A lesson in global economics

I spent last weekend at Arise Music Festival, a 3-day event held in the foothills near Loveland, Colorado. (That’s where the purple teepees you might see in the sidebar were).

Arise was a great time, full of great music, good vibes, and plenty of regenerative yoga. The vibe at Arise is pretty crunchy: old hippies and young fair-trade folks, slinging their ideologies amidst a crowd of dreadlocked dealers slinging their own cures for the ills of the world.

So I was walking around the festival, looking at what the vendors had on offer, when I saw something familiar.

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I’d seen these scarves before. I’d bought the one in the middle in Thamel, the tourist district of Kathmandu, as a souvenir for my sister.

These, as you can see, are $12.

When I saw that, I laughed, and told my companion “I paid 100 rupees for that same exact scarf in Nepal. (That’s about $1).”

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Here’s the scarf I bought my sister.

I walked up and double-checked: it was the same exact pattern I remembered. Look closely yourself — they’re identical.  The owner of the stall came out to chat with me, and I asked her where they were from.

“I’ve got a friend in California who gets them,” she said. “It’s supposed to be all Fair Trade, ethically made or whatever.”

“Where from?” I asked.

“Nepal,” she said with a wry smile. She heard me talking before.

***

So, let’s unpack the economics here:

As a foreigner, in the tourist district of Kathmandu, I can buy this scarf for $1. I bargained it down to that price, at which point the shopkeeper wouldn’t go any lower, period.

So at $1, the shopkeeper must still get an acceptable margin: 25 to 50 rupees, I’d guess (.25 to .50 cents). Of course, he makes most of his money by selling them at higher prices to people who don’t bargain as hard, but still. He almost certainly made a little bit of money selling it to me. So let’s say he bought it wholesale from the manufacturer for 75 rupees ($0.75).

If the middlewoman in California can buy at that same price (which she may or may not be able to attain, depending on her connections), she stands to make a huge profit, even if she sells to her festival friend at a low price. The importer could sell those scarves for $3 a pop, and still make a 300 percent profit. Hell, if she buys at the same price I did, $1, she still stands to make a huge profit, percentage-wise.

After that, the festival lady can take that same item, sell it for $12, and she also makes a 300 percent profit.

And truthfully, whoever owns the factory making those things almost certainly makes more than a 300 percent profit on each. Although they might be sold under a Fair-Trade moniker by the time they reach the U.S., they are almost certainly being made in a low-rent factory in Nepal.

Simply by virtue of crossing from a developing country to a developed one, the consumer price of this identical item increased by over 1000 percent.

That’s a picture-perfect lesson in globalization.

Worth thinking on for a bit, especially as we will soon actually reach Nepal itself in my travel memoir, where we’ll see the true poverty of the country.

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15 thoughts on “A lesson in global economics

  1. The natural question that I have to ask on this – and pardon me if I am late to the conversation – is that do you think that globalization has been a good or a bad thing? To me it seems like the problem is that the benefit of trade between countries is not being distributed to the producer (the woman in Nepal)

  2. I can’t say it’s eye opening to me, but this is a great reminder of global relationships, money, the cost of living and the prices transportation, and laws can have on our lives.

    Economics is a harsh mistress to some.Particularly those who do not understand how she operates. To those who understand her ways, she is a gentle and giving lover. Fair is a subjective term, unfortunately. There is no universal measuring stick. Paying that 100 rupees for that scarf might have been a very good price for the man you bought it from in Nepal because in his society, 100 rupees may meet many needs. (I don’t know for sure as I’ve never been, but I know the cost of living there is far lower than the US because of how their society and government is structured.) Unfortunately, like you pointed out, crossing that international border, you enter into a new valuation on what the product has.

    Best of all, particularly for you, is that the next time you make this trip, you know more of what to do.

    Very nice article on a personal experience with it.

  3. The amount of upcharging is ridiculous, especially when you see the countries that are getting the short end of the stick. I went to Cambodia and bought several pants for $5 each, and have seen the save pants in the US and online for no less than $30 a pair. It’s really eye opening.

  4. I’ve seen similar things abroad, where they’ve gotten it from China and sell at a higher price. I probably would do something similar and buy a load of light items and sell them on my return for more than I paid. Easier on items from the east as it converts so cheaply to euros, gbp, and us dollars!

    • yeah it’s crazy. My family lives in Boulder, CO, which has a large Nepali immigrant population. There are these little import shops all over, selling singing bowls for $100 when I was buying them for $5 on the streets of Thamel. Prayer flags for $15 when I could buy them for $1, etc. Really made me wish I had brought back more stuff, lol.

  5. Do vendors have expenses when they travel afar to buy something for a dollar? Are there taxes? Wouldn’t someone going to Nepal, for example, want to buy as much as they could to cover the cost of the trip? Wouldn’t they have to pay for shipping? Just curious. Sorry for all the questions. I’m that student teachers hated–always asking questions, especially “WHY?” I’m not a business-minded person. While I’m here, I really like the intention for your blog–to live an interesting life.

    • Yeah, there would be added expenses when conducting international business like this, of course. Tickets, taxes, and import fees all subtract from the profit I’m sure. But with such a large profit margin available, those travel costs are easily covered by moving a sufficiently large volume of product.

      • Thanks for your reply. I raised the issues because in this isolated, rural mountain community, a couple who had a small import shop traveled to many different countries to bring back a small suitcase of things for their store–scarves, fabric, etc. I can’t imagine how they were able to afford it when the rental business space is so high here.

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