A very, very brief introduction to the Machan Homo Economicus

June 10, 2013 • Summer 2013 Blog, Summer Blogs • Views: 772

BY SAKSHI KUMAR

For a meeting starting at 11:30 AM (that was, might I add, supposed to begin at 10:15), the room was surprisingly dark – in the space of three days I had somehow grown accustomed to the tremendous glare of the Zambian sun; the lack of light in the meeting room was almost disorienting.

I was at the local medical research facility observing a monthly staff meeting that involved every single person on the facility’s payroll (a total of approximately 100 people). I had been invited because I was told by my Zambian colleague that these meetings were ‘…a cultural experience, in a sense’, and was eager to understand exactly what she meant. According to the managing director, the main attraction of these meetings was free tea and cake – luxuries not easily afforded in the Macha region of Zambia – but this time in particular there was an added attraction: The discussion was to focus on the manner in which excess profits would be distributed as staff bonuses.

The exact issue was as follows: the research facility (which supported mainly malaria-based research, but provided the infrastructure for several other projects) had somehow accumulated a total of 345,000 kwacha from leftover benefit payments over the past three years. These benefit payments are subtracted from employees’ salaries and are used to maintain amenities – a progressive tax, of sorts. There were two decisions to be made – the first, whether the money should be redistributed in installments or as a lump sum; the second, whether it should be done proportionately to income or as a flat amount.

The ensuing discussion was more than enough required to gain a thought-provoking insight into the mindset of the facility staff, and thus the economic growth drivers of the Macha region. Three hours of deliberation led to the following decision – 100% of the funds was to be returned to the staff at a flat amount, as a lump sum.

Observation #1: Equality, not equity

The discussion was more interesting in terms of what wasn’t said, as opposed to what was said. It was immediately obvious that if a similar discussion were to take place in the US, one of the first arguments to be made would be that the payments should be given back as they were taken from the employees. That is, given that the money was initially deducted from salaries in the form of a progressive tax, does it not make sense – and is it not fair – for it to be returned in that exact manner?

During the three hours of debate in a sweltering room with increasingly agitated employees, the above point was not made once. Even the affluent amongst the staff were arguing for flat redistribution – whether or not they feared retribution from their colleagues if they argued otherwise, I do not know. The only person arguing in favor of proportional redistribution, the Managing Director, simply made the argument that more would be taken in tax if an equal amount was given to all – thus, to ensure maximum welfare gain, proportional distribution should be carried out.

Which, I must add, induced one of his dissenting employees (what exactly he aimed to achieve by doing this I have yet to understand) to proclaim his appropriation of a more well-known quote – ‘Everyone is equal in the face of death and taxes, you hear?!’

It does not make economic sense for someone who belongs to a lower income bracket to be given an additional, un-earned free handout, in excess of what the benefit payments have already provided for them (housing, plumbing, electricity – in a place where these are not common amenities at all). Yet the vote was almost unanimously in favor of flat distribution, with the few dissenters being given a poorly disguised glare from the rest of the staff.

A cause for concern? Perhaps – I am not keen on politically charging this blog post, however, and will leave the reader to draw his or her own conclusions. 

Issue #2: The stigma associated with borrowing

At one point during the meeting, an old man dressed in a nice black suit – Mr. Hamalumba – rose from his chair and said the following:

‘It is better that we save. If you borrow once – even once – my friends, you will become trapped. You borrow, you borrow, you borrow, you borrow… and you die a penniless man.’

His comment does not sound as bizarre when placed in the context of his entire argument. He was attempting to convince the director that the distribution of funds in one lump sum would encourage saving and thus allow the circumvention of the ‘borrowing trap’, as opposed to distributing the funds in installments. His comments appeared to strike a chord with the rest of the staff – approving glances were exchanged between several of the employees – and the general consensus seemed to be that borrowing was an unnecessary evil to be avoided at all costs.

I will not discuss the downfalls of attempting long-term saving with a low income – that is an issue to be discussed at a later date – but the stigma associated with borrowing is most certainly a significant cause for concern. Even in developed economies, taking out a loan is generally an action avoided at all costs. This stigma, however, has reached such heights that people eschew borrowing as an option even when it has the potential to be a well-paved road to success.

Mazhandu is a local Zambian who sells vegetables for a living, and is my number one supplier of fresh tomatoes. He currently carries all his produce to the market on his back. If he were to take a loan and invest in a cart, he would be able to bring significantly larger quantities of produce to market (his garden is small, he tells us, but is capable of growing enough vegetables ‘to feed all Zambia!’) and thus pocket even more profit. There is a microcredit program in the region that he could consult, but Mazhandu is afraid – even the lucrative potential return on his investment is not enough to convince him to borrow.

The presence of microcredit programs in itself is not a silver bullet to solve all poverty-related problems – there are, of course, social and cultural issues (in conjunction with other institutional problems) that must be overcome in order to see some form of success. Microcredit programs have a responsibility not only to provide viable lending options at rates lower than those offered by informal moneylenders, but also to overcome cultural biases against lending/borrowing that plague many like Mazhandu who could become owners of very profitable businesses were it not their deep-rooted, irrational fears.

In the end, I assume you could say the meeting did not disappoint – it was, indeed, ‘..a cultural experience, in a sense.

I realize that several of the arguments I have made above are unsubstantiated by data, studies, and evidence – but my internet access here is horrendous, and I have just enough bandwidth to check my e-mail once every few days. I simply cannot access online information databases to provide you with facts that would corroborate my arguments – unfortunately, my musings will have to suffice!

Sakshi Kumar ‘ 16 is blogging from Zambia this summer. You can contact her at sakshi.kumar@yale.edu.

 

 

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