Tag Archives: economics

Maybe Mary Kay could help Africa?

The Problem

Melinda Gates has a quote that has become popular among development advocates that goes something like “Why is it that Coca-Cola can make it to remote villages in the developing world, but life-saving medications can’t?”

The answer usually is ‘insufficient profits’ or something alluding to a lack of economic incentives for the makers of those medications.  But the problem to which Melinda is alluding goes well beyond goods with a high development and manufacturing cost, like pharmaceutical drugs.  There are a host of high-impact, low-cost interventions and products –antimalarial bed nets, solar cookers, etc. — that would probably be of greatest utility in remote, under-developed areas, but that are much more prevalent elsewhere.

Why?

Naturally, the reason is complex, multi-faceted and multi-layered (poor infrastructure is an overly-obvious but important factor).  But from an economic standpoint, the reason is clear: a misalignment of resources and incentives. Observe:

Many of the promoters of world-saving, life-improving products like those mentioned above are non-profit organizations who have a desire to distribute them everywhere they are needed, but often lack the resources to actualize that desire.

Many of the companies that have adequate distribution chains don’t stand to make much profit from selling goods — like solar cookers for example –that will probably have to be sold at just above production cost and will only have to be replaced every few years (unlike soft drinks, which can be replaced daily, if not hourly).

The Big Idea

This is where Mary Kary (or Pampered Chef, or any number of other product lines your underemployed friends and their moms have tried to sell you) comes in.  Yes, there are a lot of problems with Mary Kay’s ilk, not the least of which is that they tend to operate like a pyramid scheme (“multi-level marketing” is the euphemism).

Moreover, Mary Kay has such a high turnover rate that very few of their”consultants” make a profit.

But the basic idea that makes these “network marketing” models so effective could be harnessed to bring transformative innovations into under-developed rural markets.  Pampered Chef, CUTCO et al rely on the basic (and somewhat manipulative) principal that consumers are more likely to buy something from a friend than from a stranger at a store.

But there are two deeper assumption that undergird their success:

1. Diffuse networks of individuals are better at identifying potential customers than even the best market research.

2.  Diffuse networks of individuals are more effective at getting products to the right places than a centrally-managed supply chain.

On point 1, consider: A scientific market survey might determine that because you are an 18-24 year old female, you are statistically more likely to want to buy acne cream.  The manufacturer of that product will therefore sell their product in stores in which other studies show your demographic is most likely to shop.  But your friend, who sees you regularly, notices that you are breaking out and can recommend a specific product and sell it to you directly.

Now, imagine if we replaced cosmetics or expensive cutlery with bed nets or solar ovens.  Imagine we hired several hundred “Consultants” who carried with them a small inventory and collected profits on whatever they sold.

There are quite a few advantages this model would have over a conventional supply chain model:

1. The sellers would have added incentive to sell their products in remote areas that normal supply chains wouldn’t reach because of the opportunity cost.  If, for example, the seller had family in that remote area or if there were clan ties, there would be incentives supplementing the profit motive.

2. Using the direct-marketing approach for interventions such as bed nets can insure they are used correctly.  There have been studies that have shown that antimalarial bed nets distributed by NGOs and governments oftentimes are misused for fishing, or even as wedding dresses.  But individuals selling these products to groups of other individuals (as opposed to organizations dropping them off en masse in a village) would have to demonstrate how the product is used and how it is effective to make the sale.

I’m feeling pretty good about this model.  I think we could leave the pyramid out of this and still get pretty good results.  There are other ways the model used by MK would need to be tweaked, but that’s enough for now.

THOUGHTS???

Co-ops for Crops

There is a common perception in the West that developing countries just don’t know how to farm and that WE either need to help them grow more food or send them some of the excess food that our system produces.  Although there certainly is potential for increased agricultural productivity in developing countries, farmers in many of those countries actually produce quite a lot of food.  Some of the thorniest problems arise post-harvest, and this post will look at a way of dealing with one of the biggest of those problems.

The Problem

There’s quite a lot we could say about the problem of inadequate crop storage in the developing world.  Calculating post-harvest loss due to spoilage, varmints or other causes is inherently difficult, but the UN’s Food and Agriculture Organization says it could be anywhere between 15 and 50%.  That’s a very wide range, so let’s just assume that it’s in the middle — say 33%.  That is staggering to think that ONE THIRD of the food that is grown in the developing world might never make it to the table.  There are of course factors other than lack of storage that contribute to this (lack of markets for crops,

That basket-looking thing is their silo

insufficient infrastructure to transport crops to markets, etc.). Having seen, however, the standard grain storage mechanisms for farmers in Uganda (at right), and knowing that even less secure methods are used it’s easy to see how rats, insects, and microorganisms (to say nothing of excess heat or moisture) can ruin a bountiful harvestBetter storage facilities are needed.

Moreover, the inability to store crops for any significant length of time drives down the price that farmers can get.  Roger Thurow and Scott Kilman in the book Enough (2009, PublicAffairs) document how the tragic Ethiopian famine of 2003 came just one year after farmers in Ethiopia had one one of their best harvests ever.  But because all these farmers brought their crops to market at the same time, there was a glut which drove down prices and meant they weren’t able to recoup their costs.  The lower income meant that they had less to spend on inputs for the next season’s harvest and decided to plant less, contributing to the next year’s famine.  Being able to store crops in reserve allows farmers to respond to price signals and choose to bring their products to market when they can get a good price, rather than having to bring everything shortly after harvest.

The Idea

Scale is important.  And modern storage facilities capable of keeping out pests and the elements could be expensive, especially for smallholder farmers.  But I think the communal nature of many societies in the developing world makes it possible to envisage solutions that wouldn’t work in more individualistic societies.  So, the big idea here is to have cooperatively owned and operated crop storage centres.  It would take some financing for the initial building of the storage units (maybe through microloans, but probably a bigger credit facility), but hopefully the increased income for the farmers using the storage centres would help pay off the initial investment rather quickly.  The most sustainable model would be for each member of the co-op to contribute dues in order to be able to store their crops.  The fees would be used for maintenance and could also be used to expand and add storage capacity if the farmers start producing more.

Of course this is a micro-level solution and there are still macro issues that must be addressed to insure farmers in the developing world can access markets.  Creative business models aren’t a substitute for policy reforms, but they can complement, and perhaps even spur those necessary structural changes.


Thoughts?

Don’t Worry America: There will be Football this fall!

Yes, brave citizens, despite all the frightening talk you’ve heard of the possibility of NO football next fall, there will in fact be plenty of football to watch.  And I don’t even mean crappy arena football or lingerie football, but real top-quality football.  True, it won’t be the kind they play with an ovoid ball with helmets on WAIT, WAIT! Don’t navigate away from this page just because you’ve realized it’s about soccer!  At least hear me out as to why watching this kind of football will be just as good as-NAY, better than- watching the NFL next year.  Even Ochocinco is making the switch.

I will first present general reasons as to why any of my fair readers will enjoy the sport, and after reading the general section, you may skip down to the specific reasons that fit your political proclivities.

For Everyone

Relegation

Although with the NFL’s 16-game schedule, every game is theoretically

LADIES!?

important, the truth is that from about week 10 onward, there are a spate of meaningless games.  Match-ups between teams that have no shot at making the playoffs enthuse only the faithful, and in some games between wretched teams, there might actually be incentive for teams to lose in order to get a better draft pick.  However! In European football, this is not the case.  In fact, meetings between the very worst teams have added import because of the specter of RELEGATION!!!  You see, the worst teams in a country’s premier league are relegated each year to the second-tier league (sort of like minor leagues in baseball, but not at all really), and conversely, the best teams from the lower leagues are promoted.  This not only means that the league has fresh faces and a new composition each year, but that teams can’t just coast through the end of the season once their hopes of glory are dashed.    Still don’t see why this is a good thing?  Imagine if a week 16 game between the Buffalo Bills and Cleveland Browns, rather than being a meaningless scrimmage, was a fight for the right to stay in the NFL!  Suddenly, the game would have meaning, the players would have motivation to play like it’s the playoffs, and the fans could be convinced to care.  This will be the situation this May 15 when Wigan Athletic and West Ham United, two teams at the bottom of the English Premier League, play in the league’s penultimate week.

Fewer commercials

With the exception of the Super Bowl, I think we could all agree that the ratio of commercial time to actual playing time in American football (and most professional sports in North America) is mightily out of proportion.  But in professional soccer, the clock never stops during the two 45-minute halves.  This means that if you’re watching a match, the only commercials to which you will be subjected are during half-time, and the occasional small, unobtrusive banner at the bottom of the screen.  This not only makes for a more pleasant viewing experience; it also lessens the risk of an international incident or the marginalization of an oppressed culture.

Now, on to the reasons particular political groupings will love association football:

Economic Liberals (in the classical sense)

The Free Market decides!

Unlike the centrally-planned professional sports leagues in North America (including, it must be said, the MLS), the placement of teams in the European premier leagues is decided by competition, through the system of relegation.  Rather than bureaucrats in league offices deciding, for example that  Atlanta and Miami will get a hockey team (great idea, guys) or that Vancouver would get an NBA team (how did that work out?), or having to approve a team’s decision to move to a new city, market forces decide which cities get teams in the top flight, and how many.

This leads to some interesting results.  This season, in both the English and Russian Premier Leagues (countries with rather different geographies, one might note), fully one quarter of the league’s teams are based in the capital city (5 in London, 4 in Moscow).  Meanwhile in France’s Ligue 1, there is only one club based in Paris, and indeed no city has more than one team (in England this year, 4 cities have multiple teams).  But hey, that’s what the invisible hand wants.

Cosmopolitanists

Yes that’s a real thing (Google it)

Believe you me, if you want to be a “global citizen,” nothing will fast-track your citizenship request more than being a fan of the beautiful game.  If you go to Uganda (note: I have), you may not be able to distinguish between tribes and ethnicities, but there will be a clear distinction between Arsenal and Man United supporters (rest assured, it’s mostly peaceful).  An ability to discuss the flaws in the UN Security Council might start some conversations.  But not nearly as many as an ability to talk about Chelsea’s struggles in the League this season.

One more personal anecdote: I traveled to Laos in 2007.  Laos is in many regards a country beyond the frontiers of globalization — there is no McDonald’s in the country and railways that connect the rest of Southeast Asia stop at Laos’ border. But nevertheless, whenever I introduced myself as “David,” I was usually greeted with a chuckle and “Ah, like David Beckham?”

Moreover, top-flight clubs in many premier leagues have gone so global in their search for talent that simple teamwork becomes an exercise in international cooperation.  Let’s just take, for example, Sunderland, a mid-table side based in northern England.  After making a save, their Scottish goalkeeper might throw the ball out to one of their English defenders, who will then pass the ball forward to an Egyptian midfielder, who might pass the ball over to his Beninese teammate, who will in turn kick the ball upfield to a Ghanaian forward.  And this global flavour is not limited to just the English Premier League.  Even in the Ukrainian Premier League, mid-table sides like Metalurh Donetsk have players from Portugal, Brazil, Nigeria and a host of Eastern European countries.  If you truly want to believe that people from different nationalities can come together and work toward a common goal, football is one of your best causes for hope.

Federalists

It’s right there in the name!

International Football really is one of the best examples of federal governance.  We can start with FIFA (Fédération Internationale de Football Association), soccer’s global governing body.  It’s a massively important organization, but really, it doesn’t do much.  It organizes the World Cup and some other major tournaments and serves as a sort of appeals court on certain matters.  Next there are 6 continental federations, each of which is made up of its member countries’ federations.  Each country’s federation runs its leagues as it sees fit (the game itself is not open to alteration), and the larger bodies (continental and FIFA) usually only get involved if there is political interference from actual governments.

Of course, this federal system works at an international level, and there is not a whole lot of overlap between Federalists and proponents of international governance, but if you can get past that, international football provides a good example of a successful federal system.

So there you go!  Now you don’t have to be sad that you don’t get to see Terrell Owens ruin another team next year.  Your welcome, America.