The Optimist

Give Sam Walton the Nobel Prize

Why Walmart may have done more for the poor than any business in American history.

There is much to dislike about Walmart: the union-busting employee rules, putting mom-and-pop grocery stores out of business, all that plastic garbage it sells us, the shady business scandals. It's the mortal enemy of locavores, the big bad box store that environmentalists and community organizers demonize. But for all its manifold offenses, Walmart may have done more for poor consumers in the United States, and around the world, than any other business in American history.

The world's largest retailer, Walmart shrugs off the controversy for a simple reason: The stuff it sells is cheap. Beyond its immense buying power (which sucks profit margins from suppliers), its incredibly efficient logistics systems and sourcing from low-wage foreign labor allow Walmart to drive down the cost of making and shipping many of its products. And Walmart is only the most visible example of a far bigger phenomenon: Globally, even in places thousands of miles from the nearest blue-shirted greeter, more efficient production and transportation are reducing the prices of many of the basic goods purchased by the world's poorest people. If that's rapacious, Walmart-style capitalism, let's have more!

More than 1 billion people still live in the borderlands of absolute deprivation, scraping by on less than $1.25 a day. Nevertheless, many have more access to goods and services than they did only a few years ago (even if they're not yet buying their cassava at the Ouagadougou Walmart). That's in part because companies around the world have figured out how to make and ship the stuff that poor people want at lower cost, which makes lives better. Call it the global Walmart effect.

There are two ways to help poor people buy more of what they need. One is to help them make more money. The other is to make the money they have go further. And Walmart has proved incredibly adept at that second approach. Take food, for instance. Walmart is the world's biggest food retailer, and it offers foods at prices considerably lower than those at traditional supermarkets -- as much as 25 percent lower, according to economists Jerry Hausman and Ephraim Leibtag. Factor in all the other stuff it sells, and Walmart's overall impact on its shoppers' spending power is even greater.

Walmart's low prices come in part from relying on efficient production in developing countries. Of course it isn't just Walmart's procurement agents who are buying cheap stuff from Asia; pretty much the whole world is, including retailers from Bangalore to Bangui. That's because manufacturers in China, India, and elsewhere have become particularly adept at producing low-cost versions of goods demanded by "bottom of the pyramid" consumers -- otherwise known as the world's poorest people.

Think of the mobile phone. There are about 6 billion subscribers worldwide -- 86 out of every 100 people on the planet. And many of them are texting and calling on Chinese-made devices. China produced more than 1 billion mobile phones in 2012 alone. But it's not just telephones. China manufactures as many as four out of five of the world's bicycles, and it's the leading maker of penicillin, producing more than 50 percent of the global supply. A whole range of goods purchased by some of the planet's poorest people are now made at low cost in the Middle Kingdom.

What about India? A study found that generic companies based in India supplied 53 percent of the antiretroviral drugs to treat HIV in sub-Saharan Africa from 2004 to 2006. In fact, one-third of Indian drug exports went to sub-Saharan Africa between 1999 and 2006. That really matters when World Health Organization estimates suggest public expenditure on drugs in that region averages below $10 per person each year. It also has a knock-on effect: Recent analysis by researchers Tamara Hafner and David Popp argues that African imports of antibiotics and other drugs from India and China reduce the price of identical drugs imported from high-income countries, suggesting fiercer competition is reducing costs.

The generics effect is widespread: Basically, the things poor people want appear to be dropping in price faster than the stuff rich people want. It may even be that the bottom of the pyramid is benefiting from lower prices more than the luxury-buying elite. (That's not well reflected in global income statistics because the standard price indices used to construct these metrics are weighted toward luxury goods -- fancy cars and granite countertops, not bicycles and plastic sheeting.) In effect, the world's poor people are still very poor, but they aren't quite as poor as the stats would indicate.

That helps explain why many of the world's most destitute people own more stuff than they used to. Take Madagascar, a very poor country that has technically been getting poorer over time. Between 1992 and 2009, the country's real GDP per person fell from $843 to $753. But the percentage of households with a phone climbed from less than 1 percent to 28 percent, the proportion with a motorbike climbed from 4 percent to 22 percent, and the percentage with a television increased from 7 percent to 18 percent. People in Madagascar, as well as in much of the rest of the developing world, are living better and longer with more possessions to their name. That's true even if, officially, they are as poor as they've ever been. And Madagascar doesn't even have a Walmart -- yet.

Still, for all the "everyday low prices," whenever a new Walmart opens, local competitors really are often forced to shutter their doors. Imagine that happening on a global scale. Harvard University economist Dani Rodrik, for one, worries that Africa and Latin America are seeing their manufacturing sectors shrink, perhaps in part because East Asia has taken most of the global low-end manufacturing opportunities. And that may leave the rest of the developing world looking in vain for that first step up on the ladder to industrialization.

That's a problem, to be sure, but one that should, in theory, solve itself. As China gets richer, labor will inevitably get more expensive and factories will migrate. Some already have -- to places like Vietnam and Indonesia. And if retailers like Walmart continue to seek the cheapest, most efficient suppliers and manufacturers, those Asian production centers will eventually shift to Africa in search of cheap labor. That may take decades. But in the meantime, China's efficiency means that poor people's scarce resources can go a little bit further -- which is enough to put a grin on even the most dejected round, yellow smiley face.

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The Optimist

The Case for Big Brother

A little government monitoring can be a good thing.

Hold on, Mr. Orwell. A bit of attention from Big Brother can be a good thing.

For those of us who've spent hours in line at the department of motor vehicles or forked over a couple hundred bucks to get a passport (all to end up with a picture ID that makes Charlie Sheen's mug shot look good), it may be difficult to appreciate the joys of government-issued identification. Even worse is the very real fear that nefarious government agencies will use this information to track and monitor citizens.

Yet nearly all of us still carry IDs (the Amish honorably excepted). Driver's licenses, social security cards, passports, and birth certificates are vital in the modern world. If you want to open a bank account, buy a house, claim pension payments, vote, drive, or travel across a border, you need a recognized, legal identification. This is a good thing.

Now consider that hundreds of millions of people worldwide have absolutely no legal ID, which keeps them in the shadows of the global economy. According to UNICEF, 98 percent of people in rich countries have birth certificates, while 40 percent of children in the developing world are not registered at birth -- and the proportion grows even higher in poorer parts of the world. In South Asia, for instance, nearly two out of three births went unregistered at the turn of the century. Try claiming legal title to the land your family has farmed for generations if, officially, you don't even exist. And forget about opening a bank account. Under anti-money-laundering "know your customer" laws, people without IDs are stuck stuffing money in the mattress.

Then there are fake IDs. No, not your teenage daughter's. I'm talking about the millions of people around the world who knowingly have multiple "legal" identifications, which they use to cheat lax governments out of billions of dollars each year in pensions, payments, and services. That costs you money -- another reason to embrace Big Brother. For all the justifiable concerns, the bottom line is that the rapid global spread today of more robust ID systems -- powered by new technologies that use high-tech personal features from fingerprints to brain waves -- is great news.

Much of this new spate of innovation is taking place in the developing world, where the most people stand to benefit. From Brazil to South Africa, governments have access to a growing number of biometric identity techniques: fingerprints, facial recognition, iris and retinal scans, voice and vein patterns, tongue mapping, lip movements, ear patterns, gait, DNA, brain waves, and, yes, even, um, posterior prints. A new study by Alan Gelb and Julia Clark of the Center for Global Development (CGD) reports that more than 1 billion people in developing countries have already had their biometrics taken over the past few years. (Biometrics is a global growth business; the worldwide market for such services is estimated to hit $16.5 billion by 2017.)

The most ambitious scheme is in India, which is in the midst of biometrically identifying its 1.2 billion residents. It has already registered 200 million citizens, using 10 fingerprints and two iris scans each. The system, developed under the leadership of Nandan Nilekani, the former CEO of Infosys, isn't foolproof, but it's close. As of December 2011, there was a 0.057 percent chance that a new registrant would be confused with someone else among the 84 million people registered at that point, and only a 0.035 percent chance that the system didn't catch someone attempting to register twice, according to a CGD study.

Biometric techniques have the advantage of producing identifying markers that are more difficult to forge and more secure from errors than traditional approaches. They are also comparatively cheap (around $5 per person) and don't rely on language or literacy skills. That has made them not only fair but an incredibly cost-effective tool to ensure payments and services are given to the right people -- and only the right people.

Ghana, for example, now mandates that payments for government employees are made into "e-zwich" bank accounts, verified by fingerprints. More than 300,000 people were enrolled into the system in its first year. Given the scale of the ghost-worker problem in Ghana -- in 2011 more than 29,000 names on the country's payroll were reported to be unaccounted for, meaning salaries were being paid to staff members who didn't exist -- Gelb and Clark estimate that the e-zwich system paid for itself in a matter of months.

Biometrics are also being used to confirm eligibility for health coverage, update patient logs, and confirm adherence to treatment regimes. Health workers are using fingerprints to ensure that people finish tuberculosis treatments in New Delhi, and in South Africa to check that patients are taking their antiretroviral AIDS treatments.

Biometric systems are also helping young democracies grow. Around 400 million people in the developing world have had biometric data taken as part of voter registration and voting procedures over the past few years. That reduces the risk of fraud and ballot-stuffing, strengthening faith in the democratic system. Of course, the process doesn't always run smoothly. The United Nations supported an effort in Afghanistan to use iris scans as part of voter registration in the 2009 election, but the system was overwhelmed, even when officials tried collecting ink fingerprints instead.

There are still dangers in this move toward better identification. Civil libertarians complain that it increases opportunities for governments to abuse citizens, regardless of what limits are meant to be in place. For example, they argue, what's to stop police from searching health records for evidence of drug use? Or targeting illegal immigrants?

Remember that India's National Population Register was originally set up as part of a government campaign to deport undocumented Bangladeshi immigrants. In fact, better government IDs just might translate into higher prices for lots of things, at least if they end up cutting into the world's massive informal economy (now estimated to be worth $10 trillion). If the United States tightened up on fake IDs, it would reduce the supply of undocumented workers for farms, household work, and construction -- and that means you'll pay more for your arugula and weekly lawn-mowing crew.

Undoubtedly, these are valid concerns, and new IDs must be accompanied by real checks and balances to prevent government abuse. For most of the developing world, however, the benefits -- access to jobs, protection, and government services -- outweigh the risks. They'll save governments money too, and that means lower taxes (eventually). Just as importantly, these new systems promote transparency and better governance, increasing trust that government funds are going to people who deserve them, rather than ghosts and fraudsters. Yes, ID systems can help governments monitor citizens, but they can also make governments much more responsive to citizens' needs.

Even Big Brother's daddy, George Orwell himself, had an ID card. Everyone should be so lucky.

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