Tuesday, April 19, 2011

TOMS Shoes

 Monday morning one of my students walked in, sat down, and confessed that the Economics of Compassion course is challenging her thoughts about charity. Then, she asked about my personal opinion of TOMS shoes. This is a brief description of the conversation. But, first let me explain what TOMS is. From their website under "Our Movement",
In 2006, American traveler Blake Mycoskie befriended children in Argentina and found they had no shoes to protect their feet. Wanting to help, he created TOMS Shoes, a company that would match every pair of shoes purchased with a pair of new shoes given to a child in need. One for One. Blake returned to Argentina with a group of family, friends and staff later that year with 10,000 pairs of shoes made possible by TOMS customers.

Why Shoes?

Many children in developing countries grow up barefoot. Whether at play, doing chores or going to school, these children are at risk:
•A leading cause of disease in developing countries is soil-transmitted diseases, which can penetrate the skin through bare feet. Wearing shoes can help prevent these diseases, and the long-term physical and cognitive harm they cause.
•Wearing shoes also prevents feet from getting cuts and sores. Not only are these injuries painful, they also are dangerous when wounds become infected.

•Many times children can't attend school barefoot because shoes are a required part of their uniform. If they don't have shoes, they don't go to school. If they don't receive an education, they don't have the opportunity to realize their potential.

Their goal is what is commonly called a "double bottom line": profit and charity.  And, they are doing quite well at both. Last year TOMS reached the 1 million pair sold plateau (which means they also gave away 1 million pairs of shoes). But, economics fundamentally boils down to what Bastiat called, "That which is seen and that which is not seen". What do people see with TOMS? First, they are fashionable and cool looking kicks but they also see photographs like the one pictured below. Is this a good thing? Maybe.

If that is what is seen then what is not seen? I'll argue that there are three things that may go unnoticed by most people: Opportunity Cost, Paternalism, and Unintended Consequences.

Opportunity cost is what we give up to get something else. The least expensive pair of TOMS shoes are $44 on their website. What else could $44 buy? My pair of sweet Nike's cost $30 on sale. If I wanted to give away $14 that could buy medicines, malaria nets, food, etc. through a variety of NGOs. Additionally, there are really inexpensive pairs of shoes that you could buy at Wal Mart for $14 but are more durable than TOMS. I wore the soles of my TOMS out in short order and my primary mode of transportation isn't my feet!

Paternalism is important because when buying TOMS we're determining what to supply rather than asking what is in demand. Perhaps giving the money to the people directly through a sponsorship program and allowing them to allocate their own resources is better. Do we really know their needs better than themselves? (Obviously Principal-Agent problems factor in when you just give people money, nevertheless, I think this is an important point)

Unintended Consequences are those positive or negative outcomes people did not anticipate. Vivek Nemana made two guest posts (here and here)on the Aid Watch Blog and notes that TOMS shoes actually can be harmful to local shoe markets. If TOMS targets people who would never have bought shoes this is a moot point; however, if TOMS is giving away free shoes to those people who would otherwise be customers in the local shoe market they are destroying demand. At this point you might be asking, "Why is this a bad thing? Now that person has extra money they can spend in alternative ways." That is true; however, what happens when TOMS become less fashionable and less shoes are being given away?

Certainly the work TOMS does in these developing countries has positive benefit. No doubt. Also, in our own country it has brought about awareness with campaigns such as the one on FSU campus a couple weeks ago called, "One Day Without Shoes". In the end my critique of TOMS comes down to the seen versus the unseen.

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