Tracing consequences both seen and unseen.
Caitlin HartsellThe Market at Work: Poverty in Africa and KickStart
Posted at 1:51 pm on May 3, 2010, by Caitlin Hartsell

Last week at a Liberty on the Rocks meeting, we discussed the need to show others how the market can provide for the disadvantaged better than the government can. Many libertarians may take this for granted, but this is a relatively important fact to establish in order to combat the idea that the government is necessary to help people.  I thought I’d write a few posts on the topic of “the market at work” based off a few good examples I have recently encountered.  (If anyone else has good examples to share, please do!)

KickStart

For the last three class periods in my Program Planning class, we have been discussing a case study of KickStart, a company that sells treadle pumps to farmers in Kenya, Mali and Tanzania. A treadle pump doesn’t need fossil fuels to extract groundwater, so it can efficiently provide large amounts of water. It can be a cost-effective method for farmers to increase their output so they can sell their produce.

The Lessons Learned page on KickStart’s site is well worth reading in its entirety, but the main gist is that their founders were unsatisfied with the typical program model that focuses on giving away money or services, which has not been a lasting solution.  What the poor need most is a way to make money; providing reliable and long-lasting tools are the best way to help them do that.

It is the “teach a man to fish” idea.  Increasing the standard of living of an entire country requires an increase in production.  An influx of foreign aid–without a subsequent increase in production– will not raise the standard of living across the board. By creating a tool that will help farmers be more productive, KickStart can help people in a lasting manner.

Essentially, KickStart‘s long-term idea is that “creating a middle class is the most sustainable way to lift a country out of poverty.”  To do this, they have created a product that will help people become entrepreneurs.

Using the market

KickStart is different from many similar organizations because it believes that selling their products is better than giving them away.  There is an elaborate chart that explains how, because they sell the products, they are able to help three times the number of people than if they gave them away.  By commodifying the product, there is a profit motive that incentivizes each portion of the supply chain to become more efficient.   Even if the donor funds disappear, people will still be able to get pumps.

Most importantly, the price system also allocates the products more efficiently than giving them away.  When people have to make an investment, they are more likely to actually use them to create their own enterprise.  The pump makers are accountable to create pumps that fit the needs of their usersr. Because KickStart sells the product, there is a self-sustaining supply chain that keeps costs low and allows people to fix the product when a part breaks.

The Ethics of Selling?

One complaint my class had was that it was “unethical” to sell these treadle pumps because selling exacerbates socioeconomic differences, since those that can afford the pump may be slightly better off already.  Inequity is a hot topic issue in many of my classes.  While inequity is a problem, I think that the focus should be more on how low the bottom is, as opposed to how different the bottom is from the top.  Helping people up from the bottom should always be seen as a good.

But the part that is missed is the effect that something like a treadle pump can have on an entire community.  When a few people are able to raise their standard of living, more money is brought into the community.  This money is spent on other businesses in the region, which can benefits other people, whether or not they purchases a pump.

Also, the “early adopters” help establish the supply chain and find any “bugs” within the product.  Over time, the supply chain and technology will improve both the efficacy of the pumps and their cost, allowing other people to buy the pumps.  These market forces have been seen in many products; by selling the pump, the proper incentive structure is set up to improve the pump and to determine the method to provide it in the cheapest manner possible.  When one looks at KickStart’s data showing that they can help three times the number of people by selling instead of giving the product away, it seems unethical to not sell the pumps.

Their Success

How successful has KickStart been? We’ll find out after the pending independent evaluation, but the anecdotes seem to show that it has made great strides for many involved.  According to their own measures, they have sold 144,600 pumps, helped create 93,200 enterprises, helped 466,000 people out of poverty and generated $94 million in new wages, which is fifteen times the amount of donor funds.  This means it took about $60 to get one person out of poverty.  Whether or not these results are overestimated, it is still an impressive impact from one organization.

Most importantly though, KickStart is affecting real, cost-effective change that doesn’t rely on government intervention. Emulating and promoting their model elsewhere is one way to show people how the market is the best mechanism to really help people.


Filed under: Economic Theory, Market Efficiency
Comments: 2 Comments
 

2 Comments »

  1. Esther Duflo, the winner of this year’s John Bates Clark medal, has, I think, a good approach to these sorts of programs:

    http://spectrum.mit.edu/issue/2005-winter/helping-the-poor/
    http://blogs.wsj.com/economics/2010/04/23/mits-esther-duflo-wins-clark-medal/?KEYWORDS=esther+duflo
    http://econ-www.mit.edu/faculty/eduflo

    Comment by Andrew Hanson — May 3, 2010 @ 11:08 pm

  2. Good to see products such as this helping people improve their standards of living.

    Some related research/on-the-ground activities you may be interested in if you’re not already familiar: http://mercatus.org/enterpriseafrica

    Comment by Pete Eyre — May 9, 2010 @ 11:27 pm

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Henry Hazlitt"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in 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."
Henry Hazlitt, Economics in One Lesson
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