Markets work even here

An interesting and useful reminder that markets do actually work. Yes, even after earthquakes, with aid agencies like Oxfam around and even in the sex trade. Such voluntary exchange also makes all participants better off. That might not be how some want to think about it but it is still true – we can tell that because people are doing this of their own volition.

It’s also a useful reminder of the manner in which those first couple of pages of the economics textbook are correct. Econ 101 is describing the real world, supply and demand do matter, prices vary according to them. But also that 101 isn’t the all and everything of the subject. Which is why, of course, there are further courses in the subject in the halls of academe, entire libraries full of the exceptions, refinements and peculiarities of the arguments. For example, market segmentation, something Apple, Sainsbury’s and VW all base their business plans upon. As do the street walkers of Haiti.

Though sex work is illegal in Haiti, carrying a sentence of up to 15 years for those who knowingly use the services of a trafficked sex worker, the law is seldom enforced. It is not known how many women and girls work in Haiti’s sex industry, but experts suggest it is in the thousands.

That’s the Econ 101 part. There’s demand, yes, there are those who will happily rent a body part or two for a short time. Not our desire but then there’s near nothing that doesn’t happen in the variations of human sexuality. There’s also a willing supply. Note here that we don’t mean that given alternatives which paid the same people would do this voluntarily – although we do indeed know of those who like their working lives just fine thank you very much. Here, “voluntary” is being used in a technical sense. That, given the menu of options available, this one is voluntarily chosen. To argue that all should have other choices is just great but that’s not how the word is being used here, it’s just an admission that life is constrained and more so for some than others.

Aid workers from around the world arrived in their thousands to assist with the recovery. Natasha could earn big money. She says a foreigner would give her at least $100 (£72), more than five times the price a local would pay.

And that’s the refinement, that’s market segmentation. For while it might start as aid workers being willing to pay more than locals it will very quickly morph into demands for more from aid workers. To the extent that a deal won’t take place.

No, really, that does end up as being the stable equilibrium in these sorts of markets. Locals might pay $20 (that’s a huge and gross over valuation. Actual prices tend to be, for whatever the customer base is, around a day’s wages. This is a long term historical observation. Those servicing the working man tend to charge a working man’s day wage. Those in more refined markets charge a middle class daily income and so on.) and the foreigners $100. Then that morphing, so that a local who offered $30 would get a jump and a foreigner who offered $30 wouldn’t. The explanation for this is equity – what those doing the work think is fair. And there’s no arguing with what people do think is fair at all so this is how such markets do pan out.

This is exactly what VW does with car brands. The Skoda, the VW and the Bentley SUV are all built on the same platform, prices vary by very much more than the cost of the leather seats and engine options. They’re charging different prices to those with more money – or more willingness to spend it – just because they can. Sainsbury’s value range comes in white and neon orange so as to dissuade everyone except those really insistent upon cheap, cheap, cheap, from buying it. That way they get the custom of the cheap crowd plus the higher margin spending on the main own range. Apple’s wandering around with iPhone launches and models is aiming at exactly the same end result. By segmenting the market we get as much out of each buyer as is possible.

The world’s oldest profession works in the same manner.

As to the larger issue of exploitation and all that we’re just fine with it. Average daily wages in Haiti are $2. Our rental courtesans are getting $100 from the aid workers for what, 30 minutes? Sure, not the sort of work we’d like to do nor employ but then it’s not us doing either is it? Note what the end result is though. Poverty is very definitely being alleviated through voluntary exchange. Sounds like a good idea to us to be honest.

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  1. Unless they are using food aid donated by well meaning people in the West to get a leg over. If they spend £72 of their own money, then sure. But if they are holding charity hostage in exchange for sexual access, then their employers might have something to say.

    From what I can see, paying for sex work is likely to be the best form of poverty alleviation open to most of Oxfam’s donors. But then I can’t help but notice that countries famous for their sex trade (Thailand and the Philippines for the menfolk, Gambia and Kenya for the ladies) are not noted for their thriving economies. I would want young girls growing up in my homeland to aspire to be doctors and engineers (well, house wives would be better). Not whores. And I expect that the social outcomes in terms of work ethic, willingness to study, subjects chosen etc differ enormously.

  2. My experience was somewhat different when I was working in Budapest. Just after the fall of the Wall, many of the prossies were prepared to do the deed for considerably less with a foreigner than they would with a local.

    • Well I have no experience of Eastern European hookers at all …. but I am a little more cynical about these claims.

      Either these women do not know what the market will bear. Or they tell every man that they would never do these things for anyone else. That this particular man is so wonderful, so extraordinary, why, they hardly feel like charging at all.

      I believe it is called a girlfriend experience.

  3. The one time I visited a stripping establishment one stripper turned out to be a nurse who was about to enter med school.

    If I were Oxfam, I would defend the whole thing along the same lines as western armies used to behave in third world countries in setting up regimental brothels. The brutal and licentious soldiery aid workers obviously cannot restrain their passions, so rather than risk venereal disease and exploitation by local pimps the obvious solution is to set up an in-compound brothel where prices are fair and the young ladies’ health can be monitored.

    Yes, the idea needs a bit of work, but it’s obviously better than Oxfam’s current response. Over to you, public relations moguls.