Jujitsui Generis

Kiva: An Alternative to Charity

The giving season is just about here and all of us will soon be inundated with the usual requests for charitable donations.  Here's an alternative to keep in mind (hat tip: Jacob Grier): Kiva.

Kiva isn't really a charity.  It's another example, like The Wingbeat Project, of social entrepreneurship.  Kiva is a program that catalogs foreign, would-be entrepreneurs throughout mostly African countries, along with the amount of capital they need to start or improve their business, and then allows 'investors' to contribute micro-payments toward the entrepreneur of their choice.  Once established, the business owner then re-pays the micro loan.  Invest isn't really the right word either because lenders do not reap any interest from the amount loaned - they just get the original principal back (or can redirect that money to another entrepreneur).  So far Kiva has a re-payment record of 100%.

The unique character of Kiva is that it relies on a peer-to-peer network to bypasses corrupt government agencies and administration-heavy charities and goes 100% directly to the recipient.  The amounts requested, in comparison to other charities, are minuscule - often less than $500, and many give in increments of $25-$50.  Additionally, you get to see where your money goes, and exactly what it is being used for.

Is that charity?  Is that investment?  I don't know.  If you don't get your $25 back, I suppose it's charity.  If you do, it's more like investing in opportunity and social entrepreneurship, which is a welcome alternative to traditional holiday giving.

Quote of the Day

I'm re-reading The Fatal Conceit and so I was happy to stumble across Russell Robert's analysis of this quote over at Cafe Hayek:

Part of our present difficulty is that we must constantly adjust our lives, our thoughts and our emotions, in order to live simultaneously within the different kinds of orders according to different rules.  If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e. of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilisation), as our instincts and sentimental yearnings often make us wish to do, we would destroy it.  Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them.  So we must learn to live in two sorts of world at once.

The first time I read Hayek, I breezed through, taking most of his arguments for granted.  This time I find myself asking questions and reading critically.  But this insight still seems to me to eloquently capture a crucial distinction that is responsible for the extended order which we did nothing to design, yet in which we all live.

The Ripple Effect

For all those who argued that the Kelo decision was highly technical, case-specific, and that the Court's reading of 'public use' would have no significant consequences outside the city of New London, there's this.  It didn't take long, did it?  And there will be more.

Protection Scheme

Ogunquit, Maine is the latest town to consider an outright ban on so-called formula businesses - the fierce behemoths like Wal-Mart and Home Depot, or franchise eateries like McDonalds or Subway.  Tapping into a popular nostalgia for all things local and the refined sensibilities of the small town aesthete, local business owners have been eager to push town leaders toward an outright ban:

Supporters of the chain restaurant ban say they don't want their seaside town to turn into just another congested strip of Subways, Applebee's and Burger Kings.

"This is a pristine and special community that we are stewards of," said Mary Breen, owner of a high-end bakery who spearheaded a petition drive to get the question on the Nov. 8 ballot. "It's not about finance and marketing, it's about preserving this small fishing and arts community."

It's also about preserving ones own interest - and using government to do it.  Nothing would make life easier for a small hardware store owner than an outright ban on Lowe's and Home Depot chains.  The same goes for the local grocer, the appliance merchant, and the local restaurateur:

"This is a pristine and special community that we are stewards of," said Mary Breen, owner of a high-end bakery who spearheaded a petition drive to get the question on the Nov. 8 ballot. "It's not about finance and marketing, it's about preserving this small fishing and arts community."

Breen, who started the Bread and Roses Bakery in 1989, became alarmed last spring when rumors spread that a Dunkin' Donuts was coming to town.

Breen is right to be alarmed.  A national franchise, like Dunkin Donuts, likely runs a much tighter ship than her local bakery.  And at a lower price.  Proponents of the ban, however, claim that their efforts are not about a government mandated protection scheme:

As chain stores have spread in recent years, so has the movement to control them on the local level, said Stacy Mitchell, a senior researcher with the nonprofit Institute for Local Self-Reliance.

In the mid-1980s, Carmel-by-the-Sea, Calif., became the first city to enact a formula restaurant ban. Since then other communities in California, Washington, New York, Florida, Rhode Island and Maine have passed similar laws, she said.

The issue is about more than just signs or drive-throughs -- it's about economics, Mitchell said. Studies show that more money stays within a community when it is spent at locally owned businesses, she said.

Although Mitchell supports the free-market concept, she said she also thinks communities have a responsibility to plan.

"This isn't a free-for-all because there are costs and benefits borne by the community as a whole," she said. "There is a point where the community has to say, 'What direction are we going?' "

As an advocate of government (or centralized) planning in the market place, it's not quite clear why Mitchell counts herself a supporter of the 'free-market concept'.   Mitchell is right that the community should have a say in which businesses prosper and which fail.  But they already do - in how they choose to spend their dollars. Those opposed to the large chain stores - convinced that they unfairly prey on small businesses or that they offend the more proper aesthetic sensibilities - may simply refuse to shop there.  And no government ban is necessary to preserve that right.  Unless by 'where the community has a say', Mitchell did not mean the 'residents' of Ogunquit, Maine, but rather the various small business owners whose livelihoods and business interests are now imperiled by the function of a competitive market.

Unfortunately, the proposed ban would incur mostly costs to the local residents - the costs of potential jobs lost, the higher cost of building materials because the local hardware merchants are unable to buy on the same scale as the home improvement chains, the higher costs of groceries because the small grocers are unable to reallocate various costs among multiple sites, the higher costs of baked goods because the local baker is unable to purchase raw goods at a reduced price or to operate on multiple shifts and is, therefore, unable to offer either volume or variety.  The ban would costs residents all the benefits (like lower prices, better quality and greater variety and choice) of a full-functioning and free marketplace.  But Mitchell has decided that all those costs (and more) are worth bearing, and that the cost/benefit analysis of 'community planning' is best performed and then mandated (in the form of the ordinance) by the local bureaucracy rather than by the residents of Ogunquit, Maine.

None of that should come as a surprise.  Efforts to create small-scale legal protection rackets have become commonplace among businesses unable to compete due to a lack of capital, a lack of resources, a poor business model, an inability (or unwillingness) to expand into other markets, a complete lack of imagination, or a simple failure to adapt.  Bolstering such efforts with an appeal to an unarticulated nostalgia for small town authenticity is just one more attempt to control the hand of the market and to privilege a single set of preferences above all others.

Put Down That Doughnut

Obesity has become the latest target for public health officials.  But public service campaigns typically neglect private sector initiatives and veer from market solutions toward government regulation and publicly funded programs.  Stories like this, however, illustrate that obesity, when understood as a consequence of behavior, is best managed by the market.  Private employers, after all, are bearing the largest share of the excessive cost of obesity related illness.  There's no reason they should not be at the forefront in addressing the issue through the use of the targeted incentives, premium reductions, and by saddling the obese with the just desserts of their own behavior.

The Fear of Competition

It’s easy to understand why Boliviar Elizondo opposes the passage of CAFTA. Frozen in time, Elizondo struggles by hand to eke out a living in the mountains of Costa Rica:

A man who must do everything using hand tools such as a machete or knife, Elizondo depends on selling about 50 pigs a year to finance the rest of his tiny operation. He says he can never compete with the large mechanized meat producers from the United States that are expected to invade the market over the next 20 years if Costa Rica’s legislature approves the accord.

"Without selling the pigs, I don’t know how to survive," he said. "I can’t support myself. I will have to sell this. Who is going to buy it? Not another Costa Rican. It will be a multinational corporation."

The removal of trade barriers and restrictions will almost certainly spell Elizondo’s doom. Or, less dramatically, it will mean the end of the way he currently earns his living. Elizondo will likely have to take up another occupation and sell his farm. That’s too bad, but that’s not a principled reason to oppose CAFTA. There is no right, after all, to be protected and insulated from those who simply compete better - that have the benefit of technology, better prices, a more comprehensive and strategic business model, deeper resources, etc…And Elizondo’s inability to compete is no more noteworthy than any of the thousands of businesses that fail every year in the harsh terrain of the marketplace.

Anecdotal tales, like Elizondos, are popular during times of transition. They are meant to lament the passing of a romanticized ‘way of life’. At the macro level, however, such open trade agreements almost always have a positive impact on economies and over time greatly improve the opportunities and living conditions of the citizens they affect. The collateral damage felt by the displaced is particular and anecdotal - and rarely long term. And, in most cases - despite the melancholic nostalgia of those on the outside - the meager, subsistence ‘way of life’ is rarely one worth preserving.

Protecting Private Property

The recent Supreme Court 'Kelo' decision paved the way for state legislatures to embark on a land grab for the hopelessly broad purpose of economic development.  But good news for the citizens of my home state of North Carolina: the Civitas Institute is pushing to limit the invocation of eminent domain and to protect private property by adding an amendment to the state constitution, one that defines 'public use' and limits seizures to purposes clearly understood to fit constitutional intent. 

Here's hoping that Civitas is successful in garnering sponsorship for their proposal.  Otherwise, the citizens of NC will be left with little protection, save the goodwill of their state representatives.

The Wrong Solution, But The Right Track

My hometown newspaper is finally recognizing the potential for corruption and inefficiency as the race to provide economic development incentives intensifies:

For businesses to play states off against each other in order to increase their haul of economic development incentives is disturbing enough. More disturbing still is news, brought to light in an N&O report on Sunday, that a whole new breed of consultants has moved in to claim a share of the pie. And it turns out that the pie may well have been super-sized to feed them all...

It's easy to see how contingency fees would motivate consultants to turn up the heat for ever larger incentive packages. In fact, economic developers have felt the burn. "The consultants are so tenacious," says Dan Lynch of the Greensboro Economic Development Partnership. "They don't leave any nickel on the table."

Except that, predictably, they call out for a federal solution:

Congress has constitutional authority to regulate interstate commerce and should use it to bring some sanity to economic development. Where's the freedom in a marketplace that holds states hostage?

Better yet for states to regulate themselves.  Concerned citizens would be wise to pressure their representatives into action rather than wait on a hopelessly ham-fisted, one-size-fits-all federal solution.

Still, the editorial is on the right track:

Here's one for starters: Require companies in line for incentives to publicly disclose the consultants they have hired and their fee arrangements. It may not eliminate greed from the negotiations, but it would give the public a firmer basis for judging the results.

Even better: Why not require state governments to disclose the details of public deals made with private corporations.  Most states currently do require such transparency, but numerous loopholes citing 'competitive interests' are easy to invoke, and they allow most states to avoid potentially embarrassing disclosures until after the deals are inked on the grounds that doing so would jeopardize the competitive interest of a particular company.  Too bad.  If a company is jockeying for a place at the queue for public funds, the public has a right to know what deals are being made in their name.

August Issue

In case you missed it, the August issue of The New Libertarian is hot off the press.  You'll notice the topics becoming ever more diverse as the magazine really starts to gain traction.  Enjoy.

A Different Approach: Economic Gardening Revisited

Most municipal leaders will argue that - given the intense competition for recruitment wins and the fact that ‘everyone else is doing it’ - they have little choice but to push for corporate handouts in the form of incentives. The bandwagon argument, however, can only go so far, particularly when there are other leaders who have chosen a more sensible and long term strategy for ensuring the flourishing and prosperity of their communities. In response to a past post on economic gardening Christian Gibbons, Director of Business and Industry Affairs, wrote to let me know of the exciting strategies he was working on. Compare the business-as-usual approach, the one favored by most municipal leaders (see my previous entry) with the unique approach of town leaders in Littleton Colorado. In the early 80’s Christian Gibbons had the idea to shift the traditional focus of economic development from recruiting the glamorous, big-name companies (economic hunting) to growing and nurturing the entrepreneurial spirit of local companies (economic gardening*).

Gibbon’s idea grew out of several important observations. First, as a number of economists (Gibbons credits David Birch, though there have been others) have argued, the vast majority of new jobs are created by a tiny percentage of small, local companies - not the usual, large targets typically recruited. But as Gibbons discovered, the size of the company is not the essential feature that determines growth or success - it is the focus on innovation. David Birch has argued that only around 3%-5% of companies are innovative and nimble enough to sustain high rates of growth, a type he has labeled gazelles - and that those gazelles drive job creation and economic growth.

Building on the work of several noted economists like Paul Romer, Paul Krugman, and Brian Arthur, Gibbons began to look for essential characteristics that defined these high performance companies - the high-performance gazelles. First, Gibbons noted that the gazelles had a strong focus on innovation, new ideas and processes, and unique products. Secondly, Gibbons discovered that the temperament of those in leadership positions affected more than morale - they affected the rate of growth. In particular, Gibbons discovered that two temperament types - in Meyers-Briggs terms: Sensing-Thinking-Judging (STJ) and Intuitive-Thinking-Judging (NTJ) - had a positive correlation with the fast-growing gazelles. In fact, these personality types are found in positions of leadership in about 75% of the companies even though they only comprise about 25% of the population.