Market economies and balanced transactions—
Haiti has always been a market economy—even before it was Haiti. The indigenous people of Hispaniola, then colonists, then enslaved people, and finally citizens of the new Republic traded goods and services, transacting to sustain life. This is a basic human practice.
Transactions can be thought of as balanced or unbalanced. A balanced transaction happens when a business meets consumer needs profitably, sustainably, and satisfactorily.
Every time we transact (at the coffee shop, the bank, the restaurant, the grocery store, the gas station, or anywhere else), we hope that our needs will be met for a reasonable price. We hope that we’ll be satisfied with our purchases. And while we may not think about it consciously, we also want to keep local businesses afloat so that our communities will thrive.
From toothbrushes to tanks, from socks to satellites, sustainable human enterprise relies on the balanced exchange of good and services. What we don’t want are unbalanced transactions.
Whether it’s an unhappy customer or a business that can’t survive at market prices, we all feel the strain of unbalanced transactions. When a transaction isn’t satisfactory, profitable, or sustainable, we can’t produce, innovate, and grow.
Unfortunately, unbalanced transactions have dominated aid strategies in developing world.
Think about it: All donations are unbalanced transactions. Resources are produced for a cost, then distributed for free. Any gift is an unbalanced transaction. In fact, it’s not supposed to feel like a transaction at all. But while that’s great for anniversaries and birthdays, it isn’t great for market economies.
Our choices to donate to Haitians rather than transact with Haitians creates a vicious cycle, killing local industries and further entrenching poverty.
As demonstrated in our last post, sustainable growth begins with economic alignment. Aid initiatives must serve the growth of the local market or the opportunity cost can be catastrophic.
While corruption, lack of infrastructure, and many other issues affect Haiti’s potential for growth, international aid organizations, the most powerful economic forces in the economy, have consistently worked against Haitians’ long-term needs by pursuing short-term, donor-funded relief projects, ignoring and often competing with Haitian industries and their ability to meet local demands.
Throughout our book, From Aid to Trade, we interviewed dozens of aid professionals and local businesses and included several case studies in our pages. As we identified several important barriers to transaction, which we’ll explore in our next post, the issue of economic misalignment resurfaced again and again.
Rather than donating foreign goods and services that compete with struggling local suppliers, we must support those suppliers by transacting with them.
As we reported in our first post, when the United States donates its agricultural surplus to Haiti, we may feed thousands in the short-term, but we short-circuit the local agricultural sector.
Haitian enterprises, the market’s resource generators, have to compete with free or heavily subsidized foreign goods, often of superior quality. Businesses that can’t compete with imports see their revenues shrink, further reducing their ability to maintain a quality that will satisfy customer expectations.
However, when aid organizations procure resources locally, we can meet short-term demand while helping local businesses grow over the long-term. What if instead of donating surplus US peanuts, USAID purchased as many quality peanuts from Haitian farmers as they could, then supplemented any deficit with the US surplus?
Surely this process is more complicated and will face certain barriers to transaction. However, the higher cost of doing better business in the short term should not deter us from developing local markets over the long term.
In fact, after Hurricane Matthew in October, many NGOs working in Haiti are taking this message to heart. Organizations like Mission of Hope, Parole et Action, World Renew, and World Relief have publicly expressed plans to procure locally as part of their relief efforts. We are so grateful that many actors in the NGO community have responded to our message by beginning to change their practices. We want to celebrate this trend and encourage our readers to do what they can to move from aid to trade.
This is the investment opportunity that faces aid and development initiatives all over the developing world: a conscientious partnership with local businesses to support ethical and productive markets.
What can we do?
- As much as possible, procure goods and services locally. Supplement deficits with imports only when absolutely necessary.
- Pursue balanced transactions between NGOs and local businesses. This will magnify aid effectiveness by supporting local markets.
- Discuss these concepts with donors and aid professionals. Help people understand why less visible outcomes now can lead to a more sustainable future. Share notes, try a new method, connect with new suppliers, and share your ideas here.
- Finally, check back soon to learn more about overcoming barriers to local transaction.
We all want our efforts in the developing world to raise people out of poverty through access to food, housing, healthcare, education, and employment. This can only be achieved through self-sufficient markets, balanced trade—and, yes, balanced transactions.