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Poverty in Africa

There's been a swell of interest lately in the blogosphere about a 2005 interview with Kenyan economics expert James Shikwati. I didn't see that interview when it was new, and it is very interesting, so I'll try not to hurt myself while jumping onto the bandwagon.

In the interview Shikwati argues that international aid to Africa has "been damaging our continent for the past 40 years. If the industrial nations really want to help the Africans, they should finally terminate this awful aid. The countries that have collected the most development aid are also the ones that are in the worst shape. Despite the billions that have poured in to Africa, the continent remains poor."

He does a good job explaining the second-order effects, the unintended consequences, of that aid. But it pains me to read economic arguments that are only half right because they don't address the fundamental issues. It is true, as he argues, that food aid puts local farmers out of work and that clothing aid puts local textile workers out of work. But that's only half of the story, of half of the story!

Let's focus on food aid. The belief that food aid is a net detriment to a country is a fallacy. It rests on thinking that a person whose job is destroyed will not be able to find another job — that there's only a certain amount of work available, and that unemployment is a result of too many people competing for too little work. But that simply isn't true. Human desires are limitless. Unemployment is caused by macroeconomic (usually monetary) factors, not in any sense due to a lack of available work. (It can also be caused by political policy.)

It is true that inconsistent food aid makes business planning more difficult. But it isn't right to say that food aid is harmful overall. It isn't! The people who cannot work as farmers due to the aid are available to do other work. The economy gets the food and this other work. It's an obvious net benefit.

The other half-story in the interview lies in Shikwati's explanations of how aid benefits corrupt politicians. Again, he's right about that effect. But the larger implication — that Africa would become more successful if foreign aid were ended — is wrong.

Aid is a scapegoat. It's not true that aid is keeping Africa poor. It's a mistake to think of it in that way in the first place. Poverty is the natural and default condition of humankind; it's wealth, not poverty, that needs to be explained! It is more accurate to say that Africa is "not growing rich" than to say it is "being kept poor."

In a word, wealth is created by capitalism. To become wealthy Africa needs secure property rights, enforcement of contracts, stable currencies, freedom to compete, freedom to profit from success… the whole panoply of policies that describe a capitalist society. Instead, it has leaders like Robert Mugabe who pursue the opposite of all the above, to predictable effect.

Cutting off aid will not by itself get rid of Mugabe or foment political improvement. Aid is not holding Africa back. Rejection of capitalism is.

A capitalist Africa with foreign aid would be richer than a capitalist Africa without foreign aid. An anticapitalist Africa is doomed to be impoverished no matter the level of foreign aid.

The institutional improvements needed to make Africa more successful are largely orthogonal to the issue of aid. Cutting off aid could weaken some of the corrupt politicians who are part of the problem, but as experience with Cuba has shown, isolating a bad leader doesn't necessarily get rid of him or improve his policies.

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