This is the fourth in a weekly series of posts exploring themes raised in Dambisa Moyo’s book Dead Aid. On pages 58-59 Moyo make very brief mention of the role that trust plays in achieving economic prosperity. In any wealthy country, it is necessary that the vast majority of citizens voluntarily behave with honesty and observe the laws. If a significant number of people simultaneously flout the laws or behave dishonestly, the cost of policing exceeds any possible increase in economic prosperity.
It is impossible to imagine a wealthy country in which people who put their money in the bank do not have a reasonable degree of certainty that it will still be there when they come to withdraw it, or in which the majority of members of the police force act to enrich themselves rather than to uphold the law. As Moyo points out, social capital is the invisible glue of relationships that holds business, economy and political life together, and such factors as governance, the rule of law and institutional quality play a critical role in a country’s development.
Moyo argues that foreign aid does not strengthen social capital. Aid thwarts accountability mechanisms, rewards rent-seeking behaviour, siphons off talent from the local labour market, and removes pressures to reform inefficient policies and institutions. When it is easier to get money from aid donors than it is to earn it through productive efforts, the necessity of trusting one’s neighbours is reduced. Aid erodes trust, and thereby reduces a country’s ability to prosper.