Wade O. Bean and Dr. Darren Timothy, Economics, with special thanks to Delworth Gardner, Economics
Rural areas in developing countries are often the breeding ground as well as the testing ground for economic theory. Two rural towns near Santiago, Chile became of particular interest to me, as they were very similar in many aspects of their economic structure yet very different in others. In studying and comparing these two towns, it became evident that a certain combination of economic factors in these towns did yield the outcome that economic theory would predict.
The story is about monopoly. In economics, a monopoly is where one person or organization is the sole provider of a good or service. Inherent in this condition is the fact that no other competitors exist to drive prices to a lower level thus impeding many people from enjoying the benefits of a given product. The results of an existing monopoly were readily seen in examination and comparison of these two Chilean towns.
The similarities between the towns made a comparison between them very plausible and useful as many variables were eliminated from an “experiment” of how outcomes would change by changing a few variables. The similarities were many. Primarily, both towns were inhabited mainly by artisans whose craft had evolved from the presence of certain materials available in the nearby areas. Pomaire is a town nestled the hills where extremely rich clay can be found for townspeople to make pottery. In the foggy fields surrounding Chimborongo, world famous Mimbre plants grow plentifully and unlike anywhere else in the world. Chimborongo artisans use the plant to weave furniture similar to those made of whicker. Both towns’ artisans had developed techniques and their livelihood from generations of using these materials to craft products for both sale within Chile and exporting to the rest of the world. Strangely enough, both towns shared a very low standard of living, not reflective of the quality and beauty of the crafts produced by the artisans.
The similarities stop there. After hours of hands on research and interviews with the artisans, I discovered that the cause of their situation was due to extremely different factors. When I first compared the difficulty of skill required to perform the tasks, I discovered that on average, it only takes about three months to be a competent clay artisan. In comparison, the Mimbre weavers of Chimborongo spend about five years in a quasi-apprenticeship to become skilled at the very detailed labor that they perform. One would assume that due to the time commitment and difficulty of the labor to be a furniture weaver in Chimborongo, they should be earning a lot more money.
The next step was to discover why the artisans of Chimborongo weren’t earning what one would expect. By looking at the sale of the materials that were used by the artisans, it is readily apparent why the artisans of Chimborongo earn such a low wage. The clay that the pottery makers of Pomaire use constitutes only about 5% to 10% of the final price. But in the case of the furniture weavers of Chimborongo, they spend about 50% to 60% of the final price on materials (buying the Mimbre).
The next question that arises into ones mind is why would these artisans spend five years learning how to do this when they have about the same standard of living as those in Pomaire who spend only three months learning. The answer is two-fold. First, they haven’t always lived like that, and second is that a monopoly was formed recently in the sale of Mimbre to the artisans. In Pomaire, the cost of clay is so low because it can be retrieved from just about anywhere in the surrounding hillsides. In Chimborongo however, the plant must be grown and cultivated. Historically, many small land owners did so constant competition with the other land owners. About ten years ago, however, a wealthy land owner purchased all of the land from the other land owners and formed a monopoly. Because he was the sole-producer of this vital ingredient to the furniture, the furniture weavers were suddenly forced to pay three times what they used to pay for the material. Because of the drastically higher expenses, and because they could not charge a higher price without losing a lot of work, the artisans’ income was practically cut in half. The effects of the monopoly had been manifested in the standard of living enjoyed by the artisans.
As a post script, one would question why the artisans did not find some other line of work that gave them a better income. The answer is that they had little choice but to continue to do what they had spent their whole lived doing. Formal education had been foregone as these artisans had dedicated their lives to producing this beautiful furniture not foreseeing the sudden drop in their standard of living and loss of their way of life.