Down and Out and Ripe for an Economist to Study – The New York Times

EXTREME ECONOMIES
What Life at the World’s Margins Can Teach Us About Our Own Future
By Richard Davies

An adage in the legal profession holds that hard cases make bad law. The premise of Richard Davies’s “Extreme Economies” is that, at least with respect to economics, this notion is mistaken and strange outlier cases like the tsunami-ravaged Indonesian province of Aceh or the severe urban decline of Glasgow can teach us valuable general lessons about the world we live in.

Davies, a former economics editor of The Economist who’s also done stints as an adviser at the Bank of England and to the chancellor of the Exchequer, brings that magazine’s signature virtues to bear. His book is divided into three parts — survival, failure, future — each of which subdivides into three case studies about specific places. All nine studies are engagingly written and genuinely interesting, each a dive into a corner of the world you don’t hear much about that conveys, briefly and clearly, a sense of how this far-off place works. Along the way you not only learn about life in Kinshasa, for example, but get a good introduction to a range of basic economics concepts, from agglomeration theory to currency.

Davies’s visit to Zaatari, a massive, hastily built camp for Syrian refugees in Jordan, is fascinating reportage on its own terms and also a brilliant illustration of Adam Smith’s observations about the power of the natural human tendency to “truck, barter and exchange one thing for another.”

Davies describes a setup in which aid organizations give each family a kind of debit card that controls five separate accounts — one for food, one for clothing, etc. — that can be used at whichever of the camp’s two supermarkets a family prefers. Since donors don’t want to support unhealthful habits like smoking, there is no account for cigarettes. And since the accounts are segregated from one another, there is no way to economize on food to get extra clothing or vice versa. The supermarkets also don’t always stock the brands or products that Syrian customers want. But the refugees are huge buyers of powdered milk imported from New Zealand because bulk commodities turn out to be the answer to their problems: “Families buy a large bag of powdered milk for 9 dinars on their e-card and sell it immediately to a smuggler for 7 dinars in cash,” Davies explains. “The smuggler then slips out of the camp … and resells the milk for 8 dinars to Jordanians driving past, who are happy to buy at this price.”

Once in possession of actual cash, the refugees can participate in a thriving economy of small shops and service providers in the camp. Davies contrasts the vibrancy and sense of purpose that hard-working residents of Zaatari enjoy with the drab, sterile existence of the ostensibly better planned Azraq camp nearby, thus offering a tidy example of classic arguments about the merits of decentralized voluntary exchange versus top-down planning.

Another such lesson comes from the Darien Gap region straddling Panama and Colombia, where the Panamanian government, in a well-intentioned effort to halt deforestation, launched a subsidy program to encourage landowners to plant trees. “But the policy was badly designed,” Davies writes, “rewarding any tree planting rather than specifying that native species must be replaced.”

The result is that rather than reviving cleared rain forest land with new rain forest, Panama is growing massive teak plantations. Real rain forests have multiple layers of canopy, with light filtering down to support a vast ecosystem. “By contrast, a teak tree’s massive leaves shade the forest floor completely, and when they fall and start to decompose they release an acid that kills insects. Stop at a teak plantation and you find that under the canopy there is nothing, and it is deathly quiet. Drained of water, starved of light and scorched by leaf acid, the soil is parched. The ground looks as if it has been doused with petrol and left to burn.”

Which is not to say that Davies is a free-market dogmatist. His chapter on Santiago, Chile, indicts both the effects of economic inequality that plague the country and, specifically, the privatized education system as an important source of its problems.

But while the book is simultaneously entertaining, informative and balanced, one may be left wondering exactly what it amounts to. “People like to trade and are good at it,” Davies writes in the final paragraph, “but the markets we create can destroy value — the only way forward is a new middle way.”

This call for a middle path between command-and-control planning and total marketization of everything has the virtue of being correct. On the other hand, one hardly has to rack up this many frequent-flier miles to reach such a banal conclusion. And I’m struck reading Davies’s case studies by how frequently the issue at hand has less to do with economics than with power and cruelty. His description of the underground economy in the Louisiana prison system is riveting, but his explanation for why the authorities tolerate it is infuriating. He writes that defenders of the practice say that it’s a “way to keep life inside the prison calm. Simple trades — haircuts, pecans, books, shirt-pressing and even tattoos — that once used tobacco as currency and now use mackerel, noodles or coffee, are a way to make ultralong Louisiana sentences a little easier to bear.”

This is a state with among the highest incarceration rates in America, one where prisoners are made to work for a government-owned corporation, Prison Enterprises, for a pay rate of between 2 and 20 cents an hour — wages that were set in the 1970s and have never been adjusted for inflation. Rather than depending on an underground economy to help keep the prisons calm, perhaps Louisiana should reconsider some of its cruel, exploitative and (judging by the state’s relatively high crime rate) ineffective criminal-justice system.

By the same token, is the misery of the Syrian refugees in Azraq really a failure of central planning? Or is it, rather, a failure to care about the refugees’ well-being? The reason life is better in Zaatari than in Azraq turns out to be that in disorganized Zaatari it’s much easier to pass along unwanted products to smugglers in exchange for cash. The actual lesson here, however, isn’t that refugee camps should be disorganized but that aid agencies should trust refugees with money rather than rely on a condescending system of segregated accounts. Similarly, according to Davies’s own reporting, the teak problem in Panama is less one of unintended consequences than of malfeasance — “the biggest logging firms are owned by serving politicians, and Panama now sells citizenship to anyone willing to invest $80,000 in a teak plantation.”

Or, to take another example from “Extreme Economies,” the disastrous corruption that’s destroyed the promise of Kinshasa stems from decades of misrule by the dictator Mobutu Sese Seko, who was installed and maintained in office by Western powers eager to ensure that their companies would retain access to lucrative mines in the southern part of the country. Conversely, the cheery story of Aceh’s surprisingly rapid rebound from the 2004 tsunami turns out to have a lot to do with the central government reaching a generous peace accord with the local secessionist rebel group.

None of this is necessarily at odds with Davies’s account, but it does suggest a potentially different take on the world — one a bit less inflected with the peppy neoliberalism of the global ruling class and a bit more animated by the thought that injustice stems not just from “mistakes” of judgment but from malice and indifference on the part of the powerful.