February 2011

Arts & Letters

‘How the West was Lost’ by Dambisa Moyo

By John Edwards

Dambisa Moyo’s 2009 bestselling attack on development assistance to poor countries, Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa, was sufficiently successful to win her a spot among TIME magazine’s “100 most influential people in the world”. The Zambian-born, Oxford-educated economist now takes on an even bigger theme: how “the most advanced and advantaged countries have squandered their once impregnable position through a sustained catalogue of fundamentally flawed economic policies”.

With a mix of indignation, mumbo-jumbo and bewildering confusions, Moyo argues that, since its post-World War II peak, the United States has wasted capital by encouraging investment in home ownership, undermined its workforce by allowing inferior education, and squandered its technological lead by permitting other countries to steal its secrets. The result is the continuing decline of the US and other western economies, and the swift ascent of China, India and the developing world.

If the US is indeed in decline, it’s tough to argue – as Moyo does – that home-building explains it. Like Australia, the US puts about one-sixteenth of GDP into home-building, far less than either spends on business investment – and markedly less than the share of output China puts into home-building. The termination of the American house price boom certainly contributed, but it was the vast leverage of investment banks that transformed a messy American economic downturn into the global financial crisis of 2009.

A basic problem with Moyo’s decline thesis is that, while China and India are rapidly growing, the US is doing pretty well, too. She argues that “America peaked economically” in the 1950s, yet American output is six times greater today than it was in 1950. China has done better in the last quarter-century, but so what? In the same quarter-century, American real GDP doubled. If a billion people are coming out of poverty in China is that so bad?

More troubling are Moyo’s elementary confusions. GDP is a flow, so you cannot speak of a “low GDP stock”. If you deposit US$100 into your bank, it cannot “then make US$100,000 in loans”. Holidays are not capital expenditure. In what sense is the West “fast running out of money” or the US “short on cash”? And, where are these “GDP estimates” that show a “precarious path of forecast decline” for western countries?

Moyo promises a way out of the West’s supposed decline, which is where the book becomes very strange indeed. She wants “closer consideration of the possible benefits of adopting protectionist policies”, evidently seeing new American trade barriers as a good response to China’s export success. The American government, she writes, should also consider defaulting on its debt as a “necessary and temporary reset of the economy”. These are solutions? If Moyo is one of the 100 most influential people in the world, the West does indeed have a problem.

'How the West was Lost: Fifty Years of Economic Folly - And the Stark Choices Ahead' By Dambisa Moyo, Allen Lane, 224pp; $32.95
Cover: February 2011

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