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OEC: The Observatory of Economic Complexity

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OEC: The Observatory of Economic Complexity

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visualize trade around the world

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OEC: The Observatory of Economic Complexity

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An online resource for international trade data and economic complexity indicators available through interactive visualizations of countries and products.

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A guiding principle of the AEA mission is the dissemination of economics knowledge to all members of the economics community - primarily students, teachers, and professionals, but also to members of the general public who are curious about how economics is applied beneficially in the real world.

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13.2 Types of Economic Systems | Sociology: Understanding and Changing the Social World

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13.2 Types of Economic Systems | Sociology: Understanding and Changing the Social World

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Learning Objectives

1. Distinguish the types of economic systems.

2. Discuss the advantages and disadvantages of capitalism and socialism.

3. Outline the elements of democratic socialism.

The two major economic systems in modern societies are capitalism and socialism. In practice, no one society is purely capitalist or socialist, so it is helpful to think of capitalism and socialism as lying on opposite ends of a continuum. Societies' economies mix elements of both capitalism and socialism but do so in varying degrees, so that some societies lean toward the capitalist end of the continuum, while other societies lean toward the socialist end. For example, the United States is a capitalist nation, but the government still regulates many industries to varying degrees. The industries usually would prefer less regulation, while their critics usually prefer more regulation. The degree of such regulation was the point of controversy after the failure of banks and other financial institutions in 2008 and 2009 and after the BP oil spill in 2010. Let's see how capitalism and socialism differ.

Capitalism

Capitalism is an economic system in which the means of production are privately owned. By means of production, we mean everything-land, tools, technology, and so forth-that is needed to produce goods and services. As outlined by famed Scottish philosopher Adam Smith (1723-1790), widely considered the founder of modern economics, the most important goal of capitalism is the pursuit of personal profit (Smith, 1776/1910). As individuals seek to maximize their own wealth, society as a whole is said to benefit. Goods get produced, services are rendered, people pay for the goods and services they need and desire, and the economy and society as a whole prosper.

One important hallmark of capitalism is competition for profit. This competition is thought to help ensure the best products at the lowest prices, as companies will ordinarily try to keep their prices as low as possible to attract buyers and maximize their sales.

As people pursue personal profit under capitalism, they compete with each other for the greatest profits. Businesses try to attract more demand for their products in many ways, including lowering prices, creating better products, and advertising how wonderful their products are. In capitalist theory, such competition helps ensure the best products at the lowest prices, again benefiting society as a whole. Such competition also helps ensure that no single party controls an entire market. According to Smith, the competition that characterizes capitalism should be left to operate on its own, free of government intervention or control. For this reason, capitalism is often referred to as laissez-faire (French for "leave alone") capitalism, and terms to describe capitalism include the free-enterprise system and the free market.

The hallmarks of capitalism, then, are private ownership of the means of production, the pursuit of profit, competition for profit, and the lack of government intervention in this competition.

Socialism

The features of socialism are the opposite of those just listed for capitalism and were spelled out most famously by Karl Marx. is an economic system in which the means of production are collectively owned, usually by the government. Whereas the United States has several airlines that are owned by airline corporations, a socialist society might have one government-owned airline.

The most important goal of socialism is not the pursuit of personal profit but rather work for the collective good: the needs of society are considered more important than the needs of the individual. Because of this view, individuals do not compete with each other for profit; instead they work together for the good of everyone. If under capitalism the government is supposed to let the economy alone, under socialism the government controls the economy.

The ideal outcome of socialism, said Marx, would be a truly classless or communist society. In such a society all members are equal, and stratification does not exist. Obviously Marx's vision of a communist society was never fulfilled, and nations that called themselves communist departed drastically from his vision of communism.

Recall that societies can be ranked on a continuum ranging from mostly capitalist to mostly socialist. At one end of the continuum, we have societies characterized by a relatively free market, and at the other end we have those characterized by strict government regulation of the economy. Figure 13.1 "Capitalism and Socialism Across the Globe" depicts the nations of the world along this continuum. Capitalist nations are found primarily in North America and Western Europe but also exist in other parts of the world.

Figure 13.1 Capitalism and Socialism Across the Globe

Comparing Capitalism and Socialism

People have debated the relative merits of capitalism and socialism at least since the time of Marx (Bowles, 2007; Cohen, 2009). Compared to socialism, capitalism seems to have several advantages. It produces greater economic growth and productivity, at least in part because it provides more incentives (i.e., profit) for economic innovation. It also is often characterized by greater political freedom in the form of civil rights and liberties. As an economic system, capitalism seems to lend itself to personal freedom: because its hallmarks include the private ownership of the means of production and the individual pursuit of profit, there is much more emphasis in capitalist societies on the needs and desires of the individual and less emphasis on the need for government intervention in economic and social affairs.

Yet capitalism also has its drawbacks. There is much more economic inequality in capitalism than in socialism. Although capitalism produces economic growth, not all segments of capitalism share this growth equally, and there is a much greater difference between the rich and poor than under socialism. People can become very rich in capitalist nations, but they can also remain quite poor. As we saw in Chapter 9 "Global Stratification", several Western European nations that are more socialist than the United States have fewer extremes of wealth and poverty and take better care of their poor.

Another possible drawback depends on whether you prefer competition or cooperation. As we saw in Chapter 3 "Culture", important values in the United States include competition and individualism, both of which arguably reflect this nation's capitalist system. Children in the United States are raised with more of an individual orientation than children in socialist societies, who learn that the needs of their society are more important than the needs of the individual. Whereas U.S. children learn to compete with each other for good grades, success in sports, and other goals, children in socialist societies learn to cooperate to achieve tasks.

More generally, capitalism is said by its critics to encourage selfish and even greedy behavior: if individuals try to maximize their profit, they do so at the expense of others. In competition, someone has to lose. A company's ultimate aim, and one that is generally lauded, is to maximize its profits by driving another company out of the market altogether. If so, that company succeeds even if some other party is hurting. The small Mom-and-Pop grocery stores, drugstores, and hardware stores are almost a thing of the past, as big-box stores open their doors and drive their competition out of business. To its critics, then, capitalism encourages harmful behavior. Yet it is precisely this type of behavior that is taught in business schools.

Democratic Socialism

The economies of Denmark, pictured here, and several other Western European nations feature a combination of capitalism and socialism that is called democratic socialism. In these economies, the government owns important industries, but private property and political freedom remain widespread.

Some nations combine elements of both capitalism and socialism and are called social democracies, while their combination of capitalism and socialism is called democratic socialism . In these nations, which include Denmark, Sweden, and several other Western European nations, the government owns several important industries, but much property remains in private hands, and political freedom is widespread. The government in these nations has extensive programs to help the poor and other people in need. Although these nations have high tax rates to help finance their social programs, their experience indicates it is very possible to combine the best features of capitalism and socialism while avoiding their faults (see the "Learning From Other Societies" box).

Learning From Other Societies

Social Democracy in Scandinavia

The five Scandinavian nations, also called the Nordic nations, are Denmark, Finland, Iceland, Norway, and Sweden. These nations differ in many ways, but they also share many similarities. In particular, they are all social democracies, as their governments own important industries while their citizens enjoy much political freedom. Each nation has the three branches of government with which most people are familiar-executive, judicial, and legislative-and each nation has a national parliament to which people are elected by proportional representation.

Social democracies like the Scandinavian nations are often called controlled capitalist market economies. The word controlled here conveys the idea that their governments either own industries or heavily regulate industries they do not own. According to social scientist Tapio Lappi-Seppälä of Finland, a key feature of these social democracies' economies is that inequality in wealth and income is not generally tolerated. Employers, employees, and political officials are accustomed to working closely to ensure that poverty and its related problems are addressed as much as possible and in as cooperative a manner as possible.

Underlying this so-called social welfare model is a commitment to universalism. All citizens, regardless of their socioeconomic status or family situation, receive various services, such as child care and universal health care, that are free or heavily subsidized. To support this massive provision of benefits, the Scandinavian nations have very high taxes that their citizens generally accept as normal and necessary.

This model has been praised by political scientist Torben Iversen, who lauds its goal of achieving full employment and equality. This attempt has not been entirely free of difficulties but overall has been very successful, as the Scandinavian nations rank at or near the top in international comparisons of health, education, economic well-being, and other measures of quality of life. The Scandinavian experience of social democracy teaches us that it is very possible to have a political and economic model that combines the best features of capitalism and socialism while retaining the political freedom that citizens expect in a democracy. (Berman, 2006; Iversen, 1998; Lappi-Seppälä, 2007)

Key Takeaways

The two major economic systems in modern societies are capitalism and socialism. In practice most societies have economies that mix elements of both systems but that lean toward one end of the capitalism-socialism continuum.

Social democracies combine elements of both capitalism and socialism. They have achieved high economic growth while maintaining political freedom and personal liberty.

For Your Review

1. In what ways might capitalism be a better economic system than socialism? In what ways might socialism be a better economic system than capitalism?

2. The text discusses the experience of Scandinavian economies. Do you agree with the positive view that the text presents? Why or why not?

References

Berman, S. (2006). The primacy of politics: Social democracy and the making of Europe's twentieth century. New York, NY: Cambridge University Press.

Bowles, P. (2007). Capitalism. New York, NY: Pearson/Longman.

Cohen, G. A. (2009). Why not socialism? Princeton, NJ: Princeton University Press.

Iversen, T. (1998). The choices for Scandinavian social democracy in comparative perspective. Oxford Review of Economic Policy, 14, 59-75.

Lappi-Seppälä, T. (2007). Penal policy in Scandinavia. Crime and Justice, 36, 217-296.

Smith, A. (1910). The wealth of nations. London, England: J. M. Dent & Sons; New York, NY: E. P. Dutton. (Original work published 1776).

This is a derivative of Sociology: Understanding and Changing the Social World by a publisher who has requested that they and the original author not receive attribution, which was originally released and is used under CC BY-NC-SA. This work, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

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Sociology: Understanding and Changing the Social World

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Distinguish the types of economic systems. Discuss the advantages and disadvantages of capitalism and socialism. Outline the elements of democratic socialism. The two major economic systems in modern societies are capitalism and socialism. In practice, no one society is purely capitalist or socialist, so it is helpful to think of capitalism and socialism as lying on opposite ends of a continuum.

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Author: Parveen Kaswan ( Author is an Engineer and holds a Masters Degree in Engineering Designs from Indian Institute of Science, Bangalore. Can be reached at parveenkaswan@gmail.com)

Capitalism is an economic and political system in which individuals own economic resources and industry, whereas under socialism, the state plans and produces goods, and either owns or redistributes resources among its citizens. In a capitalist economy, the political system emphasizes competition for resources as a means of increasing capital (or wealth) and developing personal success. In a socialist economy, the emphasis is on distributing wealth so that individual needs are met with collective capital. There are many different versions of both capitalism and socialism, and most modern societies are a blend of the two.

Capitalism

Individualism and competition are fundamental to capitalism. In a purely capitalist society, individuals are responsible for protecting their own interests in the marketplace and within their communities. The potential success of each individual is also valued. People are encouraged to direct their talents in a way that benefits themselves, such as by starting a business or entering a highly profitable profession.

Capitalism relies on a system of checks and balances brought about through competition. Individuals who own capital can compete with others to provide goods and services to the marketplace; those who produce and effectively market goods that are in demand and at a price that people want to pay are likely to succeed. Similarly, businesses that treat their workers well and pay good wages are most likely to attract good employees, which is more likely to mean success for the business. Those who offer inferior service or fail to attract good workers will eventually fail and leave the marketplace.

Low taxes are generally a goal of capitalistic governments. In addition, government funding for public services, like social service benefits, is generally kept to a minimum. Health care systems may also be primarily funded by the private sector, requiring citizens to purchase their own health insurance or rely on an employer to provide insurance.

Types of Capitalism

When discussed theoretically, capitalism has several unique defining characteristics. In practice, however, nuance has developed and as a result, it can be separated into a variety of types:

* Free-market capitalism: This type of capitalism leaves all aspects of a society to be governed by the market, with little or no intervention from the government. Here, the role of the government is limited to protect the lives and property of the citizens.

* Corporate capitalism: In this type of economy, large, bureaucratic corporations dominate the economy. This allows for long-term planning and efficiency, but less innovation. Large corporations may also have an equally large influence over the government, leading to legislation designed to protect the interests of those companies.

* Social-democratic or social market economy: This economic system is an attempt to balance the benefits of a free-market system with a strong social support structure. While most industries are privately owned, the government is more heavily involved in making sure that competition is fair, unemployment is low, and social welfare is provided for those who need it.

* State-lead capitalism: In this economy, the means of production are owned by the government, but run in a "capitalistic" way - meaning for profit. The term is also sometimes used to describe an economy in which the government steps in to protect the interests of businesses.

Socialism

Socialism relies on governmental planning, rather than the marketplace, to distribute resources. While it is usually possible for individuals living in a socialist country to own businesses or offer professional services directly to consumers, they are usually taxed heavily on their profits. Public services are typically numerous and funded by taxpayer money. Citizens are expected to work, but the government provides services such as education, healthcare, and public transportation for free or at very low cost. Socialist countries also often have extensive social welfare systems to aid the unemployed, disabled, and elderly.

In addition to paying higher taxes, business owners in socialist countries are often expected to comply with very strict labor laws designed to protect workers against exploitation. These laws include restrictions on work hours and mandate regular vacations, sick time, and leave for numerous reasons, such as the birth or adoption of a baby. Employers are typically not expected to provide health insurance coverage, however, as medical care is usually provided through national health care systems.

Types of Socialism

There are a wide range of socialist political philosophies, including Marxism and reformism. Marxism, originating from the works of Karl Marx and Friedrich Engels, argues that socialism is the mid-point between capitalism and communism, with the means of production controlled by the working class but with the state guiding the economy on the workers' behalf. Reformism, sometimes called social democracy, is focused on changing capitalist societies from within, through the political process and government reform.

In addition, there are a number of different economic theories of socialism:

* Market socialism involves running public or cooperative companies within the free market. Rather than depending on taxes, the government takes all profits and redistributes them by paying employees, funding public institutions, and offering social services.

* In a planned economy, the government owns the means of production, and plans out what will be produced, how much will be made, and the price it will sell for.

* Self-managed economies depend on the collective actions of specific groups to make decisions. For example, a self-managed company may be owned by its workers, who collectively decide the direction of the business.

* State socialism or state-directed economies have industries that are owned cooperatively, but which operate with some planning or direction from the government.

Communism

While it is a different economic system, many people confuse socialism with communism. Under communism, everything is owned communally, or by everyone. Ideally, there is no government or class division, and no money; each person contributes to society as best as he or she is able, and takes from that society only what he or she needs. The decisions made by that society are supposed to benefit the people as a whole, not any individual.

Historically, countries that have been called "communist" actually practiced some form of socialism, usually run by one political party. The state typically owned all forms of production and practiced very strict central planning - meaning that the government decided how all resources were to be used. Many critics argue that most governments that are called "communist" are really very different from the word's true meaning.

Mixed Economies

Very few societies are purely capitalist or purely socialist, although most are more strongly one than the other. The United States, for example, is considered to be a capitalist society, but the Social Security system, which provides support for people who are unable to work, is socialistic. Sweden is considered by some people to be a socialist country because of its high tax rate and large welfare system, but the majority of industry in the nation is in private hands, which is capitalistic.

Critiques

The criticisms of both capitalism and socialism largely stem from different opinions about how economic forces should shape governments and societies. Some critics believe that the human spirit needs competition to fully develop, while others emphasize the need for people to cooperate with each other, ensuring that the needs of all citizens are met. Within each philosophy, there are additional critics who disagree about how each economic or political system would work best.

Critics of capitalism note that the marketplace can be unstable, presenting real dangers to the well-being of those who are not wealthy or who are otherwise vulnerable. Giving business owners free rein to set the terms of employment and to keep most of the profits from their enterprises to themselves, can establish a wealthy class which, in turn, can suppress the freedom of others. These critics also note that a purely capitalist society does not address the needs of those who are truly unable to compete either as business owners or as laborers. Without some social support systems, such as Social Security or welfare, those who cannot work or earn enough money to survive must lead a precarious existence, and may be forced to rely on family or private charity for support.

Those who criticize socialism observe that heavy taxation to provide equal social services for all citizens can discourage business owners from innovation and excellence, given that the owner won't personally profit from his or her efforts. In addition, when the government plans the economy, some critics question whether officials and their policy advisors really understand what is best for a country's citizens; such socialist governments may give their citizen's no choice in deciding what kinds of services they really want or need. In addition, capitalist critiques of generous socialist social welfare programs note that these programs may discourage people from working, as people may be able to live reasonably well on government benefits rather than having to hold a job. As a result, families may slip into generational poverty, as the children may grow up feeling entitled to government support.

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Capitalism, Socialism & Communism : Introduction

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Author: Parveen Kaswan ( Author is an Engineer and holds a Masters Degree in Engineering Designs from Indian Institute of Science, Bangalore. Can be reached at parveenkaswan@gmail.com) Capitalism is an economic and political system in which individuals own economic resources and industry, whereas under socialism, the state plans and produces goods, and either owns or redistributes resources among its citizens.

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Make your own custom map of the World, United States, Europe, and 50+ different maps. Color an editable map and download it for free to use in your project.

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The three reasons countries get rich: Location, location and location | PBS NewsHour

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The three reasons countries get rich: Location, location and location | PBS NewsHour

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Geography and natural resources make a big difference in which countries develop economically earlier than others, argue Jeffrey Sachs and Gordon McCord. Photo of London courtesy of Flickr user Nietnagel. It's an age-old question: why are some countries richer than others? And why are some countries still mired in poverty while the United States and Europe struggle with "first-world problems"?

For decades, economists have pointed to the impact of political institutions and culture on countries' economic development. Farther down the development road, the choices our leaders make, the well-known author Jared Diamond has argued on the NewsHour, have a lot to do with which societies overcome crisis and which self-destruct.

But in research published this month, famed development economist Jeffrey Sachs, of Columbia University's Earth Institute, and Gordon McCord, of the University of California, San Diego, diverge from the canon's emphasis on institutions, and instead highlight a different set of factors to explain which nations made it first and why poor countries are still poor.

Pointing to endogenous geophysical realities - factors inherent in the location and climate of the countries - the argument is one Sachs began exploring several decades ago and one that has more in common with Diamond's attention to "Guns, Germs and Steel" or Ian Morris' "Why the West Rules - For Now." That is, factors countries can't change, like where they are located and what resources or handicaps that location bestows upon them, have a lot to do with how far (and early) they develop.
Map of GDP per capita across the world, courtesy of the authors in "Development, Structure and Transformation: Some Evidence on Comparative Economic Growth," Oct. 2013.
In this map of world GDP per person, there's a clear geographic pattern. But, of course, many economists have argued that the geographic pattern mirrors historical patterns, namely the spread of colonial rule and/or the evolution of political systems. Actually, Sachs and McCord argue, the explanation for this pattern is found much deeper; in fact, in the very soil of the earth.

Differences across regions in natural resources and physical geography, they contend, have much more to do with which countries make it (earlier) and which ones take longer to emerge than is generally acknowledged.

Consider the steam engine. Long considered the hallmark of the Industrial Revolution, the steam engine was developed in Britain, where a strong market economy and intellectual property rights developed early. But the Netherlands developed a strong and efficient set of economic and political institutions even earlier than Britain. So why didn't the Netherlands lead the Industrial Revolution?

Britain couldn't have made the leap without economic and political institutions to advance its great invention, but there would have been nothing to invent, they explain, had Britain not had access to naturally occurring coal and iron near the surface of the Earth. Britain had about $45,000 of coal per person compared to the Netherland's $8,900 (using today's energy prices and 1820 population).

Indeed, early economic growth in England came from having a certain set of factors - a certain "DNA," Sachs and McCord claim, that prevailed in Europe generally. The proximity of a country's population center to London is associated with earlier development, they write. And even where the spatial distance is much greater, in what they call the "neo-Europes" like Australia and Argentina where development came relatively early, having similar geophysical DNA played a big role.

In other words, the contents of your soil were crucial. In the 1900s, for example, oil was the new coal. Access to it on your home turf facilitated local growth and enabled trade. It was easier to trade and easier to produce exportable goods if your country had natural resources and if food was plentiful enough for labor resources to be freed for industrial production. But high-productivity agriculture demands the right environmental conditions; sunshine, rich soil, water and topography. None can be imported.

Another physical requirement that economists like Adam Smith have long understood to be crucial to development is access to water. One need not look further than sub-Saharan Africa to see the disadvantages of being landlocked.

Disease has famously plagued Africa too, which has a lot to do with ecology and climate. Disease has been a symptom of poorly developed economies and a major impediment to further growth, McCord and Sachs explain, elaborating an argument the renowned Harvard economic historian David Landes, recently deceased, made in his book, "The Wealth and Poverty of Nations." The reason is slightly more nuanced than you'd think, given that we take so many elements of developed economies for granted. Good health, for example. It's obvious that a country is only as economically healthy as its people. But high mortality rates also dampen investment in what's called "knowledge production" - the mass literacy, public education, and basic R&D that fuel growth in developed economies.

A country ravaged by disease, and in turn, by high mortality rates, cannot invest in the production of such capital. Where disease is rampant, the authors observe, families often have more children (to compensate for their expected loss), but those families are then less equipped to invest in each child and his or her ability to contribute to the country's production of knowledge.

The "poor governance" argument (often employed to explain sub-Saharan Africa's poor development) has merit, Sachs and McCord admit, but it's not a sufficient answer. In their analysis of variation in cross-country per capita income, they find that access to fossil fuels and average distance from a port account for 58 percent of the variation; add hyroelectric production per capita, malaria ecology, quality-adjusted land per capita and average temperature, and the authors find 75 percent of the variation accounted for. That's a huge correlation.

And examining regional within-country variation of per capita income, where the institutional effects are relatively constant, underscores the degree to which geography is important, they argue. Even within the same country, economic activity is higher in areas with more favorable agricultural conditions, access to water transportation, and an ecology less hospitable to disease.

Bio- and geophysical conditions underlie economic growth, though not at the exclusion of institutional factors, McCord and Sachs conclude. As Sachs has done for decades, the authors seek to broaden the conversation about why countries succeed.

And geophysical disadvantages, they remind us, don't seal a country's fate; they can be overcome. That should come as no surprise to those familiar with Sachs' work. A crusader in the world of development aid, Sachs is well-known for his book "The End of Poverty" and as a special adviser to the United Nations on their Millenium Development Goals. In 2006, he started the Millenium Villages Project to test his development theories in Africa, and he's been a key figure in the debate over the development industry's efficacy. (See our 2006 between Sachs and foreign aid skeptic William Easterly of New York University.)

In a new book, "Idealist: Jeffrey Sachs and the Quest to End Poverty," writer Nina Munk, elaborating on her critical article in Vanity Fair magazine, argues that Sachs' idealistic development theories have been no match for the harsh realities of the people in his Millenium Villages.

But the conditions for early economic development that he and McCord lay out would seem about as reality-based as one can get: a country either has an advantageous geography or it doesn't. And yet, investment in technology, infrastructure and public health, McCord and Sachs urge, can help overcome the physical obstacles that have held back the world's poorer nations.
This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions
So while the geophysical conditions each country is dealt would seem relatively static, what these conditions mean for development is constantly changing, Sachs told us. For example, having mountains did not matter all that much for development before hyrdopower was developed. Likewise, access to renewable resources and the ability to withstand climate change will soon take on increased significance. Understanding how physical conditions have contributed to development, Sachs argues, is crucial to helping countries identify which obstacles need to be overcome and which development goals to prioritize.

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The three reasons countries get rich: Location, location and location

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Geography and natural resources make a big difference in which countries develop economically earlier than others, argue Jeffrey Sachs and Gordon McCord. Photo of London courtesy of Flickr user Nietnagel. It's an age-old question: why are some countries richer than others?

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What Makes Countries Rich or Poor? | by Jared Diamond | The New York Review of Books

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What Makes Countries Rich or Poor? | by Jared Diamond | The New York Review of Books

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The fence that divides the city of Nogales is part of a natural experiment in organizing human societies. North of the fence lies the American city of Nogales, Arizona; south of it lies the Mexican city of Nogales, Sonora. On the American side, average income and life expectancy are higher, crime and corruption are lower, health and roads are better, and elections are more democratic. Yet the geographic environment is identical on both sides of the fence, and the ethnic makeup of the human population is similar. The reasons for those differences between the two Nogaleses are the differences between the current political and economic institutions of the US and Mexico.

This example, which introduces Why Nations Fail by Daron Acemoglu and James Robinson, illustrates on a small scale the book's subject.* Power, prosperity, and poverty vary greatly around the world. Norway, the world's richest country, is 496 times richer than Burundi, the world's poorest country (average per capita incomes $84,290 and $170 respectively, according to the World Bank). Why? That's a central question of economics.

Different economists have different views about the relative importance of the conditions and factors that make countries richer or poorer. The factors they most discuss are so-called "good institutions," which may be defined as laws and practices that motivate people to work hard, become economically productive, and thereby enrich both themselves and their countries. They are the basis of the Nogales anecdote, and the focus of Why Nations Fail. In the authors' words:

The reason that Nogales, Arizona, is much richer than Nogales, Sonora, is simple: it is because of the very different institutions on the two sides of the border, which create very different incentives for the inhabitants of Nogales, Arizona, versus Nogales, Sonora.

Among the good economic institutions that motivate people to become productive are the protection of their private property rights, predictable enforcement of their contracts, opportunities to invest and retain control of their money, control of inflation, and open exchange of currency. For instance, people are motivated to work hard if they have opportunities to invest their earnings profitably, but not if they have few such opportunities or if their earnings or profits are likely to be confiscated.

The strongest evidence supporting this view comes from natural experiments involving borders: i.e., division of a uniform environment and initially uniform human population by a political border that eventually comes to separate different economic and political institutions, which create differences in wealth. Besides Nogales, examples include the contrasts between North and South Korea and between the former East and West Germany. Many or most economists, including Acemoglu and Robinson, generalize from these examples of bordering countries and deduce that good institutions also explain the differences in wealth between nations that aren't neighbors and that differ greatly in their geographic environments and human populations.

There is no doubt that good institutions are important in determining a country's wealth. But why have some countries ended up with good institutions, while others haven't? The most important factor behind their emergence is the historical duration of centralized government. Until the rise of the world's first states, beginning around 3400 BC, all human societies were bands or tribes or chiefdoms, without any of the complex economic institutions of governments. A long history of government doesn't guarantee good institutions but at least permits them; a short history makes them very unlikely. One can't just suddenly introduce government institutions and expect people to adopt them and to unlearn their long history of tribal organization.

That cruel reality underlies the tragedy of modern nations, such as Papua New Guinea, whose societies were until recently tribal. Oil and mining companies there pay royalties intended for local landowners through village leaders, but the leaders often keep the royalties for themselves. That's because they have internalized their society's practice by which clan leaders pursue their personal interests and their own clan's interests, rather than representing everyone's interests.

The various durations of government around the world are linked to the various durations and productivities of farming that was the prerequisite for the rise of governments. For example, Europe began to acquire highly productive agriculture 9,000 years ago and state government by at least 4,000 years ago, but subequatorial Africa acquired less productive agriculture only between 2,000 and 1,800 years ago and state government even more recently. Those historical differences prove to have huge effects on the modern distribution of wealth. Ola Olsson and Douglas Hibbs showed that, on average, nations in which agriculture arose many millennia ago-e.g., European nations-tend to be richer today than nations with a shorter history of agriculture (e.g., subequatorial African nations), and that this factor explains about half of all the modern national variation in wealth. Valerie Bockstette, Areendam Chanda, and Louis Putterman showed further that, if one compares countries that were equally poor fifty years ago (e.g., South Korea and Ghana), the countries with a long history of state government (e.g., South Korea) have on the average been getting rich faster than those with a short history (e.g., Ghana).

An additional factor behind the origin of the good institutions that I discussed above is termed "the reversal of fortune," and is the subject of Chapter 9 of Why Nations Fail. Among non-European countries colonized by Europeans during the last five hundred years, those that were initially richer and more advanced tend paradoxically to be poorer today. That's because, in formerly rich countries with dense native populations, such as Peru, Indonesia, and India, Europeans introduced corrupt "extractive" economic institutions, such as forced labor and confiscation of produce, to drain wealth and labor from the natives. (By extractive economic institutions, Acemoglu and Robinson mean practices and policies "designed to extract incomes and wealth from one subset of society [the masses] to benefit a different subset [the governing elite].")

But in formerly poor countries with sparse native populations, such as Costa Rica and Australia, European settlers had to work themselves and developed institutional incentives rewarding work. When the former colonies achieved independence, they variously inherited either the extractive institutions that coerced the masses to produce wealth for dictators and the elite, or else institutions by which the government shared power and gave people incentives to pursue. The extractive institutions retarded economic development, but incentivizing institutions promoted it.

The remaining factor contributing to good institutions, of which Acemoglu and Robinson mention some examples, involves another paradox, termed "the curse of natural resources." One might naively expect countries generously endowed with natural resources (such as minerals, oil, and tropical hardwoods) to be richer than countries poorer in natural resources. In fact, the trend is opposite, the result of the many ways in which national dependence on certain types of natural resources (like diamonds and oil) tends to promote bad institutions, such as corruption, civil wars, inflation, and neglect of education.

An example, mentioned in Chapter 12, is the diamond boom in Sierra Leone, which contributed to that nation's impoverishment. Other examples are Nigeria's and the Congo's poverty despite their wealth in oil and minerals respectively. In all three of those cases, selfish dictators or elites found that they themselves could become richer by taking the profits from natural resources for their personal gain, rather than investing the profits for the good of their nation. But some countries with prescient leaders or citizens avoided the curse of natural resources by investing the proceeds in economic development and education. As a result, oil-producing Norway is now the world's richest country, and oil-producing Trinidad and Tobago now enjoys an income approaching that of Britain, its former colonial ruler.

Those are the main sets of institutional factors promoting power, prosperity, or poverty, and their roots. The other large set consists of geographic factors with direct economic consequences not mediated by institutions. One of those geographic factors leaps out of a map of the world in Why Nations Fail that depicts national incomes. On that map, both Africa and the Americas resemble peanut butter sandwiches, with thick cores of poor tropical countries squeezed between two thin slices of richer countries in the north and south temperate zones.

In the New World the two north temperate countries (the US and Canada, average incomes respectively $47,390 and $43,270) and the three south temperate countries (Uruguay, Chile, and Argentina, respectively $10,590, $10,120, and $8,620) are all richer-on the average five times richer-than almost all of the intervening seventeen tropical countries of mainland Central and South America (incomes mostly between $1,110 and $6,970). Similarly, mainland Africa is a sandwich of thirty-seven mostly desperately poor tropical countries, flanked by two thin slices each consisting of five modestly affluent or less desperately poor countries in Africa's north and south temperate zones (see map).

Mike King

While institutions are undoubtedly part of the explanation, they leave much unexplained: some of those richer temperate countries are notorious for their histories of bad institutions (think of Algeria, Argentina, Egypt, and Libya), while some of the tropical countries (e.g., Costa Rica and Tanzania) have had relatively more honest governments. What are the economic disadvantages of a tropical location?

Two major factors contribute to the poverty of tropical countries compared to temperate countries: diseases and agricultural productivity. The tropics are notoriously unhealthy. Tropical diseases differ on average from temperate diseases, in several respects. First, there are far more parasitic diseases (such as elephantiasis and schistosomiasis) in tropical areas, because cold temperate winters kill parasite stages outside our bodies, but tropical parasites can thrive outside our bodies all year long. Second, disease vectors, such as mosquitoes and ticks, are far more diverse in tropical than in temperate areas.

Finally, biological characteristics of the responsible microbes have made it easier to develop vaccines against major infectious diseases of temperate areas than against tropical diseases; we still aren't close to a vaccine against malaria, despite billions of dollars invested. Hence tropical diseases impose a huge burden on economies of tropical countries. At any given moment, much of the population is sick and unable to work efficiently. Many women in tropical areas can't join the workforce because they are constantly nursing and caring for babies conceived as insurance against the expected deaths of some of their older children from malaria.

As for agricultural productivity, it averages lower in tropical than in temperate areas, again for several reasons. First, temperate plants store more energy in parts edible to us humans (such as seeds and tubers) than do tropical plants. Second, diseases borne by insects and other pests reduce crop yields more in the tropics than in the temperate zones, because the pests are more diverse and survive better year-round in tropical than in temperate areas. Third, glaciers repeatedly advanced and retreated over temperate areas, creating young nutrient-rich soils. Tropical lowland areas haven't been glaciated and hence tend to have older soils, leached of their nutrients by rain for thousands of years. (Young fertile volcanic and alluvial soils are exceptions.) Fourth, the higher average rainfall of tropical than of temperate areas results in more nutrients being leached out of the soil by rain.

Finally, higher tropical temperatures cause dead leaves and other organic matter falling to the ground to be broken down quickly by microbes and other organisms, releasing their nutrients to be leached away. Hence in temperate areas soil fertility is on average higher, crop losses to pests lower, and agricultural productivity higher than in tropical areas. That's why Argentina in South America's south temperate zone, despite its conspicuous lack (for most of its history) of the good institutions praised by economists, is the leading food exporter in Latin America, and one of the leading ones in the world.

Thus, geographical latitude acting independently of institutions is an important geographic factor affecting power, prosperity, and poverty. The other important geographic factor is whether an area is accessible to ocean-going ships because it lies either on the sea coast or on a navigable river. It costs roughly seven times more to ship a ton of cargo by land than by sea. That puts landlocked countries at an economic disadvantage, and helps explain why landlocked Bolivia and semilandlocked Paraguay are the poorest countries of South America. It also helps explain why Africa, with no river navigable to the sea for hundreds of miles except the Nile, and with fifteen landlocked nations, is the poorest continent. Eleven of those fifteen landlocked African nations have average incomes of $600 or less; only two countries outside Africa (Afghanistan and Nepal, both also landlocked) are as poor.

The remaining major factor underlying wealth and poverty is the state of the natural environment. All human populations depend to varying degrees on renewable natural resources-especially on forests, water, soils, and seafood. It's tricky to manage such resources sustainably. Countries that excessively deplete their resources-whether inadvertently or intentionally-tend to impoverish themselves, although the difficulty of estimating accurately the costs of resource destruction causes economists to ignore it. It helps explain why notoriously deforested countries-such as Haiti, Rwanda, Burundi, Madagascar, and Nepal-tend to be notoriously poor and politically unstable.

These, then, are the main factors invoked to understand why nations differ in wealth. The factors are multiple and diverse. We all know, from our personal experience, that there isn't one simple answer to the question why each of us becomes richer or poorer: it depends on inheritance, education, ambition, talent, health, personal connections, opportunities, and luck, just to mention some factors. Hence we shouldn't be surprised that the question of why whole societies become richer or poorer also cannot be given one simple answer.

Within this frame, Acemoglu and Robinson focus on institutional factors: initially on economic institutions, and then on the political institutions that create them. In their words, "while economic institutions are critical for determining whether a country is poor or prosperous, it is politics and political institutions that determine what economic institutions a country has." In particular, they stress what they term inclusive economic and political institutions: "Inclusive economic institutions...are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish." For example, in South Korea but not in North Korea people can get a good education, own property, start a business, sell products and services, accumulate and invest capital, spend money in open markets, take out a mortgage to buy a house, and thereby expect that by working harder they may enjoy a good life.

Such inclusive economic institutions in turn arise from "political institutions that distribute power broadly in society and subject it to constraints.... Instead of being vested in a single individual or a narrow group, [inclusive] political power rests with a broad coalition or a plurality of groups." South Korea recently, and Britain and the US beginning much earlier, do have broad participation of citizens in political decisions; North Korea does not. Inclusive economic and political institutions provide individuals with incentives to increase their economic productivity as they think best. Such inclusive institutions are to be contrasted with absolutist political institutions that narrowly concentrate political power, and with extractive economic institutions that force people to work largely for the benefit of dictators. The ultimate development of inclusive political institutions to date is in modern Scandinavian democracies with universal suffrage and relatively egalitarian societies. However, compared to modern dictatorships (like North Korea) and the absolute monarchies widespread in the past, societies (such as eighteenth-century Britain) in which only a minority of citizens could vote or participate in political decisions still represented a big advance toward inclusiveness.

From this striking dichotomy, the authors draw thought-provoking conclusions. While absolutist regimes with extractive economic institutions can sometimes achieve economic growth, that growth is based on existing technology, and is nonsustainable and prone to collapse; whereas inclusive institutions are required for sustained growth based on technological change. One might naively expect dictators to promote long-term economic growth, because such growth would generate more wealth for them to extract. But their efforts are warped, because what's economically good for individual citizens may be bad for the political elite, and because economic growth may be best promoted by political institutions that would shake the elite's hegemony.

Why Nations Fail offers case studies to illustrate these points: the economic rises and subsequent declines of the Soviet Union and the Ottoman Empire; the resistance of tsarist Russia and the Habsburg Empire to building railroads, out of fear that they would undermine the landed aristocracy's power and foster revolution; and, especially relevant today, the likely future trajectory of Communist China, whose growth prospects appear unlimited to many Western observers-but not to Acemoglu and Robinson, who write that China's growth "is likely to run out of steam."

In their narrow focus on inclusive institutions, however, the authors ignore or dismiss other factors. I mentioned earlier the effects of an area's being landlocked or of environmental damage, factors that they don't discuss. Even within the focus on institutions, the concentration specifically on inclusive institutions causes the authors to give inadequate accounts of the ways that natural resources can be a curse. True, the book provides anecdotes of the resource curse (Sierra Leone cursed by diamonds), and of how the curse was successfully avoided (in Botswana). But the book doesn't explain which resources especially lend themselves to the curse (diamonds yes, iron no) and why. Nor does the book show how some big resource producers like the US and Australia avoid the curse (they are democracies whose economies depend on much else besides resource exports), nor which other resource-dependent countries besides Sierra Leone and Botswana respectively succumbed to or overcame the curse. The chapter on reversal of fortune surprisingly doesn't mention the authors' own interesting findings about how the degree of reversal depends on prior wealth and on health threats to Europeans.

Two major factors that Acemoglu and Robinson do mention, only to dismiss them in a few sentences, are tropical diseases and tropical agricultural productivity:

Tropical diseases obviously cause much suffering and high rates of infant mortality in Africa, but they are not the reason Africa is poor. Disease is largely a consequence of poverty and of governments being unable or unwilling to undertake the public health measures necessary to eradicate them.... The prime determinant of why agricultural productivity-agricultural output per acre-is so low in many poor countries, particularly in sub-Saharan Africa, has little to do with soil quality. Rather, it is a consequence of the ownership structure of the land and the incentives that are created for farmers by the governments and institutions under which they live.

These sweeping statements, which will astonish anyone knowledgeable about the subjects, brush off two entire fields of science, tropical medicine and agricultural science. As I summarized above, the well-known facts of tropical biology, geology, and climatology saddle tropical countries with much bigger problems than temperate countries.

A second weakness involves the historical origins of what Acemoglu and Robinson identify as inclusive economic and political institutions, with their consequences for wealth. Some countries, such as Britain and Japan, have such institutions, while other countries, such as Ethiopia and the Congo, don't. To explain why, the authors give a just-so story of each country's history, which ends by concluding that that story explains why that country either did or didn't develop good institutions. For instance, Britain adopted inclusive institutions, we are told, as a result of the Glorious Revolution of 1688 and preceding events; and Japan reformed its institutions after 1868; but Ethiopia remained absolutist. Acemoglu and Robinson's view of history is that small effects at critical junctures have long-lasting effects, so it's hard to make predictions. While they don't say so explicitly, this view suggests that good institutions should have cropped up randomly around the world, depending on who happened to decide what at some particular place and time.

But it's obvious that good institutions, and the wealth and power that they spawned, did not crop up randomly. For instance, all Western European countries ended up richer and with better institutions than any tropical African country. Big underlying differences led to this divergence of outcomes. Europe has had a long history (of up to nine thousand years) of agriculture based on the world's most productive crops and domestic animals, both of which were domesticated in and introduced to Europe from the Fertile Crescent, the crescent-shaped region running from the Persian Gulf through southeastern Turkey to Upper Egypt. Agriculture in tropical Africa is only between 1,800 and 5,000 years old and based on less productive domesticated crops and imported animals.

As a result, Europe has had up to four thousand years' experience of government, complex institutions, and growing national identities, compared to a few centuries or less for all of sub-Saharan Africa. Europe has glaciated fertile soils, reliable summer rainfall, and few tropical diseases; tropical Africa has unglaciated and extensively infertile soils, less reliable rainfall, and many tropical diseases. Within Europe, Britain had the further advantages of being an island rarely at risk from foreign armies, and of fronting on the Atlantic Ocean, which became open after 1492 to overseas trade.

It should be no surprise that countries with those advantages ended up rich and with good institutions, while countries with those disadvantages didn't. The chain of causation leading slowly from productive agriculture to government, state formation, complex institutions, and wealth involved agriculturally driven population explosions and accumulations of food surpluses, leading in turn to the need for centralized decision-making in societies much too populous for decision-making by face-to-face discussions involving all citizens, and the possibility of using the food surpluses to support kings and their bureaucrats. This process unfolded independently, beginning around 3400 BC, in many different parts of the ancient world with productive agriculture, including the Fertile Crescent, Egypt, China, the Indus Valley, Crete, the Valley of Mexico, the Andes, and Polynesian Hawaii.

The remaining weakness is the authors' resort to assertion unsupported or contradicted by facts. An example is their attempt to expand their focus on institutions in order to explain the origins of agriculture. All humans were originally hunter/gatherers who independently became farmers in only about nine small areas scattered around the world. A century of research by botanists and archaeologists has shown that what made those areas exceptional was their wealth of wild plant and animal species suitable for domestication (such as wild wheats and corn).

While the usual pattern was for nomadic hunter/gatherers to become sedentary farmers, there were exceptions: some nomadic hunter/gatherers initially became nomadic farmers (Mexico and lowland New Guinea) while others never became farmers (Aboriginal Australia); some sedentary hunter/gatherers became sedentary farmers (the Fertile Crescent) while others never became farmers (Pacific Northwest Indians); and some sedentary farmers reverted to being nomadic hunter/gatherers (southern Sweden about four thousand years ago).

In their Chapter 5, Acemoglu and Robinson use one of those exceptional patterns (that for the Fertile Crescent) to assert, in the complete absence of evidence, that those particular hunter/gatherers had become sedentary because, for unknown reasons, they happened to develop innovative institutions through a hypothesized political revolution. They assert further that the origins of farming depended on their preferred explanation of institutional innovation, rather than on the local availability of domesticable wild species identified by botanists and archaeologists.

Among arguments to refute that widely shared interpretation, Acemoglu and Robinson redraw in their Map 5 on page 56 the maps on pages 56 and 66 of archaeobotanists Daniel Zohary and Maria Hopf's book Domestication of Plants in the Old World, depicting the distributions of wild barley and of one of the two hybrid ancestors of one of the three wheats (which Acemoglu and Robinson misleadingly identify just as "wheat"). They take these maps to mean that "the ancestors of barley and wheat were distributed along a long arc" beyond the Fertile Crescent, hence that the Fertile Crescent's unique role in agriculture's origins "was not determined by the availability of plant and animal species."

What Zohary and Hopf actually showed was that wild emmer wheat is confined to the Fertile Crescent, and that the areas of extensive spread of wild barley and wild einkorn wheat are also confined to the Fertile Crescent, and that the wild ancestors of all the other original Fertile Crescent crops are also confined to or centered on the Fertile Crescent, and hence that the Fertile Crescent was the only area in which local agriculture could have arisen. Acemoglu and Robinson do themselves a disservice by misstating these findings.

My overall assessment of the authors' argument is that inclusive institutions, while not the overwhelming determinant of prosperity that they claim, are an important factor. Perhaps they provide 50 percent of the explanation for national differences in prosperity. That's enough to establish such institutions as one of the major forces in the modern world. Why Nations Fail offers an excellent way for any interested reader to learn about them and their consequences. Whereas most writing by academic economists is incomprehensible to the lay public, Acemoglu and Robinson have written this book so that it can be understood and enjoyed by all of us who aren't economists.

Why Nations Fail should be required reading for politicians and anyone concerned with economic development. The authors' discussions of what can and can't be done today to improve conditions in poor countries are thought-provoking and will stimulate debate. Donors and international agencies try to "engineer prosperity" either by foreign aid or by urging poor countries to adopt good economic policies. But there is widespread disappointment with the results of these well-intentioned efforts. Acemoglu and Robinson pithily diagnose the cause of these disappointing outcomes in their final chapter: "Attempting to engineer prosperity without confronting the root cause of the problems-extractive institutions and the politics that keeps them in place-is unlikely to bear fruit."

Letters

'Why Nations Fail' July 26, 2012

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Power, prosperity, and poverty vary greatly around the world. Norway, the world's richest country, is 496 times richer than Burundi, the world's poorest country. Why? That's a central question of economics. Different economists have different views about the relative importance of the conditions and factors that make countries richer or poorer.

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This lesson plan examines what tools are available to policymakers to influence trade amongst other nations. Students will learn key vocabulary associated with trade liberalization and will debate the strengths and limitations of trade agreements. In addition, students will participate in mock NAFTA negotiations.

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The High Cost of Cheap Fashion (with Lesson Plan) | The Lowdown | KQED News

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The High Cost of Cheap Fashion (with Lesson Plan) | The Lowdown | KQED News

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Suggestions for nonfiction analysis, writing/discussion prompts and multimedia projects. Browse our lesson plan collection here.
Note: This is an updated version of a post originally published in 2013.
Everyone likes a good deal, especially during the cutthroat holiday shopping season.

And that's why you've likely flocked to clothing stores like H&M and Old Navy, where the selection is expansive and astoundingly inexpensive.

T-shirts for five bucks; jeans and dresses for under 20. It's almost as though you can't afford not to buy it.

Americans, on average, now spend a significantly smaller portion of their incomes on clothing, yet have more expansive wardrobes than ever before.

Buying a whole new wardrobe is almost cheaper than the cost of washing your old one (a bit of an exaggeration, but not all that far off).

But those deals don't come without a catch.

Out of sight, out of mind

One consequence of cheap clothing received international attention in 2013, when an eight-story garment factory in Bangladesh collapsed, killing more than 1,100 workers who were manufacturing clothing for American and European retailers.

Bangladeshi garment workers, the majority of them women, receive among the world's lowest wages. At the time of the disaster, the minimum wage was roughly $38 per month. In November 2013, amid local labor unrest and international pressure, it was increased to $68 per month.

Rana Plaza, the building near Dhaka that collapsed, was owned by a local politician who illegally built three additional floors onto the structure and installed heavy textile machinery. Even after large cracks were found in the walls the day before the disaster, factory supervisors - under pressure to fill orders - ignored warnings to vacate the building, and ordered workers to continue production.

This was the deadliest industrial disaster in Bangladesh's history, but certainly not the only one in recent memory. Just the year before, 112 garment workers were killed in a factory fire near Dhaka, when supervisors ignored fire alarms and prevented workers from leaving their sewing machines.

Why Bangladesh?

Labor and production costs are dirt cheap. Making clothes in Bangladesh costs less than just about anywhere else in the world.

Take a quick look at the tags on your clothing. There's a good chance at least some of them were made in Bangladesh. Since the 1990s, Bangladesh's ready-made garment industry has exploded, and now generates close to $20 billion a year in exports. It's now one of the largest apparel exporters in the world, second only to China (which still far outpaces any other nation in exports, but has lost a good deal of contracts to Bangladesh, where production costs are even cheaper). Bangladesh is currently the third-largest apparel importer to the United States, after China and Vietnam.

Meanwhile, employment in the U.S. apparel manufacturing industry has declined by more than 80 percent in the last two decades, from about 900,000 to 150,000 jobs, according to the Bureau of Labor Statistics. As recently as 1980, 70 percent of clothes sold in the United States were made domestically. Today, that's down to about 2 percent.

[ RELATED: Why America Stopped Making Its Own Clothes]

Fast Fashion

Most large clothing brands used to have seasonal fashion lines that would remain on the shelves for at least few months. But go into an H&M store today and then go back again a week or two later, and you'll likely find a completely changed inventory. This is the concept behind fast fashion, pioneered over the last 15 years by European brands like H&M and Zana, and to a lesser extent, The Gap, Benetton, Urban Outfitters and Forever 21. The idea is to capture the latest design trends and whisk them from the catwalk to the store, producing trendy but generally low-quality garments in the fastest, most cost-effective way possible.

In an interview with NPR, Elizabeth Cline, author of Overdressed: The Shockingly High Price of Fast Fashion, explained that stores like H&M produce hundreds of millions of garments per year. "They put a small markup on the clothes and earn their profit out of selling an ocean of clothing," she says. H&M has about 2,800 stores in 48 markets and it's growing fast, especially in China and the United States.

But with companies making billions and consumers getting great deals, the cost has to be absorbed somewhere. And that's where cheap factories in developing countries like Bangladesh come into the fray, often to the detriment of workers and the environment.

So who's to blame?

There's no simple answer. It's easy to blame the big clothing companies, many of whom reap enormous profits, fully aware of the decrepit conditions where their products are made. After the huge factory fire last November, a number of major clothing brands and retailers rejected a union-sponsored proposal to improve safety throughout Bangladesh's garment industry, the Associated Press reported. Instead, companies expanded a patchwork system of private audits and training, which labor groups allege do little and lack any real enforcement mechanism.

The textile factories are almost all locally owned and managed, allowing Western retailers to maintain a distance from them and turn a blind eye to factory-floor conditions. And blame, of course, can also be directed at the factory owners and Bangladeshi government officials who knowingly exploit and endanger the workforce.

[ RELATED: Where Was Your T-Shirt Made?]

In the wake of the Rana Plaza disaster, a growing number of major designers, including H&M, Zana and Benetton, signed on to a legally binding agreement to pay for major safety improvements. And since then, fire and safety assessments have been conducted in several thousand Bangladeshi factories where their clothing is made.

But only a small group of American companies signed on.

The Gap, Wal-Mart, Sears and Target are among the major American clothing retailers that balked at joining the accord, despite relying heavily on Bangladeshi suppliers. Some companies counter that they have their own safety improvement measures in place, while others, like Disney, have announced that they will leave Bangladesh altogether.

Western companies are often quick to argue that although wages and working conditions in Bangladesh are far from ideal, they're a lot better than they would be if the garment industry wasn't there at all. Western demand has created jobs and training for millions of people, particularly women, offering a greater degree of independence and economic security. Since the arrival of textile manufacturing in the late 1970s, Bangladesh's poverty rate has fallen from about 70 percent to less than 40 percent. And even though about half the country still lives on less than a dollar a day, income has risen markedly for large swaths of the population. Health and education have improved incrementally as well.

What role do you play?

And then there's us. Consumers in Western nations now buy more clothes than ever before, according to Cline, particularly cheap clothes that aren't made to last. Factory conditions would likely improve if consumers were to demand it, especially if we were willing to pay more for our clothes and absorb some of the costs .

But that's easier said than done. It's one thing to be horrified by Bangladesh's recent tragedy and to hope conditions improve. It's quite another thing, though, to choose to pay more for clothes that were ethically manufactured. With the exception of the worst tragedies that grab our attention, most of the inequities in this system are out of sight, out of mind. Which makes it all too easy to pretend they don't exist.

Which begs the question: How much more would you be willing to pay to know your clothes were being produced in an ethical manner?

NPR's Planet Money show is documenting how T-shirts around the world are made.

Resources to further explore this issue

Lesson plan suggestions for using this issue in the classroom International labor rights advocacy groups Sites that help track product origins in the global supply chain Corporate responsibility statements from some major clothing retailers
The High Cost of Cheap Fashion (with Lesson Plan)

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The High Cost of Cheap Fashion (with Lesson Plan)

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Teach with the Lowdown Suggestions for nonfiction analysis, writing/discussion prompts and multimedia projects. Browse our lesson plan collection here. Lesson Plan: The Global Apparel Industry (PDF) Note: This is an updated version of a post originally published in 2013. Everyone likes a good deal, especially during the cutthroat holiday shopping season.

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OEC: The Observatory of Economic Complexity

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OEC: The Observatory of Economic Complexity

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OEC: The Observatory of Economic Complexity

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An online resource for international trade data and economic complexity indicators available through interactive visualizations of countries and products.

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Everything with the topic 'What Is The Iphone?' on Motherboard

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Movie Web site with the most comprehensive box office database on the Internet.

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A growing collection of links to interesting data that might inspire an amazing math project!

Actors who appear in the most award-winning films

States with a population less than Los Angeles County?

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Video Game Genre Dominance

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A very bad graph

The demise of live action PG films

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Cherry blossom peak bloom times shift

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Mapping how the United States generates its electricity - Washington Post

Visualistan

Box Office Breakdown by MPAA Ratings

Actresses' ages vs their love interests'

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Your Life in Weeks

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Shrinking airline seats data

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Shipping containers photographed from on high.

U.S. Cheese Inventories Soars

Roller Coaster DataBase

Stats about automobile usage and safety

San Francisco Hotels Are World s Priciest

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Soda vs Juice vs Energy Drink Consumption

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Steph Curry is breaking basketball

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All of the World's Money and Markets in One Visualization

Amazon captures almost 40% of holiday shopping

Pace of Technology Adoption keeps speeding up

Girl Scout cookie prices going from $4 to $5 a box

List of the road mileage of every US state

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US Chicken availability has tripled since 1965

America is full of high earners who remain poor

Scaling laws and the speed of animals

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Rent in Vegas Commute to San Francisco - Save $1124 a month

Extrapolations from old stats

Tech products historical price trends

Bottled Water Sales Rising as Soda Ebbs

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Running for weight loss? Prepare to be patient

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A growing collection of links to interesting data that might inspire an amazing math project! Actors who appear in the most award-winning films States with a population less than Los Angeles County?

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NPR : National Public Radio : News & Analysis, World, US, Music & Arts : NPR

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NPR : National Public Radio : News & Analysis, World, US, Music & Arts : NPR

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NPR - Breaking News, Analysis, Music, Arts & Podcasts

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Top stories in the U.S. and world news, politics, health, science, business, music, arts and culture. Nonprofit journalism with a mission. This is NPR.

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Kiva is the world's first online lending platform. For as little as $25 you can lend to an entrepreneur around the world. Learn more here.

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Newsela is an Instructional Content Platform that supercharges reading engagement and learning in every subject.

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The source for business news and analysis. Covering economic policy, business policy, financial news, economic issues, stock market data, local business, technology and more.

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The New York Times in Print for Sunday, August 26, 2018

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The New York Times in Print for Sunday, August 26, 2018

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Looking for targeted responses to your surveys?
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SurveyMonkey: The World's Most Popular Free Online Survey Tool

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Use SurveyMonkey to drive your business forward by using our free online survey and forms tool to capture the voices and opinions of the people who matter most to you.

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Business & Finance News - Wall Street Journal

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Business & Finance News - Wall Street Journal

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Breaking news and exclusive analysis on business, including the latest news on tech, media and earnings.

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Teachers consistently tell us about the positive influence our programs have on their students. The educational impact of the SIFMA Foundation's Stock Market Game ™ is unmatched, with proven increases in student attendance, engagement and class participation, and improved academic performance and financial behavior.

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Worldometers - real time world statistics

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Worldometers - real time world statistics

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World Population:

reached 8 billion on November 15, 2022 according to the latest United Nations estimates.

is projected to reach 9 billion in 2037, and 10 billion in 2058.

has doubled in 40 years from 1959 (3 billion) to 1999 (6 billion).

is currently (2023) growing at a rate of around 0.88% per year, adding around 70 million people per year to the total.

growth rate reached its peak in the late 1960s, when it was at 2.09%.

growth rate is currently declining and is projected to continue to decline in the coming years (reaching below 0.50% by 2048, reach 0 in 2086, and decline by -0.11% in 2100) .

a tremendous change occurred with the industrial revolution: whereas it had taken all of human history up to the year 1800 for world population to reach 1 billion, the second billion was achieved in only 130 years (1930), the third billion in 30 years (1960), the fourth billion in 15 years (1974), the fifth billion in 13 years (1987), the sixth billion in 11 years (1998), the seventh billion and eighth billion in 12 years each (2010 and 2022). During the 20th century alone, the population in the world has grown from 1.65 billion to 6 billion.

Sources for the world population counter: For more detailed information:

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Worldometer - real time world statistics

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Live world statistics on population, government and economics, society and media, environment, food, water, energy and health. Interesting statistics with world population clock, forest loss this year, carbon dioxide co2 emission, world hunger data, energy consumed, and a lot more

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Board of Governors of the Federal Reserve System

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Board of Governors of the Federal Reserve System

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board of governors of the federal reserve system

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The Federal Reserve Board of Governors in Washington DC.

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Clive Thompson Explains Why Videogames Are the Grim Future of Work | WIRED

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Clive Thompson Explains Why Videogames Are the Grim Future of Work | WIRED

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Look at economic data closely and the trends aren't pretty: People with elite backgrounds are hoovering up an increasing share of new income and wealth. Automation is obviating more and more jobs. In the years to come, we'll need new forms of employment. Let's crystal-ball this: Will there be a new way for the working class of the future to earn a paycheck? Sure. Playing videogames.

That's the bold prediction of Edward Castronova, an academic at Indiana University who studies the economics of online games. In a white paper released last fall, he argues that within 20 years, "playing games for money will come to be seen as a legitimate occupational choice for those whose skills are not valued by brick-and-mortar labor markets."

Sounds nuts, right? But Castronova lays out the trend lines. First, consider how online games have evolved. Fifteen years ago you typically paid about $15 a month to play. But in the past decade, game companies have devised the free-to-play model: It costs nothing to join the action, but if you want something cool-specialty armor, a "mount" for traveling faster-you have to buy it. This model has been wildly profitable. A top-rated free-to-play title, like Clash Royale, now brings in about $2.1 million a day from such purchases.

Here's the thing, though: As with casinos, most of the revenue comes from "whales," a tiny percentage of players who spend thousands annually. A study last spring by Swrve (a firm that helps companies market their in-game items) discovered that just 0.2 percent of players are responsible for 48 percent of all revenue. In effect, a small population of high-spending players is subsidizing the masses.

Castronova predicts that economic trends will force those subsidies to grow. Think about it: Automation will create huge masses of unemployed would-be factory workers. The superrich will number fewer and fewer and get richer and richer. Which means game companies will drift toward a virtual-world New Deal. They'll have to soak their whales more and more to stay in business, but keeping them happy will require making sure their worlds are vibrant communities. So the game companies need those low-spending, poorer folks to show up. Rich players don't want to play with bots; they crave the social fellowship of real humans. And they also enjoy the thrill of lording their socioeconomic status over others. (It's casino psychology again: "The big shots want to walk into a crowded casino and go into the high rollers' room," Castronova says, "walking past a guy like me playing craps.")

That means the game companies will have to underwrite poor players. In the next 10 years, the companies might issue reward cards, spendable in the real world. But eventually, 20 years on, the companies might find they need to pay to keep the proles alive and in the game.

Let's be clear. This would not be, as Castronova himself acknowledges, utopia. This would be game design via Marx's immiseration theory. "It's not a good life," Castronova says-not merely because of the likely-skimpy wages, but because of the isolation. Now, low-skill gamers with few other work options might be happy enough at this work; as economist Erik Hurst has found, when today's non-college-educated men drop out of the workforce, they mostly play games anyway. "This feels like something that is going to happen," says Mike Sellers, a veteran of free-to-play firms and a professor at Indiana University.

And I have a sinking feeling that Castronova is onto something. Political leaders are doing little to prepare the US for automation-propelled job loss. In that absence, the market will chart its own path, and that makes schemes like this all too plausible. When it comes to the game of real-world economics, people have no choice but to play.
This article appears in the March issue. Subscribe now.

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Face It, Meatsack: Pro Gamer Will Be the Only Job Left

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Look at economic data closely and the trends aren't pretty: People with elite backgrounds are hoovering up an increasing share of new income and wealth. Automation is obviating more and more jobs. In the years to come, we'll need new forms of employment.

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China Makes Almost Nothing Out of Apple's iPads and iPhones

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China Makes Almost Nothing Out of Apple's iPads and iPhones

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My favorite fact of this past year was the proof that China makes almost nothing out of assembling Apple's iPads and iPhones. It's a favorite because it speaks so directly to one of the great political arguments going on in both the US and the UK. I refer, of course, to this very strange idea that both countries would get (even) richer if only they would do more manufacturing.

The paper itself is here and it's an analysis of who gets what out of the sales price of either an iPad or iPhone.

This article analyzes the distribution of value from innovation in the global supply chains of the Apple iPad and iPhone. We find that Apple continues to capture the largest share of value from these innovations. While these products, including most of their components, are manufactured in China, the primary benefits go to the U.S. economy as Apple continues to keep most of its product design, software development, product management, marketing and other high-wage functions in the U.S. China's role is much smaller than most casual observers would think. A key finding for managers is that they need to beware of relying too heavily on single customers. With its control over the supply chain, Apple has the power to make and break the fortunes of many of its suppliers. A key finding for policymakers is that there is little value in electronics assembly. Bringing high-volume electronics assembly back to the U.S. is not the path to "good jobs" or economic growth.

Or more simply seen in these charts at Mark Perry's.

As you can see the two largest inputs are materials and Apple's own profit margin. Despite the machine being assembled in China it's still true that the value of that labour is trivial: 2% or so of the cost of the machine.

Here the amount that goes to Apple's profits is even higher and China's labour input about the same.

The reason the profits are so much higher is really a measurement issue: the iPhone tends to be sold through the networks, thus the sales costs are somewhere in the networks' accounts, not here.

But here's the real takeaway point from these numbers. Basic manufacturing, electronics assembly type manufacturing, simply isn't a high value occupation any more. And the level of wages that can be paid in any particular occupation depend, inexorably, on the amount of value that occupation adds. So if electronics assembly adds little value then there simply cannot be high wages for those doing that work for it just isn't a high value added occupation.

So quite why there are those insisting that bringing all this manufacturing "home", to the UK or US, will lead to lots of well paid jobs in manufacturing I'm just not sure. There are indeed high paid jobs in manufacturing, as the onshoring of Samsung's chip plant for Apple shows. But that's producing 1,100 jobs to produce all of the processing chips for all of Apple's products.

If you like, the end lesson here is that you can have lots of manufacturing jobs, sure, as Foxconn does, but they pay $400 a month maybe. And you can have high paying manufacturing jobs like at that Samsung plant in Texas, but you're not going to get very many of them.

If you want lots of jobs and lots of high paying jobs then you're not going to find them in manufacturing. They're where the money is, in the design, the software and the retailing of the products, not the physical making of them. Manufacturing is just so, you know, 20 th century.

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China Makes Almost Nothing Out of Apple's iPads and iPhones

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My favorite fact of this past year was the proof that China makes almost nothing out of assembling Apple's iPads and iPhones. It's a favorite because it speaks so directly to one of the great political arguments going on in both the US and the UK. I refer, of course, [...]

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The Future of Not Working - The New York Times

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The Future of Not Working - The New York Times

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The village is poor, even by the standards of rural Kenya. To get there, you follow a power line along a series of unmarked roads. Eventually, that power line connects to the school at the center of town, the sole building with electricity. Homesteads fan out into the hilly bramble, connected by rugged paths. There is just one working water tap, requiring many local women to gather water from a pit in jerrycans. There is no plumbing, and some families still practice open defecation, lacking the resources to dig a latrine. There aren't even oxen strong enough to pull a plow, meaning that most farming is still done by hand. The village is poor enough that it is considered rude to eat in public, which is seen as boasting that you have food.

In October, I visited Kennedy Aswan Abagi, the village chief, at his small red-earth home, decorated with posters celebrating the death of Osama bin Laden and the lives of African heroes, including JaKogelo, or "the man from Kogelo," as locals refer to former President Barack Obama. Kogelo, where Obama's father was born, is just 20 miles from the village, which lies close to the banks of Lake Victoria. Abagi told me about the day his town's fate changed. It happened during the summer, when field officers from an American nonprofit called GiveDirectly paid a visit, making an unbelievable promise: They wanted to give everyone money, no strings attached. "I asked, 'Why this village?' " Abagi recalled, but he never got a clear answer, or one that made much sense to him.

The villagers had seen Western aid groups come through before, sure, but nearly all of them brought stuff, not money. And because many of these organizations were religious, their gifts came with moral impositions; I was told that one declined to help a young mother whose child was born out of wedlock, for example. With little sense of who would get what and how and from whom and why, rumors blossomed. One villager heard that GiveDirectly would kidnap children. Some thought that the organization was aligned with the Illuminati, or that it would blight the village with giant snakes, or that it performed blood magic. Others heard that the money was coming from Obama himself.

But the confusion faded that unseasonably cool morning in October, when a GiveDirectly team returned to explain themselves during a town meeting. Nearly all of the village's 220 people crowded into a blue-and-white tent placed near the school building, watching nervously as 13 strangers, a few of them white, sat on plastic chairs opposite them. Lydia Tala, a Kenyan GiveDirectly staff member, got up to address the group in Dholuo. She spoke at a deliberate pace, awaiting a hum and a nod from the crowd before she moved on: These visitors are from GiveDirectly. GiveDirectly is a nongovernmental organization that is not affiliated with any political party. GiveDirectly is based in the United States. GiveDirectly works with mobile phones. Each person must have his or her own mobile phone, and they must keep their PIN secret. Nobody must involve themselves in criminal activity or terrorism. This went on for nearly two hours. The children were growing restless.

Finally, Tala passed the microphone to her colleague, Brian Ouma. "People of the village," he said, "are you happy?"

"We are!" they cried in unison.

Then he laid out the particulars. "Every registered person will receive 2,280 shillings" - about $22 - "each and every month. You hear me?" The audience gasped and burst into wild applause. "Every person we register here will receive the money, I said - 2,280 shillings! Every month. This money, you will get for the next 12 years. How many years?"

"Twelve years!"

Just like that, with peals of ululation and children breaking into dance in front of the strangers, the whole village was lifted out of extreme poverty. (I have agreed to withhold its name out of concern for the villagers' safety.) The nonprofit is in the process of registering roughly 40 more villages with a total of 6,000 adult residents, giving those people a guaranteed, 12-year-long, poverty-ending income. An additional 80 villages, with 11,500 residents all together, will receive a two-year basic income. With this initiative, GiveDirectly - with an office in New York and funded in no small part by Silicon Valley - is starting the world's first true test of a universal basic income. The idea is perhaps most in vogue in chilly, left-leaning places, among them Canada, Finland, the Netherlands and Scotland. But many economists think it might have the most promise in places with poorer populations, like India and sub-Saharan Africa.

GiveDirectly wants to show the world that a basic income is a cheap, scalable way to aid the poorest people on the planet. "We have the resources to eliminate extreme poverty this year," Michael Faye, a founder of GiveDirectly, told me. But these resources are often misallocated or wasted. His nonprofit wants to upend incumbent charities, offering major donors a platform to push money to the world's neediest immediately and practically without cost.

What happens in this village has the potential to transform foreign-aid institutions, but its effects might also be felt closer to home. A growing crowd, including many of GiveDirectly's backers in Silicon Valley, are looking at this pilot project not just as a means of charity but also as the groundwork for an argument that a universal basic income might be right for you, me and everyone else around the world too.

The basic or guaranteed income is a curious piece of intellectual flotsam that has washed ashore several times in the past half-millennium, often during periods of great economic upheaval. In "Utopia," published in 1516, Thomas More suggests it as a way to help feudal farmers hurt by the conversion of common land for public use into private land for commercial use. In "Agrarian Justice," published in 1797, Thomas Paine supports it for similar reasons, as compensation for the "loss of his or her natural inheritance, by the introduction of the system of landed property." It reappears in the writings of French radicals, of Bertrand Russell, of the Rev. Dr. Martin Luther King Jr.

Silicon Valley has recently become obsessed with basic income for reasons simultaneously generous and self-interested, as a palliative for the societal turbulence its inventions might unleash. Many technologists believe we are living at the precipice of an artificial-intelligence revolution that could vault humanity into a postwork future. In the past few years, artificially intelligent systems have become proficient at a startling number of tasks, from reading cancer scans to piloting a car to summarizing a sports game to translating prose. Any job that can be broken down into discrete, repeatable tasks - financial analytics, marketing, legal work - could be automated out of existence.

In this vision of the future, our economy could turn into a funhouse-mirror version of itself: extreme income and wealth inequality, rising poverty, mass unemployment, a shrinking prime-age labor force. It would be more George Saunders than George Jetson. But what does this all have to do with a small village in Kenya?

A universal basic income has thus far lacked what tech folks might call a proof of concept. There have been a handful of experiments, including ones in Canada, India and Namibia. Finland is sending money to unemployed people, and the Dutch city Utrecht is doing a trial run, too. But no experiment has been truly complete, studying what happens when you give a whole community money for an extended period of time - when nobody has to worry where his or her next meal is coming from or fear the loss of a job or the birth of a child.

And so, the tech industry is getting behind GiveDirectly and other organizations testing the idea out. Chris Hughes, a Facebook founder and briefly the owner of The New Republic, has started a $10 million, two-year initiative to explore the viability of a basic income. (He has also been a major donor to GiveDirectly.) The research wing of Sam Altman's start-up incubator, Y Combinator, is planning to pass out money to 1,000 families in California and another yet-to-be-determined state. Then there is GiveDirectly itself, which has attracted $24 million in donations for its basic-income effort, including money from founders of Facebook, Instagram, eBay and a number of other Silicon Valley companies. Many donors I spoke with cited their interest in the project as purely philanthropic. But others saw it as a chance to learn more about a universal basic income, a way to prove that it could work and a chance to show people the human face of a hypothetical policy fix.

In December, Altman, the 31-year-old president of Y Combinator, spoke at an anti-poverty event hosted by Stanford, the White House and the Chan Zuckerberg Initiative, the charitable institution the Facebook billionaire founded with his wife, Priscilla. Altman discussed the potential for basic income to alleviate poverty, but his speech veered back to the dark questions that hang over all this philanthropy: Is Silicon Valley about to put the world out of work? And if so, do technologists owe the world a solution?

"There have been these moments where we have had these major technology revolutions - the Agricultural Revolution, the Industrial Revolution, for example - that have really changed the world in a big way," Altman said. "I think we're in the middle or at least on the cusp of another one."

GiveDirectly may be a charity, but it speaks in the argot of Silicon Valley. It is a platform, connecting donors and recipients, that prides itself on low overhead and superior analytics. It disdains what it sees as the bloated, expensive, stuck-in-their-ways incumbents that dominate the nonprofit space. And it even has a privileged bootstrapping creation story, beginning with its 20-something founders batting the idea around in Harvard Square academic buildings and scraping together money from friends.

The idea for the nonprofit came to Michael Faye and Paul Niehaus, who is now a professor of economics at the University of California, San Diego, when they were graduate students at Harvard. Both were studying development and doing fieldwork overseas, an experience that underlined an Economics 101 lesson: Cash was more valuable to its recipients than the in-kind gifts commonly distributed by aid groups, like food or bed nets or sports equipment. If you're hungry, you cannot eat a bed net. If your village is suffering from endemic diarrhea, soccer balls won't be worth much to you. "Once you've been there, it's hard to imagine doing anything but cash," Faye told me. "It's so deeply uncomfortable to ask someone if they want cash or something else. They look at you like it's a trick question."

But at the time, distributing cash aid in a country with little to no banking infrastructure outside major cities would have required an extraordinary amount of manpower, not to mention introducing the risk of robbery and graft. But dirt-cheap mobile phones with pay-as-you-go minutes began flooding into sub-Saharan African markets in the 2000s. Enterprising Ghanaians, Kenyans and Nigerians started to use their minutes as a kind of currency. In 2007, Vodafone and the British Department for International Development together built a system, called M-Pesa, for Kenyans to transfer actual shillings from cellphone to cellphone. An estimated 96 percent of Kenyan households use the system today.

Faye and Niehaus - along with their friends Rohit Wanchoo and Jeremy Shapiro, also graduate students - thought about setting up a website to raise cash in the United States and send it directly to poor Kenyans. But they never found a nonprofit that would distribute that cash abroad. They decided to do it themselves in 2008. "Because it was a start-up, and we started in grad school," Faye said, "we were open to the idea of it being wrong or failing."

The following year, Faye traveled to small Kenyan villages during the summer break, offering cash to whoever seemed poor and would take it. (The money, about $5,000, came out of the foursome's own pockets.) That, surprisingly, worked well enough to give them the confidence to start a threadbare randomized control trial the year they graduated. It found that the recipients, who received an average of $500, saw excellent outcomes: Their children were 42 percent less likely to go a whole day without eating. Domestic-violence rates dropped, and mental health improved.

In time, the nonprofit attracted the attention of Silicon Valley and its deep-pocketed young philanthropists. Two Facebook founders gave six-figure donations. Then, in the spring of 2012, Faye went to a friend's brunch in Brooklyn and met someone working for Google.org, the tech giant's giving arm. She liked the sound of GiveDirectly and arranged for Faye and Niehaus to give a presentation at Google's headquarters in Mountain View, Calif. The company ended up contributing $2.4 million.

At first, GiveDirectly handed out large lump sums, generally $1,000 spread into three payments over the course of the year. The nonprofit's field officers would locate low-income villages in Kenya, then find the poorest families in each individual village using a simple asset test (whether a family had a thatched roof or not). The field officers would introduce themselves to the town elders, explain their purpose and return to provide mobile phones and training to recipient families. Then GiveDirectly would push a button and send the money out.

On a steaming October morning, I went with two GiveDirectly executives, Joanna Macrae and Ian Bassin, to visit one of the villages that had received GiveDirectly's lump-sum payments. We took off at dawn from Kisumu, a bustling industrial city on the banks of Lake Victoria, and followed a two-lane highway to Bondo, a small trading city filled with cattle, bicycles and roadside food stands. From there, we turned inland from the lake and drove into a lush agricultural region.

The residents of this village had received money in 2013, and it was visibly better off than the basic-income pilot village. Its clearings were filled with mango plantings, its cows sturdy. A small lake on the outskirts had been lined with nets for catching fish. "Could you imagine sitting in an office in London or New York trying to figure out what this village needs?" Bassin said as he admired a well-fed cow tied up by the lakeside. "It would just be impossible."

Perhaps, but delivering money by M-Pesa has some downsides, too. We visited an older woman named Anjelina Akoth Ngalo, her joints painful and swollen with advanced malaria. Sitting in her thatched-roof hut, she told us that she had received only one payment, not the three that she was promised. She had given her phone to a woman in a nearby village who transferred the money out of it. Ngalo visited the village elder to try to get her money back, but nothing had come of it. She was now destitute, living on about $5 a week. She had not eaten since the day before, and she had run out of malaria medication. (Bassin said that less than 1 percent of recipients experience theft, crime or conflict.)

By giving money to some but not all, the organization had unwittingly strained the social fabric of some of these tight-knit tribal communities. One man we visited in a separate village nearby, Nicolus Owuor Otin, had acted as a liaison between the community and the GiveDirectly staff, showing them where different families' houses were, for instance. For that reason, he said, the other villagers thought he was determining who would get what and threatened to burn his house down.

Still, nearly all the recipients described the money as transformative. Fredrick Omondi Auma - a Burning Spear devotee wearing a Rasta-style hat and bell bottoms when we visited - had been impoverished, drinking too much, abandoned by his wife and living in a mud hut when GiveDirectly knocked on his door. He used his money to buy a motorbike to give taxi rides. He also started a small business, selling soap, salt and paraffin in a local town center; he bought two cows, one of which had given birth; and he opened a barbershop in the coastal city Mombasa. His income had gone from 600 shillings a week to 2,500 shillings - roughly $25, a princely sum for the area. His wife had returned. He had even stopped drinking as much. "I used to go out drinking with 1,000 shillings, and I'd wake up in the bar with 100 shillings," he said. "Now I go out drinking with 1,000 shillings, and I wake up at home with 900."

"I didn't imagine I would be living in an iron-sheet house," he said, referring to his roof. "I didn't imagine I'd be wearing nice shoes. I didn't imagine I would have a business, and earnings from it. I didn't imagine I would be a man who owns cattle."

Many popular forms of aid have been shown to work abysmally. PlayPumps - merry-go-round-type contraptions that let children pump water from underground wells as they play - did little to improve access to clean water. Buy-a-cow programs have saddled families with animals inappropriate to their environment. Skills training and microfinance, one 2015 World Bank study found, "have shown little impact on poverty or stability, especially relative to program cost."

All across the villages of western Kenya, it was clear to me just how much aid money was wasted on unnecessary stuff. The villagers had too many jerrycans and water tanks, because a nongovernmental organization kept bringing them. There was a thriving trade in Toms canvas slip-ons: People received them free from NGO workers and then turned around and sold them in the market centers. And none of the aid groups that had visited the villages managed to help the very poorest families.

In the pilot-project village, for example, Faye and I paid a visit to a woman named Caroline Akinyi Odhiambo, who lives in a mud hut on the edge of town with her husband, Jack, a laborer, and her two small children. The most expensive thing she ever bought, she told me, was a chicken for 500 shillings, or about $5. Her family was persistently hungry. She knew of three nonprofit groups that had helped the village before GiveDirectly. One aided families with school fees, but it chose not to help her children. "I do not want to talk about it," she said.

What is worse, Faye told me, walking away from Odhiambo's hut, was that most nonprofit projects in the region were never subject to anything like an impact assessment, either. There is no way to know how well they are working, or whether that money would be better spent on something else. "The question should always be: Would we be better off just giving this money away as cash?" Faye said. "There usually is not a way to answer that question."

A vast majority of aid - 94 percent - is noncash. Donor resistance is one reason for this; it is not easy to persuade American oligarchs, British inheritors and Japanese industrialists to fork over their money to the extremely poor to use as they see fit. "There's the usual worries about welfare dependency, the whole 'Give a man a fish' thing," said Amanda Glassman, a public health and development expert at the Center for Global Development. "It's so powerful. It's really a basic psychological feature of the landscape. You'll start drinking. You'll start lying around at home because you're getting paid."

Cash also seems harder to market. American taxpayers might be perfectly happy to fund education for young women in poor countries or vaccinations for schoolchildren. But they might balk at the idea of showering money on poor, unstable countries. "The visual of putting a pill in a kid's mouth is so much more attractive to people," Glassman said.

Institutional inertia is another factor. "There are a lot of good people working in the system," Niehaus said. "And there are a lot of organizations pushing to do cash transfers. But the way they are structured and incentivized from the top down - they aren't structured to do it. They have a specific mandate, like health. Cash transfers give choice of what goal to pursue to the recipients."

Moreover, cash might force aid workers and nongovernmental organizations to confront the fact that they could be doing better by doing things differently - often by doing less. "It's easy to muster evidence that you should be giving cash instead of fertilizer," said Justin Sandefur of the Center for Global Development. "The harder argument is: You should shut down your U.S.A.I.D. program, which is bigger than the education budget of Liberia, and give the money to Liberians. That's the radical critique." Faye put it more bluntly, if half-jokingly: If cash transfers flourished, "the whole aid industry would have to fire itself."

There is something to that. One estimate, generated by Laurence Chandy and Brina Seidel of the Brookings Institution, recently calculated that the global poverty gap - meaning how much it would take to get everyone above the poverty line - was just $66 billion. That is roughly what Americans spend on lottery tickets every year, and it is about half of what the world spends on foreign aid.

In the pilot-project village, the residents had just started to work through how transformative the program would be, what they could do with the money and how different their lives could feel in 12 years. Detractors often say that no one would work in a world with a basic income, that the safety net could grow a bit too comfortable. Ultimately, what a universal income would do to workers in the rich world will remain a mystery until someone tries it out.

But here, many villagers were concerned primarily with procuring the sustenance and basic comforts that their penury had denied them. Odhiambo, the woman who had not been offered aid by the school group, planned to buy corrugated iron sheets for her roof; she considered possibly paying off her dowry. Another villager, Pamela Aooko Odero, ran a household that had been suffering from hunger, with all eight of them living on just 500 to 1,000 shillings a week. She took her money as soon as she got it and went to buy food.

Many more made plans that were entrepreneurial. Two widowed sister-wives, Margaret Aloma Abagi and Mary Abonyo Abagi, told me they planned to pool their funds together to start a small bank with some friends. Charles Omari Ager, a houseboy for the sister-wives, had his phone turned off and wrapped in a plastic bag in his pocket when the first text came in. He was driving the widows' goats and cattle from one dried-out, bramble-filled meadow to another when he happened upon an aid worker, who prompted him to pull out his phone, turn it on and wait. The text was there. The money was there. "I'm happy! I'm happy! I'm happy!" he said. He bought himself a goat that day.

When he got his money, Erick Odhiambo Madoho walked to the cow-dotted local highway nearest the village and took a matatu, a shared minibus, overloaded with 20 passengers, down to Lake Victoria. There he found an M-Pesa stand and converted his mobile money into shillings. He used the cash to buy the first of three rounds of filament-thin fishing line that he would need to hand-knot into nets to catch tilapia in the lake.

When the nets were done, he told me, he would rent a boat and hire a day laborer to work with him. He anticipated that his income, after costs, might reach as much as 2,000 shillings on a good day. I asked him why he hadn't saved money for nets beforehand.

He shrugged, smiled and said, "I could not."

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The village is poor, even by the standards of rural Kenya. To get there, you follow a power line along a series of unmarked roads. Eventually, that power line connects to the school at the center of town, the sole building with electricity. Homesteads fan out into the hilly bramble, connected by rugged paths.