Sunday, May 03, 2009

Parable of the Growth Tragedy

Everyone, from IMF officials to G20 leaders to the rest of the world, are obsessed with restarting economic growth: It is the only way out of poverty, we are told. It is the only way that we can be happy, they imply.

[Postscript: thanks to Michael Gassner for pointing me to the original reference for this story, authored by Heinrich Böll in 1963.]

This reminded me of a story that my professor in economic development told us nearly 30 years ago (I think that it was Galal Amin, but I am not sure; it does sound like him, though). The story goes as follows (with some license due to memory deficiencies and the desire to express some thoughts):
A man lived alone on his island. Every morning, he went out of his hut, jumped into the water, caught two fish, and then sat on the shore cooking and then eating them.
An entrepreneur watched the man for a while. Then, he approached the man, and said: "why don't you give me one of your two fish." The man said: "but I like to eat two fish, why should I give you one." The entrepreneur said: "if you give me one fish, I'll give you some of this green paper." The man said: "but I don't eat green paper, I only eat fish."
The entrepreneur said: "you don't understand: you work harder to catch 3 fish and give me one, then you sell me that extra fish and get some green paper, once you have accumulated enough green paper you can give it to me, and I will give you a fishing rod." The man said: "but I don't need a fishing rod, I can't eat it, and I can catch all the fish that I need without it."
The entrepreneur said: "but with a fishing rod, you can catch four fish with less work." The man said: "but I only eat two." The entrepreneur said: "So, you eat two and give me two, so that I can give you double the amount of green paper." The man said: "we've already been over this -- I don't eat green paper, I only eat fish." The entrepreneur said: "you're really slow -- when you've accumulated enough green paper, you can give them to me, and I'll give you a fishing boat."
The man said: "but I don't eat boats, I eat fish." The entrepreneur said: "with a boat, you will catch 8 fish a day with even less work." The main said: "but I only eat two." The entrepreneur said: "so, you eat two and give me six so that I may give you more green paper, and before you ask me any further, you will soon have enough green paper to have a fleet of fishing boats, and you can eat as much as you want without doing any work and just keep getting more green paper."
The man said: "maybe I am the slow one, but let me ask you this: would I not then be obsessed with useless green paper, lazy, fat, and possibly exploitative of my fishermen?" Then he added: "and with all those fishing boats, do I not run the risk of overfishing the sea to the point that we all starve in the long run?" In the meantime, "I am happy now, catching my two fish, staying fit, and having time for other things."
The entrepreneur left, thinking to himself: "I'll find somebody else who sees the brilliance of my idea, and you will someday work on one of his boats just to survive, as there will be no easy-to-catch fish readily available near the shore."

11 Comments:

Blogger Miss Specs said...

Brilliant story.

And true.

1:32 AM  
Blogger heraish said...

These guys are back in action:

"We plan to resume the standalone REX Agreement program soon. We are currently working with homeowners and mortgage lenders who are reducing the principal due on existing mortgages in exchange for a REX Agreement. Please contact us if you are a lender or homeowner interested in our REXMod mortgage modification strategy."

http://www.rexagreement.com/index.php

1:38 PM  
Blogger alaynemarie said...

Thank you for sharing this parable!

5:36 PM  
Blogger Muhammad Saeed Babar said...

Excellent story to share with someone with a brilliant entrepreneurial idea. Is not this entrepreneurial spirit behind the all financing arrangement be it Islamic or otherwise? Does growth matters in Islam by availing finance - loan (Islamic as well)?

12:40 AM  
Blogger heraish said...

http://www.nytimes.com/2009/05/14/business/global/14frugal.html?_r=1&em

This article talks about the strength of the norwegian economy due to the frugality of the people and government.

1:55 PM  
Blogger haseeb said...

There is a problem with this story. What if two fish are not enough for the fisherman? Or the fact that the fisherman can't fish medicine if he falls ill. This analogy assumes that the fisherman is well off in the first place. Unfortunately, millions of people in this world are not better off and are dying of malnutrition and disease everyday. They would appreciate the extra fish and all the "green paper" that comes with it.

This story also assumes everyone fishes. If the fisherman just fishes enough for himself, who would feed the tailors, house builders, doctors and teachers?

These are the reasons why growth is important.

11:12 PM  
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5:54 AM  
Blogger LetUsHavePeace said...

Even Robinson Crusoe discovered he was not alone on the island. None of us ever are. What drives people to "overfish" is competition between fishermen and the absence of property rights, not the siren songs of entrepreneurs. What enterprise (not financial engineering) would offer to fishermen is a better, faster, cheaper ways to catch fish; but no intelligent entrepreneur would be caught dead asking his customers for investment capital. On the contrary, he would be offering leases and profit-sharing arrangements - which is precisely what the first large scale commercial seagoing enterprises in America did (vide the whaling industry).
What then prevents "better, faster, cheaper" ways of catching fish from depleting the resource base are property rights held by the fishermen. In every fishery where the catch is taken from ocean that is owned, fisheries thrive. In every one where the fish are taken from the commons, you have the tragedy that always results; and the idiotic idea that "regulation" and the abolition of all property rights will "save" the resource. As for the green pieces of paper, no one who respects the history of enterprise supports a fiat currency; neither, when they are given a chance, do the poor. They always want their money in gold.

1:04 PM  
Blogger LetUsHavePeace said...

Even Robinson Crusoe discovered he was not alone on the island. None of us ever are. What drives people to "overfish" is competition between fishermen and the absence of property rights, not the siren songs of entrepreneurs. What enterprise (not financial engineering) would offer to fishermen is a better, faster, cheaper ways to catch fish; but no intelligent entrepreneur would be caught dead asking his customers for investment capital. On the contrary, he would be offering leases and profit-sharing arrangements - which is precisely what the first large scale commercial seagoing enterprises in America did (vide the whaling industry).
What then prevents "better, faster, cheaper" ways of catching fish from depleting the resource base are property rights held by the fishermen. In every fishery where the catch is taken from ocean that is owned, fisheries thrive. In every one where the fish are taken from the commons, you have the tragedy that always results; and the idiotic idea that "regulation" and the abolition of all property rights will "save" the resource. As for the green pieces of paper, no one who respects the history of enterprise supports a fiat currency; neither, when they are given a chance, do the poor. They always want their money in gold.

1:05 PM  

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