemed to really open up to the possibility that this really could be actually hurting these countries. Precisely. So you have had your critics. Bill Gates said you were doing the devil's work or something like that. How did you respond to that? Well, I've subsequently had a number of conversations with Bill Gates. He makes some good points. I think there is a case to be made around whether or not something like health care, and I think obviously on the back of the pandemic, this has strengthened this argument that health care is actually not a national public good.

15:41It's a global public good. And in that respect, it doesn't matter where the money comes from if aid programs are going to be used to support health initiatives in Africa or South America or Asia, because ultimately it's a global society. You know, public goods such as health care, education, national security, infrastructure. I mean, in the United States, if those things are not delivered upon, you judge your government on that. And that is the sacred contract of democracy, the contract between the individual citizen and the government. So, listen, like many things in economics and society and life in general, there are nuances.

16:17But suffice it to say, we can do better. We can put a man on the moon. I think we can deliver sustained economic growth in Africa. So the Western model is give aid to governments. The Chinese model, say, to build roads. Is that a fair assessment? And you think the latter model is better? I think that's, if I may say, is a little bit simplistic. China has been in Africa since the 1930s and 40s. They built a lot of infrastructure back then. And they are now, as I mentioned earlier, the biggest trading partner, lender, as well as foreign direct investor in many developed and developing countries, from Australia, the United States, to emerging market economies.

16:53as people who are interested in inquiry, objectively speaking, we should be interested. What is it that they've done? This is an economy that was the largest economy back in the 1700s. They squandered 300 plus years by making mistakes and they're back. They are now investing in banks. They own 20 percent of one of the big banks in Africa. They're investing in telecommunications. China, to my mind, is and is going to continue to be a key piece of the global economy in terms of trade and investment and lending. And if the West wants to keep that crown or continue to be at the tip of the spear on all the issues that the world is facing, then they need to do a lot more homework, but also fundamentally upgrade the approach to how they interact in the emerging markets more generally.

17:42You're listening to People I Mostly Admire with Steve Levitt and his conversation with economist Dambisa Moyo. After this short break, they'll return to talk about Dambisa's new book on corporate boards.

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19:34Yep, we said free. Oh, and did we mention the cafe? So what are you waiting for? Come see all that's in store. Visit the Wayfair store today at Edens Plaza and Wilmette. Wayfair, every style, every home So today's listener question comes from a gentleman named Gary. And Gary writes, Mr. Levitt, my question is, should we have lotteries, like in Ohio and California, to incentivize people to get vaccinated? Should states or governments use additional tax dollars for that purpose? I'm not even sure why. However, it doesn't feel right. So to begin answering that question, Gary, let me go back in time to April 2020.

20:17That was near the start of the pandemic, long before vaccines were available. The best hope at that time of containing COVID-19 was widespread testing. And I got together with Nobel laureate Paul Romer and Jeff Sieverts, and we wrote an op-ed in USA Today highlighting the need to provide financial incentives to get people tested. And one of our proposals, among many, was that we should enter people who are getting COVID tests into a lottery, which we called Panda Millions. But unfortunately, we couldn't sway public policy. Aggressive testing might have headed off the second, third, and fourth COVID waves in this country, saving hundreds of thousands of lives.

20:56But we didn't do it. Well, better late than never, with Ohio leading the charge in introducing a lottery to reward those who get vaccinated, and a growing number of states following that lead, we're now seeing the power of creative policies in battling COVID. And the early data suggests the lotteries are working. Since Ohio announced their lottery, vaccination rates are about 40 % higher than would have been expected based on previous trends and what's going on in neighboring states. So what's my major criticism of the lotteries? The prizes are too small. The COVID pandemic has cost the U.S. federal government alone about$5.5 billion per day in lost revenue and extra expenditures.

21:39Who knows how many days of future lockdowns would be prevented if we quickly got to herd immunity, but I think the number might not be small. How could we possibly get vaccination rates high enough? By offering a lottery that was so big that it was all anyone talked about. The biggest lottery ever in the USA had a prize pool of$1.586 billion. So how about, to get people's attention, we had a$15 billion lottery. We could pay out$1 million to 15 ,000 different winners. Or maybe it would be better to pay out$100 ,000 to 150 ,000 Americans. It sounds extravagant, but it would still be less than 1 % of the cost of the recently passed COVID stimulus deal.

22:25And every penny would go to the American public. The lottery money isn't wasted. It's just being redistributed from those who choose not to get vaccinated to those who do get vaccinated. And since getting vaccinated provides a positive externality, it's actually economically efficient to do that kind of redistribution. When viewed that way, why not a$150 billion lottery? And I would do one more thing. I would enter every American's name into that lottery, whether they were vaccinated or not. And I would publish every name that was drawn so that the unvaccinated people whose names are drawn but can't collect their$1 million payout, they not only have to live with that regret, they also have to face the shame of everyone they've ever known calling and writing to congratulate them, only they have to say over and over, actually, I didn't win the million dollars.

23:17I never got vaccinated. I think that is the kind of embarrassment that might convince just about anyone to get vaccinated. So, Gary, that's my answer, and I love the questions that listeners have been sending. Keep them coming. I read every one. The email address is pima at freakonomics.com. That's P-I-M-A at freakonomics.com. Now back to my conversation with Dembisa Moyo.

23:50Halfway through my PhD program, my advisor Jim Paterba sat me down. He complimented me on the quantity of output I had produced, but he correctly noted that all my papers had little ideas. He told me I needed to come up with some big ideas. Now, I mentioned it briefly in my episode with Paul Romer, that I took those words to heart, and I spent 10 hours a day for the next four months thinking big thoughts. I didn't come up with a big idea, not even a hint or a beginning of a big idea. But I did have one huge insight, and that was that I was a little idea person, not a big idea person like Dambiza.

24:29It's fun to talk to people like Dambiza who think about the world's biggest, toughest problems. But every time I do, I think to myself, thank God there are so many little, interesting, manageable problems to keep people like me busy. Is my real estate agent ripping me off? How much money are crack dealers making? Do people quit as much as they should? I'm going to try to take the second half of our conversation in a very different direction. Dembeza's latest book is about corporate boards. And I'm curious to hear if she has any radical thoughts on that topic.

25:04So your most recent book just out is called How Boards Work, and it's about corporate boards. And it's very different from Dead Aid in at least two ways. Number one, it's about some of the richest people on the planet rather than some of the poorest people on the planet. And number two, I would say it's something of a celebration of boards rather than a condemnation. It's clear what your objective was when you wrote Dead Aid. What do you hope to accomplish with the new book? I confess that the title of my book, How Boards Work, is probably a misnomer. My first goal is to reassert the importance of corporations.

25:43Corporations' revenues in the United States are two-thirds of U.S. GDP. They employ people. They are at the tip of the spear in terms of innovation. They have enormous tax base for government. They are involved in infrastructure build-out, and they are becoming ever more important in terms of the environment, social, and governance issues that affect communities around the world. The second issue was really to give the reader an understanding of why and how the board works. And the board, of course, are the 12 people who sit atop of these large global and complex organizations. But I wanted people to understand what their mandate was, what their levers are to influence change.

26:26And most importantly, to my mind, is to give them a clear understanding of why it's difficult to effect a lot of change, particularly in areas that have traditionally been the purview of the government. One of my favorite topics or quotes is something that President Obama said, which is that by the time something hit his desk, it meant it was extremely difficult. If it were easy, somebody else would solve it. And it's the same thing with boards. We are faced with this issue of ESG and stakeholder capitalism in the 21st century. If this were easy, somebody else would have solved it a long time ago.