Dambisa Moyo - How the West Was Lost: Fifty Years of Economic Folly - And the Stark Choices Ahead

Fifty Years of Economic Folly And the Stark Choices Ahead

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First published 2011

Copyright Dambisa Moyo, 2011

The moral right of the author has been asserted

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ISBN : 978-0-14-192433-5

A senior business executive tells the story of a conference where the head of an established and leading Western telephone company boasted about all the things the company could do, and the innovations it had in the pipeline. He went on for quite a long time, as he demonstrated the companys range, and depth, and brilliance. His speech was met with enthusiastic applause. Then came the turn of the head of a similar Chinese company; undaunted, pointing to the Western executive, he said: We can do everything he can for 40 per cent less. He promptly sat down.

On 9 July 2008 the Chrysler Building, one of the best-loved icons of the New York skyline, was bought for US$800m by a foreign government. Thus one of Americas most emblematic buildings, symbolizing its power, its industry, passed into the hands of outsiders. It was not just any foreign government; not Britain, not Germany, not France; indeed not any economic power from the West. The buyer came from the new power bloc of rapidly emerging countries, which are today threatening the more than 500-year-long economic reign of the West. It was the investment arm of the Abu Dhabi government. The Chrysler acquisition was a part of the estimated US$1.8bn spent on commercial property in the US by Middle Eastern investors in just the first six months of 2008. It was not the first such purchase; nor will it be the last. Indeed, after the 2008 financial debacle, and the collapse in asset prices that it brought with it, such purchases are only likely to accelerate.

How the West was Lost is the story of how the worlds most economically powerful nations have seen their wealth and dominant political position decline to the point where, today, they are about to forfeit all they have strived for economic, military and political global supremacy. There are three main reasons why the West has seen its substantial advantage erode; an erosion whose pace is accelerating with every passing year.

First, through blinkered political and military choices, the West (principally the US) has successfully managed to alienate the very emerging countries with whom it now competes. Although these countries continue to trade with their Western counterparts, it is often done through gritted teeth and with an underlying sense of mutual mistrust. Naturally, the net effect has been to encourage polarization, rather than foment credible alliances. Were it not for a profit motive, the real risk is that come the day when the emerging nations dont have to trade with the West, they wont.

Second is what Thomas Friedman describes as the flatness of the world the lowering of transport, communication and manufacturing costs, which has made the transfer of technology easier. Indeed, the technological and economic advantages of the West have made this possible, and as a natural consequence encouraged the worldwide adoption of best-practice technology and governance standards. However, these advantages once held in Western monopoly have, over time, dissipated, and will certainly continue to do so.

However, it is the third cause which is the prime focus of this book.

How the West was Lost charts how, over the last fifty years, the most advanced and advantaged countries of the world have squandered their once impregnable position through a sustained catalogue of fundamentally flawed economic policies.

It is these decisions that, along the way, have resulted in an economic and geopolitical see-saw, which is now poised to tip in favour of the emerging world. Unless radical policy changes are made over the next decade the controlling hand of who owns what will quickly belong to China, India, Russia or the Middle East, and todays industrialized West is assured a savage economic decline.

In September 2008, the world witnessed an unprecedented assault on the financial structure that the West had taken for granted for the previous fifty years. Shockwave after shockwave battered the system. Every day seemed to bring a new calamity. In just three weeks, Lehman Brothers, a stalwart of the US banking system, collapsed; the prime US mortgage lenders, Fannie Mae and Freddie Mac, had to be nationalized; AIG, the worlds largest insurer, was brought to its knees and its very existence called into question (the company would receive a hefty US$85bn life-line from the American government to keep it afloat). And, in Britain, the bailout of banking giants Lloyds TSB and the Royal Bank of Scotland was running well above US$1.4tn (850bn) in 2009. Through it all, trillions were wiped off stock exchanges from New York, to London, to Reykjavk, and most places in between, placing millions of peoples pensions and savings in jeopardy.

But however extraordinary and cataclysmic these events were, How the West was Lost is not about the immediate whys and wherefores of this shattering and unexpected financial disaster. It is undeniable that the crash overwhelmed the world but just like a tsunami that appears seemingly out of nowhere and leaves death and destruction in its wake, the events of 2008 were the inevitable consequence of fault lines and shifts in economic tectonic plates that lay undetected under the seemingly calm financial waters upon which Western economies had sailed smoothly for the last half-century.

However, unlike the plates beneath the sea, had these economic faults been detected and dealt with, the financial crisis of 2008 might never have happened; certainly not to the degree and with the ferocity with which it did occur. The collapse was the culmination of a catalogue of policy errors and mistakes that had been gathering momentum over the last fifty years, erupting into the worst financial crisis since the Great Depression. Extraordinarily now, as if blind to the real causes of the turmoil of 2008, many governments have kept these flawed policies in place.

But there is a bigger story to be told. It is a mistake to view what happened as an isolated and relatively contained episode. In fact, what happened in 2008 marked yet another step in a fundamental transition from one economic power to another; from the West, to the Rising Rest.