Dambisa Moyo: inequality, growth, and the failure of liberal democracy

Merryn Somerset Webb talks to economist Dambisa Moyo about her new book, and how to improve democracy and deliver prosperity not just in the West, but the whole world.

Merryn Somerset Webb talks to economist Dambisa Moyo about her new book, The Edge of Chaos, and how she thinks we can improve democracy.

If you missed any of Merryn's past interviews, you can see them all here.


Merryn: Hello and thank you for joining us today. I am Merryn Somerset Webb, editor-in-chief of MoneyWeek magazine, and with me today, to my great thrill, is Dambisa Moyo, author of some wonderful books which we have discussed here before. Dead Aid, which has been well-reviewed all over the place, and I'm sure lots of you will have read it and heard of it; Winner Takes All; and this is her new one, The Edge of Chaos, which we are going to talk about today, which has in it a lot of interesting analysis, some of which will be familiar to you. But also, some suggestions for the improvement of democratic capitalism that you won't be familiar with and may even be slightly surprised by.

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Dambisa: Hopefully not.

Merryn: Hopefully not shocked, but surprised.

Dambisa: Yes.

Merryn: Let's start with this. It's called The Edge of Chaos. What is the chaos in question here? You're talking about more political and social chaos than anything else, but political and social chaos caused by a failure of economics.

Dambisa: Yes. My background is in economics, my PhD is in economics, and there are a whole host of headwinds economic challenges that are threats that could upend the global economy that I believe we are not focused on. These are long-term, intergenerational, structural factors that are threatening the global economy. Things like demographic shifts; income inequality that's getting worse; the amount of debt that the global economy is facing or holding post the financial crisis; issues of technology and the risk of a jobless underclass; national resource scarcity.

These are all massive headwinds that economists and public policymakers should be focusing on.

But unfortunately, politicians are quite myopic and short-term. And therefore, the chaos is spurred on by this schism or mismatch between these long-term economic challenges and the short-termism that we see in liberal democracies in particular today.

Merryn: And one of these you talk about in the beginning of the book. You talk about economic growth and you talk about the recent failure of economic growth to keep going there's a lot about how we must grow in order to maintain social stability.

But there's another argument, of course, that isn't growth that's necessary, it's the distribution, so that in fact, as long as we don't contract our economies, then everything should be fine as long as we figure out better ways to redistribute the spoils.

But you seem really clear that it's actually proper, real growth that we need on the scale it was, say

Dambisa: Well, the financial calculation is that you need 7% per year in order to double per capita incomes in one generation, which is about 25 years. We still have a situation where 90% of the world's population lives in the emerging markets, and they do need to see improvements in their lives. Essentially, it's an expectations problem. We've told them all that they can live like Western Europeans and Americans; that they can have two cars, a nice holiday, refrigerators and mobile phones. And we convinced them that that was possible.

Merryn: And we have to deliver.

Dambisa: And now we have to deliver. And so, we're not going to deliver simply by redistribution, and income inequality has come from essentially nowhere. When I was going my PhD, we never talked about income inequality. We always assumed with economic growth there'd be social mobility, and it was moot, it's not about income inequality.

Merryn: But that is true to a degree, isn't it? You can pinpoint various countries where income inequality has widened America being one of them, actually.

Dambisa: Yes.

Merryn: But globally, inequality has come down

Dambisa: Absolutely.

The very core, the essence of liberal democracy, is that you have to pander to the electorate because you want to win. Winning political office means that you have to dangle trinkets to the voters.

Merryn: And in countries like the UK, our income inequality has not grown. Our wealth inequality has become a major problem, but income inequality, because we have an excellent welfare state, that is very redistributive

Dambisa: Absolutely. But there are a number of points there. You're right that between-country income inequality has shrunk, because obviously the convergence of emerging markets doing better economically means that they are converging to higher levels of income closer to developed nations. And therefore, we've seen this shrinkage in income inequality. But within income inequality, particularly in the United States, but also across many other developed nations, has worsened, particularly over the last decade.

One of the very salient points worth stressing is that we have tried two extremes to address this.

We have tried tax and redistribution, which is popular not just in the United Kingdom but across Europe, Western Europe. They love the idea of essentially a state where the welfare healthcare, what they call ESHLA, educations, social housing and local authority, is a much bigger piece of the political approach. The problem with that is that hasn't stopped income inequality from getting worse.

Merryn: And why hasn't it? What's gone wrong here? Because it seems like such an obvious and generous way to approach the problem.

Dambisa: Yes.

Merryn: But yet, nonetheless, even in countries across Western Europe and in the UK, where the welfare state is big and where there's been a huge effort to redistribute, still it hasn't quite worked.

Dambisa: Yes. There are a couple of things. On the economic side, it's about growth. You still need to have the pie growing. You can't have a situation where the pie is shrinking and forcing more redistributive policies, because that doesn't really help you. It means there's a lack of investment, a lack of innovation, etcetera. But there's a more structural problem, which is around culture and social living, meaning you can't have a society where two to three generations of people are living essentially on a welfare programme. That's quite corrosive for those people.

And I've written Dead Aid for that very reason. We have a whole continent that's essentially on a welfare programme. It's demoralising, and it actually creates a bigger schism. And a lot of the disaffection we've seen in terms of populism emanates from some of that unhappiness around feeling that you're in a society but you're not really participating. You don't have a vested interested in what happens.

Merryn: They're kept in a holding pattern by society while the rest of the society moves on.

Dambisa: Exactly. The other point which is really critical to understand is that income inequality has rapacious effects beyond just income. It means there's a dislocation in terms of political rights. In the United States in particular, and I talk about this in the book, money has tipped into the political frame. Those who have money have bigger influence in terms of policy. But it also means that people's access to better healthcare, to better education, is influenced by how much money you have. And so that also creates a lot of disaffection, and ultimately a lot of resentment to the system, even if you are receiving a welfare packet.

Merryn: We have these big problems water is an interesting one. How on earth do you deal with that? We saw in the news recently they say that an iceberg is going to be towed down to Cape Town, did you see that? In order to deal with the water problems.

Dambisa: I did, yes.

Merryn: That's an expensive long-term solution, right, a short-term solution. There's got to be a better way to deal with the water problem there long-term. And all these other problems that you talk about. And these come down, and I know we've talked about this before but it's interesting, these come down to what you consider to be a kind of political short-termism

Dambisa: Yes.

Merryn: And were there a way to make politics think about things in a longer-term way, a lot of these problems would be relatively easily dealable with. Is that fair?

Dambisa: I'm not claiming that they would be easy, but having that focus means that there's much more innovation around and redress for public policy that hasn't worked in many respects. And I do worry a lot that because of the short-termism, which, by the way, is very rational, politicians very rationally court and cater to today's voters because they want to win elections. But that means we've got a whole host of problems.

Think about a tax cut, which the congressional budget office in the United States has been screaming and banging on the table about, how in the next 30 years we will have a serious crisis in both debts and deficits in the United States. But we don't really care about that. That's 30 years, oh gosh, I won't even be around, most people think. And they essentially are pandering to today's voter who thinks, oh gosh, a tax break, that sounds really wonderful for me. That schism there is why the intergenerational tension that's emerged is very problematic.

Merryn: This is where we get the huge overhang of public debt, it stems directly from democracy.

Dambisa: Absolutely. Because they do have to The very core, the essence of liberal democracy, is that you have to pander to the electorate, because you want to win. And winning political office means that you have to dangle trinkets to the voters.

Merryn: Well, there was, slightly off subject, but it's not off the subject at all, there was a very interesting study a little while ago that I saw that tracked the rise in welfare spending and the rise of welfare promises to universal suffrage.

Dambisa: Yes.

Merryn: The second that women get the vote, politicians start pandering to what they think women want, which is childcare, which is education, which is increased health spending, etcetera. All the things that are traditionally women's work. And when only men have the vote, you don't have to promise that because the women are doing it already so it's fine.

Dambisa: Exactly. Interesting.

Merryn: But as soon as you get women to vote, suddenly you need to say to them, well, let me take something off your plate.

Dambisa: Of course.

Merryn: Which is an interesting way of looking at it, and saying this is spread over the last however many years. And obviously, female voting is a good thing, let's be clear, but it shows this rise in political promises through the ages that leaves us with this debt which, as you say in your book, is one of the major problems facing us.

Dambisa: That's exactly right.

Merryn: And a problem that I can't see how we can ever solve at this point.

If we had significant economic growth, we wouldn't really worry about the debt and you could outgrow it. The problem is we don't have growth, so that brings in a whole lot of other risks to how to address growth.

Dambisa: It goes back to the point about economic growth. If we had significant economic growth, we wouldn't really worry about the debt and you could outgrow it, so to speak. The problem is we don't have growth, so that means it brings in a whole lot of other risks to how to address growth. It could be inflation or it could be just outright debt defaults, which we've seen historically in both developed and developing countries.

Merryn: A good global jubilee.

Dambisa: There's a risk Yes, exactly, debt forgiveness. But that's always great unless you're the person holding the debt. There are real consequences to this type of precarious situation, certainly around debt but more generally around these economic headwinds.

Merryn: Well let's talk about how to make it all better.

Dambisa: Yes, absolutely.

Merryn: How to we change politics, how do we change democracy to make all these long-term problems addressed in a rational way?

Dambisa: The book really highlights two fundamental problems with liberal democracy today. One is a question of legitimacy, meaning both in the Brexit vote in the UK but also the vote to the election of president Trump. A couple of years later, and here we are, they're still laced with scepticism. People say, well, did the voter in Brexit referendum really understand what they were voting for? I'm not entirely sure whether this is true or not, but people say the most googled term was, what is the EU, the day after Brexit. That is not what we want to hear.

But on the other side, we see also with the United States it's threats of impeachment. Rightly or wrongly, these two elections in particular, and many others as well, are laced with scepticism in legitimacy. One of the areas that I'm trying to tackle with these proposals is legitimacy. The other one I've already mentioned to you is around myopia. How do we get that gap between long-term economic focus on problems and the short-termism and myopia we see in political arena, how do we bridge that gap? How do we make it smaller? Those are the two things.

The proposals, there are ten of them. Six of them are targeting politicians, four of them are targeting voters. The idea is not to accept them or consume them wholesale. Countries are at very different places in democracy. It's really about really looking at our democracies and trying to figure out which one is much more effective, what could actually be done in improving liberal democracy.

I will just make one other point which is that as you know, we have seen volumes of documents and books and articles written that are critical of countries that are blatantly non-democratic. That is not this book. My concern is that we all have advice for China and Cuba and North Korea, but where is the menu of options for democratic states and how they should move? And that was the impetus for this book.

Merryn: We need to get our own act in order before we start bothering everybody else.

Dambisa: Absolutely. And the world depends on it. It's absolutely clear that to solve climate change or poverty, economic development, innovation, R&D, healthcare, we do need Western countries to be firing on all cylinders, and they're just simply not.

Merryn: One of your interesting suggestions is that there should be higher bars for entry into politics. At the moment anyone anyone can stand to become a politician, and if they stand on a one-issue platform that people like, they'll end up being responsible for legislation that could form a country going forwards. And your suggestion is that that shouldn't be OK.

Dambisa: We deserve better. If you look at the British parliament in the 1960s, it was average an older age, around 60 years old, but also the makeup of the parliamentarians really reflected the economy. They had farmers, they had teachers, they had lawyers, they had doctors. So, when they talked about these major public policy issues, there was a real understanding of these issues. There's research that I cite in the book that actually not only has the age come down considerably, somewhere between the ages of 38 and 40 is now the average of the parliamentarians, but also, they become what they call professional politicians, so not really with a lot of experience outside of politics.

And I just think that's a great disservice, particularly at a time when the economic challenges are becoming much more challenging and more difficult.

Merryn: We set an age limit?

Dambisa: I don't think it's about age limit per se, and that one of the other proposals I have for politicians is about extending the terms.

Because again, in the interest of moving this gap between long-term economics and short-termism in politics closer, we want to extend the terms of the politician but we don't want to make it so absurd as we've seen one of the examples I cite in the United States, a senator, Byrd, was in office for over 50 years. Congressman Dingell was in office for 59 years. That's just not

Merryn: Imagine those pensions!

Dambisa: Exactly!. But that's not what I'm targeting, I'm targeting

Merryn: What is ideal? Eight years, ten years, is that an ideal term for a politician?

Dambisa: We have, I should have mentioned, that the proposals also have precedent. All ten have precedent somewhere in the world. Mexico has a six-year term, Brazil, for the senators, has an eight- to nine-year term. That's much better in some respects, because then you don't have to worry about fighting the next election. In the United States it's two years before they Presidential elections is four years, but every two years they have elections. That is just not healthy for us to solve economic problems.

Merryn: The other thing that you suggest, one of your other suggestions, is that one government should be able to bind the next government in order to create more long-termism.

Dambisa: Yes.

America made trillions of dollars from globalisation over multi decades. But the government didn't invest in infrastructure, or retooling, or reskilling. They took that money and spent it on wars.

Merryn: One government introduces a policy of some kind and then the next government is obliged to continue with it one way or another. Also, you suggest that we should perhaps have more in the way of external agencies taking responsibilities. For example, these days central banks are separate and independent from main government. I totally see that, but one thing that again, we were talking about before which is very interesting to me, is that I suspect that a lot of the impetus around Brexit and perhaps even the impetus behind the election of president Trump was to do with the electorate feeling that their government was not capable of the action required to solve problems.

When they looked at, for example, when we looked at our government pre-Brexit and said, well, hang on a tick, what did you do about the financial crisis? What are you going to do about the things we're concerned about connected to the EU, etcetera? And our government could only stand there and say, well, nothing really. We can't do anything about interest rates or anything like that, because that's the Bank of England. And we can't do anything about freedom of movement because that's not our thing, that's the EU. And we can't do anything about this because of this supranational agency, that supranational agency, etcetera.

What people really want or feel that they want is a feeling that when they vote, they are voting for someone who then will be able to take action, and will take action on the issues that matter to them. If you create more independent agencies and if you create a situation whereby governments are bound to listen to previous governments, do you just destroy that sense that a vote matters?

Dambisa: No, I don't think so. Our sentiment and our view around the role of binding a government or international agencies would be very different if there were economic growth. The problem is that there is this short-termism in that we were being given promises and goods and services to today's voter that actually, dare I say it, the chickens have come to roost in the sense that we do have these knock-on effects and these consequences of bad decision-making.

Let me just give you one specific example, the idea of globalisation. I believe that globalisation actually can enhance the lives of many millions of people, it has in many respects. And it's absolutely clear, certainly in the United States, that they did benefit considerably from the globalisation era. They sold lots of goods and services and they made millions and billions and possibly even trillions of dollars off of it over multi decades. But the question is, what did the government do with that money?

And Jack Ma from Alibaba has made this point very eloquently. They didn't take that money and invest in infrastructure in the United States, or retooling or reskilling middle America who were transitioning out of manufacture and into services, and possibly beyond. They took that money and they basically ended up in more wars in Afghanistan and Iraq. They were underwriting global public goods, for better or for worse. And ultimately, that was a short-term decision. They wanted to win elections and unfortunately, the cost of that decision is now being felt.

And another particularly problematic issue is that globalisation has been tagged with that negative lens as opposed to really, the short-termism of public policy. When I say binding the government, it's not for an eternity. We do need to encourage investment by businesses, and businesses like to invest in environments that are stable, where it's a bit more transparent in terms of the path of policy. I'm not suggesting that if you put in a policy today it must stay for the rest of the world to come, but I do think it's about for some period of time having it grandfathered and saying, well, we can't review this for ten years. There's value in that.

Merryn: And also, you may find people think a lot more carefully about how they vote if they knew whatever policy they go for is in place for ten years.

Dambisa: Absolutely.

Merryn: Let's say that we have these sensible governments, that our new elected politicians are clever, experienced and well-qualified and that they know they're going to be in place for eight to ten years, and we have a system like that across, say, the Western world, at least. What are the key policies that you would then think these people should put in place to make sure that we can move from a period of low to no growth to a period of the kind of acceptable growth that will take away the risk of political and social upheaval?

Dambisa: Before I answer that, there's one other piece of the puzzle worth stressing, which is that we do also need the voter to be much more engaged. As you know, in many countries voter participation rates have fallen considerably. In the United States, it now hovers around 50%, down from the high 60s in the 1960s. But also, for low-income households, participation rates are very low, it's 30%, sometimes lower than that. We need engagement. That is very far from one man, one vote, which is the mantra around liberal democracy. We want voters engaged, we also want them to be very knowledgeable.

Much like these minimum standards, we want a situation where voters have much more of an understanding about what exactly the policy on the ballot is being debated. But to your question, what kinds of policies. Infrastructure is an obvious one. We have seen, there's the American Civil Engineers Society, they basically grade America's infrastructure every three years. They look at roads, airports, bridges, etcetera. They've graded them a D+. This is not the backbone of a modern economic country, and that's particularly obvious in terms of what we should be doing just off the bat.

Education is another area that has been ignored. And we know that the NEETs in Britain, the no education, employment and training, there are about a million of the now. These are young people between the ages of 18 and 25 that just do not have the skills to participate in a modern economy. They're being left behind. The OECD statistics show that that's not just a British problem, it is a global problem.

The United States, this generation of Americans, for the first time in the history of the country, since 1776, will be less educated than the preceding generation. I view this as very problematic. I'm for long-term economic success. That's another area. And by the way, that feeds into issues of social mobility, which has collapsed, about 50% in the United States. It feeds into political dynamics and it would be a very big risk.

Merryn: It's interesting. You would have thought that education is one of the things that voters would care most about, and that they would vote most aggressively on, so how can it be that education has been the thing that has fallen by the wayside? Is that a function of debt and a function of inability to stand on?

Dambisa: It is in some respects, but also, again if I pick the United States, and I talk a lot about the US, I talk a lot about other countries in here and I rank countries out of ten, how far they are in terms of democracy. But the reason this is an important question, the United States on a per capita basis is among the biggest spenders on education. I think the number is about $5,000 per head in the United States for education. That is a considerable amount. The problem is where that money is going and how it's being spent. It's really a capital allocation decision as opposed to an absolute number. Those are the questions that are really hung up in a lot of the debate about private schools versus public schools, charter schools, but also what the rules of the teacher unions are, etcetera.

It's a much more complicated debate, and unfortunately, even though in concept we think, ooh, education's a brilliant thing, as a practical matter it's absolutely the case that we've seen a deterioration in education, and the OECD's report suggests.

In the UK, a million people between the ages of 18 and 25 just do not have the skills to participate in a modern economy. They're being left behind. And it's not just a British problem, it is a global problem.

Merryn: Now, how hopeful are you about any of your recommendations being taken on board in the West? I find it almost impossible to look around our political environment and think that our political institutions would accept, for example, any kind of limits around what kind of person would be allowed to stand for parliament in terms of age or education or experience or any of those things. In today's political environment, that seems verging on impossible. And the same with compulsory voting, which I agree with you would be a very interesting departure and one that would make democracy feel like it was working much better.

But again, the idea of putting anything like that into our political environment seems right now impossible. I can't even imagine You're starting the conversation, which is brilliant, but it's hard to imagine that conversation really getting traction in today's political climate.

Dambisa: Well, Merryn, it wasn't that long ago people didn't believe that women could or should vote, or that minority groups through the civil rights era, which is only the 1960s that people believed that blacks or other minority groups should vote. I am an optimist to the extent that these already, these suggestions, the proposals, do exist, there is a precedent, is gives me a lot of hope that we can reform things.

My concern is if we don't do anything radical to change the current political system, we'll end up in one of two places. We'll either end up in a situation where public policy is hamstrung by populism. There's reports from Bridgewater, for example, the hedge fund, that since 2010 we've actually seen only an increase in populism. And we've seen this in Italy, we've seen it in Hungary, in Poland, really much more political upheaval. And that would mean that public policy gets much worse, much more short-termism, much more a lack of the long-term perspective that we need.

But the other risk is that we end up with more plutocracies, where we have just a handful of people who are influencing public policy because of their wealth. In the United States, about 158 families are responsible for 50% of the political contributions that were made in the 2016 presidential election.

Merryn: This is another one of your recommendations: this should be reformed.

Dambisa: Exactly. It should, and that's not really controversial. Most people think that it should. With Citizens United, the supreme court decision, we've gone in perhaps the opposite direction, but it seems to me that good sense could prevail. Particularly in a world where things are getting much more difficult and not easier.

Merryn: One last question. I know we've been talking a while.

But demographics, this is one of the problems that you pull up at the beginning, saying this is a long-term challenge facing the world. Is it really a long-term challenge, in that the population is naturally going to age, it's going to happen anyway, and it's simply a matter of embracing that rather than considering it a problem. We always talk about demographics as a problem, but is it a problem that we have lots of healthy and well 75-year-olds, or is this an opportunity, surely?

Dambisa: Well, the global population, the global life expectancy, is now 71, which is fantastic. We are now living on average the age the oldest Romans lived. I might point out that a lot of these headwinds were actually catalytic in driving democratic growth, including demographics, technology, etcetera. But why is it of a concern, why have I put it in as a headwind? Well, because we are living in very unique circumstances. The pace of the world's population growth now is something that we have never seen in history or pre-history, and according to demographers will never see again after 2100 when the world's population plateaus out at 11 billion.

Why does this matter? Well, India's adding a million people a month to its population. It matters in two constructs. One, in terms of the sheer quantity of the world's population, which is growing rapidly, as we just pointed out. But also in terms of the quality of the workforce. We have again a mismatch between what is needed in a world modern economy that's focused on technology and the education system, the people who are available for work. It is challenging.

The healthcare and pension costs of a world where people are living longer are mounting, and to be quite candid, we don't really know what that number is. A lot of these are off balance sheet items. In a world of slow growth, how are we going to fund those pensions? I do hope that there's a real impetus, that we can see a demographic dividend from young populations. But the truth is, they're skew to young populations, they're skew particularly in emerging markets, poor countries, 60 to 70% of those populations are under the age of 25.

That is incredibly difficult. in Uganda, 50% of the population is under 15. In a world of slow growth where their jobs are actually being seeded to automation, could become much more problematic.

Merryn: The demographic problem is not so much the old versus the young.

Dambisa: Exactly. Potentially. Certainly, in the emerging markets. But it certainly is the case.

Merryn: Brilliant, well, thank you so much for talking to us

Dambisa: It's a pleasure to be here.

Merryn: I'm really ingratiated.

Dambisa: Thank you.

Merryn: And MoneyWeek readers, get the book. You'll know the problems and you'll know the answers.


Dambisa: Thank you.

Merryn: Thank you very much for watching. If you enjoyed this interview, please Like, Subscribe and Share. You can also follow me on Twitter @MerrynSW. You can follow the magazine on Twitter @MoneyWeek, and if you're interested in the magazine, which you should be, please go to moneyweek.com and subscribe.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.