No sooner than two hours into the Eid that my head began to think about the possible economic behaviors that can be milked out of the Eid protocols, their implications and moral validity. Not that during the Holy month I couldn’t think about it. Only that the Eid allowed me a chance to clearly remember the year when we observed our prayers in a heavily monitored Covid-19 protocols. And the fact that I can remember the event means I remember when one of my close acquaintances speculated about using the then standard procedure of having to use a facemask, as an opportunity to get a heavenly reward, by donating it’s large quantities to the major mosques and dominant streets of Kano. Which doubtlessly was a kindly-intentioned gesture that would save large population of economic agents some chunk of money.
As a matter of fact, I don’t know if he did. And as a brother, I wish he did, for surely he would do with more good deeds. But as an economist, I am speculating the moral validity of the gesture, what is seen as the “paradox of donation”, after weighing the microeconomic intricacies of facemask business, that, in my opinion, call for adequate economic explanation and interpretation – something fit to be termed “the economics of facemask”. Speculating the moral validity, weighing the microeconomic intricacies and offering economic explanation and interpretation is the aim of this piece. Which possibly can be mistaken for an informed audacity or mischief. But if Professor Anna Koutsiyanis can look the world in the eye, observe the Greek economy and establish the “Economics of Tobacco” analysis, then I see no reason that we shouldn’t observe the economic reality of donation, the rationality or otherwise of the donors and the role played by the booming commodity exchange of facemask.
In May 2020, Muslims in Nigeria observed Eid prayers in a closely-monitored, government-imposed lockdown that was sensitive to physical protocols abiding by which required the compulsory wearing of facemask by every Eid attendant, young or adult. The minimum price of facemask was ₦50. And the proportion of the demand against the population of Muslims was almost hundred percent. For in essence, no healthy and sane Muslim would endeavor to miss the Eid. The fact that the government declared using facemask compulsory made the commodity, all things being equal, at that very day, an essential necessity. Making it an exemplary, observable microeconomic phenomenon.
That being said, facemask been a necessity would reflect positively on the level of it’s demand, which therefore puts very high pressure on the proportion of it’s supply. In April 2020, speculations were already giving rise to hoarding, thus driving the price up and encouraging both foreign importation and local production to ensure the supply has arrested the demand. In May, mask vendors had enough to sell at a fair price, defending on which an economic agent would want to buy, mostly within the price range of ₦50.
In Kano for example, street hawkers and roadside vendors of petty and medium-sized capitals that didn’t exceed ₦10,000 were the main distributors within the core of the supply chain. And between February to July 2020, the mask supply has kept the existing vendors and hawkers economically busy, while creating jobs for the new ones who observed and joined later. And that escalation declared facemask not only a government-enforced standard procedure, but also a massive employer of people. And where employment is concerned, the issue of multiplier effect that reflects on income and consumption come into the picture. Trimming down the phenomenon of facemask to an income-determinant commodity exchange that dictates who earns more than who, or less than who, and at what proportion.
To narrow the analysis down to the essence of my acquaintance feeling the benevolent urge to donate a large quantity of facemask to the major streets and mosques by purchasing from the producers directly m, the economics of facemask indicates that for any Naira the gentleman invest to distribute facemask for free, at least one more individual vendor would be put out of business per unit of facemask. And by the strength of the minimum capital required to venture into the distribution chain, if the gentleman donates a ₦100,000 worth in quantity of facemask, at least ten individual vendors are eliminated from the supply chain. And in the event he donates a million Naira worth in quantity of facemask, which would have been within his capacity, at least hundred people would be eliminated from the supply chain. The transaction having took place between the donor and wholesaler, which no roadside vendor has been involved.
The multiplier effect of supply chain is what often give rise to the paradox of donation. A situation when a good-intentioned gesture ends up causing significant economic harm to a certain group of individuals who depends on the consumption of specific commodities to make a living. But then the welfare theory says it’s always almost impossible to make a segment of the economy better off without making any other segment worse off. And where that’s concerned in relation to our analysis, the compensation criterion has to be studied to understand whether our attitudes towards donations and free syndromes are making the state of welfare better or worse off.
To be candid, a donation of quantity of a million Naira worth of facemask saves ₦50 each for, and makes better off, a whopping twenty thousand Eid attendants. As opposed to one hundred vendors that’ll be made worse off when we assume each sells at the capacity of ₦10,000. But when we realized those people may have a family to cater for, and where that’s concerned, the number rises, possibly to a thousand and few hundreds more. Still, very short of the population to be made better off. Which satisfies logically, the basics of welfare theory.
But then economics is a ladder that frees a decision maker from the shackles of inefficient despite being logical, conventional attitude and pattern of consumption behavior. The fact that twenty thousand people are made better off against few hundreds doesn’t answer the question of efficacy and efficiency. It only answers the democratic theory of majority carrying the vote. And even though the classical theory masturbates on the idea of democracy, economics decision-making did not start and finished on popular political theory. The questions we need to ask are; what other alternative mechanisms of efficiency do we have available? Would they be able to make more people better off? Is there a way for the donor to make those twenty thousand Eid attendants compensate the few hundred vendors? The answer is we always have the alternatives and there has to be a way to make those vendors better.
One of the greatest spoils of the Italian economist, Vilfredo Pareto is his provision for optimal compensation criterion, what the economic theory call “Pareto Optimality”. The assertion will help donors solve problems of similar magnitude. The question is how?
All the brouhaha and meltdown along the multiplier effect was caused because facemask wasn’t purchased from roadside vendors. So why not buy from them? But then they can’t produce individually at the needed quantity, while bringing them together to supply collectively would be a herculean task. So why not give money donation to each Eid attendant that’ll warrant the purchase from the roadside vendors? This for me seems the most economically viable option to do that’ll satisfy every single person involved in the dilemma. But then the wholesaler from whom the donor would have bought is made worse off, right? Nope. That’s why supply works in a chain. Distribution travels from top to the bottom echelon and vice versa. Meaning, what roadside vendor makes always goes back to the wholesaler.
Dilemmas along the paradox of donation proves the assertion that to enhance people’s welfare they should be given what can buy the commodity rather than the commodity itself. Because in doing so no aspect of the economy would be isolated. As opposed to when the aim is to donate the commodity, which usually happens at the expense of individual vendors that often get skipped in favor of the wholesaling echelon. When the attitude of economic society involves isolating the local vendors by leaving them to the mercy of chance, the welfare compensation is likely to be ill done. The wholesaler would always sell, in one way or the other. But the vendor relies heavily on the individual consumer finding his commodity essential, affordable and scarce. Which can be boosted not by donors making the commodity available for free but by enhancing the affordability of the commodity to those who need it for free. That way we’ll achieve a full-blown, balanced and functioning consumption society.
The Northern Nigerian or any other economic societies that have been hit by political and economic instability would need the NGOs and GOs donors to think along this pattern of decision making behavior. For in the event of otherwise, local businesses get massacred, while the petty economies become a dumping ground of commodities that would have been donated in an economically more viable behavior and advantage. Which is often akin to our current norm.
MA Iliasu is a student of Economics from Bayero University, Kano, who writes from Kano State.
The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Sky Daily