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The amazing magic of the market

Oct 05, 2007 Business Daily, Strategy

“In a single day, on July 16, 2005, the American and British economies delivered nine million copies of the sixth volume of the Harry Potter children’s book series to eager fans. Book retailers continually restocked the shelves as customers snatched up the book. Amazon and Barnes & Noble shipped preordered copies directly to customers’ homes. There was no Marshall Plan for Harry Potter, no International Financing Facility for books about underage wizards. It is heartbreaking that global society has evolved a highly efficient way to get entertainment to rich adults and children, while it can’t get twelve-cent medicine to dying poor children.”

William Easterly, The White Man’s Burden

William Easterly is here reminding us about the magic not of young wizards, but of an age-old mechanism: the free market. We are so used to seeing markets work around us that we often forget to sit back in wonder. Is it not wondrous that nine million copies of a book were delivered around the world, at the right time and to the right places and people, all on one day in 2005?

No-one had to sit and plan the whole thing out and co-ordinate the actions of dozens of agents: publishers, printers, logistics experts, transporters, wholesalers, and bookshops. Everyone involved smelled a huge profit opportunity; everyone involved fell into place and played his role in the global supply chain.

That is the magic of the market. Thousands of agents around the world can get together instantaneously to produce a highly efficient result – all the time working in their own interest. Consider our own horticultural industry, which puts fresh flowers and vegetables from Kenya on the tables of western (and eastern) consumers every day. Who plans that?

No-one does. Growers, exporters, airlines, clearing agents, insurers, bankers, importers, wholesalers, supermarkets and consumers all get together in a global supply chain that gets the job done every day, to the satisfaction of all. Michael Porter, renowned strategy professor, reminded us when he visited Kenya recently that the reason we pull off this amazing feat every day is that we don’t have a government marketing board in this industry!

William Easterly is beating a similar drum. He worked for the World Bank for many years, and ended up disillusioned with the failure of the “planned” approach to international aid. He wrote The White Man’s Burden in 2006 to debunk the idea that “planners” can solve the problems of the world’s poor. He points out that despite spending $2.3 trillion on foreign aid in the last five decades, the west still can’t get malaria medicines and nets to poor children.

He debunks the “Big Plan” approach to eliminating poverty, arguing that “the right plan is to have no plan.” Poverty is a “complicated tangle” of factors, says the professor; its solution can only come from trial and error experimentation; and, crucially, that “only insiders have enough knowledge to find solutions, and that most solutions must be homegrown.”

The challenge is on us, then, to solve our own poverty problem. The (mostly) well-intentioned efforts of outsiders (a) don’t work; and (b) weaken us. Homegrown development that links up the incentives and efforts of thousands of little agents is the only thing that will haul us out of poverty. And you can’t plan that; you can only allow it to happen.

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