Making a difference

Recently our household has adopted a scheme to help alleviate the global food crisis and world poverty in general. Delusions of grandeur? Maybe, but it makes sense on a number of levels. As the family theorist and hobby economist, it’s my job to explain (or justify, or rationalise) this project in a way that might make sense to more sensible people than me.

Here is how it works. Susan cooks a non-meat dinner at least once a week and I give her $15 which she saves until she has US$25 to lend to a small business entrepreneur in a less developed country. I believe she will explain the lending process in her own post.

On the most basic level, this is to my advantage because I don’t have to cook that meal. I also know that it is going to taste good because, hey it’s Susan cooking and she is not going to just open a few cans or fire up the microwave. We get a gourmet meal for my $15!

Next, eating less meat may extend my lifespan and will definitely make me feel healthier.

Continuing on a personal level, this scheme motivates Susan to cook because if she doesn’t, someone, somewhere will miss out on a chance to improve their life. If you know Susan, you know what a powerful incentive I have found to ensure I get fed.

On to the economics of it all. Meat takes a lot more land and energy to produce than vegetables and grains so if we all ate less meat more people would be able to eat. I guess by now most people are aware that we are in a global food crisis. In part that is because of biofuels but it is mainly because some of us consume far more of everything than we rightly deserve. When we consume less we are reducing demand by a tiny little bit and therefore price by an even tinier little bit. No matter that it’s such a tiny bit..that’s how economics works. Price is determined by aggregate supply and aggregate demand.

Back to the personal level. Just being responsible for a little bit of the reduction in aggregate demand is not very satisfying. After all, I could probably achieve just as much by going on a diet or giving up driving to the gym. This is where the second part of the scheme comes in. We contribute the amount we save on meat to an organisation which coordinates the provision of microfinance. Now that could be boring but Kiva enables lenders to read about the entrepreneurs and choose who to lend to. It is fun reading about other people’s plans and aspirations and Kiva also lets us read about other lenders. There is also a cool counter with geeky information like how much money has been lent this week and how long it has taken to fund loans.

Microfinance is not just a feel-good thing. It makes a lot of sense economically. The basic factors of production are land, labour and capital. People in less developed countries often have little land to work with and are already working very hard. What they lack is capital and a little more capital can often greatly increase their productivity. If I didn’t have a car I would have to walk 20km to work in the morning and another 20km back home in the evening. That would not leave me much time to work and earn money to support my family. The first person we lent money to wanted to buy more stock for her convenience store in Peru, and the next was part of a group of women in Cambodia who needed to buy seed and fertiliser. By forgoing a little consumption in NZ, we can increase investment and productivity somewhere else even though the sums involved are too small to be of interest in the world of macroeconomics. The genius of Kiva is that it aggregates the contributions of different lenders until there is enough money to fund the entire loan and then passes the money on to a partner organisation who distributes the money and collects the repayments. There is no way we could do any of this ourselves.

It’s not that hard to start to make a difference, eh?


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