A WEEK IN ECONOMICS (24/09/13 – 30/09/13) CREATING THE COLLABRATIVE ECONOMY

, Business

Week-in-Economics

The modern economy is a global web of transactional connections. I buy the new Iphone 7: the ideas were formed in San Francisco; the product was made en masse in China; the constitutive metals were sourced from the Congo. It is not only electrical appliances that have an international imprint. Basic food stuffs can often come from foreign countries due to comparative advantage (countries trade in products they can produce more efficiently than the other). Bangladesh has acres of paddy field, yet still imports rice from India.

Champions of free trade praise the effects of globalization where the movement of goods and services has ensured that when once upon a time mangos in the UK would be unthinkable, going down to the local Indian store one can find a whole range.  The UK is suffering from a decrease in bees, meaning pollination leading to the growth of fruits and plants is stunting. No problem. Import bees from Romania and let them out to do as God intended them to do.

This creates a quite collaborative economy, an economy in which where there is a gap in resources in one country, it can be filled by resources from another country. A simple enough equation, one in which exponents of the comparative advantage model of trade would gleefully advocate over the inefficient absolute advantage model (one country trades only when it can produce a surplus of a specific product).

Economic efficiency typically means producing as much of a product as possible but at a cheaper price. This is the goal of most businesses, and competition is seen as a means to equate consumer surplus with producer surplus, i.e., the price at which consumers are willing and able to buy equals the price producers are content at selling at.

This sounds reasonable, but with globalization nothing is ever so simple. Breaking down prices into proportionate segments with each segment being the incremental profits that eventually accrue to the those that created, distributed and sold the product or service, one can see that with most products there is disparity. Moreover, with the growth of mega-companies which have their tentacles in many different sectors, economies of scale further escalates the disparity.

For instance, a supermarket like Tesco’s or Walmart sells strawberries at a cheap price. Consumers are happy. However, the farmer receives a tiny amount of the overall profits. The farmers have to be price takers; if they attempt to negotiate a price, the mega-company can go to another farmer in another part of the world. Governments, such as the US government, have to subsidise their farmers in order to ensure fair competition.

But the idea of cheap prices assumes that farmers in other countries are charging prices that ensure an acceptable standard of living. What this standard may be will differ between peoples and imposition of a certain way of living can be detrimental. However, in general terms, man should have time to work, a time to socialize, time to spend with family, and time to ponder about the world (a forgotten and ignored luxury). Constantly worrying about survival is an indicator that finances are tight. And for farmers selling products at cheaper prices in developing countries, their survival is an ongoing concern.

This is emphatically true for the poor miners of the Congo who plow through the mud with primitive tools excavating metals such as gold, tin, tungsten and coltan. These metals are used in electronic devices such as phones and laptops. Unfortunately, the miners have been caught up in a war in which five million people have died since 1997. Various warlords fighting to secure power of the country have funded their belligerent efforts with sales of these metals. Swathes of people have been uprooted, a million women have been raped, and from this pool of disenfranchised, debilitated and dehumanized individuals, thousands of people work for pittance wages to excavate the metals that create the electrical products that you and I use.

There has been international outcry and a few mines in the Congo are designated as conflict free. This hasn’t stopped the raging conflict. The nexus between the sale of metals (The Congo is resource rich, but overall, extremely poor) and the ongoing violence is palpable yet unending. Companies are adverse to stop buying metals because consumers want the laptop, the TV and the new iphone 7.

Changing this situation is difficult. Consumer preferences needs to change, but this is not enough. It is not enough to simply be aghast at the travesty being caused though this is the first step. The next step is to boycott, but this has limited effect (Apartheid predominately because of international pressure; mass boycotts are only effective if governments are in synchrony). It can also be detrimental. (Bangladesh garment factories bemoaned the potential of losing multinational companies as buyers because it would mean sacking thousands of poor workers who are earning a livable wage through working at the factory). The final step is to alter the whole transactional process, to be involved in the whole process from sourcing materials to creating the product to selling it. Companies with a social conscious that consider each part, and how their actions have effect should be praised. Body Shop is one notable example, as well as companies subscribing to Freetrade principles.

More needs to be done, but the power of the consumer is not little. Just as they worry about their financial future, so do the workers that mine the metals, or farm the foods people in the West eventually purchase. Consumers in the West need a greater social conscience, and, more importantly, a desire to act together to affect change.  A collaborative economy in which consumer and seller work together is the start that is needed.

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