The market in economic development:’the best listening device we have’

A day or so ago I put up this popst to ask Troppodillians to suggest a foreign aid charity I could get excited about. Well there are plenty of charities that are exciting – one of which I forgot to mention in the original post was the micro-credit operation Opportunity International started by an Australian as part of his contribution to what he called ‘the economics of enough’.

It was a great discussion with lots of ideas regarding other charities. Thanks to Tanya I now have a new enthusiasm! Accumen Fund.

The person in the video – it’s CEO, Jacqueline Novogratz – is that kind of leader that Noel Pearson calls for – one from the radical centre. Someone who is not so paralised by the dichotomy between idealism and pragmatism, between the ideas of right and left, that they can’t use some fusion of resources from both sides of the spectrum to make progress – even though it’s necessarily experimental and is at the cost of being misunderstood by those who feel more comfortable navigating by shibboleths one or other side of the dichotomies.

Jacqueline is dead keen on the market as an instrument of development.

She describes a situation in which there was a choice between giving away bed-nets to protect against malaria and charging for them. The point of charging for them? Well one way of putting it would be to figure out ‘what the market would bear’. One could justify this within an economic framework by saying that this maximises the efficiency with which any aid money is doled out. The less for any one bednet, the more bednets or other help. It also helps to prevent ‘moral hazard’ – people getting the nets and then forgetting about them, not installing them, or perhaps selling them for scrap.

Perhaps she was thinking of the latter point, but she made it very differently. She wanted to use the market because she said it is “the best listening device we have”. And went on to suggest that it might be the best experimental device we have. She went on to say in a way that suggested it was even more important, that this form of exchange left the dignity of the aid recipients intact.

Of course she made clear that the market couldn’t do it all. That other things had to come into play – and that’s where philanthropy can help. She also talked about her own failures in listening and how the process was always teaching her about listening. She concludes the talk by saying this.

It shouldn’t be that difficult. But what it takes is essentially a commitment from all of us to essentially refuse trite assumptions, get out of our ideological boxes. It takes investing in those entrepreneurs that are committed to service as well as to success. It takes opening both arms wide and expecting very little love in return but demanding accountability . . . And most of all it requires that all of us have the courage and the patience, whether we are rich or poor, African or non-African, local or diaspora, left or right, to really start listening to each other.

Some people who know my stuff on this blog well enough may now be having a B1:B2 moment. “Are you thinking what I’m thinking?”

This is pure Adam Smith – not the caricature of the right (Adam Smith was an anti-government free marketeer – he proposed at least doubling the size of government if you try to run the ruler over what he suggested) or the left (Adam Smith was into ‘sympathy’ between people and was a pretty squishy kind of social democrat – well I exaggerated that caricature a bit but the attempt to locate him in a modern ideological camp is pretty silly).

As various commentators – like Jeff Sachs for one – have said, Adam Smith was a development economist. That is the standard of living and technology at the time he wrote about was similar to what it is in very poor countries today. What he said has to be read in this context. And whether she knows it or not, Jacqueline is spouting the doctrines of Adam Smith as I argued for them in my essay on “Why Adam Smith is to Markets what Jane Austen is to Marriage“.

Here’s part of what I said in that essay.

1 suggested that this tendency was itself built on the even more basic human desire to communicate and persuade. Thus Smiths oratorical theory of negotiation:

The offering of a shilling, which to us appears to have so plain and simple a meaning, is in reality offering an argument to persuade someone to do so and so as it is for his interest.And in this manner every one is practicing oratory on others through the whole of his life.

In this context the market is a quintessentially human and humanising institution a theatre for conversation, compromise and connection between people. In just the way that 2 sympathy transforms or mediates self-love so that the social result is some adjustment that takes into account others self-love, so in Smiths market the self love of the seller is mediated, and so transformed by the buyers self-love. Without their self-love coming into relation, there is no deal.

Mere self-love is not sufficient for it, till he applies it in some way to your self-love. A bargain does this in the easiest manner. When you apply to a brewer or butcher for beer of for beef you do not explain to him how much you stand in need of these, but how much it would be in 3 interest to allow you to have them for a certain price. 4

Thinking of Smiths picture of markets I think of E.M. Forsters great injunction about life only connect! which is of course what Darcy and Elizabeth finally manage to do. The participants in a market are connecting. Their connection is neither as close, nor as challenging as Darcys and Elizabeths. But, though it will often perhaps mostly be dominated by mercenary motives, the market connection, often between strangers, is, to use Smiths expression, every bit as fit and proper to its own circumstance and context. Dialogue and mutual accommodation is our best instrument of wisdom, of virtue, and our best chance at happiness. Self love is not enough.

And of course look at what the bottom line is for Smith – what gets left out in so many accounts of his thought – and when it is quoted is quoted as a bit of throwaway propaganda rather than as something heartfelt. Human dignity.

Immediately after explaining the dialectic of self interest in a market, Smith turns to contrast it with the begging of an animal or a beggar. His point is the relative indignity of the latters coaxing and courting. In a typical touch Smith observes that once the beggar has succeeded in obtaining some gift, he is off to market to trade what hes begged for what he wants. Once in the market he can attend to his needs in a way that is both more direct and more dignified.

A new recipient for the modest philanthropic contribution of Peach Home Loans. I couldn’t be more pleased or excited. So thanks all – and thanks Tanya!

  1. Smith[]
  2. in Smith’s earlier book, The Theory of Moral Sentiments[]
  3. his[]
  4. emphasis added[]
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16 years ago


more common sense and less hand outs please!!

Colin Campbell
16 years ago

Having been in a few countries with really awful examples of western generosity in the funding of projects. Leaving aside emergency aid and civil works to deal with climatic disasters, the projects I saw mainly enriched country linked contractors. Very few projects were sustainable and the long term maintenance planning was non existent. Some of the best examples were the Japanese, who actually spent a bundle facilitating construction projects for their companies. At least these projects were generally built. Looking after them when the constructors were gone was not a high priority.

The principal of ownership is the first step to a long term commitment from a community to maintain projects. The type of investments that you highlight in this article have a much better chance of sustaining.

16 years ago

The hypothesis regarding bed nets and malaria is interesting, but doesn’t seem borne out by experience.

At the end of trials in Kenya looking at just this question, free distribution of bed nets saved more children’s lives than selling them.

I’m all in favour of solutions that aren’t constrained by orthodoxy, but is Jacquleine perhaps guilty of that which she claims to avoid? Maybe the best method of distributing mozzie nets is that which saves the most lives rather than satisfies notions of avoiding the “moral hazard” of encouraging the ungrateful poor.

16 years ago

Yes. Thank-you Michael.

16 years ago

Regarding this centrist stuff, I think that there is an opportunity to start a new party up directly after the next election, but before the senate election (or double dissolution).

I think it could absorb the best people from Labor, Liberal as well as the Greens and Democrats while also taking advantage of bloggers who have shown themselves capable. Sites like GetUp and New Matilda could provide funding.

Regarding the latter, the conference in Brisbane should provide a timely opportunity to form a network to promote the idea. To this end, I would encourage anyone who thinks they might like to be involved to attend…

16 years ago

However, if I am preaching to the converted (I see some very illustrious bloggers are slated to attend, and GetUp are the major sponsor) please delete previous as I don’t want to be taking the wind from someone else’s sails


[…] Gruen discovered a charity he could get excited about. 11. gilmae: Shan’t make joke about excited economists. [] Gruen also sees the flipside of […]

16 years ago

Sorry, lost track of this discussion.

Report here in case you hadn’t found it yourselves.