In recent years, industry leaders have been targeting a new type of consumer: the “ethical consumer”. Businesses and government alikes are trying to capitalize on various trending ethical consumer values. Trends like local shopping, fair-trade, bio & carbon-neutral products to name a few. Considering the new initiative by the Quebec government, Panier Bleu to support local businesses, I thought it would be a good time to remember TOMS and Skechers’ “one-for-one” programs. The Economist reviewed a 2012 two-panelled study, sponsored by Sketchers, assessing the impacts of these donations on local businesses, concluding that: The donations worked, but their impacts were “not transformative.”
In their “one-for-one” shoe program, 60 million pairs were donated to children in need, with TOMS dedicating the effort towards “boosting children’s health, access to education and confidence.”
So, to determine if TOMS hit its mark, the company asked a group of academics to evaluate the impact of their donations; these researchers surveyed 1578 children who were donated shoes across 18 rural communities in El Salvador.
The first panel claims that, “on average, for every 20 pairs of shoes donated, people bought one fewer pair locally”. This effect is considered “statistically insignificant” by the researchers. However, statistical insignificance does not equate to economic insignificance. One out of twenty does not seem like a large number, but when discussing 60 million donations, it represents a decrease of 3 million pairs of shoes in the local market.
Considering we are talking about the local shoe market in El Salvador. It is fair to assume that no single shoe seller or buyer can influence how much a pair is going to cost or how many pairs are going to be bought or sold and that it is relatively “free” to choose to be one. We can expect local shoe sellers to see their revenues diminish from this substantial decrease in local demand because of the donations.
Indeed, with less people buying shoes at the same price, local sellers’ revenues will drop. By how much depends on various factors in this case: the costs of selling the shoes, the number of sellers, the overall demand for shoes, etc. Inevitably, from the decrease in revenues and their inability to influence the market, some sellers are likely to go out of business. As such, it is inevitable that poverty will increase as a result of the donations despite their noble intentions.
The second panel of the study offers another alarming conclusion: though the children liked the shoes, the donations were not life-changing. It rather reinforced what the study calls “aid-dependency” behaviours. This is most striking with the increase in the proportion of children agreeing that “others should provide for the needs of my family” -- 66% for children who didn’t receive a donation compared to 79% for those who received one (a 13% increase!). This last statistic represents the hardest problem of the “one-for-one” strategy, yet, it is barely mentioned in the research.
Aid-dependency behaviour can be best illustrated in the saying: “Give the man a fish, feed him for a day. Teach the man to fish, feed him for a lifetime.” In this case, should the person be given a fish everyday, they would certainly not be likely to give up the fish for a rod... This is the core issue crippling the local economy, a lack of economic independence which ultimately drives entrepreneurs to create.
Economically, this affects the market pervasively. Individuals feeling “aid-dependent” contribute much less to the economy than “aid-independent” people, materially and morally. Indeed, aid-dependency behaviours result in poor management of budgets, loss of confidence in the market, and diminished incentives to work. This in turn causes a decrease in both consumption and savings, since people would rather wait for aid to come then to go work their way out of the problem. This means less hungry customers and less motivated sellers. Bottom line, this type of behaviours affects the whole economy, representing a decrease in consumption for the former, and, because of their economic disengagement, a further loss of profit for the latter.
In the end, combining the decrease in local demand for shoes with the negative effects of aid-dependency behaviours, I believe that, contrary to the research’s conclusion, the impact on local markets will be significant and amplified by the non-stop aid handed out by corporations. Along with their failure to achieve their social goals, we can clearly see that TOMS missed its mark with the “one-for-one” program. Now, the fashion giant is adopting a new approach, replacing its “one-for-one” program with a new “pick-your-cause” approach. Something to keep an eye on, but much more promising than their previous efforts. The point here being, despite having good intentions to begin with, charity projects can easily be double edged swords.
To come back to Quebec’s Panier Bleu, I believe the initiative to be noble, but I think it falls short of what it aims to accomplish, much like TOMS. For similar reasons as the ones mentioned above, contrary to what the government may think, I believe this will hurt the economy more than it will do it good. Imagine businesses now that have access to a free tool to get visibility on online platforms from the government, what message does this send to tech solutions entrepreneurs? I guess we’ll see.
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