How The West Was Lost: Fifty Years of Economic Folly ― and the Stark Choices Ahead
- By Dambisa Moyo
- Farrar, Straus and Giroux
- 226 pp.
- Reviewed by Louis M. Peck
- March 28, 2011
Aging capitalist countries with failing institutions and irrational policies face off against the discipline, focus, and energy of emerging economies.
Whether by serendipity or strategy, there could hardly be a more timely book this year than How The West Was Lost, given its central themes of debilitating national debt and a dearth of productive public investment ― and the potential doomsday fallout from both.
The publication of this book, which was written before the political upheaval brought about by last November’s election, coincides with the onset of battles between the White House and congressional Republicans ― fueled by the party’s Tea Party wing ― over appropriate levels of government funding and, perhaps more critically, how and even if the federal debt ceiling should be raised.
In fact, the publication date coincided almost precisely with the standoff in Wisconsin over public employment costs, at a time when state governments around the country are confronting massive unfunded pension liabilities and no way to pay for them. “Forget Bernie Madoff, forget Allen Stanford, the biggest Ponzi scheme has got to be the looming car crash that is Western pension funds,” writes author Dambisa Moyo in this interesting but also uneven volume. “It will all end in tears.”
Moyo, a native Zambian who holds a Ph.D in economics from Oxford University, has earned a reputation for aiming such broadsides at the status quo. In her first book, the best-selling Dead Aid, she contended that much outside aid that has poured into Africa has been counterproductive and such support should be cut.
In this work, Moyo takes on an even more global topic: the West vs. “the Rest.” Mostly, though, she focuses on the United States vs. China, which is relevant given that most economists expect the United States to be overtaken by China in gross domestic product sometime in the next couple of decades. “Western states are facing untold financial calamity, their populations aging with few resources to sustain them, much of the necessary political reform remaining politically unpopular, and their economic supremacy susceptible to challenges from around the globe in a way never envisaged before,” Moyo declares. She contrasts that with advantages many emerging nations have, such as youthful labor forces.
In a core narrative that runs just under 200 pages, Moyo examines potential international scenarios in the coming decades. She begins by attempting to outline the underlying causes of the near-meltdown of the U.S. financial markets in 2008, and nearly every other major economic challenge the United States has grappled with ― unsuccessfully, more often than not— in the period since World War II.
Regrettably, and hardly surprising, her effort to present a thoughtful examination of complex issues in so compressed a volume falls short. As a result, the middle of the book reads at times like a familiar laundry list of poor policy choices and lost competitive opportunities, with topics ranging from lagging education and worker productivity levels to insufficient investment in research and development to over reliance on foreign oil.
At times, Moyo veers off on tangents for several pages ― touching, for example, on over inflated salaries in professional sports and immigration policies for skilled foreign workers, while her discussion of more critical matters is so rushed it provides little new insight. And while she strives to provide some perspective on world economic history, particularly China’s roller-coaster status as a global economic power, her discussion of the 1944 Bretton Woods agreement is hardly well served by misidentifying Harry Dexter White, a senior Treasury Department official, as the U.S. secretary of state (a job held at the time by Cordell Hull).
Most disappointingly, when Moyo drops the economic policy equivalent of a couple of neutron bombs just pages from the end, she fails to lay the groundwork and to present the kind of comprehensive argument that might win some measure of support for such measures. The policy options she puts forth? A return to Smoot-Hawley-era trade protectionism and defaulting on the U.S. debt. While mainstream economists have generally agreed, in recent discussions about raising the federal debt ceiling, that the consequences of defaulting on the U.S. debt would be catastrophic, Moyo throws out these startling suggestions with little analysis of their international security implications.
Moyo is most compelling in the opening chapters, when she uses her skills as a trained economist to give readers a valuable tutorial in micro- and macroeconomic analysis. Using this foundation to explain how the U.S. debt binge of recent years came to be, she focuses heavily on the housing bubble that popped at the end of last decade. (Elsewhere, she cites estimates that the ratio of U.S. debt to gross domestic product, which stood nearly 50 percent in 2007, is expected to reach 100 percent by 2019 ― with a growing amount of that debt held by China.)
“Despite the well-known benefits of homeownership … establishing a policy of ‘homeownership for all’ through a government-sponsored subsidy program was a colossal mistake,” Moyo says. “The direct consequence of the subsidized homeownership culture,” she argues, “was a society of leverage, one where citizen and country were mortgaged up to the hilt; promoting a way of life where people grew comfortable with the idea of living beyond their means.”
Moyo, whose career has included stints at the World Bank and the Wall Street investment firm of Goldman Sachs, makes clear that she holds government policymakers responsible for the housing crisis, with banks and bankers “simply operating under the policies stipulated by the governments.” The assertion will doubtless earn her a sympathetic hearing in Tea Party circles, whose adherents put the blame for the 2008 disaster more on government-sponsored enterprises such as Fannie Mae and Freddie Mac than on financial-derivative schemes concocted by the private sector.
But Moyo is likely to give Tea Party enthusiasts a case of acid reflux when, putting aside her criticisms of the recent performance of U.S. government policymakers, she appears to call for a more activist government role in the longer-term international competition between the West and “the Rest.” She declares: “The case for a government-led capitalistic approach (and for not allowing the free market to run roughshod) has seen no more compelling evidence than the 2008 credit crisis.”
She views such an approach as essential for the United States in light of strategies that emerging nations ― China in particular ― are pursuing in regard to important issues such as trade, food security and intellectual property. “China has not always played fair,” she says. (“Why would it?” she adds. “It’s not in China’s interest.”) Yet she concedes it’s highly unlikely that Americans would be willing to give more power to the state, even though, arguably, “more power, more flexibility and fewer committees are exactly what is needed.”
Given the critical nature of the situation she describes and the urgent need to address it, her failure to recommend a well-conceived set of proposals that could move the debate forward suggests that Moyo chose to punt. Or maybe she sees the game as already over.
“Barring unseen eventualities, China is going to win,” she writes. “It may take 10 years, it may take 20, but win it will. If the West does not throw up some real resistance, and change tack on the key ingredients for its long-term strategy ― it’s sure to be sooner than later.”
A Washington-based journalist for three decades, Louis M. Peck was the founding editor of National Journal’s CongressDaily, a reporter for Gannett Newspapers and a visiting instructor in the Medill School of Journalism’s Washington Program. He has also written for publications such as Congressional Quarterly, the Baltimore Sun and the American Journalism Review.