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How to Use a Condom Optimally
The NYTimes has an excellent article on how foreign aid is often more about aiding local companies than aiding foreigners. It's a familiar story but told with a wry look at condom production in Alabama where for decades billions of condoms have been manufactured for USAID and other programs despite the fact that costs are much lower on the world market.
A central theme in the article is the contrast between the waste of foreign aid dollars and the plight of the poor, low-skilled workers who make the US condoms. Here, however, is a way to square the circle. The US plant typically produces about 450 million condoms a year at a cost of 5 cents each. Condoms could be bought on the world market at 2 cents each so if the plant shuts down USAID can save $13.5 million dollars a year. The US plant employs 260 people so every one of those employees could be paid a one-time quitting bonus of $51,923, equivalent to several years of salary of the lowest paid workers. USAID would be indifferent in year one and would have more to spend on foreign aid in every subsequent year. My bet is that the workers would jump at the chance to be bought out. So there you have it, that's how you use a condom optimally.
Posted by Alex Tabarrok on October 30, 2006 at 07:22 AM in Economics | Permalink
Comments
Wasn't this what the Marshall Plan was about to some extent too, with
farmers substituted for local companies?
Posted by: Bill Stepp at Oct 30, 2006 7:42:55 AM
What's going to become of all those newly unemployed condom cowboys once they've squandered their $52,000 windfall on crack, meth, a pimped ride, and a new trailer? That should take them all of about 3 months. Then what? I think maybe we're better off with them working.
Posted by: Fred at Oct 30, 2006 8:22:07 AM
The optimal use of a condom involves a fake name.
Posted by: Marklar at Oct 30, 2006 8:32:37 AM
Alex's argument is clearly (and I assume intentionally) ignoring the fact that the plant owners, not the workers, are the ones earning rents from Congress. Note that the article itself points out that the workers had opportunities to make nearly the same wage in other jobs in the community.
The obvious implication is that some companies hire a pool of unskilled, low-wage workers to serve as hostages in negotiations with Congress.
Posted by: DK at Oct 30, 2006 8:39:27 AM
I wonder why we didn't learn that in sex-ed?
Posted by: eriks at Oct 30, 2006 8:44:30 AM
How much do condoms cost in US drug stores. I am totally clueless.
Posted by: joan at Oct 30, 2006 8:47:02 AM
This is a common problem in International Aid. If you used a fair bidding process you would be able to provide more supplies that can reach more people. However if you do not go with the more expensive domestic supplier, which will result in less supplies that can be purchased, you won’t have the money to purchase anything at all, because your budget will be blocked by some politician trying to manipulate the process to prop up his local district (sigh).
What to do….? Well as long as you are allowed to add riders to budget expenditures and funding can be blocked for these reasons nothing will change. From the point of view of politicians, if they have the ability to help your district then it is your job to do so. I see this as logical from their point of view. The solution is to change the rules of how budgets are made and you will not have this situation, but that is far easier said than done.
I also see the point that many Americas are hesitant to support foreign, because they do not see it as being used to accomplish any meaningful goals, if anything they see it as being wasted due to corruption in foreign countries. I disagree that Americans would support foreign aid more if they can get some financial benefit out of it, I don’t believe most Americans see they get any financial benefit out of it now. One of the problems is that most politicians or bureaucrats involved in foreign aid are not very good at explaining the extremely complex global bureaucracy that goes into allocating aid funds, and this is way before any foreign nations are involved. They also get little news about successful programs or the complexity of issues on the ground. The typical attention span of the average American vote is the 10 second sound bites, and that is just not efficient at explaining this.
I have degrees in this and have been reading about these issues for some years now and I still have problems unraveling the complexity of some of these issues. (sigh X2).
Posted by: Rasfarengi at Oct 30, 2006 8:53:58 AM
How about shutting down the plant but continue to pay people for showing up to work and learn job skills that will lead them to higher paying, more skilled jobs after 6 months?
That is an interesting idea for other industries. Imagine if every company who farmed out manufacturing and other jobs (even phone support) reinvested the savings into educating and job skills at home?
PS - Joan, comdoms are around 50 cents - $1 at US drug stores.
Posted by: Ryan at Oct 30, 2006 9:01:01 AM
joan - They're not too expensive (click link for amazon prices).
Posted by: Jason Voorhees at Oct 30, 2006 9:01:29 AM
Well, the post title certainly did more to wake me up than my coffee has so far ...
Posted by: Anderson at Oct 30, 2006 9:13:14 AM
With the amount of mark-up on the price, why can't the factory sell inside the US. At a 5 cent production cost there seems to be room for profit. Is there something I am not getting here???
Posted by: joan at Oct 30, 2006 9:31:13 AM
Good argument. Really Really bad pun.
Posted by: Kyle at Oct 30, 2006 10:33:24 AM
so, could a person start a business by importing
inexpensive, Asian-made condoms, and selling them
at a 100% mark-up to USAid (or companies that have
existing contracts with USAid)? It would seem to be
highly profitable and nearly costless...
Posted by: glenn at Oct 30, 2006 10:35:12 AM
"so, could a person start a business by importing
inexpensive, Asian-made condoms, and selling them
at a 100% mark-up to USAid (or companies that have
existing contracts with USAid)? It would seem to be
highly profitable and nearly costless..."
^^^ Clearly spoken by someone who has never had to bid for a government RFP before...
Posted by: Dan K at Oct 30, 2006 11:40:02 AM
DK makes the salient point about rents to capital - surprised that Alex missed such an obvious flaw in his analysis.
And Alex - don't you have someone who monitors the posts? See Fred above.
Posted by: Martin at Oct 30, 2006 2:14:09 PM
Martin, the post is addressed to those who, like the author of the Times article, suggest that the plight of domestic low-skilled workers is a reason to support domestic industry even when it is more costly. I show how foreigners and domestic workers can both be made better off by shifting to free trade. I don't mention rents because the article doesn't suggest that lost profits for rich people is a reason not to have free trade.
Of course, DK is correct that the rents, some of them no doubt funneled back to politicians, form the real support for the policy. In principle, the rentiers could be paid off as well.
Tyler and I try to read all comments but we rarely have the time to "monitor" and delete offensive comments.
Posted by: Alex Tabarrok at Oct 30, 2006 3:02:29 PM
"Rents to capital" is an economic oxymoron. The return to capital is interest. Rent is the return to land, natural resources and government privileges. Have you even read The Wealth of Nations?!
Posted by: guest at Oct 30, 2006 4:28:41 PM
It has been argued that interest is the return to foregoing liquidity.
Have you even read anyone's interpretation of The General Theory? ;)
Posted by: Jason Briggeman at Oct 30, 2006 5:57:59 PM
You are all missing the point.
Where in the Constitution does it authorize the federal government to buy
condoms for people in other countries, or here for that matter?
I know, picky picky.
If guys overseas wanna get lucky let them buy their own condoms, like at
the machine in the truck stop bathroom. Like real men. :-))
Posted by: save_the_rustbelt at Oct 30, 2006 6:08:24 PM
Prof. AT,
If the plants are moved abroad, it is doubtful that the savings would go to the workers in Alabama. The AID contracts are probably paying handsome bonuses to the local elite in AL through some creative accounting – that’s how the South works.
“A third of the money for prevention must go to promoting abstinence.”
One third is substantial. How is that spent? Faith-based programs? Are foreign churches eligible? What about American mosques?
Posted by: Chairman Mao at Oct 31, 2006 12:06:44 AM
Was it this blog where I saw a story about condoms being used in India as decorations because they were given away so cheaply (or freely) that there wasn't any incentive to not waste them?
Posted by: Ted at Oct 31, 2006 9:07:34 AM
Ted, see here.
Posted by: Yobbo at Oct 31, 2006 12:26:13 PM
Tied aid isn't really aid at all. I'll give you X if you promise to buy Y from me and only me. There's a fantastic article in a Canadian magazine called The Walrus, you have to sign up but it's worth the read. There's nothing really new, but it's all in one place.
Posted by: Brandon Erik Bertelsen at Oct 31, 2006 5:47:21 PM
It has become obvious that many jobs can be outsourced at a cheaper rate. But whay we are dealling with here is a product we are giving away for free to other countries to reduce the spread of aids. So if we are giving free goods to other nations, shouldn't our country at least benefit from the economic gains of producing the condoms.
The notion of buying out the employees with a one time fee of their three year salary would be disastous. Do you reall think these employees will invest this money wisely. I think not, more than likely there severence will be gone faster than the checks can be cut. Then the workers will be back to working in chicken factories, which is one of the worst jobs one can imagine.
In summation outsourcing and finding the lowest bidder is good when there is a business trying to make money. But we are giving free goods to other countries, we should at least reap some economic gain from it even if it isnt the most cost effective option.
And on another note that wasn't discussed, are the cheaper condoms from asia inferior to american condoms. Someone makes gas station condoms, and I know if i had a choice between a glow in a dark condom from a gas station batroom machine for a .50 cents and a name brand condom for 1.5 from eckerds, Im ging with the highest quality condom I can find. Whats the point of donating cheaper condoms if they are less effective?
Posted by: scott korfman at Nov 1, 2006 2:36:19 PM
I believe we still make our own condoms because if someone from another country made them there would be a rapid increase in abortions. When it comes to things like this I only trust the U.S. Despite the money that could be saved it would be more practical to keep things the way they are. If it's not broken, don't fix it.
Posted by: Thomas at Nov 1, 2006 9:36:27 PM
