For some years now, Nick Kristof, a reporter for the New York Times, has been exposing the sex slave trade in Cambodia.
The scale of the human trafficking and ruined lives is enormous.
However, this story is less a salacious tale of tragedy retold; it is more a simple lesson about why economies fail or, still worse, never get off the ground.
So here is a thumbnail of the story as best I can remember it: Kristof identified one particular child, about 13, trapped in prostitution in a large city in Cambodia. The girl had apparently been taken from her village, sold to a brothel and become addicted to drugs.
The reporter bought the girl’s freedom for $150 and gave her another $100 to buy merchandise to sell to the people of her village. Back home she spread her wares on a blanket for all to see, but in this simplistic society, instead of paying, the villagers helped themselves to the merchandise.
Needless to say, this little economic endeavor failed.
The parable illustrates one of the basic concepts of a functioning economy we of (theoretically) advanced cultures never think about: Respect for private property. Private property presumes there is also a rule of law, a recognized moral code that governs the behavior of individuals in society.
Then, it is safe to say that in order for there to be a functioning economy for the benefit of everyone, there must be a regulatory framework to guide it. But even in illegal activities such as black markets and prostitution, there must be a respect for private property for them to exist.
Have you ever wondered why ‘developing’ nations are economic disaster zones? There is a laundry list of reasons. At the top are political stability, corruption and ethnic or tribal conflict. And, if you can’t trust the government, you can’t trust the currency; there must be a dependable medium of exchange.
There is, as an example, North Korea, closed to the outside world except for a few trade zones where they are intent on attracting foreign investment. Meanwhile in Africa, China is moving full speed ahead with development aid, quickly staking a claim to rising influence on that continent.
As with all forms of aid, the donor state is looking for a payoff, or buying influence, over many years or decades. That does not work in a capitalistic society with publicly held corporations.
In addition to political stability a multinational company seeking expansion would also be concerned with the level of education, the skills and even the health of a workforce. Why go into a country in which the populace is so undernourished and ill they cannot reliably work? All of which begs the question, can you even get into that country?
A functioning economy needs infrastructure — roads, airports, seaports, electricity, clean water, hospitals, schools and, of course, a communications network.
This is not a universal statement. Many companies such as those mining natural resources are willing to provide the necessary infrastructure as part of direct foreign investment but only if there is an immediate return on that investment to shareholders.
While it is popular among humanitarian activists to denigrate those who profit from natural resources, they bring roads, health care, communications and schools to remote regions — the foundations for economic growth.
There are so many well intentioned people who would have the U.S. move faster on rebuilding Haiti after the earthquake and who would have U.S. companies build manufacturing facilities there.
Yet the process is slow, and there is little if any indication — for all the reasons listed above — corporate America is willing to partner with the $10 billion in sovereign pledges for the rebuilding effort. Or one could substitute other basket cases such as Afghanistan or Congo.
The tragedy of the Congo is that under colonial rule Belgians provided roads, school and hospitals. Rule of law and building an enlightened, stable political system, ready for investments, can be a painfully long process.
About that girl in Cambodia: It did not end well. With the failure of her business she made her way back to the bordello from which Kristof had gained her freedom, back to a life of drugs and prostitution.
Russ Wigh is a business professor who may be contacted at rdwigh@bellsouth.net.