Dambisa Moyo: 'Globalisation may not be as beneficial as promised'

The Monday Interview: Sean O'Grady meets the economist who dares to say the unsayable
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According to her website ( dambisamoyo.com) Dambisa Moyo "is an international economist who comments on the macroeconomy and global affairs." This hardly does justice to either her current profile or the progress she has made from being a mere economist to her current status of iconoclast and on to the sunlit uplands of "public intellectual", rarer in the Anglo-Saxon world than in more thoughtful societies such as France or Japan.

Moyo was included in Time magazine's 100 Most Influential People in the World. She holds a PhD in economics from Oxford and a Masters from Harvard, and her career has seen her passing through the ranks of the World Bank and Goldman Sachs. She is soon to be interviewed at the London School of Economics by the historian Niall Ferguson, and will be a star turn at the Davos international economics shindig soon after.

One critic – in fact her former tutor, the Oxford economics professor Paul Collier – has said that "Dambisa Moyo is to aid what Ayaan Hirsi Ali is to Islam". (Ali – the Somali-born Dutch feminist, writer and noted critic of Islam being the current partner of Ferguson, of course; public intellectuals inhabit a small world).

Collier was reviewing Moyo's first book, the provocative Dead Aid: Why Aid is Not Working and How There is Another Way for Africa, which established her credentials as a fresh, innovative thinker of the type the media love – someone apparently from a vested interest who attacks that very interest. Such contentiousness, it has to be said, also appeals to those in the West who don't really mind whether Zambia gets a fair break or not but who do want to keep their tax bills down. They are well represented in parts of the British media.

This section of the British media meets Moyo at the Carlton Tower Hotel in Knightsbridge, a suitably glam location, and yes a long way from her Zambian beginnings. I'm here to discuss her new book, How the West was Lost, published this week, which I think you can probably guess the gist of, but the subtitle helps you along in case you're a bit rushed at the airport: Fifty Years of Economic Folly – And the Stark Choices Ahead.

As a publishing fashion, subtitling seems to he turning rapidly into précis but it's helpful if you want to judge a book by its cover. Anyway I have a bit of a stark choice ahead of myself; do I ask Moyo the personal stuff – "colour" – as we call it in the trade, at the start or the end of the interview. I had been warned beforehand that Moyo doesn't "do personal – never have, never will" but after we'd kicked around the rise of China for an hour or so I thought I'd broach the subject with the most innocuous possible enquiry. "Are you married?"

"What's that got to do with Chinese inflation?" was the instant knock-back, a high-brow version of "what's that got to do with the price of fish?" but equally useful to shut nosey parkers up. It's not so innocuous at all, she counters, pointing out that her critics "feel free to make ad hominem attacks" if she leaves them the slightest clues. I explain that her right to privacy is assured, but that she seems unusually reticent about such things. Probing a little, I discover that she was particularly stung by another public intellectual who derided her views on international development because "she didn't have a child in rural Africa".

We're on happier ground when discussing trends in the global economy. It would be easy to dismiss Moyo's book as yet another take on the China story, about how great they are, how they'll soon be taking over the world, in some sense, and how we in the West are all going to be poorer as a result, at least in relative terms.

That particular tale has been well told and is the subjects of scores of "Big Picture" airport bookstore works. Moyo reprises that, but much of her tract is about what the West did wrong rather than what China did right. She cleverly assembles bits of the economic jigsaw to throw up some revealing insights.

For example, the West's obsession with housing, and the encouragement that governments have given to home ownership through explicit and implicit incentives, has been an expensive delusion, she says. "Let's compare 1950 to 1980 when the world was pretty closed and protectionist, to 1980 to the 2000s. The growth rates in these two periods have been roughly the same, but real wages in this globalised period have been roughly flat in places such as the UK, Europe, US.

"So what that tells me is that globalisation may not have been as beneficial to the average Westerner as promised. And I would say housing is probably one of the main reasons we are seeing this. Real wages didn't actually rise. Instead the people who hold labour actually got more access to debt and that debt was essentially diverted towards housing.

"So look at the portfolio of wealth in the United States – 30 per cent plus of American's income over wealth is tied up in housing, so they have not participated in this huge benefit from globalisation. The only Westerners that have benefited from this globalisation are the ones that hold capital, not the holders of labour."

So, if we in the West had used the money we borrowed – preponderantly from China – to make productive investment then it would have cause d no problems. Instead we used it to generate a property bubble, and that has left us nothing but woes. At its simplest, that is the financial history of the past decade.

Moyo agrees with the environmentalists that the earth does not, on current consumption patterns, have the resources needed to give every Chinese the standard of living now enjoyed in the West. Still, she is certainly admiring of the Chinese, even to the extent of now learning Mandarin.

"They are innovators in the sense that they have had no problems in moving away from what was essentially a communist system into a capitalistic system," she explains. "I actually have the confidence that they are flexible enough, certainly in the economic realm because they are not hamstrung by politics. They can implement policies tomorrow that we cannot in Britain or the United States because of the democratic issue. It's those types of things that make their economy, which to me gives them a good chance."

In fact Britain's Coalition Government she rates as a potentially strong force that can implement the structural, long-term reforms that need to be done, not just "kicking the fiscal can down the street". The euro, by the way, she thinks will survive just because of the politics of it – not the least aspect of which is the enthusiasm the Chinese are showing for buying lots of Spanish government bonds. You take the point about Chinese economic muscle.

What else has the West got wrong? Pensions, obviously, and ruinously expensive, again something Chinese haven't burdened themselves with, leastways not yet, and similarly with healthcare. We in the West have also fumbled the productivity ball, an economic truth that, long ago, was fastened on to by Gordon Brown but which we haven't heard much about lately – the simple fact that we cannot consume more per head, long-term, than we produce per head, so improving the latter ought to be the highest priority of economic policy making, though it is the most neglected.

Moyo doesn't prove, though, why any of this will hurt. After all, the UK has been in a state of more or less steady decline since the 1880s, challenged by Germany, the US, Germany again, plus France, Italy and Japan, and now the "rising rest" – China, Brazil, India. Sterling ceased long ago to be the world's trading and reserve currency. The Empire is gone. Most of our utilities, car industry, the City, even chocolate factories, are owned by foreigners. But life goes on, and we're quite well off by most standards.

What's truly startling in Moyo's thinking is her suggestion, which almost creeps on one unawares, that the West might benefit from the Chinese way of doing things: "Although I love democracy – I do not think it is a pre-requisite for economic growth," she says. "This is as deeply pragmatic a view as that, appropriately, formulated by Deng Xiaoping. Three decades ago he ditched Maoism and isolation by simply declaring: "It doesn't matter whether the cat is black or white, as long as it catches mice." If you wanted to caricature Moyo's argument it would be that nations must simply choose the economic system most likely at any given time to deliver the economic goods and thus geo-political clout – whether that is Scandinavian-style social democracy, Stalinism, Hitlerian autarky, Thatcherite laissez-faire, South Korean/Japanese corporatism, or whatever.

That's unfair to Moyo, who lives in London, at least in the sense that "it's where my clothes and books are", and enjoys her freedoms. But saying the West has anything to learn from China on politics as well as economics – at a time when we never stop lecturing them on human rights – is the sort of thing that only a public intellectual could get away with. I don't believe it for a second, but I'm glad she's said it.

Dambisa Moyo's 'How the West was Lost: Fifty Years of Economic Folly – And the Stark Choices Ahead' is published on Thursday by Allen Lane