Book Thoughts: Development Work

Note: I decided recently to comment on things I've noted in books over the years. I'm calling these Book Thoughts. This is the second post.

I wrote recently about Christian economic development work, and it reminded me of a thin little book I read called, Economics in One Lesson, by Henry Hazlitt. No graphs or ponderous math. Very readable.

In brief, the one lesson is this:

The art of economics consists of 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.

Sounds absurdly simple, but as I watch the world go by, it seems clear to me that it is a simple lesson that is widely ignored.

Having said that, let me go back to my Christian Development topic with a little fable (any relation to real companies or towns is pure coincidence):

Missionary Bob works in the poor town of La Luna in a Latin American country. The Big Hiking Shoes company has just opened a factory there, paying an awful wage to its workers and no benefits at all. It would pay even less if it could, but if it did it would not attract enough people away from subsistence farming to make the factory work. So BHS reluctantly improves the people's standard of living by paying just a bit more than the prevailing wage.

But Bob gets mad. BHS is "exploiting" the people by "underpaying." So, when he is back in North America he visits BHS headquarters and tells them they need to pay more, provide day care for the workers' children, and low-cost health care. If you don't, Bob hints, he's got lots of friends and he may make a fuss and generate a lot of bad publicity.

Well, even more than cheap wages, BHS doesn't want bad publicity, so its says that, "Yes, Yes, of course we are very concerned about the problems you are bringing up, and thank you very much for bringing them to our attention and we will certainly do exactly what you suggest." And BHS lives up to its word, and Bob basks in the satisfaction of knowing how much he helped the poor people of the town, and he has pictures of himself taken with the happy children at the new daycare center and sends the photos to his supporters and says that you just have to stand up to these exploiters.

But what Bob doesn't see is that BHS was planning to expand its operations in town because it was so cheap, but because of the extra expenses Bob has imposed upon the company, it's not as cheap anymore, so BHS quietly decides not to expand there. Oh, the BHS PR lady stands with Bob and smiles for the camera and boasts about how caring the company is, but it opens its new factory in Vietnam.

Nor does Bob see that Larry's Boot Company, a BHS competitor, was about to follow BHS' lead and open a factory in La Luna, but seeing what happened to BHS, it goes to Thailand instead.

So Bob strangled the number of new jobs in town, but thinks he's a hero.

Instead, what if Bob, when back in North America, had stopped by and visited Larry's Boot Company and said, "Your competitor, BHS, has opened a factory in La Luna. The people there work for very little and do fine work. I'd be happy to show you the ropes down there if you wanted to open a factory, and BHS has spent a lot of money training people to do this work, and you could offer them a bit more and get a nice workforce without the cost of training. Etc. etc."

So Larry's, just as stingy a company as BHS, opens a factory and hires away a lot of BHS' employees at a bit more than they are currently being paid. Soon BHS gets tired of losing trained people, and reluctantly offers them more money. And because two factories require more workers than one, both companies hire more people from the community and the trained people start making more money. And because they have a bit more money to spend, a few retail stores open branches there, and employ more people. And so forth.

I'm not saying there is never a place for Bob's approach, but I think that in many cases Bob is simply not thinking out the effects of what he is doing. He may easily be doing far more harm than good.