How The West Was Lost, by Dambisa Moyo – Book Review

Modern economics are often explained through a complex whirlwind of abstract terms and historical references – ask anyone who’s sat in a fourth year political science or economics class and many will remember snoring through lectures about the structure and ultimate failure of the post war Bretton Woods agreements. Since 2008, a fiscal horror has been unfolding before our very eyes and while Canadians continue to obsess with a 100-year-old shipwreck, we aren’t too aware of the current economic Titanic which the entire western hemisphere has been sailing on for several years. Indeed most of us (me included) have failed to understand the genuine intricacies, which have led to the ultimate failure of the North American sub-prime market, but now the perfect text has arrived.

Dambisa Moyo’s book How The West Was Lost explains the developed world’s economic rise and fall through the use of brilliant but easy-to-understand reference points. The author also decodes a generous amount of MBA terminology for the layperson and utilizes an exhaustive amount of sources to prove her thesis. Moyo is an Oxford and Harvard educated writer who specializes in economics and her latest book explains why the western world has slipped behind India and China on the monetary front.

Moyo’s reasons for the west’s eventual economic demise are threefold: 1) The western world has misdirected much of its capital. 2) Labour in the western world has become too expensive. 3). Finally, our total factor productivity has started to dissolve. Moyo describes total productivity as a catch-all phrase referring to geography, culture, technology and other factors. On this point, our society is no longer defined by innovation and forward-thinking. Instead, it seems we’ve become a myopic and disinterested civilization where rampant consumerism matters more than anything else until the credit card bills arrive in the post.

America’s debt has been growing at 3.6 billion each day and China is purchasing the debt as the housing bubble expands. Moyo’s definition of a housing bubble is a situation where properties are traded for higher than the authentic value. The overpriced housing markets in Vancouver neighbourhoods like Point Grey or Kits are localized examples of this dilemma. America’s problem began with a democratic notion to provide housing for all, but this egalitarian ideal is collapsing at a speedy rate.

A real estate developer named Seymour Durst commissioned a billboard-sized clock in Times Square which displays America’s mounting debt – when Moyo wrote her book in the spring of 2010, the US national debt stood at 55 trillion. America’s cash-flow failings are linked to the American post war housing market. Our southern neighbours have followed an aggressive house owner policy since the 1930s, and according to Moyo, this strategy has remained consistent whether the country is ruled from the left or by the right. House loans were virtually available to almost everyone, but many soon became unable to pay off their mortgage debts. Through the now notorious Fannie Mae and Freddie Mac corporations, the American government took on this growing debt load which grew to tremendous proportions as the massive foreclosure-maelstrom unfolded in 2006-2007. Whenever an American homeowner is faced with a foreclosure, all they have to do according to Moyo is “mail in the keys,” and the government assumes the remaining mortgage. In Canada and Britain, the bankrupt homeowners are expected to carry the debt load after the foreclosure.

Moyo offers several reasons why she believes labour has been misallocated in the western hemisphere. In America, the nation’s pension plans have made the country’s labour force seem as if it’s much cheaper than what’s expressed in genuine figures. Western labour as a whole has also experienced a dramatic transition. Since the latter part of the 20thcentury, the western world’s traditional labour force has been overtaken by the service industry on a gradual basis. Moyo’s succinct argument is quite valid in our own province, where the resource industry continues to lose ground to tourism, protective services, casinos and other segments of the service industry.

Moyo further believes America’s and Europe’s harsh immigration laws “are making it much more difficult to draw on the global pool of talent.” This last point is a substantial thought to consider, since American and British innovation in the early part of 20thcentury has been strengthened and nurtured though mass immigration. The quality of labour is also degenerating in the west, as the population ages and the birth rate plunders. It should be noted here that although the developing world’s birth rates are skyrocketing, male babies are often given a preference in China and India, and this factor will have a detrimental effect in the developing sphere.

Total factor productivity is married to invention.  There have been many technological advances in the west in recent years, but much of our latest technology has been deployed to the financial sectors. Moyo senses most western university students in the engineering field prefer to become investment bankers rather than be engineers or inventors. Standards in secondary and primary education in the west have also declined, and Moyo lists some very frightening statistics. In Washington DC, 12 per cent of all eight graders are able to read at a grade eight-level. The United Kingdom’s reading level has dropped from seventh place to 17th and in mathematics the country has slipped from seventh to 17th place according to PISA (Programme for International Student Assessment).

While Moyo is realistic, she doesn’t necessarily believe all has been lost for the west. Although China and India are the world’s newest economic powerhouses, the western world still has a chance to reinvent itself. If the western world raises its falling education standards, readjusts its tax systems to encourage a savings culture, and tackles “the three essential ingredients for growth (capital, labour and technology)“ it will be possible for us to turn this horrific sinking ship around.

Moyo’s book is essential reading for the scholars, economists, inventors and leaders of the future, but I didn’t necessarily agree with all of the author’s points. In particular, although Moyo is aware of the 1986 Chernobyl disaster, she believes nuclear power is a safe source of energy and the western hemisphere should embrace it more thoroughly. Many Japanese readers would likely dissent with the writer on this point, but this book was written in 2010, at least one year before the nuclear catastrophe at Fukushima Daiichi. However, in the wake of so much environmental devastation involving the manufacture, transfer and use of fossil fuels, the entire world certainly needs to find an alternative fuel source to oil.