95% Subsidies for Anti-Malaria Bednets vs. 100% Subsidies

In a recent post Mark Thoma quotes Jeff Sachs and several other commentators on the issue of providing antimalarial bednets free of charge in Africa vs. charging a subsidized amount in order to promote “the market”. Mark T. poses this as an evidentiary question – Do payments in fact generate positive results? I agree that this is an evidentiary issue but I fear that the wrong question is being asked.

First, when you are heavily subsidizing something you are missing a big part of the problem if you obsess on the issue of whether the subsidy is for 95% of the cost or 100%. I don’t for a minute want to belittle the importance of that 5% to a very poor person but it is very very important not to lose sight of a fundamental fact: Either way, we are NOT talking about anything like a “market”. We are of necessity talking about administratively providing (either through the government or an aid organization) bednets and medicines in a transaction where the profit incentive is nowhere to be found for anyone. That isn’t like any actual market transaction I know of. It is a grant and the issue of a token payment revolves around issues of psychology for the recipient and not on any kind of market.

Second, there is a long history in Africa and elsewhere of providing things for free or nearly so and then watching the whole effort collapse as soon as the aid is gone. Of course, quite often the aid never gets where it is supposed to in the first place because of governmental incompetence and corruption. One can find examples of free or subsidized credit. One can find examples galore of free or subsidized fertilizer or seeds. There are other examples but the point is that the history of such programs is pretty terrible because not only do they usually fail in their goals, but they fail in the fundamental objective of sustainability – Once the subsidy is gone then so is the program and its benefits along with it.

I am not arguing against the humanitarian need to help those in malarial areas. What I am saying is that we should, if we can, do it in a way that will not depend on a never ending stream of aid from rich countries to maintain success because if there is one thing we know from history it is that aid is NEVER infinite. There is always a new humanitarian disaster or fad in development giving to switch to. That means that giving stuff for free is great if you are on a campaign where a realistically attainable goal is the complete eradication of the disease involved so that the aid is never needed again. If that is not the case, or if there is a more development friendly way to do it, then the issue gets a bit more complicated.

What would a REAL market based solution look like? Well, for one thing, a sustainable market in bednets in Africa ought to involve not just local purchase but local manufacture as well. An actual market has both a supply side and a demand side and there is no reason at all we shouldn’t promote both sides if we want a healthy market to be sustained in the future. Lets face it, bednets are not high technology, and if they were made in Africa costs would be much lower than if they were made abroad – allowing not only lower prices but an interested party in the recipient country motivated to promote its product and whose sales would themselves contribute to economic growth. If we need to subsidize something, why not help the local entrepreneur overcome whatever barriers there are to a thriving bednet business? If foreign aid agencies really want to help then they can buy the nets locally but even better would be help in marketing them as widely as possible.

This approach might be a bit slower but it would also have the benefit of lasting longer. Jeff Sachs is right to be appalled that we are not doing more. But the best long run solution may not hinge on the question of whether the subsidy should be 95% vs. 100%.