A price for everything?

Most of us think of prices in the context of shopping expeditions, says Eduardo Porter in his best-selling The Price of Everything: Solving the Mystery of Why We Pay What We Do. In the marketplace, prices decide what we consume, guiding how we allocate resources among our many wants. Prices also steer the decisions of the companies that make what we buy, enabling them to meet our demand with their supply. That's how markets organise a capitalist economy.

"But prices are all over the place, not only attached to things we buy in a store," Porter says. "At every crossroads, prices nudge us to take one course of action or another. In a way, this is obvious: every decision amounts to a choice among options to which we assign different values.

"But identifying these prices allows us to understand more fully our decisions. They can be measured in money. But our most important currency is, in fact, opportunity. The cost of taking any action consists of the alternatives that were available to us at the time. The price of a $5 slice of pizza is all the other things we could have done with the $5. Economists call this the ‘opportunity cost.' By evaluating opportunity costs, we organise our lives."

Porter takes the analogy of rubbish to illustrate everything has a price. "Anybody who has visited a garbage dump in the developing world knows that value is an ambiguous concept," he says. "To most people in the developed world, household waste is worthless, of course. Apparently, Norwegians are willing to pay about $114 a tonne for somebody else to sort their recyclables from the general garbage. A survey of families in the Carter community of Tennessee in the US several years ago found they were willing to pay $363 a year, in today's money, to avoid having a landfill nearby."

So, there is a price for garbage. And then there are places where waste becomes a valuable commodity. In Kamboinsé in West Africa, farmers pay municipal trash haulers to dump unsorted solid waste on their fields as fertiliser - bits of plastic included, according to Porter's research. The going rate in 2003 was 400 francs (around Dh2) per tonne.

"In New Delhi, a study in 2002 found that waste pickers earned two rupees (approximately 17 fils) per kilo of PET soda bottles and seven rupees per kilo of hard plastic shampoo bottles," says Porter. "A child working on foot on Delhi's dumps could make 20 to 30 rupees per day."

Assessing value

Waste, in fact, confronts us with the same value proposition as anything else. The price we put on it - what we will trade to have it, or have it go away - is a function of its attendant benefits or costs.

"A bag full of two-rupee PET bottles is more valuable to an Indian child who hasn't eaten today than to me, a well-fed journalist in New York. What she must do to get it - spend a day scavenging among the detritus of India's capital, putting her life and health at risk - is, to her, not too high a price to pay because life is pretty much the only thing she has. She has little choice but to risk it for food, clothing, shelter, and whatever else she needs.

"I, by contrast, have many things. I have a reasonable income. If there's one thing I have too little of, it is free time. The five cents I could get for an empty PET bottle at the recycling kiosk is not worth the trouble of redeeming it."

Porter emphasises that the purpose of this comparison is not to underscore that the rich have more opportunities than the poor. It is that the poor choose among their options the same way the rich do, assessing the prices of their alternatives. The relative costs and benefits of the paths open to them determine the behaviour of both the poorest and the richest person. These values are shaped by the opportunities they have and the constraints they face. The price we put on things - what we will trade for our lives or our refuse - says a lot about who we are.

According to Porter, the price of rubbish is a guide to civilisation. Pollution is cheapest in poor countries. Their citizens are more willing to accept filth in exchange for economic growth. Yet the relative price of pollution rises as people become richer. Eventually it becomes expensive enough that it can alter the path of development.

"The environment may be an issue in China but it is a choice that balances the costs of pollution in bad health, polluted rivers, and so forth against the cost of cutting back production or retooling plants to control their effluvia. It is a different choice from that of Switzerland, where preserving environmental assets - clean air, trees, wild animals - is considered more valuable than providing manufacturing jobs to unemployed farmers. Twice as many Swiss as Chinese are members of environmental organisations. More than a third of the Swiss population believes environmental pollution is the most important problem facing the nation; only 16 per cent of Chinese feel the same."

However, Porter thinks that as China evolves it will emulate countries like Switzerland. "As China grows, the price of building one more coal-fired power plant, measured in terms of its contribution to acid rain, global warming, and the rest will one day exceed the value the Chinese place on the extra output," he writes. "In other words, [China] will behave more like Switzerland or the US. One study concluded that emissions of sulphur dioxide peak when a country's income per person reaches around $8,900 (Dh32,689) to $10,500. In the US, sulphur dioxide emissions soared until the passage in 1970 of the Clean Air Act. Since then, emissions have fallen by half."

Based on his research findings Porter claims every choice we make is shaped by the prices of the options before us - what we assess to be their relative costs measured up against their benefits. "The prices we face as individuals and societies provide a powerful vantage point upon the unfolding of history."

Sometimes the trade-offs are transparent - such as when we pick a brand on sale over our favourite. "But the Indian scavenger may not be aware of the nature of her transaction," he says. "Knowing where to look for the prices steering our lives - and understanding the influence of our actions on the prices arrayed before us - will not only help us better assess our decisions. The prices we face as individuals and societies, how they move us, how they change as we follow one path or another provide a powerful vantage point upon the unfolding of history."

According to Porter, by evaluating opportunity costs, we organise our lives. "There are few better ways to understand the power of prices than to visit the places where they are not allowed to do their jobs. During a trip to Santiago de Cuba a few years ago, I was driven around town by a bedraggled woman who, to my surprise, turned out to be a paediatrician at the city's main hospital.

"She was thin as a reed. Two of her front teeth were missing. She told me they fell out during a bout of malnutrition that swept through the island after the Soviet collapse in 1991 cut off Cuba's economic lifeline. The doctor owned a beat-up car. She was very smart. But otherwise her life seemed no different from that of any street urchin, living off the black market at the limit of endurance, peddling a ride or a box of cigars that fell off the back of a truck. She charged $10 for driving me around town all day. I couldn't help wondering how the collective decisions that shaped Cuba's possibilities at the time could make it so a paediatrician found this to be a worthwhile deal."

Dr Raymond H Hamden, clinical and forensic psychologist, Human Relations Institute agrees. "Most people consider their professional life as an hourly charge to anyone who consults for any reason," he says. "This is acceptable in most capitalistic societies. Healthy individuals can compartmentalise the work life from the personal life and not price-tag friends and family."

The price we pay

Where will prices take us? "Archimedes of Syracuse, the great mathematician from the third century BC, said that to move the Earth he needed only a lever, a fulcrum, and a firm place to stand," writes Porter. "Moving people requires a price.

"The marriage rate in the West has fallen not because of changing fashions but because of its rising price, measured in terms of the sacrifice it entails. We have fewer children because they are costlier."

One flaw in this argument is that ‘price' can mean both ‘amount of money needed to exchange for something', when talking about a commodity and ‘consequence(s)' when talking about an action. These are not the same thing. The most fundamental feature of price is that it sets things up as equivalents. It means one can compare apples and bananas, if one wants to: apples are Dh10 a kilo, say, and bananas are Dh13 a kilo. Apples are cheaper. In this manner one can compare just about anything. One can compare aeroplanes to furniture to cars. All of these are very different things, but because they have a price, they have a basis of equivalence: a car is worth maybe 100 pieces of furniture. But when a person makes a decision, the consequences of either choice are not equivalent. The consequences of each choice are not only unpredictable but incomparable, because they lack the notion of equivalence.

Can markets solve society's problems? Should everything have a price? Clearly not, in the view of examples Dr Hamden provides. "A mother should never put a price to her love and nurturing, neither can there be a bar code for providing for one's family. We were taught millennia ago that ‘Money is the root of all evil'. That does not mean money in itself is bad; it suggests the way it is made can be questioned."

Porter doesn't believe in such pricing either. "We will find prices can steer us the wrong way too. In the US, for instance, we still don't know how much we will have to pay for the economic distortions caused by the upward spiral in the price of American homes between 2000 and 2006. A century down the road, the cheap gas in the US of the 1900s might come to be seen as the cause of incalculable environmental damage. Prices can be dangerous too."

By the way …

The Price of Everything starts with a simple premise: there is a price behind each choice that we make, whether we're deciding to have a baby, drive a car, or buy a book. We often fail to appreciate just how critical prices are as a motivating force shaping our lives. But their power becomes clear when distorted prices steer our decisions the wrong way.

Price Inside Info http://eduardoporter.com/international-editions/  

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