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How The West Was Lost

By Dambisa Moyo

Since the credit crunch hit there’s been a steady stream of books that have unsurprisingly given Western capitalism a royal kicking.

In the run-up to the crash, the likes of former chancellor and Prime Minister Gordon Brown confidently predicted no more boom and bust, but it was a debt-fuelled fantasy that went badly wrong.

It’s this decline that Dambisa Moyo charts in her book How The West Was Lost – how China helped the US and the West fund its boom and why it has eroded the West’s position of global strength, economic, political and military.

And she’s especially good on the ills of housing policy in the West over the last 30 years, in particular the extent to which people have leveraged themselves with debt to buy property.

She also takes to task the concept of owning a property with a mortgage and argues that anyone who has one only has control of a property, not ownership. Until the mortgage is paid off completely, your average borrower is nothing more than a sitting tenant, she says.

As she sums up at the end, Western public policy, which applies to both the UK and US, “has misallocated capital by urging housing access for all despite people’s means, establishing a long-term unsustainable pension culture, underwriting research and development for the world at unrequited costs to itself, and bailing out whole industries with a pattern of buying high and selling low”.

She does occasionally ham it up – while there’s no doubting that the UK was as bad as the US in encouraging debt, she makes the strange claim that by June 2009 UK lenders were back to offering 125% mortgages.

Even more strangely, she quotes an unnamed broker in the Evening Standard in 2009 stating that “my best advice to someone hoping to buy with a small deposit is to live on a credit card. Buy your groceries on it, go out to dinner on it, spend on it what you’d normally spend on a debit card”.

Considering that much of what we’d describe as toxic products had been purged from the market by that point in 2009, this seems incredible. A quick search on Google reveals the 125% LTV deal from the Nationwide was to help borrowers in negative equity.

And the unnamed broker was in fact Ray Boulger, senior technical manager at John Charcol – had he gone mad? Fortunately not – who, rather than encouraging everyone to max out their credit cards, was actually advising people with no credit history to make small purchases to build a track record of dealing with debt.

Moyo doesn’t include the next line of Boulger’s quote in the original article, where he says “and make sure you pay it off each month to prove you’re handling the debt”.

There’s no doubt that credit card debt was out of control, but this clearly isn’t the quote to prove it.

Still, that aside it’s difficult to deny her central argument that China, and Asia generally, have essentially played the US to perfection. It footed the bill for the West’s spending on the basis that it pumped the money into products manufactured in China. The East is investing in its infrastructure while the West’s is slowly falling apart.

It’s a pretty apocalyptic scenario that Moyo paints, but if you’re interested in how China’s growing prominence could affect the West then this slim and easy-to-read book would be a good place to start.

Book review by Robert Thickett

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