This Does Not Look Promising

World magazine reports on the "transitional" country of Turkey. It is a country with a strong secular tradition but currently with an Islamist government. It geographically straddles Asia and Europe, and would like to become more integrated with the European community. Yet, according to the article in the May 7, 2011 edition , "Dozens of journalists are currently in prison --- among the highest numbers of jailed journalists in the world, according to Freedom House....In March, Turkish police arrested 13 journalists on charges of conspiring to overthrow [the ruling party]."

I had no idea that Turkey had descended this far into autocracy. Just to be on the safe side, I decided to cross check these claims with the original sources. I found pretty much the same sad story here and here.

Doug and I recently completed a case study of the reform of corruption in the LAPD in the late 1940s and early 1950s. A free and competitive media was one of the institutions that clearly aided that successful drive against corruption. This does not look promising for the Turkish people.

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.

Portfolios of the Poor: A Book Review

The World Bank introduced $1 poverty rates into our vernacular in 1990 with their World Development Report. However, little was known about how these people, classified as extremely poor, actually lived. Since then research such as that described in an earlier post titled "Economic Lives of the Poor" shed some light on this question. Carrying forward that research agenda is a 2009 publication from Princeton Press called Portfolios of the Poor. Four economists tell a fascinating story about the financial lives of the poor and how the world's poor live on such little money.

What is novel about Portfolios of the Poor is how it moves beyond the static story of year-to-year statistics and into a more dynamic realm. In other words, former studies were like pictures that represented snap-shots in time, this book is like the introduction of the motion picture. The authors are able to improve in this way because of their unique data. Throughout three countries Bangladesh, India, South Africa the authors employ financial diaries (which participants filled out fortnightly) as a vehicle to acquire information about how poor people make decision with their money.

What emerges from the diaries is a bounty of information about the daily grind. First, it was interesting to learn what kinds of occupations employed the poor. The occupations in their sample were varied from sheep intestine seller, rickshaw driver, construction labor, factory labor, small farmer, cab driver, cigarette roller, and many more. Secondly, it was a revelation to learn that their occupations and incomes were frequently irregular. Many of the households in their sample pieced work together from regular wages, casual work, and self employment (~65% in South Africa, nearly 70% in Bangladesh, and more than 85% in India. Moreover, the $1 or $2 per day measures used by the World Bank were averages over the course of the year. Put another way, they could earn $3 on Monday, $0 on Tuesday, $1 on Wednesday, $4.25 on Thursday and etc. The poor had to stitch together a livelihood from multiple sources.

At the most basic level the poor are in a particular bind because they suffer from what the authors call "The Triple Whammy": low incomes, irregularity, and a lack of financial instruments. These open the door to a myriad of questions: How do the poor handle negative and unpredictable shocks such as illness in the family?, How do the poor acquire enough savings with their low incomes to send their children to school, buy grains to store during the monsoon season, or host a special even such as weddings or funerals? The authors have distilled these kinds of questions into three categories of financial needs for the poor:

"1. Managing basics: cash-flow management to transform irregular income into a dependable resource to meet daily needs.
2. Coping with risk: dealing with the emergencies that can disrail families with little in reserve.
3. Raising lump sums: seizing opportunities and paying for big ticket expenses by accumulating large sums of money."

Currently the poor manage their money largely through informal channels. This is probably not surprising since there are a shortage of formal lending and borrowing institutions geared towards poor households. Moreover, microfinance institutions are often focused on helping the poor raise money for capital investments. There is nothing inherently wrong about that focus, but, the poor have immediate needs in addition to building up their long term prospects. In managing their money day-to-day the poor will rely on neighbors and/or family members who are marginally better off as lenders or "money guards". A money guard is simply a person who safely stores the money given to them by another person (sometimes for free but often for a fee). The rationale for this institution is simply a commitment to self-control. Seeking family for both lending and money guarding it is stressful for the poor for at least three reasons: unreliability, lack of privacy, and lack of transparency. For example, these informal loans are unreliable because the money guards might have spent the money (the money guards are still poor). A lack of privacy is important because people may not want to borrow because they feel ashamed and pay a big emotional toll. Moreover, if they borrow money they will later be expected to reciprocate. Finally, sometimes the transparency of the interest rate is questionable when lending through informal channels. All of this adds up to high risk in gathering substantial sums of money and a stressful situation for the poor.

Having access to some credit or savings is very important because the poor are rarely insured against a variety of events. For example, if a family member develops a sudden illness this acts as a large negative shock to their income. In rich countries we have various kinds of insurance to protect us against such risks; however, insurance is a difficult financial instrument to use amongst the poor. People have tried to provide so-called "micro insurance" with mixed results. In particular, in the authors' sample the results for insurance in Bangladesh and India were quite bad with poor management of funds that resulted in an inability to payoff the insured.

Alas, if the poor are uninsured they must have the ability to acquire a loan or dip into savings to absorb risk. Then, the question becomes, "How do the poor accumulate larger sums of money?". So far we've talked about informal loans which you can think of as "accelerators" but the poor will sometimes utilize different kinds of savings arrangements ---we'll call those "accumulators". The authors discuss a few accumulators such as savings clubs, rotating savings and credit associations (RoSCAs) and accumulating savings and credit associations (ASCAs). Savings clubs are simple commitment devices in which a large group of people save X dollars for Y months and then receive X*Y at the end. The purpose of joining a savings club is simply to encourage each other to stay committed. RoSCAs and ASCAs on the other hand are a little more complex because people take turns reaping the benefit of the savings. In RoSCAs each person puts in X dollars a month and every Y months it's your turn to receive all the money in the pot. Some RoSCAs are even more sophisticated where they auction the right to the money to people who haven't taken their turn (which essentially acts as an interest rate). Finally the ASCAs are like the RoSCAs but don't zero out the pot each time. Some money is left in the pot to act as loanable funds to increase the overall wealth of the membership.

Then, the authors discuss some of the most up-to-date innovations in microfinance and other commercial banks. With commercial banks the authors provide the example of "Kishan Credit Cards" which allow for small and marginal farmers to improve their cash flow. The farmers can use these credit cards anytime throughout the year and must pay them back by the end of the year to use the credit card in the subsequent year. This allows for farmers, whose incomes are seasonal, to smooth their consumption over the year. Another innovation that comes from microfinance is the concept of "top-up" for loans. Without top-up borrowers needed to pay the entire loan back before receiving more money; however, with top-up borrowers are able to refresh the loans to their original amount even when they haven't paid back the whole loan.    

These innovations are an excellent example of institutions. Institutions are the "rules of the game" and small changes in the rules of the game can have a significant impact on the ability for the poor to meet their daily needs. Finally, after discussing some of the innovations the authors are able to cull some additional insights from their research about the what characteristics of financial instruments are most important for the needs of the extremely poor. The authors identify four such characteristics: reliability, convenience, flexibility, and structure.


Reliability - The poor need a safe place to store their money with someone who is trustworthy and will not be tempted to spend their savings. Reliability is crucial in their financial instruments because so many other facets of their lives are irregular from earned income to schools and clinics to care for them.

Convenience - One of the primary reasons the poor in the authors' sample did not take advantage of microfinance institutions is that they were not convenient. The poor needed to travel long distances or attend regular meetings to obtain credit. The more accessible the financial instruments the more likely they are to be used. The authors provide the example of some microfinanciers who have begun daily visits to provide people with more opportunities to repay and take-up loans.

Flexibility -Because incomes are so irregular the poor need some flexibility in the payment schedules for the loans. The Kishan Credit Card is a good example of providing such flexibility. The main objective is for the loan to be paid in full, but, it allows the poor to supplement their less abundant months with credit while paying off the loan in the more abundant months.

Structure -Even with flexibility there needs to be some structure because it is difficult to maintain self-control when you're living on such a small income.

There were many other interesting facets of the book such as how interest is charged in the microfinance industry and how the interest rates are not as exorbitant as they may look at first blush because they are nominal rather than compounded. Also, the interest rates must be somewhat higher because of high default rates and because debts owed are cancelled upon death. To me the book comes down to this really central point from the authors:

"In the rich world, a household's portfolio of financial instruments is usually managed on the basis of risk and return. The portfolios of the poor households are instead managed to ensure money can be obtained in the desired amounts at the desired times."

The book was a joy to read and gave me a lot of insight into how the poor actually live and the struggles they face. Below is a video of well-known development economist Bill Easterly discussing the book.

The Economic Lives of the Poor

Today my Economics of Compassion class will be discussing two articles from Abhijit Banerjee and Esther Duflo. First, "The Economic Lives of the Poor" (2007) chronicles the living conditions and spending habits of people classified as living on $1 and $2 per day. Then, in a follow-up paper titled "What is Middle Class About Middle Classes Around the World?" (2008) Banerjee and Duflo investigate those people living on $2 to $4 and $6 to $10 per day. Both of these papers utilize the same World Bank Living Standard Measure Surveys and the RAND Family Life surveys which are considered high quality datasets. The authors also use data they have generated through field ". With these datasets the coverage of locales is a great feature of the articles. Countries from Mexico, Guatemala and Peru to South Africa, East Timor, and Tanzania, to India and Pakistan, and more were covered by these data. So, I thought the first thing I would start out with are 10 Facts about those living on $1 to $2 per day and 10 Facts about the middle class. Then, I will close with what I think are some interesting points I gleaned from the readings.

10 Facts from "Economic Lives of the Poor"
1. Those classified as extremely poor are often entrepreneurs, but, not in the glamorous way we think of entrepreneurs in the United States as inventing a new product and striking it rich. Often these entrepreneurs engage in activities such as rickshaw driving, selling sheep intestines, frying dosas (think Indian pancakes), or having a modest storefront operation. They engage in these activities in part because of the flexibility but often because they do not have other options for regular and steady work. In fact, the poor often work 2 to 3 jobs to try to cobble together income.

2. Rural households are more likely to engage in agricultural work but even rural households will work multiple jobs often migrating into city areas. The thought here is that the harvest season does not bring income all year. Also, many poor work multiple jobs to spread out risk. Because many times their jobs are temporary having multiple jobs is a benefit because it reduces risk.

3. In urban areas the extremely poor spend 56% to 74% (56% to 78% in rural areas) of their income on food. Moreover, when they spend this money they do not spend the money to maximize calories. Instead, the poor buy seasonings and sugar in addition to staple grains.

4. Households are often crowded with a median of 7 to 8 people per household. Access to electricity and sanitation varies enormously from country to country.

5. The extremely poor are "frequently sick or weak". For example, Banerjee and Duflo report data from Udaipur citing that 65% of men and 40% of women had a BMI below 18.5 which is the cut off for being underweight. Moreover, in Udaipur they have survey data that 72% of respondents had a disease and 46% report and illness that left them bed-ridden and unable to function. Moreover, only about 6% have health insurance. In theory this shouldn't so bad; however, many of the public health facilities available sometimes charge money when they're not supposed to and are often incompetent (give medical advice that harms rather than helps).

6. Banerjee and Duflo report that education expenditures "hover around 2 percent" for these extremely poor households. Even though the poor frequently attend public schools there is "mounting evidence . . . that public schools are dysfunctional".

7. The median household spent 10 percent of their income on festivals per year. They report the median because the Latin American countries spend substantially less on festivals each year.

8. Television ownership is all-over-the-map. In Udaipur almost nobody owns a TV; however, in Peru and South Africa there is 70% ownership

9. There are not many formal channels through which the poor can save and if they keep the money at home, "The money may be stolen or simply grabbed by your spouse or son. Perhaps equally important, if you have money at hand, you are constantly resisting the temptation to spend." This lack of saving really hampers critical investments in goods such as fertilizer or capital equipment such as a sewing machine.

10. Significant amounts of money are spent on alcohol and tobacco products about 4% to 8%. When asked what they believed they could trim in their budgets 44% of the poor viewed these consumption items as the things they would want to cut.


10 Facts from "What's Middle Class About . . . "
1. The middle class are far more likely to have steady salaried jobs. Banerjee and Duflo write, "The key distinction between the middle class and the poor is who they are working for and one what terms."

2. The middle class spend a much smaller share of their income on food. Where those living on $1 or $2 per day tended to spend upwards of 60% of their income on food the middle class tends to average around 50% of their income spent on food.

3.Fertility is difficult to measure because there is no consistent fertility histories in the survey. The authors try to figure out fertility by looking at the ratio of people aged under 18 to those above 18. It seems that the middle class are having less children.

4. The rural middle class spend approximately the same percentage of their budget on education as the rural poor; however, the urban middle class spend "a substantially larger fraction" of their income on education. (This is amplified when you consider that the absolute amount is higher and you consider Fact #3 that the middle class have less children). Moreover, in many urban areas parents spend money on tutors for their chidlren. Presumably these parents realize that the best way out of the middle class is through an education.

5. The middle class have significantly improved access to clean water. In rural areas over 30% compared to under 10% for those earning less than $4 per day. In urban areas the percentage gap is approximately the same though more of the extremely poor have access to clean water.

6. The middle class spend more money on health care (in countries where public health is not covered through government expenditures). The middle class are more likely to see a health care provider when they are sick. Moreover, when asked in a survey whether their parents are alive the middle class are far more likely to report their parents are still alive than the poor.

7. The middle class have better access to information through television ownership.

8. Better access to credit. These middle class people in poor countries are better able to obtain savings accounts and formal loans. They have collateral and are better credit risks because they have a steady job.

9. There is no clear pattern for what happens to alcohol and tobacco consumption as income goes up.

10. More entertainment. The poor spend more on festivals as their income increases.

These are really interesting stylized facts about the economic lives of the poor, but, causality is not specified in many of these facts. For example, are people poor because they have more children -or- are people who are in poverty having more children because children can earn more than they cost? Do people become poor because they became sick -or- are people who are poor more likely to be sick because they cannot afford good health care? There are a number of these questions where the arrow of causality is running amuck.  With both of these questions causality likely runs both ways. But, understanding causality is no mere trifle ---what I mean is, causality isn't important only to academic economists. Identifying causality is important because policies are often designed in hopes of tackling "root causes" of problems. My next post will be a review of a book I recently finished called "Portfolios of the Poor" that discusses some of the on the ground money management strategies of the poor and how different financial instruments could potentially help the poor manage their cash flows.

Some interesting things I found when reading the articles were how similar humans in different parts of the world behave. First, even when earning a paltry $1 or $2 per day people do maximize on caloric intake, rather, people like the way food tastes. When people become middle class they do not buy more food but they buy "better food". Second, people have a difficult time not spending money. The temptation of "this money is burning a hole in my pocket" is real for the poor the same way it is for us. Third, poor people spend a sizable chunk of their income on festivals or other important ceremonies because there is this deep-seated desire to engage in social activity. For me these facts draw me closer to their humanity because I am able to see these people as not so different from myself and others I know. But, these vignettes of the poor also are vitally important because if we want to help the poor we must first know the poor. This has been the great tragedy of compassionate activities that we try to help people when we lack knowledge about what would help them.

Economic Gangsters: Book Review

Tonight the Economics Club and others will watch L.A. Confidential. Meanwhile Mark and I will wait in the wings to present our research on how the LAPD went from worst to first in only five or six years.  The corruption portrayed in L.A. Confidential is not a caricature of the LAPD in the late 1940s --- in fact, the portrayal is only a shadow of the extent of corruption. When William Parker became police chief in 1949 (after a massive prostitution scandal) he quickly turned the corrupt situation into the model of police professionalism.

I'm certain Mark and I will summarize this research in a future and more detailed blog post; however, the talk tonight reminded me to write a book review of Economic Gangsters. This book was written by Edward Miguel and Raymond Fisman (2008) Princeton Press and explores some important questions surrounding corruption.

Understanding corruption is extremely important because the stakes are so high. First, I will place corruption in the context of the larger debate on economic development. Both Fisman and Miguel were students of Jeffrey Sachs (author of The End of Poverty) at Harvard. Sachs' core idea is "the poverty trap" which suggests that poor people are unable to escape poverty because they have 1) Low Savings, 2) Many Children, 3) Threshold Effect of Capital. Put another way, poor people do not have enough money to make investments that will improve productivity. This leads Sachs to conclude that impoverished countries need a "Big Push" to escape their poverty. What is a "Big Push"? A massive infusion of foreign assistance. Fisman and Miguel write,

"Sachs's ideas for ending poverty make sense in theory. But many other economists hold the opposite view, that we're spending too much on foreign aid already ---or at least spending it in all the wrong ways and places. Bill Easterly is the public face for these arguments . . . [Easterly claims] Sachs's plan of expanding aid  five-fold would likely fritter away trillions more [dollars]. Easterly argues that these enormous sums of aid money have often been spent on grandiose centrally planned projects ---hydroelectric dams, four-lane highways, destinations plants ---in countries ill-prepared to oversee their construction, operation, and upkeep"

Then, Fisman and Miguel add,

"What we do know today is that much of the developing world doesn't have a lot to show for these past foreign aid efforts, barely anything beyond a collection of rusting monuments to good intentions."

Put simply, the effectiveness of foreign aid, in part, depends upon corruption. When we provide aid assistance to other countries we must ask whether the leadership will invest that money for the body politic or if they will pocket the money for themselves and their cronies. The authors tell six stories, three on corruption and three on violence which help shed light on these problems which are critical to helping people experiencing extreme poverty (I write about the stories of corruption here). These stories utilize very interesting methods to research problems (most corrupt people do not announce their corruption to the world and keep well documented Excel spreadsheets of their bribery and extortion). In the end these stories provide some insight into human behavior and ways to get ahead of the curb on corruption.

Chapter 2: Suharto Inc.: This chapter tracks the exploits of "Tommy", the son of Indonesian President Suharto. The question centers around how Tommy accumulated such wealth as a businessman. Was it through shrewd investment or political ties? Then, the question becomes, "How can you prove it?" In a survey, people could say that Tommy was corrupt, but, talk is cheap. We want people put their money where their mouth is. The closest thing to that kind of bet is the stock market.Fisman and Miguel describe how certain stocks dropped significantly whenever Suharto became sick. Those certain stocks were also ones that Tommy was affiliated with. We can infer from those drops and the affiliation that these companies were considered valuable due to their political ties. If Suharto died Tommy would no longer have the same political persuasion and those companies would be less valuable.To boot, this chapter has a nice section on potential benefits from organized crime.

Chapter 3: The Smuggling Gap: Smuggling is big business. Mr. Lai smuggled $6 billion in merchandise from Hong Kong to China during the 1990s. This chapter is primarily about incentives and how criminals respond to prices and incentives. Because some products were taxed more heavily by the Chinese inspections officials, masking the nature of the product can be pretty profitable. For example, Lai would lie about tobacco being wood pulp or chickens being turkeys (whichever had a lower tarriff rate). Additionally, it is estimated that half of the customs officials were "on the take". One lesson learned from this is that tariff rates on similar looking items should be equal. But, there are a lot of really intriguing nuances in this chapter such as whether bribery is grease or sand in the wheels of the market.   

Chapter 4: Nature or Nurture: This chapter is a personal favorite because it is just really really cool and involves an interesting population and subject: diplomats and parking tickets. Because each diplomat has diplomatic immunity each of the diplomats face the same external incentives for racking up parking tickets: their wrong behaviors will not be punished by the U.S. There is a high correlation between the most corrupt countries in the world and the diplomats from those countries racking up parking tickets. Since presumably it is equally difficult for everyone to find parking and everyone faces the same incentives Fisman and Miguel infer that there is a significant cultural element to corruption. Some of the diplomats didn't rack up parking tickets simply because that would be taking advantage of their position. It was part of their identity. Fisman and Miguel conclude, "The central lesson . . . is that reformers . . . must be aware that values and social norms can undermine their attempts at change."


As I said earlier, there were three more chapters about violence and conflict which I can certainly write about in a later blog post. But, to conclude, this book was a smooth read on a timely topic. Any person with an interest in development economics should definitely read it. Judging by the popularity of Law and Order, CSI, and other crime shows there would certainly intrigue and thrill from the general population. Additionally, you'll get to hear about how these economic sleuths uncovered corruption. Overall, the book is a well formed pair of entertainment and significance.

Unintended Consequences #5

I've followed the following story in several places, but I'm writing with the Wall Street Journal editorial "The Madness of Cotton" in front of me.

Students in both the Compassion and Sustainability classes have heard an earful from us about U.S. agricultural subsidies. They depress prices for farmers in developing countries, are transfers largely to wealthy Americans, and have a variety of unintended, bad environmental consequences from overproduction. Did you know that so much cotton has been grown in the Arizona desert that we used to say that Arizona's economy was dependent on the 5 C's: Copper, Citrus, Climate, Cattle, and ....Cotton? [WSJ figures regarding the total U.S. subsidy amount: $2.3 billion in 2009, with the top 10% receiving 70% of the benefits]. Of course, Congress repeatedly re-authorizes the program.

Recently, Brazil successfully protested to the WTO about our cotton subsidies, and the WTO found in favor of Brazil. The allowed Brazil to propose a list of retaliatory tariffs against the U.S.. According to the WSJ, the hits to American manufacturing would have included cars, medical equipment (way to go Brazil---make health care more expensive for your own people), pharmaceuticals, electronics, textiles, wheat, software, and intellectual property. It seems as thought the sensible thing to do would be for Congress to say, "That's a shame, I guess we'll just have to lower those cotton subsidies." Instead, the Obama administration has proposed that the United States government pay $147.3 million dollars to Brazilian cotton farmers in return for the Brazilians waiving their right to retaliate against American manufacturers.

$147.3 million paid by our government to Brazilian farmers to divert the damage done by our own cotton subsidies to our medical device and software industries....just another day in the life of Unitended Consequences.

Trash to Treasure

This video (don't mind the commercial in the beginning) shows a phenomenal example of the kind of innovation from Cheetahs that George Ayittey talks about. The entrepreneur takes an abundant material (plastic bags) at low cost and produces something that benefits others (fence posts and homes). When this happens wealth is created. Also, since this is an economic change that emerged from within the country (not from an aid agency) it's more likely to have some staying power. The video was found on the Social Enterprising Blog which is linked on our blog roll on the bottom right.

More on Haiti

Most of the day I work through large stack of books, journal articles, practice problems, and tidy my power point slides for lectures. The earthquake in Port-Au-Prince did not reach my awareness until my fantastic news-junkie friend reported the story at Bible Study later that Wednesday night. Our collective response was in prayer for Haiti ---I do not know each person's individual response. However, throughout the Florida State University campus there were visible signs that Haiti was on our student's minds. There was a troubador strumming out Jeff Buckley's "Hallelujah" outside the union with an open guitar case and an 8.5x11 piece of paper posted to the inside stating the cause. In front of Strozier library a young girl was collecting donations in a plastic jug and passing out information about the various donation texting campaigns to make contributions easier (Red Cross received $18 Million in donations via text!). The outpouring was enormous. But, in the wake of the disaster there are the simple problems Mark reported in the last post: coordination between the many agencies and allocation of correct resources (for example, only 40% of the drugs given during the Tsunami Relief effort in Indonesia were drugs needed by the people we were trying to help).

Here is an article by Laura Freschi at NYU titled, "Getting Humanitarian Relief Right" about what we can glean from previous natural disasters. More than anything I hope that the devastation that came from the earthquake creates a fluid situation in which major informal reforms of the heart and formal reforms of governance and policy flourish. Along these lines is a quote I read from my friend Brandon Vogt's blog (The Thin Veil):

"Hopefully this tragedy will bring about a new national unity among the Haitian people who have been long divided over class and or political lines. And for us in the United States, let me say that geography has made the U.S. and Haiti neighbors; now is the time that we show that we also are truly brothers and sisters." -Bishop Thomas Wenski

Wealth and Saftey II

Here is another thoughtful post on Haiti. The more I read about this, the more I wonder if unprecedented action is called for. If the United Nations ever has any role to play, it ought to be here. I'm beginning to believe that the U.N. Security Council ought to declare Haiti an Emergency Mandate. And, no, I don't think the people at the U.N. are able to run Haiti. But France has a good track record in stabilizing former colonies. If the cultural problems of having France temporarily govern a country that fought early on to liberate itself from French rule are too immense, then there may some other country with similar skills: Japan? Brazil? Great Britain? Norway? As I said, if this isn't where the U.N. can do something bold and constructive to quickly address an international disaster, I'm not sure why we even have a U.N..

Wealth and Safety

There are numerous links across the web today to well-respected aid NGOs who are providing relief for the devastation in Haiti: Compassion International , Food for the Poor , WorldVision , and Presbyterian Global Fellowship are just a few of the sites with which I've had some acquaintance.

In addition to our generosity, we should remember Paul Collier's warnings from the time of the Asian Tsunami: westerners (and I suspect that Americans would definitely be included in this category) are extremely generous in times of great natural emergencies. The crunch comes after many months when the emergency has dropped from the news, and long term problems remain.

In Haiti's case, there were already long term problems. Haiti is the poorest nation in the Western hemisphere, and one of the poorest in the world. And, as is starkly evident, economic prosperity brings with it technological and cultural realities that can drastically mitigate the damaging effects of natural disasters. Examples: in 1989 an earthquake of magnitude 7.1 struck the San Francisco bay area. 67 people died. A similar death toll came from the 6.7 magnitude earthquake in Los Angeles (Northridge, 1994). If we want to help Haiti after the emergency crews go home, we need to think seriously about what we can do to bring Haiti's prosperity up to the level of even other moderately poor countries.

Through Instapundit, I found that Tyler Cowen at Marginal revolution is tackling these questions head on. How is economic prosperity related to safety? Why is Haiti so poor? In the latter post, be sure to read the free-wheeling discussions in the comments section. In a newer post, he links to a New York Times article about building construction in Haiti.

Video Will Make Him a Rock Star

Doug and I both present our students with the portfolio of ideas about economic development represented by economists Jeffrey Sachs, Paul Collier, and William Easterly. Easterly is the author of two books, including The White Man's Burden (an intentionally sarcastic title), about the massive failure of traditional Western aid program to benefit the typical poor person in Africa. Indeed, Easterly is squarely in the camp that Western aid has probably been counter-productive.

Doug recently showed me this You Tube video, the coming attraction for a documentary on Easterly and The White Man's Burden. Interestingly, the movie is produced by Damascus Films, whose trademark is "From Saul to Paul in 24 frames per second." Given that so much Christian discussion on helping Africa starts and stops with "giving aid", this has the potential to be transformative.