This week we’ve been exploring the issues of common access resources and how they give rise to a market failure. The video below illustrates the tragedy of the commons in Indonesia’s fish populations.

The high demand for fresh seafood from Southern China and Hong Kong create demand for Indonesia’s reef fish species. Over the last decade, the fish stocks around the more populated Western islands of the archipelago have all but disappeared, so today fishermen have brought their unsustainable methods to the Eastern islands of Indonesia, using dynamite and cyanide to stun fish, which are then caught live and rapidly transported to the markets in China for consumption. According to some estimates, Indonesia’s fish stocks are declining by 30% per year, a rate at which they will be depleted within the next decade.

This poses several problems for both the consumers and producers of fresh fish. For the Chinese consumers, the increasing scarcity of fish in the next decade will mean rising prices and, eventually, the death of the market altogether. For Indonesian fishermen, the outcome is more dire; a loss of their livelihood as the fish stocks dry up.

This raises the question: Why do fisherman continue to use these unsustainable methods? Of course, in a competitive market with thousands of fisherman, if one individual chooses to fish using sustainable methods (using hook and line, for example), he risks catching fewer fish than the competition using cyanide and dynamite. Fewer fish mean less income and a lower standard of living. The rational thing for each individual fisherman, therefore, is to catch fish using the most productive method available. The tragedy of this is that the highest yielding methods are unsustainable, as the story explains, and before long the fish will be exploited to extinction.

The organization profiled in the video is using education to encourage fisherman to use sustainable methods to catch fish. Unfortunately, I fear this will not be enough to save the wild fish stock of Indonesia. The Indonesian government must intervene in the market to enforce strict catch limits, perhaps employing a permit scheme that would allow fishermen to buy and sell permits to catch a strictly controlled quantity of fish during a fishing season.

As it stands, however, Indonesia’s dwindling fish stocks demonstrate yet another example of the tragedy of the commons. Without clear property rights or management by a government, the common resource of Indonesia’s reef fish will continue to be exploited unsustainably,  leaving future fishing communities with fewer sources of income and future consumers with less variety of fish to consume and enjoy. The resource is over-exploited today, to the gain of today’s consumers and fisherman, at the expense of future generations.

This post is about how Switzerland has successfully employed an innovative system of incentives to encourage its citizens to reduce the amount of garbage they create. Just three weeks in this amazing country and I can already see why it earned the highest score in last year’s Environmental Performance Index.

In the AP and IB Economics units on market failure, we study the concept of negative externalities, which exist when the behavior of one individual or firm creates spillover costs to be faced by other individuals or society as a whole. A simple example is a factory that dumps waste in a river. Clearly, disposing of its waste in such a manner poses little or no cost on the factory owners, but significant costs on downstream users of the river’s water. A community that wishes to use the river for drinking water must now install expensive filtration and purifying systems just to make the water usable. The factory has kept its own costs down by externalizing the cost of filtration by passing it on to downstream users.

Spillover costs exist on micro levels as well. While it is easy to see how a large factory creates negative externalities, it is often harder to imagine how we as individuals create spillover costs for our neighbors and society in our everyday actions. The stark truth, however, is that an individual’s behavior, multiplied by millions upon millions of individuals making up a citizenry, can have as great if not greater negative impacts on the environment and society as the negligent behavior of one firm.

Here in Switzerland, the behavior of each individual citizen is subject to unusually strict scrutiny. No, Big Brother is not watching, as you may be thinking, (however, I have heard stories of snoopy neighbors alerting the police upon witnessing the most minor of infractions by a fellow citizen), rather, one finds it in his best economic interest to strictly monitor his own behavior down to the finest detail. Allow me to explain what I mean.

Let’s take garbage for example. The definition of garbage in Switzerland is very different from that in the United States. Where I’m from, garbage is anything that you can’t use anymore. You throw it “away”, put it on the curb and it disappears.

A garbage bag in the US is usually a 40 gallon (160 litre) plastic bag that could fit an entire family inside, and the typical American family probably produces two to three bags worth of “garbage” each week, which conveniently disappears in the wee hours of the morning to be taken “somewhere”, which most Americans don’t know or care to know where that is. How much does it cost an American household to dispose of this voluminous quantity of garbage? Well, the bags cost around 18 cents each, and monthly removal services vary depending on the community, but are typically a flat rate for almost any amount of garbage.

In the United States, it is very easy for individuals to pass the true cost of their garbage disposal onto society as a whole. It doesn’t matter all that much whether you put one tiny plastic bag on the curb or a half dozen 40 gallon bags on the curb, you are going to generally pay the same amount for collection regardless. The result of such a system is that the typical household has no incentive to reduce the amount of garbage that it produces. Logically, Americans are inclined to over-consume and produce copious amounts of garbage in the absence of any significant system of incentives in place to encourage waste reduction.

So, what’s different about Switzerland? It’s all about incentives. Let me explain. Here, you don’t pay a flat rate for garbage removal. In fact, you don’t HAVE to pay anything for garbage removal! Oh wow, you say, it’s FREE? In fact, quite the opposite is true. You don’t have to pay anything for garbage removal as long as you don’t create any garbage. In other words, you only pay for what you throw away.

Unlike in the US, here a typical garbage bag here is a 35 litre plastic sack, only slightly larger than a plastic grocery bag. Each village requires its citizens to buy official garbage bags for that community, and each individual bag costs anywhere from $1.50 – $2.50. A role of ten 35 litre bags can cost around $25.

When we consider that anything a household wishes to throw away must be put in an official village garbage bag which itself must be purchased for $2.25, and we know that a typical 40 gallon (160 litre) garbage bag in the US costs just $0.18, we can easily calculate and compare the costs of garbage disposal to both US and Swiss households.

• In Switzerland: 100 litres of garbage costs $6.40 to dispose of
• In the US: 100 litres of garbage costs a little over $0.11 to dispose of
• In other words, garbage removal costs Swiss households around 57 times as much per litre as it does Americans, when we consider the price of garbage bags alone.

Clearly, Swiss households are given a significant incentive NOT to create garbage. So what DO the Swiss do with lots of their waste? Recycle it, of course! See, here in Switzerland all recycling is free. The villages even offer free curb side pick-ups for all recyclable materials.

A simple system of incentives (and dis-incentives) is the secret to Switzerland’s environmental success. Other systems are in place to encourage citizens to use public transport, tread lightly while hiking in the outdoors, conserve energy and water at home, and behave in other environmentally friendly ways, but I’ll save my discussion of those items for another time, once I figure out how to reduce, re-use and recycle all my own “garbage” here in Zurich!

Discussion Questions:

1. How does Zurich’s system of garbage collection “internalize” the “externality” associated with household consumption?
2. Incentives matter. This is a basic economic concept that can be used to fix many of the environmental, social, economic and health problems faced in society. Identify one way your parents have used incentives to try to get you to do something or NOT do something they think you should or shouldn’t do.
3. Discourage what society want less of, encourage what society wants more of.  Identify and discuss one example of a market in which a government (local or national) uses incentives to discourage certain behaviors, and one example of a market in which incentives are used to encourage certain behaviors.

Economics is the field of study that attempts to address the basic problem faced by society relating to the environment and natural resources: the problem of scarcity in a world of infinite wants. Many, if not all, of our planet’s environmental woes are attributable to an economic phenomenon known as market failure. A market failure results whenever too much (or in some cases too little) of a good or service is produced and consumed by the economy.

What does this have to do with the environment? The connection lies in the reality that everything we produce and consume (and I mean everything!) originates from the earth. Nothing can be made by the sweat of man alone; in fact, three resources are required to produce any good or service: labor, capital (i.e. tools), and land. Sometimes we think of the resource of land as gifts of nature. However, in a world where environmental threats like those mentioned above are staring us in the face, it is becoming more and more obvious that the natural resources we’ve exploited for so long may not, in fact, have been gifts from Mother Nature at all, and their overuse may impose significant and unaccounted for costs on society AND the environment.

But let’s be honest, consuming is fun! Nothing is more gratifying than scoring a fantastic deal at your favorite boutique, walking out of a fast food joint with a plastic bag full of tasty treats for super cheap, and getting your hands on the latest high tech gizmos as soon as they’re launched (and dumping that old technology out so you’re not the lame one with the three pound cell phone!) However, the true cost of our obsessive consumption habit is not always represented by the price we pay for our fast food, our blue jeans, and our iPads.

In reality, the prices we pay for our goods and services are far lower than they should be; and the quantity of these things we consume is far higher than it should be. How do we know this? Look around. The very environmental issues with which environmental groups are most concerned can be traced back to the consumer behavior we enjoy partaking in so much. We’re conditioned to buying what we want, when we want it, and for a price that places little burden on our pocket books.

What we don’t realize, however, is that nature is bearing the burden of our high levels of consumption. In its attempt to absorb the pollutants that are emitted in the manufacture of our products, the waste that’s created from the disposal of our products, and the destruction that’s left behind from the extraction of the natural resources that go into our products, Mother Nature is more than ever choking on the waste created by our economic behavior. The costs born by nature are not accounted for in the production costs faced by firms, nor in the prices paid by consumers. These costs are externalized, or passed on for others to worry about.

The problem is, these days the bill has come due, and the environment is calling in its debts. Humans must now face up to the failures of its markets, and internalize the costs that for so long have been passed on to the environment and society, which suffers from the effects of environmental degradation.

The reality that we’ve used too many natural resources to produce too much stuff for too long is evidenced by simple examination of the natural world around us. Or, in the case of China, the complete lack of a natural world around us. From the pollution filled skies, to the waste clogged waterways, to the traffic jammed highways, China is a case study in market failure. The world, now used to the cheap imports China is so good at pumping out, does not consider the impact that the manufacture and consumption of such a massive variety of cheap products is having on China’s, and these days the world’s, environment.

In the following audio clips, you’ll hear three short stories about how the over-exploitation of resources is causing harm to human welfare and the environment. Each of these stories contains a market failure, usually in the form of a negative externality, or the production and consumption of certain goods creating spillover costs on somebody or something not involved in its production or consumption. See if you can identified who’s being harmed, and who’s at fault:

E-waste [ 7:36 ] Play Now | Play in Popup | Download (7124)

Trash Island [ 2:01 ] Play Now | Play in Popup | Download (38)

Nauru [ 6:57 ] Play Now | Play in Popup | Download (55)

Story #1: “Where does all that E-waste go?” from Public Radio International’s “The World: Technology” podcast

Story #2: “Trash Island” from WBEZ Chicago’s “This American Life”

Story #3: “Nauru – the island in the middle of nowhere” from WBEZ Chicago’s “This American Life”

After listening to these stories, reflect for a moment on the true cost of the environmental and human tragedies of which they told. What role does our consumer culture play in these tragedies? What could have been done to prevent the conditions in those E-waste markets in Africa and China, the islands of garbage floating in our deep oceans, and the complete destruction of an island paradise 1,100 miles from the nearest land? Is there anyone to blame? Should we blame our politicians, our leaders? The answer to these questions is: there’s no easy answer, unless we want to get really personal here and point to humans’ own flawed nature: the fact that we are motivated primarily by greed and self-interest.

If that’s true, then perhaps hope for the environment can only be found in the responsible hands of benevolent governments, who once and for all take steps to mitigate the destructive impacts of our endless patterns of production and consumption. In fact, it is often government which is needed to intervene and correct market failures like those in the stories.

Three tools have emerged for governments wishing to correct such negative externalities. These involve three fundamentally different approaches, some more effective than others. One involves direct government control. This is when governments intervene in a market in which negative externalities exist and try to make producers clean up their acts. They threaten producers with penalties and fines, and monitor industries to try and force firms to manufacture their products in a clean, efficient way. (this is like what the Europeans are doing to minimize their e-waste).

The next option also involves a large roll for the government: corrective taxes. Businesses that produce goods that end up polluting the environment (either through their production or consumption) can be taxed based on the amount of pollution they create. If creating more pollution means paying more taxes, the companies will find ways to produce in a more environmentally responsible manner, in order to keep their costs low and to maximize their profits.

The third method for externality reduction is also the most recently adopted. A market for pollution permits is set up, where a government actually gives all the companies in a polluting industry permits that allow them to pollute a certain amount. WHAT? The government’s allowing firms to pollute? Well, yes. The fact is, they’re going to do it anyway, they HAVE to in order to produce anything! The benefit of this system is that the government will only give each firm so many permits, and they’re not allowed to pollute beyond what their permits allow, UNLESS they go and buy more permits from producers that don’t need all theirs. This way, firms have an incentive to pollute less, because any permits they don’t use they can sell to other producers and make profits on those sales! Dirty firms have to buy more and more permits, clean firms get to sell those they don’t need… can you see where this is going? ALL FIRMS want to become clean firms in this scenario!

The three methods introduced above are being used to different degrees by different countries in various industries to try and mitigate the negative effects of some types of pollution and greenhouse gas emissions. Unfortunately, not nearly enough is yet being done, especially by some of the worlds largest economies (and thus, polluters), namely the United States, China, and India.

If our world is to avoid a fate like that of the tiny island of Nauru, where every last resource was exploited to the point where the island could no longer sustain life, then more must be done to reduce the spillover costs that accompany the production and consumption of so many of our precious goods.

I tell my econ students a story about how one day hundreds of years ago some smart guy decided to start calling products (you know, the stuff we consume), GOODS. From that day on humans would always associate consumption with something GOOD. Today, in an era where the goodness of consumption is offset by the evil of environmental destruction, more than a strong government hand is needed. Conservation and appreciation for the gifts of nature, not insofar as they can be exploited by industry, but left intact for the appreciation and welfare of society, both today’s generation and that of our grandchildren, must be fostered and encouraged among global citizens young and old.

Hopefully, this article and the stories you heard here will help you understand a little more about the economics of the environment, and help you become more educated about what can and should be done to correct the market failures that have led to the dire challenges faced by our world today.

A great website on environmental economics written by two economists WAY smarter than Mr. Welker can be found here: http://www.env-econ.net/

Mediterranean Center for Sustainable Development – Collaborative School Programs

One of the great joys of teaching at an international school is the opportunity for travel. Not only during breaks and summer vacations, but also with students through programs such as Zurich International School’s Classroom Without Walls.

My colleague and fellow Economics teacher (and blogger!) Joe Hauet decided last spring to organize an economics research and experiential learning trip to a sustainable living community on the banks of Egypt’s Nile River, near the city of Beni Suef, two hours south of Cairo. 40 ZIS Economics students, mostly year 2 IB students, will spend the coming week learning about economic development from experts in the field who are part of the Mediteranian Center for Sustainable Development Programs. The students, Joe and myself will spend three days at the Nile delta’s Kan Yama Kan village, followed by two days exploring the ancient Egyptian sites at Giza and around Cairo:

When teachers bring their students to Kan Yama Kan Village and engage them in our programs, they know we take a holistic approach to learning. Students learn about the environment through hands-on activities designed to provoke critical thinking and follow-up discussion in the classroom. They are exposed to sustainable development concepts and practices that are simple, easy to comprehend and replicable. Educating youth about the environment and developing their character leads to an informed citizenry with the capacity to reach the Millenium Development Goals

Our programming is proactive and flexible. We recognize that youth today face social and global challenges in a fast-paced world and we believe that as educators it is our responsibility to help them gain the intellectual and life skills they need to succeed. We do this by exposing students to practical learning experiences and modeling the behavior and values we teach; we use issues that arise while living in a community as learning opportunities about respect for others, good governance, human rights, and personal and collective responsibility.

Each visit to Kan Yama Kan is unique. Each program is tailored to the needs of the teachers, students or group. Whether the program focuses on biodiversity, animal behavior, renewable resources and searching for fossils or planning and building a habitat for tortoises, scripting a drama performance or revision for end of year exams, MCSDP works closely with faculty and school administrators to understand their objectives and meet their expectations.

The goal of the ZIS Classroom Without Walls trip to Egypt is to allow IB Economics students to experience the challenges faced by communities in developing countries, as well as to gain a deeper understanding of the development strategies rooted in sustainability that are going on around the Mediteranean region.

I owe a huge thanks to Joe Hauet, whose dedication and work in planning this trip over the last six months will truly pay off for the 40 students and four teachers leaving for Egypt bright and early tomorrow morning.

‘Green funerals’ feature biodegradable coffins – CNN.com

Our final micro unit examines situations in which resources are either under or over-allocated towards the production of certain products. Such a scenario is known as a “market failure” and in some case is represented by the existence of negative externalities, or spillover costs born by society, the environment, other species, or any third party that was not part of the market transaction.

All this is a fancy way to say that someone or something gets screwed thanks to someone else’s actions. In the case of negative externalities, such as air-pollution, second-hand smoke, loss of biodiversity that results from over-grazing or over-farming of sensitive lands, or even global warming, the full costs of production or consumption of particular goods are not being born solely by the producers and consumers of those goods.

The article above talks about the funeral industry, which for decades had had incalculable impacts on the natural environment thanks to humans’ irrational desire to be preserved for eternity with the help of countless chemicals, air-tight metal lined coffins, and heavy use of pesticides, herbicided, and all kinds of “icides” to make sure that our place of rest remains sterile and lifeless for perpetuity. All this “preservation” takes a huge toll on the environment, and as a result of America’s newfound sense of “greenness”, alternative forms of burial have emerged:

“It is composting at its best,” said Beal, owner of The Natural Burial Company, which will sell a variety of eco-friendly burial products when it opens in January, including the Ecopod, a kayak-shaped coffin made out of recycled newspapers.

Biodegradable coffins are part of a larger trend toward “natural” burials, which require no formaldehyde embalming, cement vaults, chemical lawn treatments or laminated caskets. Advocates say such burials are less damaging to the environment.

Continue Reading »

Mali’s Farmers Discover a Weed’s Potential Power – Sept 6, New York Times

Can it be possible that a new use for an old weed could change the economic health of a nation and at the same time defy the law of opportunity costs? In Mali, farmers are choosing to plant more of weed called jatropha becuase it can now be turned into biofuel. It is a unique plant in that it needs marginal soil and requires little fertilizer. In class we have talked about how discovering a new resource can cause economic growth, how this can shift the PPC curve. But, can a country actually get the benefits of using this new resource with out any opportunity cost? Is what is happening in Mali an example of economic development or economic growth in the first place? Is this a supply or a demand issue?

But now that a plant called jatropha is being hailed by scientists and policy makers as a potentially ideal source of biofuel, a plant that can grow in marginal soil or beside food crops, that does not require a lot of fertilizer and yields many times as much biofuel per acre planted as corn and many other potential biofuels. By planting a row of jatropha for every seven rows of regular crops, Mr. Banani could double his income on the field in the first year and lose none of his usual yield from his field.

You be the judge of why Mali is making the decision to produce more jatropha. Is this a case for demand or supply? Which curve would shift? Which determinant is causing this shift?

But here in Mali, one of the poorest nations on earth, a number of small-scale projects aimed at solving local problems — the lack of electricity and rural poverty — are blossoming across the country to use the existing supply of jatropha to fuel specially modified generators in villages far off the electrical grid.

“We are focused on solving our own energy problems and reducing poverty,” said Aboubacar Samaké, director of a government project aimed at promoting renewable energy. “If it helps the world, that is good, too.”

This is very interesting information for you to consider as you are wondering about environmental sustainability, a real life economic issue.

Jatropha’s proponents say it avoids the major pitfalls of other biofuels, which pose significant environmental and social risks. Places that struggle to feed their populations, like Mali and the rest of the arid Sahel region, can scarcely afford to give up cultivable land for growing biofuel crops. Other potential biofuels, like palm oil, have encountered resistance by environmentalists because plantations have encroached on rain forests and other natural habitats.

But jatropha can grow on virtually barren land with relatively little rainfall, so it can be planted in places where food does not grow well. It can also be planted beside other crops farmers grow here, like millet, peanuts and beans, without substantially reducing the yield of the fields; it may even help improve output of food crops by, among other things, preventing erosion and keeping animals out.

So try to apply what you have learned about opportunity costs, economic growth and development, as well as supply and demand and analyze these economic events in Mali. I look forward to your comments

How the World Works: Who Invented Calculus? – Salon.com

IB students, here’s a blog post you’ll want to read closely once we start studying economic development later this semester. Andrew Leonard at Salon.com refers to a study titled “Does Economic Growth Reduce Fertility? Rural India 1971-1999″.

Interesting stuff. Leonard points out a peculiar paradox of growth in India:

India’s Green Revolution has been criticized by those who wonder if an agricultural model reliant on large inputs of fertilizers and pesticides is environmentally sustainable over the long run. But if in the short run these spikes in agricultural productivity contribute to population stabilization, then we have a nifty paradox: a (possibly) unsustainable agricultural model contributing to (possibly) sustainable population levels.

This article and the study it refers to might make for an interesting commentary for your internal assessment, or as a source for an extended essay on growth and development. Any opinions on the supposed correlation between economic growth and decreased fertility?

Powered by ScribeFire.

One week ago I left Shanghai behind and my wife and I began our annual migration back to our summer stomping grounds, the Pacific Northwest. After 10 months living and working in a city of 18 million people with an industrial sector that ensures 365 days a year of a thick haze blank over the Shanghai, nothing is more refreshing than returning to the nearly empty mountains of North Idaho (“It’s a state of mind” is what they say around here).

Some of the highlights of life in Northern Idaho include the excessively blue skies, the sparkling Lake Pend O’reille, the ever green slopes of the Selkirk mountains, the bears, moose and deer with whom we share our beautiful trails, and finally the intimate sense of community that infuses the local economy of Sandpoint, our home town of 8,000 (you’d need 2,250 Sandpoints to make one Shanghai!).

In Shanghai, foreigners mostly shop at one or two boutique foreign grocery stores, packed full of processed foods imported from Europe, North America, Japan, Australia and other far corners of the earth. About the only things you’ll find that are “local” in these markets is the produce, which itself is of suspect quality given the large quantities of chemicals banned in most western countries used by Chinese farmers (not to mention the continued use of human feces as a fertilizer).

To eat like a foreigner in Shanghai is to be an active participant in the global, industrial food chain. The manufacture of the processed foods imported from the West involved industrial processes far beyond the comprehension of most consumers. The use of petro-chemicals infuses every step of this process, from the chemical fertilizers, herbicides, fungicides, pesticides and insecticides to the chemical preservatives to the petroleum burned getting the food from field to factory to warehouse to container ship to grocery store thousands of miles away. To eat like a foreigner in Shanghai is to contribute to the degradation of our environment, the warming of our atmosphere, and the destruction of a traditional way of life for local family farmers all over the West, as factory farms proliferate across the West’s fertile lands. Despite all this, my wife and I still eat like foreigners in Shanghai, and attempt to suspend our conscience while we participate in the industrial food chain we so despise.

For my wife, Liz, and I, returning to Sandpoint, Idaho is an act not only of spiritual and physical rejuvenation, but also of economic emancipation. We are freed from the destructive global industrial food chain on which we depend as foreigners living in China. To eat in Sandpoint is to participate in a sustainable, local, environmentally friendly food chain where organic, locally grown foods are available in every grocery store.

Our first stop when returning to Sandpoint is always Winter Ridge Organics, followed by a trip to Woods Ranch Meat Processing Plant (for me, as my wife is a vegetarian). Woods Ranch presents an interesting study in local foods. All of the meat processed at this small plant nestled in between Idaho’s Selkirk Mountains and the Cabinet Mountains of Western Montana is raised in the rich grasslands of the Pack and Kootenai river valleys. In addition to grass fed beef, this plant processes and sells direct to the consumer pork, buffalo, and game meat such as elk and venison. During the hunting seasons it is not unusual to find bear and moose in their freezers, as the region’s mountains present local hunters with a plethora of wild game.

When I compare the intricate and energy intensive food chain of the foreign eater in Shanghai with the short, direct food chain of the local eater in Sandpoint (along the dirt road to Woods Ranch you pass the very cattle that are processed therein), I begin to wonder how our economy has woven such a tangled web of international trade and commerce. I am also thankful that I am in a position where I get to observe and participate in both extremes of the modern economy, both the local and the global. As a teacher of economics, this perspective may prove valuable as my students and I strive to put the complex web of today’s economy into focus.

Ultimately, I can say I wish I could have the best of both worlds. I wish I could take my wonderful job and school and classroom and students of my life in Shanghai and “import” them all to Sandpoint, Idaho. I wish we could all enjoy a more l

ocal existence; but the prospects of this way of life surviving seem weaker every year I return. A couple of summers ago the town just north of Sandpoint opened the first Wal-Mart in Northern Idaho. Reality check: globalization is everywhere! China haunts my idyllic summer paradise; I cannot escape it! At least the haze of Shanghai has not stretched its ugly reach to the Selkirk mountains, not yet, at least…

Powered by ScribeFire.

IF you’ve visited this blog in the last two weeks, you’ve probably seen the picture below of a beautiful sunset, a distant island and a wispy palm. Turns out I stayed two nights on the beach that picture was taken from, Ahmed in Bali’s remote northwest corner! What a beautiful island Bali is! Unlike many touristy places in Southeast Asia such as Phuket and Samui in Thailand, Bali is an island paradise that has managed to develop a thriving tourist industry while simultaneously maintaining its distinct Hindu culture and traditions that awe visitors and help them understand why it’s called the “island of the gods”. Not only do most Balinese outside the one or two major cities still live in the traditional style houses, but they actively practice their unique form of Hinduism (imported from India via Java in the 11th century), maintain the traditional forms of dance and religious ritual, and sustain themselves by practicing any number of artistic trades rooted in the island’s rich and colorful history. Indeed, in most villages we passed through, it was hard to tell which buildings were temples and which were houses. As much of Indonesia and the rest of Asia have rushed head-on into the age of globalization (often meaning westernization), Bali has thankfully held on to and even fostered one very precious and all too rare commodity: its own history.

Certainly after a year in Shanghai, where the closest thing to religion among urban Chinese is the pursuit of wealth, a couple of weeks in the rich spiritual heart of an ancient Hindu island culture was just what I needed to remind myself what was important in life. But alas, once an economist always an economist, and even with a thousand years of rich cultural heritage to turn my attention from school and economics, I could not help but notice the intricacies of Bali’s economy and how tourism and globalization have affected this remote island culture. My next few posts will cover casual observations made during my 16 day trip to Bali about its local economy and how it has been shaped by the global economy and tourism.

Design That Solves Problems for the World’s Poor – New York Times

It is a luxury right now to sit back and peruse articles about economic topics that interest me. Economic development has been a passion of mine yet I have not had the opportunity to share my passion about economic development with my current AP students. The AP syllabus does not cover this topic and the Lorenz curve is about the closest that my AP student came to learning about income distribution and poverty. This was not an authentic study of or discussion about effective economic development.

So, I was pleased to read the article by Donald McNeil in today’s (5/29/07) New York Times which highlighted a show at the Cooper –Hewitt Design Museum where designers displayed the products that designed to serve the needs of the world’s poor. These products were created to enhance the quality of life of poor people world wide. They were designed as products that would assist the world’s poorest people in climbing the “self sufficiency” economic ladder.

“A billion customers in the world,” Dr. Paul Polak told a crowd of inventors recently, “are waiting for a $2 pair of eyeglasses, a $10 solar lantern and a $100 house.” The world’s cleverest designers, said Dr. Polak, a former psychiatrist who now runs an organization helping poor farmers become entrepreneurs, cater to the globe’s richest 10 percent, creating items like wine labels, couture and Maseratis. “We need a revolution to reverse that silly ratio,” he said.

The designers created new ways to transport water, created human powered water pumps to enable planting during the dry seasons, and designed an apparatus to clean water for drinking as you sip it directly from streams, rivers and lakes. So many inventors spend so much time designing goods and services for the rich that if in this ‘new revolution” were to take hold, the world’s poor might just find ways to make themselves richer.

What I like about this approach to economic development is that it involves giving the poorest members of our world community the tools that they will need to become independent entrepreneurs who will build their own economic success. This is not a “give them some food to eat”, “give them a dam that they don’t need” or a give them some “charity” type of economic development. It is much more than that…The artists and inventors themselves knew that:

“Interestingly, most of the designers who spoke at the opening of the exhibition spurned the idea of charity.

“The No. 1 need that poor people have is a way to make more cash,” said Martin Fisher, an engineer who founded KickStart, an organization that says it has helped 230,000 people escape poverty. It sells human-powered pumps costing $35 to $95.

Pumping water can help a farmer grow grain in the dry season, when it fetches triple the normal price. Dr. Fisher described customers who had skipped meals for weeks to buy a pump and then earned $1,000 the next year selling vegetables.

“Most of the world’s poor are subsistence farmers, so they need a business model that lets them make money in three to six months, which is one growing season,” he said. KickStart accepts grants to support its advertising and find networks of sellers supplied with spare parts, for example”

Now that is the kind of economic development revolution that I want to be part of. For more information about a truly successful worldwide economic development program for woman, check out the Grameen Bank and/or the Grameen Foundation. Both programs combine the power of microfinance, technology and innovative solutions to defeat global poverty. They too put tools in the hands of poor women. The Founder, Muhammad Yunus just won the 2006 Nobel Peace Prize for his work and for his foundation. His work inspires me..