Effective Altruism and International Trade

See my re­vised anal­y­sis (Novem­ber 11, 2019 up­date) here. I thank you for your feed­back.

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Fol­low­ing the re­cent de­bate on the effec­tive­ness of sys­temic in­ter­ven­tions, I as­sert that in­vest­ments in global trade may be effec­tively al­tru­is­tic. If quan­tified, the im­pacts of in­vest­ments in world com­merce fa­cil­i­ta­tion may out­com­pete the effects of fund­ing GiveWell’s char­i­ties by unit amounts.

Un­like in­vest­ments in GiveWell’s char­i­ties, fi­nanc­ing trade ad­vance­ment of de­vel­op­ing na­tions en­ables in­di­vi­d­u­als who live in emerg­ing economies to gain com­mer­cial com­pet­i­tive­ness and thus join a vir­tu­ous cy­cle of in­come growth. An in­creased in­come en­ables the benefi­cia­ries to pur­chase health-re­lated goods and ser­vices which are cur­rently pro­vided by GiveWell’s char­i­ties. Fur­ther, in­ter­na­tion­ally com­pet­i­tive do­mes­tic in­dus­tries en­able benefi­cia­ries to find bet­ter em­ploy­ment and find mar­ket for their in­for­mal busi­nesses.

Trade in­vest­ments can­not be di­rectly quan­tified by the qual­ity-ad­justed life year (QALY) mea­sure. This is be­cause Health-re­lated qual­ity of life (HRQoL) has not been as­so­ci­ated with in­come. How­ever, GiveWell re­ports that de­creased poverty is val­ued higher than im­proved health. I rely on liter­a­ture es­ti­mates that value a QALY as 50% of GDP per cap­ita of that na­tion.[i]

1.

In­vest­ing in the ne­go­ti­a­tion of trade poli­cies fa­vor­able to de­vel­op­ing coun­tries may pre­sent large re­turns on in­vest­ment. For ex­am­ple, pass­ing a bill through a reg­istered lob­by­ing firm in the United States costs about $200,000/​bill.[ii] [iii] As­sume that this bill con­tributes to a policy that re­in­sti­tutes the Gen­er­al­ized Sys­tem of Prefer­ence (GSP) for In­dia from which the United States with­drew in June. This will con­tribute $300 mil­lion to In­dia.[iv]

This num­ber as­sumes that other na­tions are not able to ex­port to the United States in lieu of In­dia, due to the lack of in­ter­na­tional com­pet­i­tive­ness of their in­dus­tries. Thus, the $300,000 mil­lion is as­sumed to be a pure effi­ciency loss, en­tirely borne by In­dia.

In 2018, In­dia’s GDP per cap­ita was $2016.[v] That makes $2016 x 50% = $1008 per QALY. $300 mil­lion/​$1008 = 298 000 (~300,000) QALYs. The cost per QALY is thus 200,000300,000 = $0.66 per QALY. That is about $0.66 x 69.165 = $46 per statis­ti­cal qual­ity life (the life ex­pec­tancy is In­dia is 69.165 years[vi]). Lob­by­ing for fa­vor­able trade policy is thus much more cost-effec­tive than donat­ing malaria nets thought Against Malaria Foun­da­tion (which pro­vides a qual­ity life for $3,337.06).[vii]

2.

Fur­ther, en­abling emerg­ing economies to grow their trade ca­pac­i­ties may be also cost-effec­tive in the long term. For ex­am­ple, as­sume that de­vel­op­ing and im­ple­ment­ing a “one-stop shop” im­port-ex­port win­dow costs $1,000,000 for a sin­gle na­tion. Fur­ther, as­sume that this would make im­port­ing and ex­port­ing 1% more effi­cient. This in­creased effi­ciency may take place due to re­duc­tion of red tape (pa­per­work sub­sti­tuted by elec­tronic forms), de­creases in travel time that is re­quired to ob­tain ex­port and im­port clear­ances (vis­it­ing one gov­ern­ment office in­stead of sev­eral bu­reaus), and fa­cil­i­ta­tion of ob­tain­ing trade in­for­ma­tion.

Ad­di­tion­ally, as­sume that over the next ten years, this na­tion will ex­port $1,000 mil­lion and im­port $2,300 mil­lion an­nu­ally. Th­ese val­ues are based on trade data of Malawi. Malawi ex­ported $1,080 mil­lion worth of prod­ucts in 2015 and im­ported $2,312 mil­lion of goods and ser­vices in that year.[viii]

There­fore, due to the “one-stop shop” cross-bor­der trade in­vest­ment, over the course of ten years, a na­tion will be able to sell $1,000 mil­lion/​year x 1% x 10 years = $100 mil­lion more prod­ucts abroad and im­port ad­di­tional $2,300 mil­lion/​year x 1% x 10 years $230 mil­lion worth of goods and ser­vices from for­eign na­tions. In to­tal, the na­tion will gain $100 mil­lion + $230 mil­lion = $330 mil­lion.

Since this na­tion is small, it can be as­sumed that the in­creases in ex­ports will all ac­crue to do­mes­tic sel­l­ers with­out af­fect­ing world prices. Ad­di­tion­ally, pre­sume that the ex­tra im­ports also benefit to the in­vest­ing coun­try in their en­tirety. Either the in­creased effi­ciency of im­port fa­cil­ities re­duces the price for con­sumers, in­creas­ing the con­sumers’ real in­come, or the re­duced trade bar­rier en­ables do­mes­tic pro­duc­ers to source cheaper in­puts from abroad, mak­ing their pro­duc­tion more effi­cient. The in­creased pro­duc­tion effi­ciency may at­tract for­eign di­rect in­vest­ment and fur­ther boost the do­mes­tic econ­omy. How­ever, I am not tak­ing these pos­si­ble sec­ondary im­pacts into ac­count.

Sup­pos­ing that the GDP per cap­ita (pur­chas­ing power par­ity ad­justed) in the in­vest­ing na­tion is $1,300 (based on $1,309, the 2018 value for Malawi[ix]), a QALY in that na­tion is val­ued at $1,300 x 50% = $650. This value may grow slightly over the next ten years, e.g. to an av­er­age of $850.

Thus, the $330 mil­lion effi­ciency gains provide $330 mil­lion/​$850/​QALY = 388,000 qual­ity life-years equiv­a­lents. With an ini­tial in­vest­ment of $1,000,000, a sin­gle QALY in that na­tion costs $1,000,000/​388,000 = $2.58. That is $2.58 x 70 = $180 per healthy life. (Life ex­pec­tancy in that na­tion is as­sumed to be 70 years on av­er­age over the next 10 years. This is based on the 2017 value of 63.279 for Malawi[x]).

3.

Im­pact di­vest­ments, or di­vert­ing funds from purely profit-mo­ti­vated in­vest­ments to im­pact ven­tures, which en­joy the bot­tom lines of profit as well as of so­cial and/​or en­vi­ron­men­tal re­turn, may also out­com­pete GiveWell’s char­i­ties.

Ac­cord­ing to the United Na­tions Devel­op­ment Pro­gramme, 60% of im­pact in­vestors ac­cept re­turns on par with mar­ket re­turns.[xi] The con­sult­ing firm McKinsey es­ti­mates finds im­pact in­vest­ment re­turns “com­pa­rable to mar­ket rate re­turns.”[xii] As­sume that these val­ues are ad­justed for risk.

Shift­ing purely for-profit in­vest­ments into im­pact in­vest­ments does not re­duce the in­vestors’ wellbe­ing if these two types of fi­nan­cial al­lo­ca­tion yield the same fis­cal re­turns, ad­justed for risk. How­ever, di­vest­ing into im­pact brings ad­di­tional benefit to those af­fected by this in­vest­ment. Since at least 60% of im­pact in­vest­ment en­joys mar­ket re­turns, then at least 60% of funds in­vested globally im­prove wellbe­ing of af­fected in­di­vi­d­u­als with­out an ad­di­tional cost.

This value as­sumes non-diminish­ing marginal re­turns on im­pact in­vest­ment. This may not be an un­rea­son­able as­sump­tion, given the un­ex­plored con­sumer po­ten­tial (which grows, rather than de­creases with in­creased wealth) in un­der­served mar­kets, such as those in im­pov­er­ished ar­eas.

Ad­di­tion­ally, im­pact in­vest­ment may yield the high­est over­all (so­cio-en­vi­ron­men­tal) re­turn in the poor­est mar­kets. How­ever, these mar­kets may provide the small­est re­turn to the in­vestor. Thus, effec­tive al­tru­ists may in­vest into mar­kets of differ­ent af­fluence de­pend­ing on the rel­a­tive val­ues these in­di­vi­d­u­als as­so­ci­ate to their wealth (and abil­ity to re-in­vest them­selves) to that of oth­ers.[xiii]

4.

Un­like im­pact in­vest­ment, which offers fi­nan­cial re­turns to in­vestors, non-profit sup­port of trade com­pet­i­tive­ness of dis­ad­van­taged groups and na­tions pro­vides re­turns to oth­ers ex­clu­sively. Non-profit mar­ket com­pet­i­tive­ness may also prove effec­tively al­tru­is­tic.

For ex­am­ple, One Acre Fund (OAF), which is sup­ported by TheLifeYouCanSave, de­scribes a 248% re­turn on in­vest­ment.[xiv] How­ever, the benefi­cia­ries, farm­ers in de­vel­op­ing coun­tries, as op­posed to the in­vestors, ac­crue the en­tirety of these in­vest­ments. The 248% value con­sid­ers all ex­penses and the medium-term in­creases of in­comes of the benefit­ing farm­ers but ne­glects the en­vi­ron­men­tal im­pacts of the in­vest­ments and eco­nomic spillover effects. Both of the un­ac­counted fac­tors are likely pos­i­tive.

Thus, in­vest­ing into trade com­pet­i­tive­ness of dis­ad­van­taged groups may provide qual­ity life years at a nega­tive over­all cost, al­though these in­vest­ments pre­vent al­tru­is­ti­cally-minded in­di­vi­d­u­als from re-in­vest­ing their re­turns them­selves.

5.

Pub­lish­ing pro-cor­po­rate so­cial re­spon­si­bil­ity (pro-CSR) agenda in ma­jor me­dia costs $44,000 per year.[xv] If one ar­ti­cle is pub­lished in a year in an out­let which en­joys 62 mil­lion read­ers per year,[xvi] and if ev­ery 1,000th reader is in­fluenced to spend ad­di­tional $10 on so­cially re­spon­si­ble pur­chases, on av­er­age, ev­ery dol­lar in­vested gen­er­ates (62 mil­lion read­ers/​1,000 x $10 per reader)/​$44,000 = $1.41 of CSR-con­scious spend­ing. This con­sti­tutes a 141% re­turn on in­vest­ment. This re­turn may carry vast eco­nomic spillovers alongside the sup­ply chain.

Con­clu­sion:

Thus, in­vest­ing in in­ter­na­tional trade may be more effec­tively al­tru­is­tic than donat­ing to GiveWell’s char­i­ties. Ne­go­ti­a­tion of trade poli­cies fa­vor­able to de­vel­op­ing coun­tries, sup­port­ing emerg­ing economies’ trade gov­ern­ments, for-profit im­pact di­vest­ing, non-profit ad­vance­ment of com­pet­i­tive­ness of dis­ad­van­taged groups, and cor­po­rate so­cial re­spon­si­bil­ity ad­vo­cacy may all provide a higher num­ber of qual­ity life-years than or­ga­ni­za­tions recom­mended by GiveWell, per unit amount spent.

NB:

This is my hy­poth­e­sis. If you agree, please help me mo­bi­lize the global com­mu­nity to pur­sue cost-effec­tive in­ter­na­tional de­vel­op­ment through trade. If you dis­agree, please provide con­struc­tive crit­i­cism. If you have any ques­tions, ask. If you know other cost effec­tive-trade-based de­vel­op­ment spe­cial­ists, please re­fer me to these. I wel­come any com­ments be­low as well as per­sonal mes­sages through the plat­form.

[i] Li Huang et al., “Life Satis­fac­tion, QALYs, and the Mone­tary Value of Health,” So­cial Science & Medicine 211 (Au­gust 1, 2018): 131–36, https://​​doi.org/​​10.1016/​​j.soc­scimed.2018.06.009.

[ii] Lee Drut­man, The Busi­ness of Amer­ica Is Lob­by­ing: How Cor­po­ra­tions Be­came Poli­ti­cized and Poli­tics Be­came More Cor­po­rate, 1 edi­tion (Oxford ; New York, NY: Oxford Univer­sity Press, 2015), 86–87.

[iii] Willi­ams, “182: I’m a Re­formed Lob­by­ist. Ask Me Any­thing,” De­codeDC, Fe­bru­ary 23, 2017, https://​​omny.fm/​​shows/​​de­cod­edc/​​182-im-a-re­formed-lob­by­ist-ask-me-any­thing.

[iv] “Trump Ter­mi­nates Prefer­en­tial Trade Sta­tus for In­dia un­der GSP,” The Hindu Busi­nessline, ac­cessed Oc­to­ber 7, 2019, https://​​www.the­hin­dubusi­nessline.com/​​econ­omy/​​trump-ter­mi­nates-prefer­en­tial-trade-sta­tus-for-in­dia-un­der-gsp/​​ar­ti­cle27398318.ece.

[v] “GDP per Cap­ita (Cur­rent US$) - In­dia,” The World Bank Group, ac­cessed Oc­to­ber 7, 2019, https://​​data.wor­ld­bank.org/​​in­di­ca­tor/​​NY.GDP.PCAP.CD?lo­ca­tions=IN.

[vi] “Life Ex­pec­tancy at Birth, To­tal (Years) - In­dia,” The World Bank, ac­cessed Oc­to­ber 14, 2019, https://​​data.wor­ld­bank.org/​​in­di­ca­tor/​​SP.DYN.LE00.IN?lo­ca­tions=IN.

[vii] Chris Wel­ler, “The World’s Best Char­ity Can Save a Life for $3,337.06,” Busi­ness In­sider, July 29, 2015, https://​​www.busi­ness­in­sider.com/​​the-wor­lds-best-char­ity-can-save-a-life-for-333706-and-thats-a-steal-2015-7.

[viii] “Malawi Trade at a Glance: Most Re­cent Values,” World In­te­grated Trade Solu­tion, ac­cessed Oc­to­ber 14, 2019, https://​​wits.wor­ld­bank.org/​​coun­trys­nap­shot/​​en/​​MWI/​​textview.

[ix] “GDP per Cap­ita, PPP (Cur­rent In­ter­na­tional $) - Malawi,” The World Bank, ac­cessed Oc­to­ber 14, 2019, https://​​data.wor­ld­bank.org/​​in­di­ca­tor/​​NY.GDP.PCAP.PP.CD?lo­ca­tions=MW.

[x] “Life Ex­pec­tancy at Birth, To­tal (Years) - Malawi,” The World Bank, ac­cessed Oc­to­ber 14, 2019, https://​​data.wor­ld­bank.org/​​in­di­ca­tor/​​SP.DYN.LE00.IN?lo­ca­tions=MW.

[xi] “Im­pact In­vest­ment,” United Na­tions Devel­op­ment Pro­gramme, ac­cessed Septem­ber 15, 2019, https://​​www.sd­fi­nance.undp.org/​​con­tent/​​sd­fi­nance/​​en/​​home/​​solu­tions/​​im­pact-in­vest­ment.html.

[xii] “Im­pact In­vest­ment.”

[xiii] William MacAskill, “Effec­tive Altru­ism: In­tro­duc­tion,” Es­says in Philos­o­phy 18, no. 1 (Jan­uary 31, 2017), http://​​dx.doi.org/​​10.7710/​​1526-0569.1580.

[xiv] “Our Im­pact,” One Acre Fund, ac­cessed Septem­ber 14, 2019, https://​​oneacre­fund.org/​​im­pact/​​.

[xv] “CSRwire Distri­bu­tion,” CSRwire, ac­cessed Septem­ber 16, 2019, https://​​www.csr­wire.com/​​dis­tri­bu­tion.

[xvi] “Bloomberg Me­dia,” Bloomberg Fi­nance, ac­cessed Oc­to­ber 14, 2019, https://​​www.bloomberg.com/​​im­pact/​​prod­ucts/​​bloomberg-me­dia/​​.