One assignment I give my micro-econ students is to log as many examples of economic phenomena in a day as they can. Here is my go at it for 24 hours of my vacation in the Dominican Republic.
The capable and observant taxi driver I hired to make a 10-hour swing around the eastern third of the Dominican Republic never studied econ, but he understood what British economist David Ricardo taught some 200 years ago. Jouncing through a 40-mile long construction zone on the northeast coast, he observed: “This will really increase access for tourists. And that will increase property values here a lot.”
Observant ancient Romans probably noted the same about the Appian Way, but it wasn’t until 1821 that Ricardo formally related the market value of an asset to the income it generates. Increase the price of grain with the Corn Laws, and British landlords see their estates appreciate. Ditto for U.S. farmers with “renewable fuel” mandates. And ditto for landowners along pristine beaches currently too remote for impatient U.S. and European tourists.
There is a downside to such development. A half mile from where I typed this, a mangrove swamp is dying, cut off from vital tidal ebbs and flows by uncontrolled landfilling to construct an enormous chain resort. This is one of many “external costs” of tourism in poor countries.
That this resort chain is based in Mexico is evidence of the growing importance of companies based in what some still call the “Third World.” So is the fact that the prime contractor on the road project was Odebrecht, one of Brazil’s largest construction firms and one that has repeatedly eaten the lunch of U.S. contractors that used to dominate.
All construction equipment here must be imported and the project buzzed with new Volvo loaders and backhoes and Scania dump trucks, these made in Brazil rather than Sweden, along with U.S-made skid steers.
But a sub-contractor had dozens of Mack and Autocar trucks dating from the 1970s. They illustrate how the price of labor relative to new capital items affects when a machine should be junked rather than overhauled.
Few of these trucks would still be running in high-wage countries. Nor would the 17 locomotives that haul over 3 million tons of cane a year to the large sugar mill at La Romana. These left Schenectady, N.Y., when I was still in high school. But both trucks and engines can soldier on if enough highly skilled, but relatively cheap, mechanics are available.
All the huge, sleek tourist buses buzzing around resort areas also are imported. Chinese Yutong and Brazilian Marcopolos dominate, with a few Dutch Van Hools. I have not seen a single U.S.-made one, although fleets of old U.S. school buses, many made in Georgia and some with the U.S. school district names still visible, flood the roads at dawn and dusk, ferrying battalions of maids, waiters and guards between the posh resorts on the shore and cheap housing 10 miles or more inland.
Development economists once talked of “dualized sectors” in poor countries, in which modern technology coexisted with primitive. On one side of the street where a large house is going up, do-ragged workers were mixing concrete by hand, not in a motorized mixer but by turning and re-turning a pile of sand, crushed rock and Portland cement with shovels. Across the street, a condo project has the concrete columns and beams common across the tropics. But where walls between would be filled in with hollow clay tiles, there are grids of galvanized thin rods welded into lattices. There is a huge pile of bags of polyethylene beads that we would use as pourable insulation.
Puzzled, I ask a safety-hatted worker if and why they are installing insulation. He shakes his head. “It is a proprietary German lightweight concrete system,” he explain, showing me workers mixing the beads into a mortar-like mix that they are troweling over the steel grid and pre-installed electrical conduit and water piping. “It takes much less labor and no forming. More important, it goes much faster, and it resists earthquakes up to 9 on the Richter scale. Most conventional construction falls at 7.”
We are 250 miles east of Port-au-Prince, Haiti, so I ask, “Are earthquakes really a danger here? Is there a fault line?”
“No, but the Europeans they sell these condos to think that there is. If you tell German buyers the building was constructed with a German proprietary system, it is a big advantage, especially since the Haiti quake.”
It may not be evident, but this incident encapsulated myriad economic ideas including those underlying at least three Nobel prizes. These include demand shifters, imperfect information, induced innovation, heuristics, behavioral economics and others.
Before hitting the road, I got cash from the closest ATM. Leaving the modern shopping center (just down from Hard Rock Cafe, but before the Ikea), I saw a uniformed dealer’s mechanic checking a big Caterpillar generator. I see others outside of banks and other large commercial buildings.
When the lights go off in a tropical thunderstorm that night, whichever way I turn, I can hear these big diesel generators roaring away in the night. The government-owned electric utility does not invest enough in infrastructure to maintain reliable service, in great part because of political pressure to keep rates low. But society as a whole then bears the cost of maintaining hundreds of generators.
Similarly, everywhere one goes, even in small rural towns, there is a vendor of 5-gallon jugs of water. Our rental “villa” comes with one. There is piped water service in all but the most rural areas, but it isn’t consistently safe anywhere. Hence a large private infrastructure to supply bottled water.
You can lower government spending by not supplying “public goods” like safe water. But again, this just passes the cost on to society in the form of illness, bottled water, fuel for boiling and home purification tablets. This is as true for state highways in the Midwest as it is for Dominican water.
Cooking fuel is always politically sensitive in poor countries. On my trip, we came to a liquid propane gas distribution station. Cylinders of cooking gas about twice has heavy as a U.S. 20-pound grill tank were selling one after another. But one could also fill vehicle tanks. My driver parked his Dodge minivan at those hoses. “It’s dual-fuel,” he explained. “I can use gas where there isn’t LP available, but this is cheaper.” Gasoline costs about $5 U.S. per gallon while over 30 pounds of LP is only $15. “The government controls the price of LP, but not gas,” he explained.
The political economics of that are clear. Cars are common, but still only owned by a small minority of households. Converting a car to dual-fuel is expensive, and LP filling stations are relatively few with limited hours. But everyone buys cooking gas, and there are free elections for all offices in 2016.
Electoral signage was already up, and daytime talk radio was replete with political discussions. One commentator had the minister of labor on the line, grilling her about claims of job growth made by the president. He cited year-over-year statistics to show the president was lying. She annualized the rate from a couple of favorable months. Cherry-picking data knows no borders.
However, listeners were not interested in that. On the call-in segment, one after another complained that the key economic issue of the day was the flood of illegal immigrants “who are taking all the jobs.” The immigrants are from Haiti — across the border. This was an hour after I scanned the Internet news and learned how Donald Trump’s popularity is soaring, largely because of his comments on immigration.
St. Paul economist and writer Edward Lotterman can be reached at email@example.com.