Here in Glasgow, especially around the University, there is substantial support for the white "Make Poverty History" wrist band campaign. While the cause of wanting to reduce poverty is indeed noble, and one that I sincerely share, I fear that the efforts to reduce poverty through this program may have exactly the opposite effect.
Through the vast majority of human history, virtually all humans in all regions have lived in a squalid poverty that is hard for most of us to quite fully fathom. Suddenly, some 250 years ago, something happened to cause some countries to climb to unfathomable riches while others remained generally destitute. How did it happen? What enabled the western world to become so wealthy?
They didn't rob the poor, as the poor today are actually generally better off than 250 years ago. They didn't simply have access to resources, as even rocks like Hong Kong and Singapore became wealthy while their surrounding neighbours and soviet russia, teaming with resources, remained in relative poverty.
There is one, singularly important factor that has historically eradicated poverty: capitalism. Free markets, property rights, rule of law, stable currencies, and limited governments have allowed men to come out of the dark ages and rise towards their true potential by creating phenomenal amounts of wealth that simply didn't exist before.
Even today, we witness the wonders of capitalism in both directions. Countries that suppress it, like Zimbabwe, are facing famine. Countries that embrace it, like India and China, are rising in wealth at phenominal rates. Even natural disasters can be better contained in a relatively capitalist country as compared to a less-capitalistic one. Take, for example Hurricane Katrina vs. the Sumatra earthquake. The human casualties of Katrina are orders of magnitude smaller because American's wealth allows it to take action to minimize casualties. I cannot think of a single capitalist country that has had a famine, while non-capitalist countries have them relatively regularly.
If we truly want to reduce poverty around the world, there is a clear solution: promote worldwide capitalism and globalization. When we buy products from poor countries, we create jobs so that they can build their economy. Our factories in third world countries provide the valuable first steps for many children and young women to get out of the sex trade and into an honest job from which to support themselves. Too often we try to impose our level of luxury, where we can afford to not have our children working, on countries that are still at an earlier stage of development.
Instead of wearing bracelets, we should:
- encourage capitalistic instutions around the world
- buy products from poor countries at market prices
- build factories in poor countries when it makes economic sense
- encourage globalization
Alas, many of the bracelet-toting activists will do exactly the opposite, the the detriment of the poor. For those that care, the following economic analysis does a brilliant job of explaining the why capitalism is the best solution for the poor:
http://fte.org/capitalism/introduction/
For those who care to better understand the track record of capitalism, I suggest:
http://www.capmag.com/article.asp?ID=4333
04 September 2005
23 August 2005
Fair Trade Coffee: Unstable grounds...
Here in Glasgow's West End around the University of Glasgow, there is a strong "Fair Trade" coffee movement. Not only do many coffee shops prominently advertise their use of Fair Trade coffee, even many of the churches here flagrantly indulge in this movement. It is both sad and disconcerting that an upscale, intellectural neighbourhood surrounding Adam Smith's Alma Matter should so flagrantly ignore basic economic principles.
Prices are normally the primary feedback mechanism to inform producers of the relative changes in supply in demand. High prices suggest that they need to increase production. Low prices induce them to lower production. In the case of commodities like coffee, increases in production involve a delay of several years between the planting of new coffee trees and the first harvest. So, while supply does adjust to price changes, it does cannot do so quickly. Over the past decade, supply has increased substantially in response to high prices in the mid-1990's, and has become more efficient in many ways, lowering costs of production.
Grounds for Complaint:
http://www.adamsmith.org/pdf/groundsforcomplaint.pdf
By paying substantially more than market rates for fair trade coffee, the fair trade producers have incentive to produce MORE coffee, rather than cutting back production, as the world coffee price would suggest. In other words, by buying fair trade coffee, we encourage fair trade producers to increase the supply of coffee and thus depress the market price even further. Given that only about 1% of coffee produced is fair trade, the losers by the lower world market price far outnumber the winners who happily benefit from the fair trade subsidy.
Oxfam's Bitter Coffee:
http://oliverkamm.typepad.com/blog/2004/05/oxfams_bitter_c.html
It is precisely the poorest producers who cannot organize themselves or afford to pay for fair trade certification who suffer the most with the advent of fair trade coffee. By increasing demand for fair trade coffee, those tiny producers outside of fair trade have an even lower demand for their non-fair trade coffee, lowering the price.
If we truly want to help coffee growers, rather than just assuage our guilt, there are things we can do. By freeing up markets in other alternative commodities - like textiles - coffee farmers would have more options if the market price of coffee is too low for them to make a living. We should also stop subsidizing producers through organizations like the World Bank and IMF, which distorts market forces by reducing the relative costs of production of some farmers while others bear their full costs. We can also drink more coffee, hence increasing demand.
In short, the best cure for the poor around the world is not feel good activism like fair trade, but encouraging fewer international trade restrictions, thus allowing poor countries to sell us things they produce in order to improve their quality of life. See subsequent blog entry on Sweatshops. We can do far more for the world by learning and applying basic economic principles than by wearing coloured wrist bands.
Prices are normally the primary feedback mechanism to inform producers of the relative changes in supply in demand. High prices suggest that they need to increase production. Low prices induce them to lower production. In the case of commodities like coffee, increases in production involve a delay of several years between the planting of new coffee trees and the first harvest. So, while supply does adjust to price changes, it does cannot do so quickly. Over the past decade, supply has increased substantially in response to high prices in the mid-1990's, and has become more efficient in many ways, lowering costs of production.
Grounds for Complaint:
http://www.adamsmith.org/pdf/groundsforcomplaint.pdf
By paying substantially more than market rates for fair trade coffee, the fair trade producers have incentive to produce MORE coffee, rather than cutting back production, as the world coffee price would suggest. In other words, by buying fair trade coffee, we encourage fair trade producers to increase the supply of coffee and thus depress the market price even further. Given that only about 1% of coffee produced is fair trade, the losers by the lower world market price far outnumber the winners who happily benefit from the fair trade subsidy.
Oxfam's Bitter Coffee:
http://oliverkamm.typepad.com/blog/2004/05/oxfams_bitter_c.html
It is precisely the poorest producers who cannot organize themselves or afford to pay for fair trade certification who suffer the most with the advent of fair trade coffee. By increasing demand for fair trade coffee, those tiny producers outside of fair trade have an even lower demand for their non-fair trade coffee, lowering the price.
If we truly want to help coffee growers, rather than just assuage our guilt, there are things we can do. By freeing up markets in other alternative commodities - like textiles - coffee farmers would have more options if the market price of coffee is too low for them to make a living. We should also stop subsidizing producers through organizations like the World Bank and IMF, which distorts market forces by reducing the relative costs of production of some farmers while others bear their full costs. We can also drink more coffee, hence increasing demand.
In short, the best cure for the poor around the world is not feel good activism like fair trade, but encouraging fewer international trade restrictions, thus allowing poor countries to sell us things they produce in order to improve their quality of life. See subsequent blog entry on Sweatshops. We can do far more for the world by learning and applying basic economic principles than by wearing coloured wrist bands.
10 July 2005
A solution to public education...
Although I ideally believe that the government should not be involved in education in any manner, I wonder if I may have stumbled on a partial solution to public education's ills. If three simple laws were passed, they might allow public schools to eliminate many of the trouble makers, allowing the other students to learn more.
The three step solution:
a. Allow child labour at any age.
b. Allow public schools to expel / suspend any student.
c. Remove legal requirements for students to attend school.
When school is no longer a right, but a privalege, I believe that children and their parents will take it more seriously. By prividing the alternative of on-the-job learning and making it easy to expel misbehaving students from public schools, I wonder if it might improve the motivation and quality of public school students overall. Those that don't want to be in school can go to work instead, and those that do go to school are faced with the reality that if they don't behave properly, they will be involuntarily ejected, keeping them from disturbing the education of the motivated.
I realize, of course, that it is highly improbable that any or all of these three steps will ever be sufficiently socially acceptable, but I believe that they do provide a potential solution short of eliminating public education altogether. They embody some of the key motivating factors that make private schools successful.
The three step solution:
a. Allow child labour at any age.
b. Allow public schools to expel / suspend any student.
c. Remove legal requirements for students to attend school.
When school is no longer a right, but a privalege, I believe that children and their parents will take it more seriously. By prividing the alternative of on-the-job learning and making it easy to expel misbehaving students from public schools, I wonder if it might improve the motivation and quality of public school students overall. Those that don't want to be in school can go to work instead, and those that do go to school are faced with the reality that if they don't behave properly, they will be involuntarily ejected, keeping them from disturbing the education of the motivated.
I realize, of course, that it is highly improbable that any or all of these three steps will ever be sufficiently socially acceptable, but I believe that they do provide a potential solution short of eliminating public education altogether. They embody some of the key motivating factors that make private schools successful.
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