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Posts Tagged ‘free market’

If you missed the discussion going on at Mike’s post on vouchers and making a profitable school, then I encourage you to check it out.  Part of that discussion made this article at the WSJ stand out even more to me.  Danone, or Dannon as it’s known in the states, is very active in selling yogurt and water to the poor in Africa.  But this is not philanthropy…it is business:

Mr. Riboud began to see he was missing out on the huge untapped market of products for the poor. In 2004 in Indonesia, Danone’s local managers presented Mr. Riboud with a pyramid diagram showing that out of the country’s population of 240 million, just the 20 million at the tip of the pyramid could afford Danone’s food.

So he decided to develop a cheap, on-the-go drinkable yogurt for poor consumers and children. “Why shouldn’t I be doing business with them, too?” Mr. Riboud recalls thinking.

The first such yogurt debuted in Indonesia at the end of 2004, selling at 10 cents for a 70-gram plastic bottle. The yogurt was an instant hit with lower-income consumers and children in particular, selling 10 million bottles in its first three months on the market. It is still one of Danone’s most popular products in Indonesia, where the average per-capita income is about $11 a day.

Two-and-a-half years later, Danone teamed up with Muhammad Yunus, the Bangladeshi who later won the Nobel Peace Prize for his microcredit program that lends money to poor entrepreneurs. Mr. Riboud and Mr. Yunus, having met over lunch, set up a joint venture called Grameen Danone Foods Ltd.

The idea was to sell an affordable seven-cent yogurt product called Shokti Doi—which means “strong yogurt.” Fortified with vitamins and minerals, it was to be sold through local women who would peddle it door to door on commission.

For the 54-year old Danone boss, who eschews ties and gets around by scooter, the Shokti Doi initiative was something of a personal mission. His father Antoine, who preceded him as chief executive, had instilled in him an interest in ventures that had a chance to both make money and give a lift to the poor—the “double project”, as he called it.

Within a year, though, Grameen Danone hit a wall: Milk prices soared, factory openings were delayed, and the saleswomen couldn’t earn a living selling yogurt alone. Today, a significant portion of sales of Shokti Doi come from urban stores, not rural villages as planned.

Danone stresses that none of its low-income consumer efforts are charity. “Danone is not an NGO,” Mr. Riboud says. “Learning to make a nutritious product that can be sold for eight cents without a loss helps us when we put in place a volume strategy, even in mature markets.” [emphasis added]

I think this last line is key.  Not only are they seeking a profit, but foresee that the efficiencies they learn in trying to reach such a poor market will ultimately help them in the more affluent markets.  Certainly Danone may not be indicative of all business… but it does represent the ability for private enterprise to make a profit, and reach the needy.

Danone says its emerging-market bottled-water business is already more lucrative than its water operations in developed markets, which includes the pricey Evian brand. The company strives for “satisfactory and durable profits, but not to maximize profits,” says Danone deputy general manager Emmanuel Faber.

Maybe some forward thinking companies like Danone would be the ones to spring up if education reform allowed competition through vouchers?  The article, as quoted above, mentions Muhammad Yunus – who I wrote about in this post a year ago.  It’s people like these that can re-frame the vision society has of the free market and capitalism.

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YO In Trouble

This means I'm cool

When I was growing up it seemed that everyone thought it was cool to scrap off the “to” and “ta” on the back of their Toyota pickups so that they drivers behind them saw just a YO.  Needless to say it was about as cool as putting a NOTW sticker on your car – according to some.

Well now a couple decades later and Toyota is not a tiny little maker of cheap pickups, but the largest auto manufacturer in the world.  And in case you haven’t been reading or watching the news, they are in a bit of a pickle.  They are recalling vehicles faster than a UAW worker will threaten strike over missing a break Lindsey Vonn on a downhill slope.  There is no shortage of discussion in business schools and papers about what went wrong at Toyota, and what management needs to do to correct the damage done.  Well, my brother Greg wants to know, “How come CAI has no reporting on the Toyota fiasco? Doesn’t this have something to do with the free-market and capitalism and all that?”  As any reader of CAI will know, I am fierce defender of capitalism and the free market.  But what needs commenting?  The market is acting.

Toyota’s stock has dropped $20 in one month, as investor confidence is shaken and stockholders foresee huge revenue losses amidst lawsuits and recall costs.  And it will take a while for it to recover (though I think through this all, consumers will still prefer Toyota over Ford) but eventually with their business skill it will recover.

But more than share price the point is, or that I think maybe Greg was inferring is… is this a failure of capitalism?  Did greed outweigh the need for safety?  Proof that the free market can’t police itself?  I don’t think so.  I don’t believe there is a grand conspiracy behind this, but if there is it will come out and punishment will be handed down.  Capitalism isn’t perfect, as I’ve stated many times, I just believe it is the best of the options out there.  Toyota as a private company is no more immune to failure than the IRS.  The special aspect of the free market is choice.  Toyota made a mistake or failed in some way and I have choice of whether to trust them again, or not.  If a government institution or nationalized company makes a mistake, what is my choice?  Where do I turn to?

An economic treatise may provide little solace to those affected by the deaths reported in this debacle.  But they will get their day in court and sue for wrongful death, which is a sad somber fact of business.  You can try to sue the government if they allow you, but does it cause less pain to sue one over the other?

As I’ve quoted before, “…the trouble with capitalism is capitalists”, but the problems with other systems are the systems themselves.  So I suppose you could correctly view this as a failure in capitalism, as long as you viewed the results provided by other systems as bigger failures.  If Toyota was remiss in anyway we will see the results in how people respond, and they are responding in lawsuits galore.  But the market is working.  Capitalism is functioning.  I hear lots of questions and complaints, but I’ve yet to be offered a better alternative.

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