Effective Philanthropic Aid and the Solow Growth Model

Lynne Kiesling

For the past year and a half a lot of my mental bandwidth has been dedicated to learning how to teach principles of macroeconomics. It’s harder than you think, and harder than I thought; yes, every academic economist should be able to teach it in terms of the knowing the material, but that’s only part of effective teaching of an introductory course. You have to make the ideas come alive, to be compelling and interesting and related to the real world that the students experience. In an introductory class you also have a group of students with backgrounds and interests ranging from the student who is afraid of math and only taking it for a prerequisite to the engineering student who may end up double-majoring in economics. That’s hard to balance, and it’s been humbling to see how much of a learning curve there is in it for me.

I’m using the Cowen & Tabarrok macro textbook, and one reason I’m using it is the material on which my students took an exam on Tuesday — the Solow growth model. Tyler and Alex prioritize growth in the material covered, including the Solow model and the role of new ideas and technological change. It’s a really rich way to communicate a lot of important economic ideas to principles students — the complementarity of labor and capital, the relationship among consumption, investment, and output, the balance between investment and depreciation, and the role of technological change and new ideas in changing the amount of output value we can create from our physical inputs.

Being economically aware of these relationships enables you to see them all around you in the world, even in philanthropic aid. Take, for example, one of my favorite charities: World Bicycle Relief. WBR builds on the bicycle design and engineering knowledge at SRAM, one of the top bicycle component manufacturers in the world (and located here in Chicago), to construct sturdy bicycles with standardized parts that are easy to repair. They distribute these bikes, mostly to schoolgirls in their teens, in African countries such as Zambia. Another group of people targeted for receiving bikes are home health caregivers, who travel among distant homes to tend to their patients.

What’s the Solow growth model connection? Teenage girls in Zambia are responsible for house chores before school, and then often have to walk up to two hours each way to school. Given these opportunity costs of their time and attention, school attendance rates are lower for girls and are more variable. Girls walking to school may also face personal safety risks. But with a bike, a girl can cover that two hours in less than an hour. She can also haul heavy items like water on the gear rack on the back of the bike, so she can be more productive in accomplishing her house chores because of the bike.

The WBR bike is a canonical example of the growth dynamic and how new ideas interact with other factors of production to increase productivity, and ultimately living standards, and WBR highlights that feature in their mission description:

Compared to walking, bicycles represent an enormous leap in productivity and access to healthcare, education and economic development opportunities. The simple, sustainable nature of bicycles empowers individuals, their families and their communities.

The bike combines with labor to provide more effective household chore completion per unit of labor. The bike increases the amount of schooling and the combination of education with labor, which creates human capital, ultimately increasing living standards. If you have a standard two-dimensional production function model in which output is a function of capital (with a given amount of labor, Y=f(K) given L), then introducing bikes increases K, which increases Y for a given production function. That can reflect the ability to perform more chores more efficiently. But there’s more — the bike increases school attendance, thus increasing human capital, which shifts the production function up. Better educated girls are more able to create output with a given amount of capital. Another aspect of human capital formation that WBR enables is through training mechanics in how to maintain and rebuild the bikes.

I said this was also a story about technological change. When WBR started, it was focused on increasing K, on getting bikes of whatever kind to these people in these communities. But they quickly found that some were not sturdy enough, and that broken bikes sat unused and unrepaired. This realization led the SRAM engineers to design a purpose-made bike that was sturdy, made with standard parts that were interchangeable, and easy to repair. That’s the combination of new ideas that constitutes technical knowledge, which also shifts the production function up and is the best source of continuing economic growth, because it arises from our boundless creativity.

This video does a great job of communicating the productivity-enhancing aspects of WBR’s programs (as they say, the power of bicycles). Note, in particular, the caregiver who says she used to only have time to visit two patients per day when walking, but can now visit 15 patients per day, and the dairy farmer who says that he can now carry all of his milk to market, whereas before he only had the capacity to carry some of his milk. That’s progress.

2 thoughts on “Effective Philanthropic Aid and the Solow Growth Model

  1. This post covers so much ground! I’d love to sign up for the course with the Cowen/Tabarrok book. It’s probably a great book, and the course would be fun. But then you ran off into bicycles in Africa! What a neat, clean example! Really fascinating, and of course, it fits with your interests. 😉

  2. The example make me think of Thomas Sowell’s books on culture, on how persistent they are, and how come Africans themselves have not started using bicycles on their own accord.

    I haven’t kept up in this area, but there was an article in The Economist about this maybe 15 years ago (it could have been more). Their correspondent was riding with some soldiers or rebels in, I believe, Moçambique, when the lorry (truck to Americans) got a puncture. The soldiers were about to lift up the lorry to change the wheel, when he dug out the jack and lifted it up. They were laughing and pointing at it. They had never seen one in operation before.

    The point is that Africa completely lacks (or lacked then) the middle with regards to education. There is basic schooling and there are people going off to universities, but there is nothing in between. Africa is a bicycle free zone, because there is hardly anyone that can repair a bicycle. Culturally, such menial work is not “good enough” for the elite. If you have an education, you order other people around, if you don’t you cannot even repair a bicycle.

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