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Development & Economic Freedom

Bono’s Developing Business

by Joshua P. Hill

Rock-star/philanthropist Bono and his wife, Ali Hewson, are starting up a new clothing line. Aside from the name “Edun” (nude in reverse), what sets this line apart is its philanthropic motivation. The couple plans to locate most of the manufacturing in developing countries. Edun will tout organic materials, “made in family-run factories in South America and Africa with fair-labor practices.”

Clearly, this is a laudable effort. It is good to see Bono doing what this writer has long wished for from a rock star: that is, put your money where your morals are and make a meaningful difference. (Read more on aWC about Social Entreprenuers.)

Indeed, investment of this sort (foreign direct investment) is one of the best types of development assistance around. Offering greater work opportunities is something any community is the better for. Moreover, replacing handouts with earnings makes a powerful contribution to developing institutions, such as economic and civil rights. Edun’s employment opportunities may change lives overseas.

We should have great hope for the spirit of his approach. But, we can rest assured; the results Bono seeks will continue to show up even if Edun is no longer around. Most of what Bono seeks to do is already being done on a much larger scale—by (you guessed it), those “heartless” multinational corporations. Every firm that manufactures goods in developing countries is creating greater levels of employment in communities, along with increasingly higher wages.

Despite wages being comparatively low in the developing world, wages rise as the competition for labor increases. Currently, China is experiencing shortage of skilled labor in its Guangdong province. The higher demand for labor, the more bargaining power workers then have to increase wages or environmental standards. Although such companies – Bono’s or Kathy Lee Gifford’s – may not offer any more than the highest wage in an area; however, the new wage must have been higher than the next-highest available employment option (e.g. wherever they worked before).

So, Edun is only one of many companies creating positive impacts in the developing world. Some of these will go out of business; however, most will remain. Many will specialize. And countries, or more properly, their people will be considerably better off. Although Bono and his wife have altruistic motives, their investment isn’t lost. In fact, all parties are better off. In the short run some parties may suffer in changing markets. Manufacturing will move away from the developed world, for example. However, those will far outnumbered by development’s beneficiaries.

Now, none of this seemed to be cause for great bemusement. Then, Bono informed the press that he will determine the production site, to ensure that money is spent where it will do the most good.

While it may seem that Bono is doing nothing more than what other businessman do (i.e. making decisions about where to locate production), there is an important distinction. The criteria for Bono’s decision-making are apparently different from what the market would otherwise dictate. Prices are a feed-back loop that allow the long-term survival of a venture but also encapsulate a great deal of information.

In fact, prices are a good indicator of need. Who needs a job more: someone who will only work for $20,000 US or someone who is willing to take $1,000 US? As a general rule, the person who will work for less money has greater need. To have the largest possible impact with this venture Bono should locate production wherever labor is cheapest—and then pay above the market wage.

Bono’s attempt to use alternate criteria when making decisions endangers both the long term success of the project and his ability to locate production in the neediest areas. Thankfully, if Edun doesn't take off, there are others who will continue to provide the impact that Bono seeks. So, we should wish him well and cheer him on… but we should also be aware that Edun is only the tip of the iceberg of what is being done to better the lives of the poor.