James M. McCaffery lives in New Orleans and his children attend French-language school.
While traveling north from Quito, Ecuador, to the city of Tulcán on the Ecuadorian-Colombian border last summer, our jeep was stopped four times at road blocks where armed police checked us over. Impressed by such diligence, I commented to the driver, a lawyer who had invited me on this trip, that these searches must be a great help in stopping the smuggling of illegal guns, drugs, and explosives. He agreed, but said that the police were really looking for contraband. Surprised that I did not understand what “contraband” was, he explained: “You know, the usual: beans, rice, flour, cooking oil, and heating fuel.” He added: “If they catch you with a sack of beans, you get thrown in jail and they confiscate your vehicle.”
Therein lies the tale of how much of the poverty and hunger in the world today is a man-made phenomenon, a product of man’s ideas rather than an act of God. German philosophy, the old saw goes, has done much more damage to the Russian people than the German army ever did.
The sad tale of how beans and heating oil became contraband is simple and all too common, although springing from different rationales. As for illicit beans, the politicians were following the common Third World custom of robbing farmers by imposing price and export controls on food in a vain attempt to provide cheap and plentiful food to the politically powerful urban masses, including the bureaucrats themselves, who constantly increase the harshness of their methods in the face of obvious failure. This is contrasted with the equally silly and pernicious pattern of ”advanced” countries such as Japan, France, and the United States, where politicians rob the urban workers by imposing bureaucratic controls to increase food prices to “protect” farmers from the realities of the market.
Thus, the Ecuadorian government, whose motto is, ironically, “Ecuador Exports,” has forbidden the export of such staples as beans (in which production the country seems to have an obvious comparative advantage) to other countries, especially to Colombia, where such products fetch a much higher price on the free market, in the hope that such restrictions will lower the price in Ecuador and help enforce price controls. The consequences are exactly the opposite, since limiting the market for beans and controlling prices signal the farmers of Ecuador that they should reduce their production. Ecuador’s comparative advantage is abolished by fiat, and economy of scale and the free market are no longer a factor in production. Previously law-abiding farmers and middlemen expend a great deal of time and effort smuggling their products across the border, thus becoming criminals in the eyes of their government and in the eyes of their countrymen who resent “their” beans being sold to foreigners. An unmentioned consequence of such stupidity is its contribution to the production of drugs. Peasant farmers who are constantly accused of being criminals for wanting to sell their produce at fair market price at home and abroad can hardly be blamed for ignoring similar charges for growing marijuana and coca.
Another irony is the praise given by the politicians to the rapidly expanding flower export industry, since many of those involved in the industry entered the business because it is not regulated by the government. While producing flowers for export is an honorable trade, many of those in the floral business would have remained in food production in a free market. Thus, the politician who brags about controlling prices may have changed the sack of beans that the free market would have produced into a corsage in Tokyo.
The second type of contraband is that of products subsidized by the government. Heating oil used in stoves is a prime example. The Ecuadorian government sells such fuel at about four cents a gallon to the poor, well below the production and distribution costs, while the free market price in Colombia is about twenty times higher. Again, the result is predictable. Up to a third of this oil is directly exported illegally with great profit for all but the poor. Yet many of the poor who do get to buy the cheap oil (often after waiting many hours in line) also act rationally. Rather than using this fuel to cook their food, they sell it at a profit to middlemen who export it. Thus, in a serpentine, byzantine irony, the poor do benefit in some small way as cooking fuel becomes selling fuel. However, the government’s loss on such transactions aggravates the nation’s raging inflation as the state must print money promiscuously to pay for this extravagance, an inflation that bears down on the poor disproportionately.
On the Beach, a Free Market Thrives
Remarkably, while vacationing on the Pacific coast of Ecuador, I found a classic example of how ordinary people under a free market make decisions which lead to gain for all concerned. While we were living on the coast, my only job was to walk down to the beach early every morning to await the arrival of the local fishermen with the night’s catch to be purchased for our lunch and dinner. We buyers were a mixed lot: cooks from the restaurants that dot the beach, housewives, Ecuadorian tourists, along with a gringo or two, and a few local fish jobbers. Most of the fish were sold right there on the beach in a relatively short time at a price that all found acceptable after a little good-natured haggling. Everyone’s admonition to the fishermen not to cheat the gringo seemed unnecessary. A foreigner with a little extra money might keep the market price up.
I also noticed that each boat, no matter how small, had an ice chest which remained closed until a man on a motorbike with a larger ice chest on the rear seat arrived on the beach. This was the shrimp monger who came to buy the “selling shrimp,” those huge prawns that are so prized in the Orient. The fishermen used to eat these themselves or use them as bait until the buyer on the bike started passing by every morning paying about 70 cents per prawn, an incredible sum for these poor men. Just a few of these prawns would make a night’s fishing worthwhile. The men readily agreed they were very fortunate indeed that the Japanese palate craves prawns and that the Japanese budget allows their taste buds to be indulged.
Of course, all of this was made possible by the man on the bike. He had been an ordinary fish jobber until he realized that there was a good market for fresh prawns at the airport in Esmeraldas up the coast. So he put an ice chest on his motorbike and began traveling up and down a five-mile stretch of beach every morning buying large fresh prawns as the boats came back to shore. And, of course, once the fishermen realized that they had a reliable buyer who would pay a good price for the prawns, they began taking ice chests to sea to protect and preserve these valuable goods.
The buyer on the bike told me that he rushed to the market at Esmeraldas as soon as he finished his route, making more trips as needed if the fishermen had a particularly good night. He sold the prawns with a 30 percent or so markup to willing buyers who immediately flew them to the Orient. This resulted in a gain for all, the natural result of a free market.
In this picturesque scene another loss of wealth due to political meddling in the economy is not obvious. All of the fishing boats on the beach in question were sailboats and rowboats, perhaps not as efficient as motorboats. The fishermen agreed that they would do much better with motors, but there were problems beyond their control that precluded adding power. The main problem was getting fuel since this was a governmental monopoly. There were no conveniently located (and privately owned) gas stations on every corner and open all hours as there are in the United States. The governmental monopoly meant that the men would have to travel to the nearest gas station hoping that fuel would be available (often it was not). Thus, motorizing would make them dependent on a government that had proven itself incompetent in almost everything it touched. Oars and sails made them free; motors would enslave them.
However, there is a looming threat to these free men and their families. First, a little background information is needed. As far as I can tell from a rather superficial study of the problem, the discovery of oil has been a curse to the people of Ecuador, especially since the nation became part of the oil cartel OPEC. Rather than husband and invest the windfall from the oil boom, Ecuador’s politicians went on a spending frenzy by borrowing a huge amount of money immediately, using future oil revenues as collateral. The money, squandered on socialist schemes, has vanished. A huge debt and raging inflation remain. They, like the widespread hunger and poverty, are the effects of human action. Ecuador continues to suffer from an excess of civil government and a shortage of self-government.
Until recently the main job of this bureaucracy was to forbid the export of bananas unless the buyers were willing to pay more than the market price (to protect the growers who were content to sell at market price). Needless to say, mounds of bananas rotting on the docks eventually brought the bureaucrats back to reality after great suffering to the workers and growers.
The problem came to a head recently when the entire industry was threatened by a devastating fungus that would quickly destroy the nation’s total crop if immediate action were not taken. However, the bureaucracy announced that it would take at least a year to reach a decision in this matter. It took a presidential decree to save the industry, much to the chagrin of the banana bureaucrats—who saw their power being eroded.
Given this background, I told the fishermen that I was surprised to read that some fishermen were demanding a government ministry to regulate their industry and market fish. The uneducated, probably illiterate, men laughed and said that this was obviously a ploy by the politicians in the capital to provide more political sinecures. An old man asked if anyone thought that any government employee would come down the beach every morning buying prawns at a good price. Nobody did. The consensus was that the government would make them take their catch, especially the prawns, to a government market in the city, where they would get little money and lots of patriotic speeches. These rude men knew more about socialism than most economists. Those who profess to help the poor people should begin by speaking with them. They have a lot to say. But governments that purport to speak for the people rarely speak to the people.