For Want of A Dog

Private and state donations are the big feel-goods when it comes to dealing with the prospect of third world poverty. Is this really the solution however? Perhaps free markets and open borders are the answer.

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http://www.mises.org/story/2455
All for the want of a dog. "What's a dog?" I inquired.

The middle-aged Jamaican smiled, "The dog is that little part down there." He knelt, pointing to the rear wheel of his broken bicycle leaning against the stuccoed cement block wall that outlined his neatly kept yard. He rose, looked me in the eye, and inquired, "Can you bring me a new one back when you return from the States?"

You see, my friend really needed a dog — the local term for the broken small part of the wheel assembly — in order to fix the bike he used for work. The local bike shops — more like bike shacks — didn't have the part in stock. And, even if they did, the price of a dog sold on the island would have been too high for a day laborer to afford.

Sure, I would have loved to have brought one back for him, but I wasn't coming back as my service in the US Peace Corps was about to end. The bike — a gift from my friend's generous, well-meaning US relative — would slowly rust against the wall in the rain and lightly salted winds, all for the want of a dog.

This incident was one of many lessons in Third World economics that I received as a Peace Corps volunteer serving in Jamaica in the early 1990s. Another such incident was the abrupt end to the computer class I initiated at a local secondary school. The dog bit once again, this time in the form of the failed keyboard, which doomed the program. For the want of a simple US$10 keyboard, a US$1,500 PC would sit idle.

These lessons come to mind as I hear more and more about the idea of providing laptops to millions of students in Third World countries. The idea sounds wonderful, utopian even. But the dog will bite again, and this idea will assuredly fail.

What causes the dog to react so? Well, the political and economic structures of Third World countries — such as Jamaica — of course. During my service, the Jamaican political economy was based on a centralized, interventionist government; a supposed democracy where garrison districts recorded landslide victories of 99%; an island where the ruling party had close ties to Castro in the '70s; a nation whose political parties ran drug posses to generate funds and enforce political power; a country where the confiscation and nationalization of private property was one stroke of the pen from reality.

Jamaica is a nation where my students believed the solution to the country's ills was to "ask for more money from President Bush."[1] I knew better. US aid rarely makes it to a small school in the countryside. There were too many dollar-hungry bureaucrats driving late-model Fords circling the government agencies and NGOs of the capital, Kingston, to allow much money to escape their grasps. And, it would not have mattered even if some money filtered through; the money always went for the PC when it was the dog that was needed. Mises long ago explained this inability for central planners to lead an economy in any direction other than down Chaos Avenue.

In addition, Jamaicans suffered due to an official exchange rate that was about 30% below the active black market for dollars. This, in addition to outrageous protective tariffs and inflationary policies, drove the cost of the dog my friend needed above the price he could afford.

All of this resulted in the typical contradictory Third World activities existing side by side: water and electric rates set at an unaffordable price forcing residents to illegally tap into the pipes and wires — and no one really caring since the government owned the utilities; tourist hotels — mostly exempt from tariffs and quotas - and government agencies flowing with food while the local shops were barren of most essentials.

Such is life in the Third World.

The laptop idea is doomed to fail. What's worse, since the failure is the result of politics, the cost, as usual, will be borne by taxpayers. There will be winners, those who live as pilot fish, eating scraps left over from the victims of a gorged government shark. In fact, the laptop idea appears to have resulted in a manner akin to a pilot fish whispering in the ear of its sycophant shark, encouraging the shark to strike so that more scraps can be scavenged without effort by the beguiling fish.

The general public in the United States will be sold on the supposed benefits of providing laptops to the impoverished students of the world, and will wait like Pollyanna for the sun to rise on a worldwide education utopia. A dawn that will never appear.

There are so many holes in this vision. First, while the solution is sold as the doings of altruistic donors, the truth is that governments and pseudo governmental organizations — such as the Inter-America Development Bank — are waiting in the wings. With the sharks on attack, and the pilot fish alongside, failure is impossible. Oh, the program will not be worth a darn, but that is not failure in the eyes of government. It is simply the signal that more money must be invested, more laptops delivered, more, more, more. Failure? Out of the question.

Additionally, another problem is the little dog that lies inside every electronic device. And once that dog goes bad, the laptop will be tossed into the dusty corner of a closet somewhere in the backcountry. Even if students take great care of their new machines, many will simply malfunction. And, without a capital structure to support repairs, and an economy based on borders free of tariffs and quotas, the replacement dogs will never find their way into the malfunctioning laptops.

If you want to help the Jamaican lamenting his dog and impoverished students struggling overseas, while also assisting US taxpayers and consumers, encourage the development of international and local free markets. It's a simple solution to what has become, through continued government interventions, a very complex issue. Once the steps are taken to open borders, allow goods to be traded without barriers, tariffs, and quotas, the ingenuity of acting humans will correctly resolve the situation.

Of course, it will take some time before the capital structures of poor countries can change from that which supports despotic governments into structures that respond to consumer wants worldwide. In addition, capitalists and entrepreneurs will have to be convinced that a new social system will keep their investments safe from government appropriation — no small task.

This process will not happen over night, nor will it be painless. But the short-term pain will quickly result in the appearance of cheap dogs for the laborer who needs simple transportation.

Jam it back in, in the dark.

Indeed, free trade would be a solution. I mean, jsut look in agriculture. Most african countries can't compete with overly subsidized agriculture in western countries. I don't mean to cut subsidies totally - international division in agriculture could be dangerous: if only one or 2 countries sell wheat...-, but our actual system needs revision

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Subsidized agriculture is a practical form of theft. There's no reason people should be paying double the amount for less.

This thing is sticky, and I don't like it. I don't appreciate it.

I'm not sure if free markets are /the/ answer... but, I know donations aren't. I remember going to a conference on poverty at Georgetown and someone had who worked for UNESCO said something along the lines of "we try to raise millions of dollars to help the third world but a change in U.S., European and Japanese agricultural subsidies could easily do more than billions of dollars in aid". It is theft and doubly so when we force countries to open up parts of their markets to things that benefit us while not giving them benefits in return (even though it would benefit us consumers--just not producers). This is the problem when there are large specific costs but dispersed benefits--the few hire the lobbiests and we deal with higher prices without knowing.

I really think we need to free up markets. Damned populist Democrats. And it's not that I'm a great champion of capitalism as they way to bring people out of poverty. I think it has many problems, foremost among them that capitalism is amoral and is always going to be tied to politics. There cannot be a truly free market--because a country's power helps to influence economic factors. Yet, still, I think people who want to do good in the world should realize that economically speaking the Democrats plan of a hike in the minimum wage / social supports at home and populist economics of closing off trade is harmful to the people of the world. Not that I agree with Republicans not wanting a social security net, but I personally don't care more about Americans than foreigners--for we are all equal in the eyes of The Market.

I am a dolphin, do you want me on your body?

You mean free markets help countries with worse economies? NO WAI.

There isn't really even a debate on an issue. The debate is whether the negative consequences for first-world countries are worth it.

I was speaking idiomatically.

The benefits for first world nations are greater than the negative to begin with. It's the simplest way to provide cheaper goods for an economy in natural stages of transitioning to a service economy. (which we practically are)

It's like with the Canadian lumber issue. If Canadian loggers could provide cheaper, superior lumber, there's no reason that American consumers shouldn't have the option of buying it, and if they were subsidizing its price then doubly so. Subsidizing prices for foreign markets is a net loss for the seller, because they've essentially stolen money from all of their citizens to benefit a special interest just so that they can sell it cheaper than the equilibrium price.

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Originally Posted by Arainach

You mean free markets help countries with worse economies? NO WAI.

There isn't really even a debate on an issue. The debate is whether the negative consequences for first-world countries are worth it.

consequences?

- Pay less for your food. Here in Quebec, 1l of milk is about 1,89$. According to an economics manual I read for a class, it's about 5x its real prince
- Free billions of dollars in the economy. I read, on a libertarian website (www.quebecoislibre.org) that Bush (proably during his first term) gave over 10G$ for agriculture, of which most of the money would go in the bigger farms' pockets.

FELIPE NO

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Once the steps are taken to open borders, allow goods to be traded without barriers, tariffs, and quotas, the ingenuity of acting humans will correctly resolve the situation.

Freeing up the markets is not a bad idea. Unfortunately, it is not going to magically fix third world economies. This is far too simplistic.

Poorer countries have a higher proportion of production in the primary sector and as income rises, production shifts towards secondary and tertiary sectors (manufacturing and services). As such, currently primary products form the basis of exports for these countries: things like foodstuffs and raw materials. While it is true that countries in the 19th century (pre Industrialization) enjoyed free trade and free capital movements in addition to the international migration of unskilled surplus labour, today’s poorer countries face formidable difficulties in generating such rapid growth based on expanding exports.

For one thing, the terms of trade are imbalanced: it takes even more exports to purchase the same quantity of imports. Also, science and technology is dominated by the richer countries and Third world countries rarely innovate nor develop new and improved products. Even their primary products may be replaced as synthetic materials are developed: there are already substitutes for cotton, rubber and timber.

In terms of alleviating poverty or helping third world nations, advocating that freeing markets would imply that US, EU etc would have to similarly open up their own agricultural markets. So in theory, while freeing up the market would be beneficial, in practice, the agricultural lobby wields a lot of political clout and the chances of this ever happening are next to none. Also, where these poorer nations do have a comparative advantage in secondary production (eg. textiles, shoes etc), developed countries frequently have resorted to protectionist policies as well.

Even if you free the markets and can provide the necessary bike parts or laptop repairs, it will be at a loss if the people who need these things don’t have the capital to begin with. As such, it seems that efforts like the Grameen Bank (microcredit transaction system) which begun as a response to the 1974 Bangladesh famine which killed 1.5 million people are now being recognized for their value in alleviating poverty. I remember reading about the founder, Mohammad Yunus, when I used to study development economics in high school some years ago. It was self funded (a donation) to begin with, and he received last year’s Noble Peace Prize. (http://nobelprize.org/nobel_prizes/p...006/press.html)

What, you don't want my bikini-clad body?

If they had the capital to buy a bike, surely they'd have the capital to buy a dog. Products aren't available on markets where there's no demand for them. Incomes have to rise in order to create the demand necessary.

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So in theory, while freeing up the market would be beneficial, in practice, the agricultural lobby wields a lot of political clout and the chances of this ever happening are next to none.

This viewpoint is disgusting to me. We have freedom of speech for a reason, and it's not at all unrealistic that people could be galvanized enough to the point where they have more influence than the agricultural lobbies. I think what you're really saying is that people are too lazy to do anything about it.

Jam it back in, in the dark.

Originally Posted by Bradylama

If they had the capital to buy a bike, surely they'd have the capital to buy a dog. Products aren't available on markets where there's no demand for them. Incomes have to rise in order to create the demand necessary.

I still think it’s a poor example to use because it is quite clear that the man received the bike as a gift from overseas, so it is questionable whether he would have had the necessary capital to buy it or the spare parts. That being a given, it would probably be a different model from locally available cycles, thus accounting for the unavailability of specific spare parts. After all, the existence of a bike shop implies that they do have bikes that need repair or need parts and can be serviced. All in all, this is only one guy who got a free bike as a gift. It’s not an accurate reflection of the existing bicycle spare parts market, and it’s a less valid example than the laptop one where all the children are getting one.

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This viewpoint is disgusting to me. We have freedom of speech for a reason, and it's not at all unrealistic that people could be galvanized enough to the point where they have more influence than the agricultural lobbies. I think what you're really saying is that people are too lazy to do anything about it.

Yep, and apathetic too. Lots of people like the idea of free trade, but we only discuss it academically. There is nothing wrong with being aware of the issues, but I’d suspect that when it comes to taking action, the majority of us and the general public are more concerned about living our own lives, preferring to leave the work of fighting for the benefit of third world nations to celebrities figures with too much money and time on their hands.

Yet, even if you really cared deeply about the issue, the key difference is when it is brought to the table, it is more conceivable that farmers will be fighting tooth and nail as it is their livelihood which is at stake. I’d suspect that no amount of discussion could possibly alter their perspective on free trade.

There's nowhere I can't reach.

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Yep, and apathetic too. Lots of people like the idea of free trade, but we only discuss it academically.

To discuss it in real-world policy terms you'd have to ackowledge that it inordinately takes the form of sophisticated protectionism with regard to the third world. The 'free' in free trade is largely a one-way street, as betrayed the prevailing policy wonkery of our governments.

How ya doing, buddy?