Unintended consequences

Rules are relevant because they shape incentives. Spiegel Online and Foreign Policy have excellent articles today that make this point through exploring the logic of unintended consequences. Spiegel Online focuses on how the crack down on child labor in soccer ball manufacturing in Pakistan has forced children into the much more dangerous jobs, such as constructing bricks. Foreign policy reports on how Israel’s closure of its border with Gaza has led to a proliferation of tunnels between Gaza and Egypt. The tunnels are now Gaza’s main trade routes and it seems that business is booming. One of the most interesting points the article makes is that because prices in Egypt are lower than in Israel, many consumers are benefitting from the blockade.

These articles share one common theme: unintended consequences. Soccer ball consumers in developed countries feel bad about using soccer balls that children manufacture, so manufacturers refuse to use child labor. Yet, that does nothing to solve the source of the problem, poverty. The children are still poor when they lose their jobs making soccer balls, so they find somewhere else to work. Cracking down on child labor manufacturing soccer balls doesn’t solve the problem of child labor, it just moves it around a bit. The clear conscience on the part of the soccer ball consumer derives only from ignorance about this. Similarly, Israel’s attempt to bring down Hamas through isolating Gaza isn’t working because the Israelis didn’t consider that people in Gaza might find a way around Israel’s blockade. That many in Gaza now realize Egypt is a cheaper supplier for many imports makes the sting of this unintended consequence even greater for Israel.

I often say that policy makers need imagination as much as analysis. Unintended consequences are the primary reason.