Saturday, January 31, 2009

SCAs on average

After visiting three Rwandan dioceses and their respective savings and credit associations (SCAs), we are beginning to get a picture of what the average group looks like. Of course, we haven't seen enough groups to be scientific about all of this, but again, we're getting a picture. There are lots more stories forthcoming that illustrate what individual groups may look like, and in the next post, what group members actually buy with their savings and loans.


18 Group members

5:1 Ratio of ROSCA (rotating) contributions to ASCA (accumulating) contributions

8:5 Ratio of groups contributing monthly to groups contributing weekly


1,800 RWF ($3.27 USD) - Monthly individual contribution, ROSCA + ASCA

21,000 RWF ($38.18 USD) - Monthly group contribution, ROSCA + ASCA


1,500 RWF ($2.73 USD) - Monthly individual ROSCA contribution

18,000 RWF ($32.73 USD) - Monthly group ROSCA contribution


300 RWF ($0.55 USD) - Monthly individual ASCA contribution

3,000 RWF ($5.45 USD) - Monthly group ASCA contribution


350 RWF ($0.64 USD) - Weekly individual contribution, ROSCA + ASCA

5,800 RWF ($10.55 USD) - Weekly group contribution, ROSCA + ASCA


300 RWF ($0.55 USD) - Weekly individual ROSCA contribution

4,000 RWF ($7.27 USD) - Weekly group ROSCA contribution


50 RWF ($0.09 USD) - Weekly individual ASCA contribution

1,800 RWF ($3.27 USD) - Weekly group ASCA contribution

**Remember, ROSCA goes to one member each week; ASCA goes into a loan fund or bank account.

Wife update

Danielle (wife) has some great news. No, she is not pregnant with triplets (that we know of), but it is her birthday on Tuesday (Feb 3) and, more directly, she just got a job!

So far, Danielle has been volunteering with HOPE and also with a local orphanage, and she helps direct the children's ministry at church. Now, she can add to the list working for World Relief Rwanda. She will be supporting the Office of the Country Director as well as the Programs Department. Her work will be research and communications related to HIV/AIDS and community/economic development, marketing and church engagement, and support for their 3-year strategic plan. Great for Danielle's experience and talents, and also it will be 25-35 hours per week. This is perfect for what she has been wanting for the rest of our short time here in Rwanda, and we really like the people and the mission of World Relief.

First assignment: pictures and stories from the WR child survival program in Cyangugu. If you'll note my travel schedule from my last blog, I'm going to Cyangugu next week. It's all very perfect.

She'll be able to work from home a lot and continue her volunteer work. She'll get incredible experience doing exactly what she likes with an organization we both admire. (Side-note: World Relief is also a partner with HOPE in our microfinance institution here in Rwanda, Urwego Opportunity Bank). We can honestly say that this opportunity fits every criteria Danielle was looking for, and the country director is looking into free World Relief caps and/or shirts for Danielle's husband. Very good.

Thursday, January 29, 2009

Diocese campaign tour

As I've mentioned we are traveling around Rwanda assessing our savings programs to date - more stories are forthcoming. Malu and the core team trained for a year, so before we train some more, we're seeing what has happened.

We are encouraging groups and leaders, gathering stories of success and challenges, casting vision and receiving advice, and laying the groundwork for a wholesale group-by-group reporting scheme to get the hard numbers on the economic development.

Below is a brief schedule of the diocese campaign tour. Each week, we spend Tuesday through Friday on the road hitting dioceses in pairs.
Byumba, Jan 22-23
Shyogwe, Jan 27-28
Butare, Jan 29-30
Kigeme, Feb 3-4
Cyangugu, Feb 5-6
Kibungo, Feb 10-11
Gahini, Feb 12-13

Shyira, Feb 17-18
If you want to visualize where we are, and I'm sure this is particularly helpful for my wife who is wondering where I am right now, then this map gives all of the Anglican diocese locations with an added bonus of emphasis placed on dioceses with the most churches. Byumba has 327, Cyangugu has 76.

(Thanks to Gary Hobday for reminding me how much I love maps.)

Tuesday, January 27, 2009

Brotherly love

Brotherly love, like the city of Philadelphia, can sometimes be an enigma. Brothers fight. Philadelphians can be rude.

Living in the same Rwandan village there were two brothers, neighbors, who would not talk to each other. Their families would not talk to each other, and their children were not allowed to play with each other. I don't know how the feud started, and there's a good chance that they don't know either, but these things have a tendency to die hard.

Somehow the two brothers ended up in the same savings group. Probably because there was just one savings group, and both valued membership enough to somehow tolerate the other. This savings group, like many others, rotates locations in each member's home. How did the brothers not see this coming?

The first time the rotation lands on one of the brothers, the other brother had to choose.

Surprised, at the end of the meeting the other brother returned home safely and nothing had happened. He shared his brother's home for the first time, and both faced another day.

The next tense meeting, the brothers switched roles. Now the first brother entered his brother's house and again nothing bad happened.

Actually, on this second occasion, something did happen. At the beginning of these meetings someone usually prays. At this meeting, someone read John 3:16 and began to discuss love. That was enough for the brothers to begin crying and ask forgiveness.

Reconciled brothers. I think something meaningful happens when you put faith, community, and what you do with your money in the same gathering. These are important matters.

Supporting the church

HOPE's savings program in Rwanda is partnered through the local church. Church leadership has decided that poverty is not a good condition for the human soul, and so their churches are involved in various development endeavors to strengthen the local community, Christians and non-Christians.

Hopefully, our savings programs also support the church and its ministry. Well, we see that happening in hundreds of ways through the stories of these savings groups, but here is one story that does more than support its local church.

In Shyogwe diocese, a group of about 11 households have been meeting together and saving together. They were trained by a pastor who was trained by HOPE. The pastor set up the group, taught them the foundations and principles, help them set guidelines, monitored their progress. The group traveled long distances to attend church and they consistently met and saved.

Over time, the group decided they would not travel long distances to come to church anymore.

Instead, they took a portion of their savings and rented a house for 5 months. Everyday … full time. They plan to buy the house. The house is where they meet, where they save, where they discuss common concerns. The house is also where they gather on Sundays. They have asked the parish priest to provide a catechist who will lead their "home" church. Not only has this group of households decided that they no longer accept poverty, but they have also decided that they will be responsible for shaping their own community - even starting their own local church. That's one way to support the local church.

(As a side note, successful savings groups in the area are drawing many Christians and non-Christians who want to join these church-based cell groups that are "doing savings.")

Price of development aid

Prices are interesting. I asked my dad once how much my George Brett rookie card was worth; he responded, "Whatever someone pays for it." What a bad answer. I knew at that young age that my dad had surely fallen to the fallacy of circular reasoning; his answer was worthless. Later in life, I look back and have decided that I owe him because I finally figured it out (I also figured out that my father, too, was an economics major).

Most things are scarce in that there is no endless supply. The more scarce something is, the more an additional amount of that something costs. Salt is very valuable, but additional salt for the average person is not so scarce and not so expensive. Economist magazines are not so abundant on the street of Kigali, so if I'm lucky enough to get another issue (I have only one Christmas edition issue now) then I would gladly pay over $10 USD. So price, what I am willing to pay, depends on the happiness that an additional magazine issue brings me. My demand for an additional unit of something plus the relative scarcity, this is where we get price. Some like to just say, supply and demand. Economics, … whatever.

Let's talk about the price of development aid. In Rwanda, NGOs flooded the market for social services after the war in 1994. There was great need, and there is still great poverty.

Made up scenario to illustrate the price of development aid:

One typical NGO response to poverty is to give a family a cow. The family receives the cow at a price of zero (0). After giving the family one cow, their demand for an additional cow is less than before. If every family in the village gets a cow and more than one NGO is competing to give away more cows, then cows at zero cost are higher in supply, and demand for an additional cow is lower. Now if an NGO wants to give away more cows, they may find that families are willing to spend less than zero to get that cow. What's less than spending zero? You pay me. I mean, if I'm willing to miss out on work that could make me money, there are opportunity costs for me to get your free cow; and if I have to travel to the village center to meet you then I incur transaction costs to get my cow. I find that I'm no longer willing to come get it, that is, unless you pay me. In fact, if NGOs are competing to give me a cow, and it is important for NGOs to fulfill their missions and report back to their donors, then the best strategy for the NGO is to compete on their respective pricing for free cows. That is, the prices for cows become more negative, NGOs pay for meeting attendance and pay extra for transportation allowance.

What is the cow worth to the villager?

That's not the primary question to the NGOs; they like to ask, "Is poverty being reduced?" If poverty is defined by not having cows, then poverty is being reduced. If poverty is defined by not having sick cows … It costs money to keep a cow from getting sick, by the way. NGOs can train people to care for cows, but the cows are not worth very much, relatively speaking. The cow has worth, but is it worth more than my time and effort in taking care of the cow, or worth more than the money spent to buy medicine for the cow? Not when an additional cow is provided to me at negative cost. I can get paid for receiving more zero-priced animals, so my time, effort, and money are better used elsewhere. Possibly, I'll want to devote more time to leisure, and that's a completely rational response.

Prices are supposed to align people's motives so that their pursuit of self-interest is guided by the invisible hand that makes society better off. How does society react with negative prices?

NGOs ask families to take care of their free livestock and to then donate any offspring to the next family in the program. However, neither of these things makes rational sense to the participants. Why invest in the cow? I don't have much money or high expectations for my future and more negative priced cows are available. Why give away the offspring? The same people that gave me my cow can just give my neighbor a cow, I can sell mine, we're both better off. What makes sense to NGOs does not make sense to the villagers because it's not in their best interest. You get the cow at a negative price, sell the offspring for a positive price.

When you artificially change prices, you distort people's choices, their incentives, and their actions. You do not, necessarily, change poverty this way.

Follow up pointers about foreign aid

Bill Easterly is blogging now at Aid Watch: "Just asking that aid benefit the poor."

Bill Gates [First] Annual Letter, optimistic and impatient, he tells us what's working and what's not. Also, it's gratifying to see an email in my inbox from Bill Gates and it's not asking me to forward to my 50 closest friends, even though now I am sort of doing that. Hmm.

New book – The Trouble with Aid: Why Less Could Mean More for Africa (African Arguments), Jonathan Glennie

Slight tangent, but relevant to foreign intervention/regulation in an academic kind of way (thanks to Jeff Kern for this gift of an article).

Cato Institute Trade Policy Analysis Paper: "While Doha Sleeps: Securing Economic Growth through Trade Facilitation," Daniel J. Ikenson

How do you define poverty?

How you define poverty makes a big difference in how you respond to poverty. Do you think poverty is …

  • Lack of money?
  • Lack of education?
  • Lack of health?
  • Lack of voice?
  • Lack of security?

Is lack of money a lack of cash flow (income) or cash stocks (savings)? Is lack of education a lack of trade skills (sewing) or human capital (ingenuity)? Is lack of health disease or malnutrition? The point that follows from these questions is that there are many pieces in the poverty puzzle.

If we have an idea that we need to do something about poverty, then we also probably have an idea what we mean by "poverty." If it's just a lack of money, well, let's send money. The last 50 years of sending money, however, has proven poverty more complex. Bill Easterly, a critic of foreign aid (Amartya Sen critiques his criticism here), describes in The Elusive Quest for Growth some economic growth panaceas that have failed chronically poor countries over the last 50 years:

Capital accumulation: there is insufficient savings and investment, but if foreign aid supplies investment for machinery and factories, then what about human capital plus the incentives to make capital productive?

Education: schooling is just part of human capital (think information networks for entrepreneurs), and does more education funds mean better education or increased national income? Sometimes it means educated people leave the country or learn to redistribute existing wealth instead of stimulate the economy.

Loans conditional upon policy reforms: how do you measure true reform instead of encouraging shifty adjustments, and does this still reward neediness instead of growth?

Debt forgiveness: perhaps poor countries want to grow but we've saddled them with too much debt … let's wipe the slate clean, right? Data from 41 high-debt countries from 1989-1997 shows that these nations were forgiven $33 billion in debt, yet in the years thereafter these same countries incurred $41 billion dollars of new debt.

Bono and the ONE Campaign have argued for debt forgiveness (somewhat as a Judeo-Christian "jubilee" concept) and have taken a lot of flak for such a bad idea, but they have worked with Jeffrey Sachs, noted economist and UN advisor, and have coupled their strategy with policy reform conditions for better future results. Philanthropists and scholars are working toward better responses - especially after years of seeing Africa grow poorer - but the lesson learned is that poverty requires nuanced strategy, holistic approach, noting that we treat poverty by how we perceive the poverty problem.

As Chalmers describes it, poverty is a mix of material poverty, isolation, physical weakness, powerlessness, and vulnerability. HOPE International applies Chalmers materials in our Savings and Credit Associations (SCAs) because our view of poverty is spiritual, physical, and social; poverty is a condition of the whole person and all of her relationships.

Read here how a Rwandan HOPE staffer describes the purpose of our savings groups.

SCAs are empowering at a micro level, they do not encourage dependency, and their results are more than just savings. SCAs are supporting renewed communities that believe in their ability to end their own poverty; progress that may well lead to a more sustainable development for economic growth.

For more reading:

Stuart Rutherford, The Poor and Their Money (FREE DOWNLOAD)

Monday, January 26, 2009

Connecting the coffee mugs

The families were like a bunch of coffee mugs with no spoons or mobile phones or napkins.

That is to say, we need to connect the coffee mugs.

There was a church program to increase food security in the village. There were no regular meetings, but every so often a grant would provide cows or goats or pigs that would be distributed to the community according to need. Most vulnerable families received first.

Once livestock was given, instruction provided, the families returned home. However, families were still isolated. They did not come together, and even if they were Christians, they did not pray together. The families considered themselves very different and for various reasons did not feel comfortable praying with those other people.

After everything, the families still had a poverty mindset. There was no money to care for the cows if they got sick, and there was little incentive to do so because they might just get more animals through the next grant.

A few years later, our savings program was integrated into the food security program. This is how things changed:

People met together. They heard that they could save money together, let it grow, and have access to larger lump sums of money. Perceptions changed. Before if someone was given a cow, he then had more disposable income for drinking or smoking. Now, the more he saves the more he has. The money has purpose and the community begins to take account of their assets. Not only do people meet together, they rotate meeting in each family's home. After they meet and save money, they fix one family's roof and next week work another family's field. Now, the communities cherish praying together because they truly share concerns, and they also share enthusiasm.

No more isolation. Community reconciliation. Praying together, working together. Perceptions of poverty change when people are empowered. That's what we try to do with our savings training. We don't just train in counting money, that's why other groups in the region that do similar self-help models are asking our "champions" to help their groups, too.

Our champions are bringing the coffee mugs into the village and connecting them with straws and pens and napkins. That changes the poverty mindset.

Beggar’s savings

Sylvain used to beg. He lives in a remote area in northern Rwanda, almost to the Ugandan border. There is a church in the area, not a building, but a church. It sits on a hill overlooking the market, and there the community members gather to pool their savings and generally support each other.

Group members enjoy sharing how the savings program has helped them and changed their lives. Sylvain stands up. Sylvain was known to be a beggar, yet still he was invited to bring 100 RWF (18 cents USD) per week to join the local savings group.

This group uses a rotating savings and credit association (ROSCA), so when each of 16 people put in 100 RWF, they distribute 1000 to one person one week and then rotate to another person the next week. Each week, someone gets a lump sum that is larger than what they would normally have on hand to spend. This is very useful, even though still very small. After the 1000 is given, there is still another 600 each week that goes into a general savings pool of which everyone in the group owns an equal share (like an accumulating savings and credit association, ASCA). When that pool of savings is big enough, they may lend it to some better use with a nice return, or they may start a joint venture together and purchase livestock or seeds.

For Sylvain, he has changed. The savings itself is useful, but he has also changed in how the community sees him. He has changed in how he sees himself. Sylvain has a purpose for his time and money, and more importantly, because this savings group shares his concerns and works together to lift everyone up, Sylvain no longer feels isolated.

Isolation is a significant part of being poor, especially for a beggar. But Sylvain is no longer isolated, and in fact, he is no longer a beggar. Lately he has been working in agriculture and some carpentry. And he is still saving and thinking about the future.

Time to make baskets

Her husband left her with two children. It happens sometimes. They are very poor and he is not happy; the husband can always go off and start fresh with another woman. He can make a new try at life.

Meanwhile, the poor family is now poorer. The abandoned woman still must feed her children, and she is committed to providing their school fees so they can have a decent try of their own one day. To take care of everything, the woman must work very hard. When you work so hard to get by, it's even harder to look ahead and insure against harder times, which will come. In spite of the difficulties, this woman joined a savings group and contributed her 18 cents USD per week.

This particular group is partnered with other programs that help them get medical insurance and some agricultural assistance. The woman now has a burden lifted, if but slightly. When the burden is lifted, she is able to take more time away from barely getting by and to spend time on higher and better uses: making baskets. Through the savings group, the money for schooling is there when she needs it. Imagine the stress relieved …

People are designed to be productive and enjoy life. Both are difficult when you struggle to get by. Struggle leaves little room for the joy of creating something beautiful and valuable, something you can sell in the market instead of just toiling in the dirt. Lighter burden, more joy, kids in school; now you are able to make baskets. And smile more.

Young man’s hope

When you work for an organization called HOPE International, you hope that when you ask someone about our impact, they say that we bring hope.

I'll be bringing lots of stories from the field over the next few weeks because we are traveling and speaking with group members. Many of the group members we meet will be women, but recently we met a young man who stood up and wanted to share.

He is young; he is energetic and handsome. He is also sitting around with mamas with babies, some widows, and others. He can make money because he is a young man. But he is still quite poor, relatively, and lives in a remote, poor area, so the question is: what is the point of making money? He will not go to the University of Florida, won't become an entrepreneur. He won't open a franchise coffee shop.

The young man stands up and says that his savings group has taught him hope. You don't save if you don't have hope for the future. You don't have hope for the future if someone doesn't believe in you, support you, and share stories of transformation.

In my thinking, it was not possible for me to have a cow. In future, I hope to buy [another] free range cow.
(He now already has one cow.)

The truth is, that village won't see a new Starbucks franchise in my lifetime (maybe I'm wrong), but the young man can become an entrepreneur. He has time, and now he has hope.

The cobbler

So I'm in Africa, and my shoe starts to burst from the seams and a piece of rubber is extending out to the side.

We drive down dirt roads by new construction into somewhat of a city center. We find a concrete megaplex of shops and people. We walk towards the back where it opens up to a great view of the mountains. Then, in the corner, I see old tires, scraps of rubber, and stalls of men with piles of old shoes and shoe parts. This is where the cobblers work.

I was first quoted 100 RWF. That's about 18 cents USD at my last exchange rate. The quote was for him to crazy glue my shoe. I'm not crazy, that's not going to work. I'm going to need a much more expensive fix. I go up to 500 RWF and have him sew it up with the aid of some fancy shoeing tool. Now we're talking 88 cents USD, but believe me, it was well worth it. My shoes are now fit for dancing.

Tuesday, January 20, 2009

U.S. History Update

Far away from home, yet I feel happily American. Regardless of politics, there is something symbolic to the inauguration of our 44th U.S. president, Barack Obama.

The Washington Post quotes a boy speaking before the Obama family and the Nineteenth Street Baptist Church:
Rosa Parks sat so that Martin Luther King Jr. could walk. Martin Luther King walked so that Barack Obama could run. Barack Obama ran so that all children can fly.
I'm listening to the live broadcast on Voice of America radio, and an interviewer asks an older woman why she is there in D.C. for the inauguration. She replies:
Because there was a time I wasn't allowed in restaurants and office buildings and laundromats.
We can visibly see in Kigali that this presidential inauguration is an international event. There is talk in the streets, movement and whir, and many are gathered now to follow along live at the U.S. embassy.

Our world is not at peace. Our president faces great challenges. But today, the symbol outweighs the doubts. Symbolically, for the world, the greater hope of our new president is the fact that we have chosen him, we are willing to change, though we may fail.

Change is not always good, and hope is not certainty; but overcoming, persevering, giving, trying, and believing ... that is American.

President-Elect Obama Recommended Reading List

From the same Washington Monthly article as the Obama Campaign Trail Reading List, below are the 25 books that the new president should read. Washington Monthly gives detailed descriptions for why each book is important for the incoming administration.

The Ayatollah Begs to Differ: The Pardox of Modern Iran, Hooman Majd

Irony of American History, Reinhold Niebuhr

The Will to Believe, William James

Character and Opinion in the United States, George Santayana

Memoirs, 1925–1950, George F. Kennan

The Invisible Cure: Africa, the West, and the Fight Against AIDS, Helen Epstein

A People’s History of the United States, Howard Zinn

America’s Defense Meltdown, Center for Defense Information (FREE download)

The Art of the Long View: Planning for the Future in an Uncertain World, Peter Schwartz

Adventures of Huckleberry Finn, Mark Twain

India After Gandhi, Ramachandra Guha

The Coldest Winter: America and the Korean War, David Halberstam

The Floating Island: A Tale of Washington, Garrett Epps

The Quiet American, Graham Greene

The Iron Wall: Israel and the Arab World, Avi Shlaim

The Edge of Disaster: Rebuilding a Resilient Nation, Stephen Flynn

A Demon of Our Own Design: Markets, Hedge Funds and the Perils of Financial Innovation, Richard Bookstaber

The Essays of Warren Buffett: Lessons for Corporate America, Warren Buffett

Lost in the City, Edward P. Jones

The Pretence of Knowledge, Friedrich Hayek (FREE at

Groupthink: Psychological Studies of Policy Decisions and Fiascoes, Irving L. Janis

Wikinomics: How Mass Collaboration Changes Everything, Don Tapscott and Anthony D. Williams

The Way We'll Be: The Zogby Report on the Transformation of the American Dream, John Zogby

Lincoln at Gettysburg: The Words that Remade America, Garry Wills

Beyond Human Scale: Large Corporation at Risk, Eli Ginzberg and George Vojta

Obama's Campaign Trail Reading List

According to the Washington Monthly, here are some books President-Elect Obama was seen with on the campaign trail:

The Defining Moment: FDR's Hundred Days and the Triumph of Hope, Jonathan Alter
Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels
Ghost Wars: The Secret History of the CIA, Afghanistan, and Bin Laden, from the Soviet Invasion to September 10, 2001, Steve Coll
The Post-American World, Fareed Zakaria
Team of Rivals: The Political Genius of Abraham Lincoln, Doris Kearns Goodwin

Saturday, January 17, 2009

Couch’s chairs

On average, my friends bring my coolness way up, and this is especially true of Justin Couch. Ever since our wedding, Danielle's dad asks how Couch is doing ... "He is one interesting guy."

Around 2004, Couch left his home in Georgia heading for the 'Frisco bay, which I understand is San Francisco. (As a matter of fact, I missed an SFO connection once and was graciously hosted at his brother's dinner, his favorite coffee house, a bayside tour, and his home.) Georgia Tech for Couch was industrial design, so San Francisco was a venue to test the waters and build a portfolio. Having tested those waters, Couch came back.

Now, Couch is testing new waters in Washington DC. As another matter of fact, he's making a few waves this time. Couch's work has been featured in the Express, the Washington Post's free daily that every living soul reads on the metro in the morning. In the pictures below, his chair and table were selected as the #1 style pick, and also, they called his District Table an irreverent approach to home furnishings, which I guess is good.

I love the way Couch has been designing furniture. For one, he's been poor. You've got to start there as a dreamer/artist. So how can you create and experiment with no money and no equipment? On top of that, could you even add in some time to invest in community and give to others? Yes. As Artist-in-Residence, Couch has been working with inner city youth at Off The Block Artisans Program where he teaches woodworking skills as well as job-related and life skills. In his free time, he can use all of the woodworking machines to do fancy designer things like above. He gets paid a little, he gets design time a lot, and he gets to give a lot. That's about as good as it gets, or at least until the next door opens for his creativity. Right now, that door looks like it may be Barninger & Couch. I've met Barninger, he's wonderful, and so I think this might go well.

Friday, January 16, 2009

Choices for/against prostitution

Nicholas Kristof had a couple of articles that got me thinking about a paper I wrote on illicit labor market efficiency back in economics grad school. He wrote one article on sweatshops and one on prostitution. Would you believe he was for sweatshops? (Not that I necessarily endorse this view, Private Sector Development Blog gives another view.) Where do you think he stood on prostitution?

Well, ease your mind, I think Mr Kristof and I are both against prostitution, so you can keep reading.

Why is he for sweatshops? Sweatshops offend our charitable Western sensibilities … no one should work in such conditions. Mr Kristof, however, asks his readers to consider the alternatives: no job or worse conditions. On a macro scale, how can a poor nation become an industrialized trading partner if it doesn't climb up through the mire and muck of difficult working conditions and low wage employees? We did it once long ago. People choose to work at sweatshops because it's their best choice given their circumstances.

Economically, the choices people make are often assumed to be the most efficient choices for them – rational choices. People know what makes them better off. Sometimes we would prefer better for people who work in sweatshops, but there may not be better alternatives. Refusing to trade with countries that "exploit" labor means that those people who were getting exploited are now out of a job.

Pro-sweatshops, anti-prostitution.

So, why not prostitution? Even worse, travel to Poipet, Cambodia, or Mombasa, Kenya, among others, and you will find a high premium on child prostitution. Economists may argue, though, that measures to prevent prostitution, even for children, will just leave those poor people with even less choice and much worse conditions … starvation, violence, death.

My question, and my economics paper from before, is about the efficiency of slavery, prostitution, and other forms of illicit labor. Don't people make rational choices to maximize their own welfare, and if we mess with that, then do we mess them up? Is prostitution an efficient labor market outcome?

Some economic papers concerning such illicit labor markets suggest that the main objection to jobs like prostitution is moral repugnance. We don't like the thought of it. We would hope for something better. Economically, they claim, illicit job choices are efficient, prostitution is efficient; prostitution is the best (sic) choice for some young women and young boys.

Ok, here's the quick of it: endogenous choices. The decisions that, say, prostitutes make are based on a predetermined game … where they lose. The idea is that, yes, if people choose a job then it must be their best alternative. If you ban prostitution, it doesn't help prostitutes, they'll just starve now. But here's the thing, what if prostitution is their best choice because someone has restricted their choices? – and therein lies the problem.

Forgive me here, but I'm reading a book on game theory, so let's construct a game:

First, let's simplify. All women in Mombasa can choose between two jobs, basket weaving and prostituting. All employers in Mombasa can choose to be good (respect their workers and pay fair wages) or choose to be bad (take advantage of their workers for higher profit). The chart above shows the payouts to employers in the upper right of each square, and the payout for women is in the lower left square. A payout of 4 is great; a payout of 1 is pretty poor.

Scenario A) Let's say that all employers in Mombasa are good (left column). Now the only choice is what work women prefer if employers are good. Women will prefer a payout of 4 instead of 3, so if all employers are good, women prefer basket weaving. Even if prostituting involves making more money, the payout for women may include more than just money, payout can be dignity plus income. Basket weaving wins out.

Scenario B) If every single employer in Mombasa is bad (right column), then women will prefer to prostitute because their payout is 2 instead of 1 for basket weaving. This may be the case because bad employers take advantage of all of their workers, but prostitutes can bring in more than weavers so there's a bigger take for the women to prostitute.

So the choice of basket weaving or prostituting, for the women, depends on whether all employers are good or all employers are bad. In a perfect world, however, the best a woman can do is 4, so any woman would ideally want to weave baskets for good employers.

What about the choices for employers?

Scenario C) Let's say that all women weave baskets (top row). Now the employers must decide: should I be good or should I be bad? If all women weave baskets, being good gets an employer 2 and being bad gets 3, so the employer will prefer to take advantage of her employees and be bad. Scenario D) What if all women are prostitutes (bottom row)? Well, the employer still gets a better payout for being bad, 4 to 3.

Note here that employers will choose to be bad, take advantage of employees, and receive a bigger payout regardless of whether women weave or prostitute. In game theory, this is called a dominant strategy: when one player has a choice that is always better than any other choice that player could make regardless of the other players' choices. Dominant strategy does not mean best overall outcome, just that one player has a choice better than all of that player's other choices no matter what others do.

If employers have a dominant strategy to be bad, they're going to be bad. If employers are always bad, we know that it is better for women to choose prostitution, as in Scenario B above.

Just because women choose prostitution, it doesn't mean that prostitution is an efficient economic outcome (much less an efficient human outcome).

The best choice for a woman in our model above is by far to weave baskets. Prostitution is simply the best choice given that the game is rigged against them.

The model above is very simplified, so what are some ways that the game is rigged against women or children or the poor and vulnerable? … Education, social stigmas, discrimination, AIDS, slavery, corruption, sexism, drugs, vicious circles of poverty.

Prostitution is bad, and repugnant. Do we fight to ban prostitution at the expense of the very poor? Mr Kristof wants to see brothels become unprofitable through systemic changes. Where illicit labor markets prevail, the economic, social, and justice systems are broken; so how can we see prostitution become a bad choice and how can we restore women's best choices?

Further Reading

Kristof, Nicholas. 2009, January 10. "Striking the Brothels' Bottom Line." New York Times, Op-Ed.

Kristof, Nicholas. 2009, January 14. "Where Sweatshops Are a Dream." New York Times, Op-Ed.

Dixit, Avinash K. and Barry J. Nalebuff. Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life. London: Norton, 1993.

Imperfect Outcomes for Illicit International Labor Markets: short bibliography.

Genicot, Garance. 2002. “Bonded Labor and Serfdom: A Paradox of Voluntary Choice.” Journal of Development Economics 67(1): 101-127. [More on endogenous choices.]

Thursday, January 15, 2009

Loyalty Class

Merry Christmas and thank you to the Loyalty Class! We received your card about five minutes ago.

Friends we have never met read along about our savings program and then sent a card of encouragement and support. That is a very sweet Christmas gift. To the Loyalists, as I now refer to you, please post one of your emails in the comments (I will keep it private and not publish that online) so I can send a personal thanks and an update on how we use your contribution.

For others that might be like you and want to contribute, I plan to put up a permanent link on the sidebar, but until then feel free to visit these HOPE links:

A note on gifts:
Yesterday I was talking to a Rwandan church partner about economic development and women's empowerment. He said that if you give a widow some food or money today, she will come back next week and ask for more. The vision of microfinance is not to give money to the poor today and give money to the poor tomorrow, we want to give the poor the resources to end their own poverty, for today and tomorrow. Your giving goes towards the training of local leaders to empower their communities to save, build wealth, gain insurance, generate income sources ... but also to work together, reconcile communities, build confidence, and restore people to their created purpose, vocation, and identity as people of worth. Thanks for giving!

Saturday, January 10, 2009

Market rate

I've heard the term "market rate" in economics classrooms, but it is much more tangible when I stand in a market. Kimironko Market is the big one that we go to, and there is an immense selection of potatoes and bananas and anything else that grows in Rwanda. "How much do your potatoes cost?" If the answer seems to high, there are dozens of other sellers with identical quality potatoes. I keep walking around enough and I will learn exactly what the "market rate" is. Everyone in the market knows what the market rate is, too. But again, it's different to get the concept and feel the concept as I walk around and shop.

I bought market rate flowers, recently. Downtown, flowers are cheaper. I have to figure that out, because it doesn't make sense. The flowers don't grow downtown, how do they magically get cheaper the farther they travel? I've bought flowers downtown before, our 2nd wedding anniversary, and got a great deal on an assorted bouquet ($2.69). So, this time, we have friends coming over for a dinner party and it's Friday and it's a new year, so I decide to get Danielle more flowers. Some young men stand with bouquets near a market going uphill towards town, and I pass there on my way home or into town, just near Stipp Hotel. Why not check the prices and save myself a little longer trip?

I pull over, the first young man walks over quickly with his bouquet. Immediately, three others run over with their identical bouquets. Now I'm thinking, maybe these flowers will be market rate. The first bouquet enters my driver-side window under my nose. He asks 2500 RWF ($4.50). In my pocket, I know I have 1000 RWF ($1.80). I ask if he's willing to take 1000. He's not so eager for 1000, but his bouquet is still inside my window. So I then ask the other three if any of them are willing to take 1000 for their identical bouquets. Before they have any chance, the first seller is now willing to take 1000.

Living in Kigali is not cheap, so I enjoy the luxury of fresh flowers at market rate.

Thursday, January 08, 2009

Growth, entrepreneurship, savings clubs

Savings clubs got a mention by a favorite economist recently. Abhijit Banerjee discussed economic growth and entrepreneurship (PQRS and the Mechanics of Growth); here are a couple of points that came out:

  1. Lots of poor countries have people working for themselves, but that isn't the same as productive entrepreneurialism. Working for yourself in those contexts, in Banerjee's words, is like "buying a job and not a particularly good job."
  2. The poor could spare small luxuries, save more money, avoid large interest and increase daily income, but what is the point? At the end of the day, the extra income is very small, they're still poor, life's not so different. Lot of discipline, little gain.

Here's some detail about #2:

Dean Karlan and Sendhil Mullainathan, in a recent paper, put this point rather starkly. They study fruit vendors in Chennai, India, who make about two to three dollars a day by buying fruit in the morning on credit and paying it back at night. It turns out that the interest rate they pay is 5% per day and at that rate, saving the ten cents they spend on tea for just one day would allow them to pay back their entire loan in six months (the power of compound interest) and add a dollar a day to their earnings. Yet most of them seem to be permanently stuck in their business model.

My point here is not to suggest that there is something egregiously irrational about the poor. Looking at it from their point of view, it seems clear that what they are missing out on is not really an opportunity to transform their lives: we are talking about a few more cups of tea or a few more meat dinners, in return for a few months of discipline. They would remain poor, indeed very poor.

When offered something that would make a significant difference to their lives—say the opportunity to join a ROSCA or a savings club that would help them buy a television—the poor seem to be happy to make the sacrifices. It is more that business-wise they do not see themselves being able to do anything very different. And most of them are probably right.

Banerjee's article focuses on PQRS: differentiated PRODUCT, better QUALITY, reputed RELIABILITY, and SCALE of operations. That's how an entrepreneur establishes real economic growth for herself.

My interest, of course, is that he mentioned savings clubs and significant differences in people's lives. And the difference is more than buying televisions, though that is also significant. The fact is that for the very poor, a savings club may be the difference maker that unlocks the potential for real entrepreneurialism, real community investment, and real lifestyle change. I also like the point that for that kind of change, the poor are happy to make the sacrifice and save. That is a development litmus test, to me: do the poor want this development enough to be happy to make sacrifices to pursue it?

Tuesday, January 06, 2009

Historical Cookbook Reading List

I love books; cookbooks in particular. Cookbooks, to me, represent the origins of economics, Greek oikonomia, home management, scarcity and value of goods. Cookbooks represent an economic revolution from bread and cheese to warm brioche and marmalade, a transformation of the quotidian. So I pass along an historical list of cookbooks that I stole entirely from the special 2008 Christmas double issue of the Economist. I will have to add my own modern list of favorite cookbooks sometime later. Excerpts or wholes of the older texts may be available free online, but I linked the titles to best choice versions. Cookbooks that changed the world:

"Pluck a Flamingo" - Economist

De Re Coquinara, Apicius (circa 400 CE)

The Book of Household Management, Isabella Beeton (1859-1861)

A Gift to Young Housewives, Elena Molokhovets (1861)

The Boston Cooking-School Cook Book, Fannie Farmer (1884)

Le Guide Culinaire, Auguste Escoffier (1902)

Mediterranean Food, Elizabeth David (1950)

"Food for Thought" - Economist (not a reading list, but another good article)

Barilla, after 90 years of being the world's biggest pasta-maker, became perhaps the world's greatest gastronomical library. The Academia Barilla, designed by Renzo Piano – renowned architect whose High Museum renovation premiere lecture we attended along with Noel Porter – is now the home of a library of ancient cookbooks and menus as well as an instructional theatre and classrooms. If you're planning a vacation to Parma, Italy, plan a trip here.

Sunday, January 04, 2009

Rwanda Rising, produced by Ambassador Andrew Young

Andrew Young Presents … a documentary about Rwanda. Ambassador Young is a personal hero of mine as a missionary turned Civil Rights leader who became an Atlanta mayor and then Ambassador to the U.N. under President Carter. Danielle and I both attended the Andrew Young School of Policy Studies at Georgia State University, and I have long been interested in his NGO, Good Works International (GWI).

Rwanda Rising is a film that Ambassador Young produced as part of his effort to communicate stories of growth and progress in Africa. GWI is a consulting organization that works with African national leaders and American businesses to encourage productive environments for foreign direct investment, which also promote positive development reforms in Africa.

We met Ambassador Young at honors night at Georgia State (Danielle's honors, not mine) and he was very gracious. Perhaps we will make his acquaintance again on his many trips to Rwanda.

Saturday, January 03, 2009



Kiesshauer’s music

Ryan and Bethany sang at our wedding (and Neal). They sang at many of our friends' weddings, I'm just glad they did ours before they become famous and inaccessible. One of the Third Day guys went to CCF, too, but does he respond to emails? Ryan still responds to emails, for now.

Ryan quit his job doing Techie computer stuff so that he could work for himself and do Techie computer stuff, but this time he would make his own hours and devote many hours to writing his own music. So now it has happened, Ryan has now made his final demo mix and sent it off to Ed Cash. If you know Ed Cash, put in a good word. I don't know him, but with a name like that he's got to be legit.

Here's a guy (Ryan), married to a great woman (Bethany), and they're both willing to forgo normal income in order to make music. It's hard to do that as a young married couple, other couples don't do that. Luckily Ryan is very talented and gets more Techie business than he can handle, so they've not been out on the street, but here's another couple of friends not afraid to dream and shake their lives up to make their dream happen. One of his songs has already become famous among a very large group of friends, it is a memorial to Pa Harper; you'll want to hear it at your own funeral one day. As soon as his music is publicly available, I'll let you know. If you want to read more about his process, Ryan blogs.

On a personal note to Ryan:

Ryan, we raced Mario Kart together … don't forget me.

On an impersonal note:

Third Day is a very successful group of Christian music artists, and if anyone knows Mark Lee, please ask him to give Rick a call. Rick would love that. Rick is very sorry he didn't think you were good enough for the CCF band.