The charity of dumping

We mean it....

Trade dumping occurs when goods are sold for less than it costs to produce them. Mostly, claims of dumping are used to keep out foreign competitors and are simply protectionism dressed up as moral outrage.

Sometimes, though, trade dumping occurs because a producer is sponsored by their government (as happens with some Chinese manufactures, or European agricultural produce). Businesses who feel that the subsidies their rivals are receiving are anti-competitive have a few mechanisms at their disposal to take task with these issues. Granted, they don’t always work very well - as AEL, a mining-explosives manufacturer discovered when attempting to use the services of the fair trade office - but they exist.

So how to judge the activities of Paddy Maguinness, CEO of the Niall Mellon Township Initiative? Maguinness has a program that, since 2002, has built houses in South African townships for the homeless. The house-building volunteers, from rich countries in the West, come and donate their services for free.

So far, so noble. However, at the end of the process the beneficiaries are not – apart from having a house – measurably different than when they started. They are still, largely, unemployed and unemployable. Instead of creating a thriving township building and house-retail market, the project undermines economic activity.

Something similar happens with volunteer medical services. More than half of African medical graduates emigrate, mostly as a result of low wages. And a large proportion of public health in Africa depends on European volunteers. No-cost professional volunteers depreciate wages and further stimulate migration.

This is trade dumping at its worst. Trade dumping usually leaves both parties worse-off, since the subsidies are paid for by taxpayers. With services charity, though, the donor gets a pleasant holiday in the sun.

Social development charity may make the donor feel good about themselves and may make the beneficiary, briefly, feel better about life, but the ultimate result is the production of goods for less than they cost. This causes disinvestment; ambitious people migrate and businesses close down.

Sometimes the most direct solution to stimulating economic growth is indirect.

Consider the regular saw that agriculture could cure the ills of the poor through job creation. A farmer I chatted to in Mozambique was taken around by their agriculture department to have a look at land. Any of the land that he saw would be given to him for nothing on the spot. All he would have to do would be to start a farm there. The land was some of the most fertile he had ever seen.

He turned them down flat.

The reason was that there was no infrastructure servicing the land at all; no irrigation, no electricity, no roads. Without which his yields would be lower, and it would be astonishingly expensive to get his goods to market.

I’ve seen similar situations in South Africa where charitable programs aim to teach rural subsistence farmers how to produce more commercial crops. Lots of money and time are spent on these programs. At the end of the programs the consultants have been paid, the trainers have been paid, and the rural farmers still don’t have a road to get their goods to market. So the program fails, which is blamed on too few resources for training.

You don’t achieve economic growth through charity, any more than you can achieve greater employment and lower prices by not working.

Investment lowers prices, creates jobs and improves lives. Investors and entrepreneurs ask for seemingly mundane things: consistent rule of law, economic and social stability, and infrastructure. Then they figure out how to make money on their own.

As the rhetoric and posturing around jobs and prices gets louder, it would be good to remember that investment is also a voluntary activity. Unlike charity, though, investors look for the best situations, not the worst.

Where you get charity, you don’t get investment. And vice versa.