fatvegan

One of the reasons people think that lending money to poor countries is such is a tremendous idea is because of this diminishing marginal returns thing. When we draw our returns to capital investment curves we always bend them over at the top to show that there's only so much machinery that's actually useful. After a while you can't fit any more machines in your factory, and even if you could you couldn't find any workers to drive them, because they're all at the beach or something spending their fabulous wealth. People look at the bend at the top and say that since it's bendy like that it's better for us to stop trying to stuff more machines into our factory, and instead buy some machines for countries with empty factories - like Bangladesh and Bolivia. These folk reckon that if we give them machines to put in their factory and make them promise to give us some of the t-shirts they make when they make them, then it works out good for everyone. They get more machines, and we get more t-shirts. And who can complain about that?

It all seems rather wonderful, except that as it turns out even though the bend says that our factories should be stuffed full of machines, they actually aren't. There's still plenty of space for more machines, and plenty of hardworking young wage slaves to drive them. And to confuse things even more, we've found out that Bangladesh and Bolivia, who we thought had all these empty factories, actually don't have any factories at all. So even if we gave them machines, they'd get wet when it rained. And it rains a lot in Bangladesh and Bolivia. In fact they sometimes get quite bad floods.

So we go back and look at our curves and try to work out where the bend should really be. It turns out we'd put the bend in too low. It should be much higher. We don't even know how high actually. What's more confusing, is that Bangladesh and Bolivia don't have the same curve as us. It's possible they have different curves from each other. We don't know where their bend starts either, or even which direction it goes. So we whilst we're not going to start drawing straight lines, or anything as radical as that, we're probably going to stop sending our machines all that way. Especially since they never sent us those t-shirts they promised us last time.

Although it may not seem like it, this sort of explains why I think foreign aid might sometimes be better than foreign investment. i.e., let's just give them some of our t-shirts to keep until they can build some factories to keep the rain off their machines