I am thinking of starting a contest.
To the first three people who sign up to follow my blog I will send one of my used T-shirts, shipping and handling included. Or how about this: to the first three people who sign up I won’t send T-shirts, but will send the approximately $10 it would have cost to ship them.
Which would you prefer?
Before answering you should know that foreign aid programs are often designed as in-kind transfers: they send the T-shirts, not the money. In fact, in some cases quite literally the T-shirts.
In “Haiti Doesn’t Need Your Old T-Shirt”, an article by Charles Kenney published in the November issue of Foreign Policy magazine, it is pointed out that T-shirts celebrating the victory of the Green Bay Packers hit the market the instant the winner of the last Super Bowl game was decided. The speed at which the NFL met this fickle spike in consumer demand could only be accomplished by printing up two versions of the T-shirts ahead of time, the other one celebrating a Pittsburgh victory. But what to do with these worthless T’s declaring the loser to be the winner?
Kenney reports that they were given to World Vision, a registered charity, netting the NFL a tax deduction.
All of this is to say nothing about the 2.4 million Pop Tarts dropped on Afghanistan as a part of American food aid to that country. But at least the infrastructure was already in place to keep shipping and handling costs down.
Not so for the T-shirts. The amount of money World Vision spends to distribute them could have just been given to their eventual owners who would have bought what they really needed.
The same dynamics are at play with food aid. Governments in rich countries give subsidizes to their producers, dump the excess supply in poor countries where it causes prices to fall, and end up putting poor farmers out of business.
Farmers in rich countries receive subsidies orders of magnitude greater than the NFL’s tax deduction through so-called “price support” programs.
The only way prices can be changed in perfectly competitive markets—those with a large number of buyers and sellers of a homogenous good—is to somehow change market demand or market supply. Price support programs involve governments creating an artificial demand that leads to higher prices for consumers which, along with the added sales to the public sector, boasts the revenues of producers.
What to do with all the government inventories? If expectations develop that the government will dump them on domestic markets at some future date the goose is cooked: the expectation of lower prices in the future will lead consumers to demand less in the present, and government purchases would have to be even higher.
So not only does Haiti get the T-shirts that Americans don’t want, it also gets the rice. And guess what happens to rice production in Haiti (which in fact has fertile land for this in some of the areas just north of Port-au-Prince) as domestic producers have to compete with “aid”?
You might think that consumers there gain, but money transfers always trump in-kind transfers because recipients are given the freedom to choose according to their own preferences. Foreign aid programs are not designed this way either because of some hidden self-interest, or because public policy is paternalistic and assumes that the recipients cannot make the best choice for themselves.
So what’s it going to be: the T-shirts or the cash?
Economics for public policy 
You are surely right about this, and it gets worse. In the early 1980’s I witnessed a situation in which a mercury-based agricultural chemical which, I am sure, had been banned in all rich countries, was provided as “aid”.
I believe that aid organizations have been barking up the wrong tree for decades now, in their efforts to raise standards of living in poor countries. The emphasis on agriculture is all wrong. Even in cases where agricultural output can be increased, this has many downsides. It can reduce prices. It can reduce farm incomes. It can drive poorer farmers off their land.
The real answer lies in something that has been out of fashion in aid circles for far too long – industrialization. If we really want greater world equality, we need to try to tackle the many barriers that keep industry concentrated in a few countries. It is spreading, slowly, from country to country, with China and India being simply the most recent recipients. But this is happening only slowly, and the many countries that are still left out of the industrialized world simply lack enough work for their people. The lack of demand for labour means low wages. And if a lack of industry is combined with a lack of agricultural potential, we get a real disaster like Somalia.
Paternalistic, maybe, though there has been concern that direct financial aid doesn’t end up helping the people it is designed to – the analogy of giving the beggar a cup of tea rather than the cash so it doesn’t get spent on drugs comes to mind.
This is not to say that it is a fair characterization, however, in states without robust civil governance and accountability, the rice or t-shirts may be harder to convert to weapons or the bonds in a Swiss bank vault than dollars
The answer, clearly, is not one or the other but ensuring that cash gets to the right people, people accountable to those who need the aid
Thank you for this. I agree, and your closing sentence is a better way to sum this debate up than the sharp way I did in the post. I think if I had used another word for “paternalistic” that was not as pejorative the meaning would have been clearer.
best mc.
It can be worse than t-shirts; ten days ago I got a flyer for (old) “Shoes for Africa.”–
With the production cost of t-shirts rather low, I suspect that World Vision’s cost to distribute them would be very close to the price of t-shirts in the local market. They may have accepted them only to create ‘good will’ and hope for future contributions. But it is annoying that we all paid for it by the tax deduction the donor got, and the money of the tax deduction would have been more efficient aid.
On the local level, there are the ‘food drives’ of the Boy Scouts and various churches, which, of course, collect those canned foods not eaten during the time since the last food drive, and also leads to some kind people buying canned foods from their supermarket to contribute, rather than giving the cash (which would allow the Food Bank to buy food that is actually needed at wholesale prices, or pay drivers to collect day-old bread from bakeries and such). Perhaps the organizers of these ‘food drives’ think they are educational for the participants (boy scouts, church members), or that people would not contribute if asked for cash. And the cost of volunteer hours are too often discounted.–
I remember trudging along with my cub scout son two Saturday mornings, distributing flyers and then collecting the foods; as the neighborhood is fairly rich, indeed lots of food items were collected, but when thinking that they all were purchased at retail price, and the volunteer hours to sort them, and gas money to transport them, I often thought that we’d have been more efficient to just have asked for money. If one lawyer parent volunteer had just added two billable hours at work (rather than two Saturday mornings) and given the proceeds to the food drive, it would have raised as much as the whole thing. But apparently the real purpose was to educate the children to be charitable, and give them a way to contribute their time (at some cost to parents). So there was some value in it, though less so to the aid recipients.
Thanks for sharing, but imagine the costs when your experiences are writ large for large national and international campaigns. It makes one wonder if there would be other more efficient ways of “education” at this level.
best, mc