A Luxury Not All Can Afford

O’Rourke highlights a dichotomy between what consumers claim to care about and how they act. I’d argue that there are two explanations for this dichotomy, one rooted in social psychology, the other in economics.

Regarding the former, people overestimate their positive qualities, a form of cognitive bias known as “illusory superiority.” The norms that frame ethical consumption are aspirational, so it is reasonable to expect individuals to overestimate their ability to consume ethically. One might call it the Lake Wobegon effect, in which we are “all above average.”

But economics is perhaps a more intractable obstacle to ethical consumption.

In 2007 I was invited to lecture at a national business plan competition in Tanzania, where I met some of East Africa’s top entrepreneurs. The business plans I evaluated and the entrepreneurs I met fell into three categories. Some entrepreneurs were attempting to build an ethical consumer base; one explained to me his vision of bringing organic milk to East Africa. The second category was the “better-faster-smarter” plans for incremental improvement over the status quo. These can work, but they can be challenging to adopt unless the increased value is clear. The third category involved filling a void in the market. One entrepreneur who lacked any formal education explained to me that the backlog for baby chicken orders was months long. He sought capital to affix bright lights inside his vehicle to create a mobile egg hatchery. He would supply local buyers and provide a basic, missing service. His concept was business in its purest form.

In Tanzania I realized that there was a hierarchy of needs we often overlook in developed markets. Businesses address market gaps until they are filled and then create improvements until perceived value is outweighed by marginal cost. Only thereafter are consumers able to rationalize higher-priced products providing ancillary value. Ethical consumption is a luxury not all can afford. In Tanzania I nodded at the concept of organic milk, but one glance out my window revealed more pressing challenges. There were too many gaps to be filled, too many opportunities for improvement that would be addressed first. High demand for essential goods and upgrades in the developing world told me that, for a time, spades would trump hearts.

Ethical consumers, who are concerned about sustainable development, should worry about how Tanzania and other poor countries can grow despite fixed resources. Technology, insofar as it enables increased marginal return on the same input, can provide a necessary escape from the potential conflict between economic development and sustainability. True, the windfalls of innovation must be counterpoised against the externalities of production, such as pollution, but ethical consumers should agree that innovation and technology are the bedrocks of our ability to increase quality of life in a sustainable way.

Ethical consumption can foster positive, demand-driven change and to some extent influence the mechanics and processes of innovation. But civil society campaigns pushing ethical consumption must acknowledge that technology is the essential component of sustainable development. The realistic platform will embrace innovation. The ambitious platform will embrace innovation and pinpoint negative externalities, accepting that only when the initial pragmatics are met will we move away from our Lake Wobegon cognitive biases and toward action.

Government and civil society must work together to frame demand-driven change, with the needs of security balanced against the imperatives of human choice. Civil society will play a role in increasing transparency and access to information so that individuals continue to, with full agency, make the rational choices that match their needs. But the architects of change must weigh the goal of mitigating externalities against the benefits of innovation and frame the debate in a way that takes into account economics and psychology.