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Posted at 1:51 pm on May 3, 2010, by Caitlin Hartsell
Last week at a Liberty on the Rocks meeting, we discussed the need to show others how the market can provide for the disadvantaged better than the government can. Many libertarians may take this for granted, but this is a relatively important fact to establish in order to combat the idea that the government is necessary to help people. I thought I’d write a few posts on the topic of “the market at work” based off a few good examples I have recently encountered. (If anyone else has good examples to share, please do!) KickStart For the last three class periods in my Program Planning class, we have been discussing a case study of KickStart, a company that sells treadle pumps to farmers in Kenya, Mali and Tanzania. A treadle pump doesn’t need fossil fuels to extract groundwater, so it can efficiently provide large amounts of water. It can be a cost-effective method for farmers to increase their output so they can sell their produce. The Lessons Learned page on KickStart’s site is well worth reading in its entirety, but the main gist is that their founders were unsatisfied with the typical program model that focuses on giving away money or services, which has not been a lasting solution. What the poor need most is a way to make money; providing reliable and long-lasting tools are the best way to help them do that. It is the “teach a man to fish” idea. Increasing the standard of living of an entire country requires an increase in production. An influx of foreign aid–without a subsequent increase in production– will not raise the standard of living across the board. By creating a tool that will help farmers be more productive, KickStart can help people in a lasting manner. Essentially, KickStart‘s long-term idea is that “creating a middle class is the most sustainable way to lift a country out of poverty.” To do this, they have created a product that will help people become entrepreneurs. Using the market KickStart is different from many similar organizations because it believes that selling their products is better than giving them away. There is an elaborate chart that explains how, because they sell the products, they are able to help three times the number of people than if they gave them away. By commodifying the product, there is a profit motive that incentivizes each portion of the supply chain to become more efficient. Even if the donor funds disappear, people will still be able to get pumps. Most importantly, the price system also allocates the products more efficiently than giving them away. When people have to make an investment, they are more likely to actually use them to create their own enterprise. The pump makers are accountable to create pumps that fit the needs of their usersr. Because KickStart sells the product, there is a self-sustaining supply chain that keeps costs low and allows people to fix the product when a part breaks. The Ethics of Selling? One complaint my class had was that it was “unethical” to sell these treadle pumps because selling exacerbates socioeconomic differences, since those that can afford the pump may be slightly better off already. Inequity is a hot topic issue in many of my classes. While inequity is a problem, I think that the focus should be more on how low the bottom is, as opposed to how different the bottom is from the top. Helping people up from the bottom should always be seen as a good. But the part that is missed is the effect that something like a treadle pump can have on an entire community. When a few people are able to raise their standard of living, more money is brought into the community. This money is spent on other businesses in the region, which can benefits other people, whether or not they purchases a pump. Also, the “early adopters” help establish the supply chain and find any “bugs” within the product. Over time, the supply chain and technology will improve both the efficacy of the pumps and their cost, allowing other people to buy the pumps. These market forces have been seen in many products; by selling the pump, the proper incentive structure is set up to improve the pump and to determine the method to provide it in the cheapest manner possible. When one looks at KickStart’s data showing that they can help three times the number of people by selling instead of giving the product away, it seems unethical to not sell the pumps. Their Success How successful has KickStart been? We’ll find out after the pending independent evaluation, but the anecdotes seem to show that it has made great strides for many involved. According to their own measures, they have sold 144,600 pumps, helped create 93,200 enterprises, helped 466,000 people out of poverty and generated $94 million in new wages, which is fifteen times the amount of donor funds. This means it took about $60 to get one person out of poverty. Whether or not these results are overestimated, it is still an impressive impact from one organization. Most importantly though, KickStart is affecting real, cost-effective change that doesn’t rely on government intervention. Emulating and promoting their model elsewhere is one way to show people how the market is the best mechanism to really help people. Filed under: Economic Theory, Market Efficiency Comments: 2 Comments
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Posted at 3:57 pm on April 26, 2010, by Caitlin Hartsell
I came across this article about a U.K. think tank’s suggestion to improve British lives: Cap the work week at 21-hours. It’s brilliant reasoning, of course. The study found that people who work fewer hours have more time for fulfilling recreational activities; therefore, the government should mandate that people work less! At first I wasn’t sure if this study was serious, but I’ve since found that the New Economics Foundation is a real institute, established in 1986, which “aim[s] to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environment and social issues. We work in partnership and put people and the planet first.” On to the mocking! From the abstract of the study:
Ah yes, because before the Industrial Revolution, farmers and merchants worked about four hours a day, five days a week. The new work week would have people working the equivalent of two Industrial Revolution work days, when 10-12 hour days were typical. The study goes on:
If people are more productive, they should be compensated to reflect that. Indeed, we’ve seen a downward trend in average hours while the average standard of living has increased. These changes do not need governmental intervention to occur; if a company believes its employees are more efficient if they work fewer hours, then it would make financial sense for them to translate that into higher pay and decreased hours. To its credit, the study recognizes potential downsides of this policy. The article about the study says:
Not to mention, higher prices at the same time! To produce the same product or services, employers will either have to either pay overtime or hire more workers. An employee working 21 hours per week gains less experience than one working 30 or 40 hours; these employees on average are less efficient. This legislation, like minimum wage, makes the cost of labor more expensive, which will translate into higher prices. The NEF’s solution to these problems?
Ah, even higher prices! If a country is to achieve a 21 hour work week, it is because it has gotten so efficient that 21 hours are all that is necessary. (In fact, some people think you can get rich off a four hour work week, but that’s not for everyone.) Mandating a shorter work week does not achieve efficiency though. At any rate, more leisure time is not a good to be valued infinitely. As Henry Hazlitt explained in Economics in One Lesson, the increase in leisure time has diminishing marginal returns for the employee, while productivity decreases:
People don’t work just to work, but in part because increased income translates into higher standard of living and improved leisure time. Leisure activities necessitate money. The added anxiety of lower take home pay and higher prices would potentially outweigh the added benefits of further leisure time. Unfortunately, the NEF’s study does not thoroughly take into account the unintended consequences of their policy suggestion. Filed under: Economic Theory, Nanny State, Regulation, Unintended Consequences Comments: 1 Comment
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Posted at 11:19 pm on March 29, 2010, by Caitlin Hartsell
After reading the comments that appeared on Andrew Veen’s re-posting of Jen Pierce’s excellent post on a newcomer’s perspective of libertarian arguments, I wanted to address one of the major problems I’ve encountered when having political debate with libertarians and non-libertarians alike: false comparisons. This is especially a problem when talking about health care, which admittedly is a difficult topic. The argument people sometimes present is “perfect government” (in which the efficient government delivers services efficiently) versus “imperfect markets.” Other times, it’s “perfect markets” versus “imperfect government.” Neither is very useful, as what really needs to be looked at is the actuality of how markets and government play out. Any debate that happens needs to involve what can be realistically expected from both the market and the government. Market solutions, even in “perfect markets,” are relatively upfront about their negative points. A market solution, like one for health insurance, may not “include” everyone; a competitive market will bring the price down to a certain point so as to include more people (and sometimes, even most people) but there may be people who are still priced out and cannot afford the service, or insurance, or good. This is a flaw that is often used to attempt to discredit the solution. The problem is that the government solution has flaws that are not initially apparent. For instance, in places like Massachusetts, Canada, and Great Britain, everyone has health insurance and coverage, but that equates to long wait times and rationing of care and quality. A lack of competition (and an excess of bureaucracy) stifles innovation possibilities and slows any moves toward efficiency. Also, governmental solutions have the backing of the law behind them; if one is unhappy with the service, there are limited legal methods to bypass them. (Tangential note: Some may argue that rationing happens currently in the system we have, but rationing by price is a very different and more efficient mechanism than rationing by political clout. At any rate, the current system is too distorted by special interests and governmental infrastructure to be considered a market.) The case of the sick little girl that Jen mentioned draws upon another part of the argument oft overlooked by pro-government solution proponents: the role of private charities. In the competitive market solution, people have more money to spend on other goods, including private charity. Private charities must do good work in order to garner further donations; so in the long-term, the better charities will receive the most money and make the most impact. The market may leave some people out, but the private sector can pick up the loose ends. So, while the market solution admittedly does not “include” everyone, it is disingenuous to compare it to a governmental solution that does “include” everyone. Each has their own faults, but the market solution has mechanisms to fix them, whereas one must resort to the black market to get around the flaws in the governmental solution. (Also posted at Lady Libertarian) Filed under: Economic Theory, Government Spending, Health Care, Uncategorized Comments: 1 Comment
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"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."