*Note: If you hate reading facts, then jump right into the story. I have already marked it for you. I, however, encourage you to read everything if you are not a Cambodian or Laotian or Thai who shares similar tradition, culture and religious belief. Very useful information provided.
Never before have I been so fascinated by Economics. Writing this article is the only way I can think of to express my impression on an awesome story I had the opportunity to witness with my own four eyes. The story I am going to tell you is about the birth of a small market economy driven by the laws of supply and demand coupled with the aligned incentives of different economic agents.
Let me start by giving you a bit of an overview of Cambodia and poverty within this country.
Cambodia is one of the developing countries of the global south. We are, however, very fortunate to have such a resilient nation which persists and thrives despite the really bumpy road. I am proud to be a Cambodian, but being proud should never be on the same line as being arrogant and ignorant. There are still many challenges now and in many years ahead. I see not just the many flaws the country has and the improvements to be made, but also the tradeoffs that we have to endure along the way just as what many great nations of the west had to go through between 19th and 20th century.
Just throwing in some facts. According to the most recent data by Asian Development Bank (ADB), the total number of population in Cambodia is 14.7 million (2013), and about 25% of the entire population is living under the set poverty line of $1.25/day while the poorest 20% only share about 7.9% of the national income. The data from UNDP gives us an even more inclusive indicator called “multidimensional poverty” which has a larger scope than the traditional poverty indicator based on income. This new indicator measures poverty based on three primary aspects: Income, Health and Education. The data shows us that 45.9% of the population is living in multidimensional poverty. That means they are not just poor in terms of having little money, but also in terms of poorer health and education. For more details, please consult google.
Not to take it too far because the whole point of mentioning those basic facts is just to give you an idea of the current state of Cambodia from the half-empty-glass point of view, so we can figure out ways of how to fill the empty part.
In fact, people define poverty differently depending on their background. I agree with the formal definition for the most part, but I think I might have a more vivid definition.
Poverty, to be specific, is what I have seen everyday after leaving home to go to work, having a cup of coffee with friends, going for a ride along the riverside, going to restaurant… I am not even talking about what I have witnessed in the rural areas yet. It has become so apparent to me simply because poverty and affluence are occurring along side each other. At night, on the same street, you can see a family in their luxurious and high-class Range Rover, and you can see another family sleeping helplessly on the side of the street struggling to survive each day while suffering from chronic hunger (meaning they wake up hungry, they feel hungry the whole day, and they go to sleep hungry). The scary thing is that such contrasting states of being has become so familiar to us, to the people here, that we have started to become oblivious of it while some have chosen to ignore it. It is embarrassing to admit, but it is the fact of life in most developing nations.
Enough of this. I will now take you along with me to Prek Ta Tun village, Ksach Kandal district, Kandal Province. We are going to a pagoda named “Botum Raengsey” to join with many people there on a special religious festival called “Pchum Ben” or “Ancestors’ Day”, which lasts for 15 days, celebrated by Cambodians every year to pay respect and make in-kind offerings to the deceased relatives up to 7 generations.
During Pchum Ben, almost everyone brings food as an offering to their ancestors who are believed to be released, for a period of 15 days, from the underworld in search of their descendants who brought along food-offerings for the starving ghosts of their predecessors. It is believed that by doing so, it is also a kind of merit-offering that is able to release their ancestors from their agony in hell so they can have peace in heaven. What if we do not make any offering at all? We will be cursed! I hope not. I do not know the detail. The explanation has never been very clear to me.
What I want to point out is just that there is normally lots and lots of food in pagoda during Pchum Ben period. You see, I do not know if ghosts exist. If they do, I do not know if they eat physical food, but I know for sure, with absolute certainty, that actual living people do. So, many of the poor gather in pagoda during the 15-day festival hoping to get something to fill their stomach and get some money from people who have become more generous because of the festival effect (whose mind becomes full of the final destiny, heaven, as their incentive).
It works most of the time for the poor. I mean that is why many poor people, especially the less-fortunate children, go to pagoda during this religious festival period. Sometimes, to get more than just food, they beg (for money). It works better than on a normal day, but still, they do not get much, and they are often shunned by the better-off people.
A gloomy article it may seem, a cynical author you may say. However, starting from this point on, we will experience together how Economics can help make a small change that can potentially improve life quality for the poor, during Pchum Ben day at least.
The story goes like this… (It is a true story, and this is where it gets interesting)
A woman praying to the Buddha statue
Welcome! This is a typical scene inside any Buddhist temples, at least here in Cambodia. You can see a woman praying to the Buddha statue in the picture. Well, there were many more people at the food hall (because it was lunch time!). Did I mention that the food hall is also a holy place in pagoda? Pretty much everywhere, except the restroom.
Here we are, the Food Hall. Told you so! It is crowded!
There were many village children coming to Pagoda looking for something to eat and something to bring home. Money usually tops the list. What could those children do to earn money? They begged. A typical scene all over Cambodia (but definitely not what the picture below is about, and that is the interesting part of the story).
Anyway, I am pleased to introduce you to our protagonist and his friends today (see the below picture and its caption). Let us call him Sok, a very typical Cambodian name. Of course, that is not his real name. I was stupid enough to forget asking him for his name. Still, this picture below suffices because a picture is worth a thousand words. Not to say his real name is that long. I hope he is not going to sue me in the future for posting it here. I did ask for his consent to take and post the picture… but without his signature. I doubt he understands what I meant when I said “May I post this on the Internet later on?”. He will soon learn, I do hope.
Meet Sok (Red shirt on the left) and his friends! Sok said “Hello” to you too!
Just like any other kids walking around in the premise of the pagoda, Sok was at first begging for money. People did not welcome him, and he did not earn that much from begging either. Trust me when I say shunning the begging poor is a common scene everywhere. It is sad, but aside from writing about his hardship, I can only do very little.
For some unknown reason, about an hour later, Sok seemed to have realised something, or maybe he was simply tired of walking around begging for money from people, with little success. His action caught my attention because he suddenly sat down at the entrance of the food hall in which the monk were chanting for the deceased before having lunch offered to them (the monks) by the people. Of course, everyone had to get into the food hall to listen to the unintelligible Sutta (in Pali language).
So what was he doing sitting at the entrance like that? Was he too tired of standing and walking? and just decided to sit and beg instead? Not really.
You see, for Buddhists, when going into a sacred place, we take off our shoes to show our utmost reverence for the Buddha and the monks.
This creates a problem. Poverty, Shoes. Povery, Shoes. Poverty, Shoes… Poverty, free Shoes… you got that?
Ain’t nobody has the time to keep their eyes on their shoes. Most of the time, they are too busy concentrating on the chanting, whether or not they understand any of that. So shoes are there at the entrance for anyone brave enough to grab a few of them to sell and earn some bucks or riels (Cambodia’s currency). Just a side note, since Cambodia is a partially dollarized country, we use both riels and dollars. Anyway, you see the problem. You go in, you lose your shoes, and worst of all, those shoes don’t get sent to your ancestors. Win-lose situation. Nobody likes it.
Sok somehow realized this problem that people were facing. Like many economists said, in an economy, the scarcest resources of all are knowledge and insight. Two working as one. Those with the right knowledge and insight at the right time and the right place, with the courage to initiate and the strong will to persist, will prevail regardless of who they are (with a bit of luck sprinkled on the top of course). This is what happens most of the time. A poor farm boy can become the richest man of great sophistication because of his employment of his own knowledge and insight.
Tired of begging (probably), Sok might have at first done it out of his goodwill. He saw the problem, and he tried to solve it. He set up a spot where he would just sit and watch over people’s shoes as you have seen in the picture above. What he and the other kids did not realise, at first, is that what he was doing was responding to the existing problem (thus the demand for solution) in this mini free-market economy. In the next few hours, this simple problem-solving service did not just help the shoes owners but also increased the well-being of the sole supplier of the service, Sok.
By the way, Sok was the only one who did the job at first. His friends (the three kids in the picture) just joined in for the photo shot.
At first, I somehow got very interested in Sok’s initiation. So, I took a picture hoping to see something interesting happened. I wanted to turn it into something that could change his day. I waited and observed what would happen next. Suddenly, a woman walked out of the food hall and handed Sok 500 riels (about a dime in U.S. currency). Now some money is flowing! And that, my friend, is an economic incentive! Every business needs incentive to continue its operation. Where there are demand and supply, incentive will be made visible through the transaction.
At first, the other kids were just running around, playing, and begging for money from the passers-by from time to time like they usually do. That gave me an idea. I then kept walking in and out several times (leaving an appropriate interval in-between of course). Each time, I kept repeating the same act. I handed the shoes to Sok when I entered. When I left, I took the shoes back and gave him 500 riels as a gratitude for his service. By my 3rd or 4th trip, this act of transferring payment to Sok, the service provider, caught the other kids’ attention.
About half an hour later after the fact, this was what happened (see the picture below).
Wait wait wait… they are not Soks! There cannot be more than one Sok.
They are 2 other kids offering the same service.
4 more inside of the food hall? 5? So about 7 in total doing the same thing as Sok does.
Yes, a bunch of other kids started to imitate Sok’s initiative and opened up their own shoes-keeping business, in hope to gain or surpass Sok in terms of profit! They have now become Sok’s competitors!
“Where did they come from? They are taking away my customers!” Sok thought (I made this up…)
Sok was not very happy about this (See his face? ha!). But sorry kid, this is free market, and for this particular type of competition, we can call it a “perfect competition” in which businesses offer identical products or services with no barrier to entry and exit. With perfect information in this small free-market economy, as Sok realised his profit, he could not hide it from the eyes of the other kids who were also profit-seeking individuals. Sok could not monopolise the business because the demand was too much for him to handle alone, and there was no rules or regulations stating that only Sok can provide the service. Plus, he could only watch over limited number of pairs of shoes if he did not hire other kids to work under him (and he did not) which could result in expansion of economies of scale but could potentially lead to management issues like inefficiency and internal conflict (in this case, a fight) .
Anyway, as the shoes-keeping business, which existed on the same timeline and place, offered greater incentive than standing around begging, begging now incurred a huge opportunity cost (a huge loss of money that could have been made by entering into the tiny shoes-keeping industry). Consequently, several other kids ended up in the same business.
The problem stemming from people having to take off their shoes and facing the risk of losing them had given Sok a great idea to begin this little business of his. It might have been just an accidental discovery at the start, but Sok’s quick recognition of this opportunity, despite how young he still is and difficult conditions he is in, gave him the edge against the other kids and probably even adults (as well as allowing him to help solve the existing problem people had on that day). Thus, we can see that demand has created supply or in this case, it can be also said that supply has created demand because people might not have realised that they even needed this kind of service at first.
What is also fascinating to me is that after Sok started his little business, people welcomed him at the entrance. They smiled at him and thanked him while at the same time compensated him for his time and energy with some money, a complete change of attitude. Not only does simple economic innovation improved Sok’s well-being in terms of earning but also in terms of narrowing the social gap between him and other people. This is exactly what incentive is and this is why each and every successful economic solution is almost always efficient, impactful and sustainable in the long run. Once profit had been realised, other kids with profit-seeking behavior became more and more interested in imitating Sok’s action. Eventually, at the entrance, we had our little shoes-keeping service industry with perfect competition operated under the free market system. The only thing that did not happen as expected based on the economic theory is that as more kids supplied the same service as Sok did, price did not fall. There were people who actually gave 2,000 riels and such. This is why development economics can be a little bit difference from the fierce competitive nature that lives within the conventional economic wisdom. Development factors in “Generosity” of the people. This is what drove up price offered by the demanders of the service, and thus, a greater satisfaction to them and a greater benefit to the suppliers. But do note that this peculiar outcome tends to dissipate/disappear once we go beyond this tiny market (i.e. once we consider the larger aggregate market).
So, were the kids better off? Surely they were. About 2 hours later, before I left the pagoda, I asked them about the amount they made (and still, I forgot to ask for their names… regret that!). Sok made 15,000 riels and another kid made 5,000 riels (1USD = 4,000 riels). I do not know about the rest. Well, early bird gets more worms, I guess. For this small market economy, it seems the initiator benefited more due to the smaller competition and more customers of his own, but the followers also benefited greatly though to a lesser extent. Still, they were all much better-off that day!
Moreover, to attract more customers, they had also thought of ways to provide better quality services. Sok and the other kids neatly arranged the shoes in order, and for my patronage, Sok even put my shoes (the biggest black pairs on the right of the pink shoes) at the front (He told me that). What a nice kid! Due to this privilege he gave me, I was also more inclined to further use his service. What a great entrepreneur Sok is!
Is this the end of the money circulation in that small economy? Not really. So where will the money go next? Probably to the ice-cream seller in the right picture (Lucky him that Sok started this).
As ice-cream is really sweet and makes people feel thirsty, it is a complimentary product to drinking water products. So the next person to benefit might be the street vendor selling beverage in the pagoda that day (The street vendor was far to the back in the picture below).
This is just a small economy that has been improved to an extent thanks to one kid with a great entrepreneurial spirit. I salute you, kid.
Now think about the economy at large, think about a nation’s economy. On many instances, such scenario repeats itself again and again. Note that this simple story helps explain a powerful concept in economics which is “multiplier”. Multiplier is the idea that initial spending often leads to an outcome of greater value that spreads across the economy. Likewise, a spending/investment reduction or a barrier that prevents such spending/investment (like a trade barriers imposed on the exports of developing nations) affects people in the same way. A lost income of one family spreads to the next through the chain of demand and supply. When garment workers lost her job, their family lost a part of the financial support, their children had to take time off school and work, the street-food sellers in front of the factory went bankrupt, the taxi that were usually the means of transportation for some workers lost customers… and you can see how the impact propagates itself.
That is why I consider myself very lucky to be able to witness such an improvement in people’s income, even if for a day. This shows us that the law of economics, the law of supply and demand, applies to every level of our society. I, thus, urge the development workers to start thinking economics and employ solutions to poverty that consist of 5 elements:
The use of economics to improve life quality can meet the 5 conditions while being much less costly than the traditional solutions which do not factor in much of economic thinking. A good economic remedy to any problem will almost always be inclusive and make the need for environmental and social consideration redundant.
Once again, this article could not be made possible without Sok and his friend. I still am fascinated by what I have had the opportunity to observe, and this particular experience has reassured me of the crucial role economics plays in development and life in general.
Thank you for spending time reading this article, and I will see you again next time with an even more amazing piece of economics!
All the best.