Economic lessons from Haiti

I spent the last week of April in Leogane, Haiti, volunteering with Hands On Disaster Response (HODR). The trip was definitely out of my comfort zone and definitely changed my perspective, as I explain in these posts. In the present article I want to focus on the economic lessons from my week in Haiti.

Economic Laws Work in Haiti

I realize this may strike cosmopolitan readers as silly, but as the plane touched down in Port-au-Prince my first thought was, "How about that, the laws of physics are the same in Haiti." Of course I was being facetious, but I had been given a most frightful lecture from the international travel clinic nurse when getting my vaccinations. She had me thinking that Haiti was on a different planet, and that I wouldn't be able to survive in this strange new place. That's why I started to relax when I observed that the plane landed on the runway, and taxied to the gate, just like I had experienced so many times on domestic flights. You could look out the plane window at the sky and the ground, and things looked pretty much the way they did in the "First World country" back home.

During my visit, I collected examples showing that the laws of economics still worked in Haiti, too. To repeat, it's not that I intellectually doubted this beforehand. After all, basic economic principles are based on the logic of scarcity and human action, and are the same for Americans in 2010 as they are for Haitians or for Romans in 350 for that matter.

Currency Exchange

Even so, it was refreshing to see these laws at work. For example, the newcomers to the HODR base quickly learned from the others which bars had good exchange rates for US dollars, and which places "ripped you off." For the latter places — or if you wanted to buy souvenirs — it was far more sensible to first change your dollars for the local currency.

I had never really thought about it before, but as I waited for my friend to swap $40 at the official currency exchange, I realized that this business survived through economies of scale. That is, this particular guy offered slightly more goud per US dollar than you would get if you tried to pay with US dollars with most merchants in the neighborhood.

Now presumably this guy wasn't performing the service out of altruism; he must have actually been earning a small spread relative to the "official" exchange rate that he himself exploited. But because his superior rates attracted far more US dollars than the other establishments, he made up for the smaller spread with higher volume. In contrast, the other merchants — who were in the business of selling fruit or paintings, not in the business of currency exchange — would also accept US dollars as a service to their customers, but they would charge a higher price to make it worth their while. After all, by accepting a foreign currency they would have the extra hassle of having to periodically go to the currency exchange themselves to convert their receipts back into goud. In a sense, the currency-exchange guy was like a grocery store selling a package of Twizzlers at a much cheaper price than a movie theater would charge for "the same thing."

One place where it was deemed acceptable to directly spend your US dollars was the bar right across from our base. On any given night, the crowd of about 30 people consisted of 5 local Haitian guys, and 25 relief workers — mostly Americans. (In addition to our group, some doctors and nurses from the nearby field hospital would often stop by.) Because he was in such a prime spot to attract American customers, the owner (Joe) had decided to offer a "fair" exchange rate for people paying in US dollars. Those of us (like me) who were quite timid at first, and didn't want to venture far from the base, could thus feel comfortable buying beers for about $1.25 each from Joe without looking like saps in front of our more adventurous peers.

Government vs. Markets

Before my trip, I had dealt with the typical observation that there had been "anarchy" in Haiti after the earthquake, and so obviously Rothbardian anarchists were idiots. I would like to say that my firsthand experience confirmed for me the problems of foreign military occupation, but in truth I barely saw any soldiers in Leogane (which is 18 miles west of Port-au-Prince). I saw the occasional UN truck, but for the most part Leogane was quite peaceful and didn't even have many police officers. I suppose in that respect this supports my view that foreign troops weren't necessary to impose law and order, but to repeat I didn't really observe anything that shed light on this issue.

"Any service that was nominally supplied by the government — including electricity, water, and garbage removal — was basically nonexistent."

However, if we set aside the issue of law enforcement and focus on more conventional services, then I definitely did observe the impotence of government and the vitality of the market. Any service that was nominally supplied by the government — including electricity, water, and garbage removal — was basically nonexistent. Moreover, it wasn't simply a matter of the earthquake; I got the sense that many, perhaps most, of the locals hadn't had electricity beforehand, either.

One of the most amusing moments (at least in my eyes) occurred when I was talking with an older engineer from Seattle. Now this was a very cool guy; when he asked if I had read the State Department warning about Haiti, after I said yes he shook my hand and said, "Congratulations, you didn't listen to your government."

Yet despite this laudable outlook on life, this engineer had an unshakeable faith in the ability of good government to help people. He was the one who explained just how awful the infrastructure (ostensibly the responsibility of the local government) was, even before the earthquake. And then someone asked him, "Hey, how is it possible that that streetlight is on, when we know the power is out?" The engineer responded matter-of-factly, "Oh, Joe must have it hooked up to his generator to attract customers to the bar." My friend didn't see the contradiction with his expressed views.

Incidentally, it occurred to me that maybe the local government was simply nonexistent, as opposed to being merely ineffective. I asked a few people if the government collected tax revenues, and one engineer said something like, "Well I don't know the specific numbers, but they must, because you can see all the unfinished houses." Apparently the tax code was based on completed houses, and so the residents of Leogane would make sure their buildings were in a perpetual state of construction, legally speaking.

Building Codes

After the earthquake in Haiti killed hundreds of thousands, while comparable earthquakes in the United States simply knock out utilities, some bloggers concluded that the Haitians lacked proper building codes. In other words, they needed more intrusive government to protect them from the next earthquake.

The free-market response, of course, is that the disaster in Haiti was the result of their relative poverty. Simply put, it's more expensive to construct a building that can withstand an intense earthquake, and so richer countries have the luxury of insisting that their buildings are relatively safe. Imposing US building codes in Haiti wouldn't have saved hundreds of thousands of people; it would simply have made them homeless all these years.

Part of the HODR camp was a group of engineers who went from house to house, telling the Haitians whether they could safely move from the tents (provided by relief organizations) back into their homes. You see, even those Haitians whose homes didn't collapse were afraid to sleep in their residences because of the aftershocks. The engineers told us that it was very rewarding when they could actually tell a particular family that their house was fine and wouldn't collapse on them.

Anyway, I tried several times to get the engineers to come down one way or the other on this dispute about building codes. For sure, they agreed that the Haitian structures were not well designed, according to US standards. But I would press them, asking, "Sure, but is it poorly designed because they needed to keep it cheap, or are you saying they could make them earthquake-proof for the same amount of money?"

Unfortunately, I never really got a definitive answer to this question. The engineers just weren't thinking about the issue the way I was framing it, as an economist. They would keep repeating that the Haitian builders did it that way "because that's how it has always been done," an observation that by itself doesn't tell us whether the way it's always been done is sensible or not, given the financial constraints.

Without putting words in their mouths, I think it is fair to summarize the opinion of the engineers like this: Yes, the Haitian people are just plain poor, and there's no way outside advisors can expect them to revamp their architectural standards or their operating rooms up to US standards overnight. Having said that, there are plenty of quick fixes that government officials and other leaders could implement, in order to make things run more smoothly. (In fact, that's one of the main reasons for Western engineers and doctors to go to Haiti in the first place.) Yet even so, this "low-hanging fruit" exists in part because of the inferior training of the Haitian engineers and medical staff.

So it's true, there are obvious "inefficiencies" in the way Haiti runs, and if it were suddenly populated by professional Americans — even if they only had the tools that the Haitians currently work with — things would be running much more efficiently within a few months. But is this really such a surprising observation? After all, one of the most important "tools" of a modern economy is the so-called human capital of its population.

In summary, I think the explanation for Haiti's vulnerability to a major earthquake is that they are very poor, and couldn't afford safer buildings.

Cultural Obstacles to Recovery

I hesitated on writing this section, because it can come off as a cynical "blaming the victim." But I can't avoid commenting on something that really struck me.

During my short visit, one of the major themes relayed to us from the Haitians who interacted with our base was that the locals viewed us with suspicion. In particular, when they would see a team of HODR volunteers engaging in literal hard labor, using sledgehammers and wheelbarrows to remove rubble from a collapsed residence, many of the Haitians apparently resented the fact that we were "stealing their jobs." In other words, the Haitians — where unemployment is apparently 90 percent — thought they should be getting paid to remove the rubble from their collapsed homes.

When those who were affiliated with HODR would explain to the people that we were all volunteers, some of them were still suspicious. They speculated that even if we weren't being paid right then, we would probably be paid when we returned back home.

Now here's what struck me about all this: isn't it incredible that after their neighborhoods got wiped out, and hundreds of thousands of Haitians died, that many Haitians were apparently devoting a lot of mental effort to speculating on how much we were getting paid to cart away their rubble? (Ironically, when I got back to Nashville, I heard a lady complaining on a local radio talk show that illegal immigrants were signing up for the paid positions to clean up the flooded Opry Mills mall, thereby "stealing jobs that could have gone to Tennesseans." So the Haitians aren't unique in this respect.)

Please note, I'm not whining about a lack of gratitude; my purpose in going to Haiti wasn't to get a pat on the head from someone who just lost his house and possibly much of his family. But what I am saying is that it makes sense, in a perverse way, that Haiti is the poorest country in the hemisphere. If this is the predominant mindset, how could anyone start a successful business? I would imagine the jealousy and gossip of his neighbors would be unbearable.

The Strengths and Weaknesses of Not-for-Profits

I had gone to Haiti expecting to be shaken by the extreme poverty, or perhaps to learn the transience of material objects and gain a newfound appreciation for the truly important things. I did experience those things, but not in the profound manner I had expected — and perhaps because that's what I went looking for.

In contrast, what I hadn't expected to discover was my tremendous respect for the young people who lived at the HODR base. Many of them had committed to much longer stays than I had, and what was really impressive was that many had pushed back their departure dates, because once they got to Haiti they didn't want to leave. (I confess that I did not share their feelings.)

"I had gone to Haiti expecting to be shaken by the extreme poverty and gain a newfound appreciation for the truly important things. What I hadn't expected to discover was my tremendous respect for the young volunteers there."

What really struck me was how fearless some of these young people were. For example, I worked with a young woman who not only had more stamina with a sledgehammer (in literally 100+ degree heat) than I did, but she also felt completely safe in Haiti because she had previously been working at a refugee camp in Africa that was in danger of being attacked by armed rebels. As she nonchalantly relayed this information, I suddenly felt quite embarrassed for worrying about malaria.

I can honestly report that I have never been associated with such a dedicated, hardworking group of people as the volunteers at HODR. If you are the type of person who wanted to donate money after the earthquake, but were afraid of being a sucker, then let me reassure you that these people aren't using the money to fund vacations for college kids.

However, despite their dedication and enthusiasm, the HODR volunteers were plagued by the problems of nonmarket organizations. Consider the main allocation problem: given that the base had about 85 people at any given time, what jobs should they perform, to best help the community? The trained engineers, obviously, should do something related to their expertise, though even that doesn't fully answer the question.

But what of the unskilled workers (which included me, in this context)? For example, the three main tasks I performed during the week were removing rubble, building emergency shelters (using PVC pipe and shrink-wrap for boats), and cleaning the HODR base. These were all useful services; in the abstract, the more homes that were cleared out, the more shelters that were built, and the cleaner the HODR base, the better the world was.

Yet this doesn't answer the crucial, quantitative question: how many volunteers should be assigned to each task, each day? Taking one person off rubble and switching him to shelter construction would slightly reduce the speed with which we cleared away a homeowner's land, but the benefit would be more shelters for homeless people. However, we knew that the shelters would not survive once the hurricane season came.

Also, once we have decided how many volunteers should remove rubble each day, how do we determine which sites to hit first? For example, we worked on a very large site and a few of the volunteers wondered aloud whether we should have just cleared away space for a modest-sized home, and then moved on to other families, rather than spending an entire week clearing all the rubble from the large piece of property.

Another problem was that the labor itself was placed on a volunteer basis, even within the day-to-day operations. In other words, the HODR staff would assign team leaders for each project, and allocate the number of spots each job required. But then the volunteers would place their magnets on the board under the job that interested them. There was no system in place to ensure that, say, the two different rubble crews had a good mix of the seasoned hands and green recruits.

In the grand scheme, I don't know that the HODR system could have improved its operations in light of the above problems. I had toyed with ideas such as having team leaders keep track of how many wheelbarrows of rubble they removed each day, in order to see which leader's approach (which included the decision of where to attack the rubble pile, and how many wheelbarrows etc. to bring to the site) was the most efficient.

I had also brainstormed for ways of allowing mutually beneficial trades. For example, a person who loved meat and didn't mind cleaning the toilets could offer to do the standard chores for someone else with opposite preferences. As it was, this type of thing would be frowned upon. (When vegetarians would trade away their one piece of chicken, the cook explained that she had only been preparing enough meat for the meat eaters, and so vegetarians had to stop doing this.)

In reality, I think most of my "improvements" would have been more trouble than they were worth. As with everything else in Haiti, the HODR operation itself was an excellent example of constrained optimization. As one of the charismatic team leaders would say, whenever we hit a bump and he almost got thrown from the back of the pickup truck, "C'est la vie; it's Haiti."

Conclusion

In my brief time in Haiti, I saw the laws of economics at work. Entrepreneurs rushed to satisfy customers, as proven by the owners of motorcycles who suddenly became taxi drivers after the roads were filled with rubble. Government, in contrast, completely failed to deliver promised services to the people. I was pleasantly surprised to see that the "nongovernmental organizations," at least the one I worked for, were filled with some of the most interesting people I have ever met.

Although outsiders can definitely provide emergency relief, and even long-term advice, ultimately Haiti will remain mired in poverty so long as the majority retains their current hostility to open competition and commerce.

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