Used Clothes as Development Aid: The Political Economy of Rags (SIDA) Introduction (introduction...) Four possible positions Our plan of analysis Possible empirical questions Theoretical questions The organization of the report Our conclusions

Used Clothes as Development Aid: The Political Economy of Rags (SIDA)

Introduction

What is the nature of used clothes? Are they cheap goods being dumped unfairly, disrupting local markets and destroying local production and jobs? Or are they resources, like fish from the sea or oil from the ground, that can be used to improve people's lives?

These questions bring up some of the most fundamental issues in aid and development. Should we send used clothes to be given to people in the Third (or Second) Worlds, or should we help people there to make or buy their own clothes? The latter might seem preferable in many ways, but is it possible that giving people used clothes might also enable them to increase their productive power?

We have been asked to consider the economic effects of the commercial and charitable import of used clothes, and other used goods, from industrial countries to less-developed countries (LDCs), and specifically whether, in the light of those effects, we would recommend that the Swedish International Development Cooperation Agency (Sida) should, or should not, continue subsidizing freight and related costs for used-clothes exports by Swedish non-governmental organizations (NGOs).

Expressing our terms of reference schematically, we are asked to consider the following questions:

1.	What is happening in world used-clothes trade?
2.	What are the economic effects:
		a. of used-clothes imports in less-developed countries?
		b. of subsidizing used-clothes exports from industrial countries?
3.	Should Sida subsidize such exports?

We will answer question 1 in Part I, including a look at the general context of the used-clothes trade: producer, labor union, media, and government reactions to it - regardless of the basis of those reactions in economic analysis - as well as NGO attitudes towards and participation in it. We will answer the two parts of question 2 in Parts II-A and II-B, respectively. We will discuss question 3 in Part III.

Four possible positions

The two parts of question 2 above (what are the economic effects of used-clothes imports in general, and of subsidizing exports in particular?) can evoke analysis and response in various ways. A table of four possible sets of simple answers might look like this:

Table 0: Qualitative effects of used-clothes imports, and of subsidies thereon

effects of:	1	2	3	4
used-clothes imports	good	good	bad	Bad
subsidies thereon	better	bad	good	Worse
		(not the best)	(in catastrophes)

The two extreme columns in the table (columns 1 and 4) might be thought of as representing two diametrically opposed positions:

· one position (column 1: used-clothes imports are good, and subsidizing exports is better) might advocate re-use of used clothes as a simple and direct development strategy;

· another position (column 4: used-clothes imports are bad, and subsidizing exports is worse) might seek to ban used-clothes imports (or exports) - or to impose high tariffs on them - and certainly not to subsidize them!

Sida and the organizations currently receiving subsidies are perhaps more familiar with the first position, which we will review briefly in Part I while exploring more extensively the other "extreme" position, which may be less familiar. The following quote may give a sense of the feelings attached to the position represented in column 4:

"It is a scavenging trade, where companies get their product practically free before converting it into cash." - Neil Kearney, general secretary of the Brussels-based International Textile, Garment and Leather Workers' Federation

Between the extremes are two possible middle positions:

· one position (column 2: used-clothes trade is good, but subsidizing such trade is bad or, at least, not best) could represent the most common point of view of classical economics (assuming simple, "ideal" conditions); while

· the other position (column 3: the used-clothes trade might be bad - if it increases unemployment and hinders development, for instance; but subsidizing it - in the case of catastrophes, for instance - might be good) could represent a realistic economic analysis under more complex conditions.

The following quote may give a sense of the feelings attached to at least the first part of the position represented in columns 1 and 2:

"We are the only way that poor people, legitimately, can get anything to put on their backs in most of the Third World. It beats dumping it into the landfill." - Ed Stubin, president of Trans-Americas FSO Inc. (a commercial used-clothes exporter), Brooklyn, New York

Part I explores all these positions: as adopted by producer organizations and labor unions; as depicted in the media; as represented by government trade policies and practices; and as expressed by various Swedish and international NGOs. Parts II-A and II-B are devoted to economic analysis as a basis for taking one of these positions.

Our plan of analysis

To discover where on the table above we believe the correct answers lie, we break the two parts of question 2 above into the following four questions:

1. Is there overall net economic benefit, or damage, from used-clothes imports in general?

2. If there is no evidence of overall net damage from imports in general, we must still consider the particular effects of subsidizing used-clothes exports - that is, do subsidies introduce damaging distortions, either in general, or in any special situations?

3. On the other hand, even if there is evidence of overall net damage from imports in general, might there still be special situations in which subsidizing used-clothes exports would be beneficial?

4. Finally, even if we find no overall net damage, or only minimal or uncertain damage, from subsidizing used-clothes exports, either in general or in any special situations, we must still ask, are such subsidies the most efficient use of scarce development aid resources (both the funds used for subsidies, and the clothes themselves)?

Possible empirical questions

To analyze fully just the first of these questions, regarding the degree of economic benefits or damages resulting from used-clothes imports, we would probably need extensive empirical work to answer all the following questions:

1. In the absence of used-clothes imports, to what extent would demand for clothing be met from domestic production of new clothes, and to what extent would it be met from production of new clothes in industrial or new industrial economies?

2. To what extent would demand for clothes not be met at all? That is, to what extent are people "too poor to enter the market"? (In such cases, do they literally go naked, or what do they wear?)

3. To what extent is domestic production exported? What are the prospects for exporting domestic production in the future?

4. Is there unemployment? How well are factor markets working, and how easy is it for resources (including labor and physical capital) to shift to other occupations or other products?

5. To what extent are imported used clothes, domestically-produced new clothes, and imported new clothes, substitutes for one another? That is, what are the cross-price elasticities between these three sectors?

6. Do used-clothes imports reduce demand for locally produced clothes, thus reducing employment and incomes directly?

7. Do used-clothes imports hurt the prospects for future local clothes production by reducing demand that would otherwise be an incentive for local production?

8. Do used-clothes imports affect growth - and thus employment and national income - via the loss of any positive externalities associated with such production? That is, for instance, do textile and garment production teach skills that are especially useful for further development?

9. How much do used-clothes imports increase employment, income, and growth, both in the used-clothes sector and in other unrelated sectors, and how do they affect income distribution?

Incidentally, to the extent that new clothes may be imported from one less-developed country to another, used-clothes imports to the latter may not damage production in that latter country - if there is no production there to damage - but they may damage production in the former country. In either case, less-developed country production is damaged. This consideration must be understood to apply, not only to clothes production itself, but also to the fiber and textile production which preceded it. Thus, in the questions above:

· "Production" must be understood to include not only garment production as such, but also the prior fiber and textile production; and

· "Local production" or "domestic production" must be understood to include production not only in the particular less-developed country under consideration, but also in any other less-developed countries. "Imported", on the other hand, must be understood to mean from industrial or new industrial economies.

Thus, to begin with, we would need a thorough empirical study of the effects of importing used clothes generally. Then, in order to answer, the second and third questions in our plan of analysis above, we would need answers to a further set of empirical questions regarding the specific circumstances in which subsidized used clothes were being distributed or sold, including the specific operational methods of all relevant projects, etc. Possibilities we would have to study in detail range from free distribution in disaster situations, or free distribution to the poor generally (or perhaps only to those too poor to enter the clothes market at all), to selling cheaply to the poor, or selling at maximum profit to maximize funds for other development purposes.

However, we are not engaged in an empirical study; we have not been asked to conduct a field study ourselves. The terms of reference for the project do ask questions about the details of Swedish NGO involvement in the overseas distribution of used clothes, but we have not found it feasible to pursue these questions very far. We have not been encouraged to seek current information about specific projects or NGOs receiving such subsidies. Rather, we have been asked primarily to review existing economic literature, and to present a broad theoretical analysis.

We do include some data on Swedish NGO collections of used clothes and resulting exports, however. We also include extensive analysis of several Scandinavian studies on used-clothes exporting organizations. Further, we have discussed this report and its conclusions, in draft form, with several of the relevant organizations. But we have not attempted an exhaustive look at the project methodologies of all the Swedish NGOs exporting used clothes, which would take us far afield.

Theoretical questions

Anyway, looked at theoretically rather than empirically, the problem actually becomes much simpler. Although we will explore theoretical (and to some extent, empirical) analyses of the first three questions in our plan of analysis above - regarding the economic effects of imports in general, and of subsidies in particular - in fact it will turn out that it is only the last question that matters, concerning efficient use of scarce development aid resources. We can state that concern more explicitly in the following questions:

1. What are the alternative uses of the development funds available for freight aid? What is the best use of the development funds?

2. What are the alternative uses of the used clothes available for export? What is the best use of the used clothes?

3. In summary, would the intended beneficiaries rather receive subsidized used clothes or, using the available resources, is some greater benefit possible?

To elaborate a bit, the most important effect of subsidizing used-clothes imports - and the effect most often neglected - is that it preempts whatever alternative uses of the aid funds and of the clothes there might have been. If the intended beneficiaries would rather have cash or something else, rather than whatever used clothes they might receive via subsidized imports, then it might not matter if there are no negative effects from used-clothes imports in general, or from subsidizing them in particular; even if there were demonstrable overall positive effects from subsidizing used-clothes imports, still greater alternative benefits might be possible, and would thus be desirable.

The organization of the report

We will start in Part I by looking at the facts of used-clothes exports (Chapter 1) and imports (Chapter 2), both worldwide, and in and out of Sweden in particular. We will note the relative importance of textiles and clothes from less-developed countries in industrial country imports, and the relative importance of used clothes in total world textile trade. We will examine the nature of imported and exported used clothes (in the same country), and note that they are usually quite different markets. Finally, we will see where most exports originate, and where most of them go, and we will note which countries export or import the most per capita, and which ones receive or pay the highest and lowest prices for their exports or imports.

Once we have an understanding of what is actually happening in world used-clothes trade, it will be helpful to understand how powerful forces in the world are already responding to that trade. Thus in the last two chapters of Part I we will look at some of the social and political factors which might lead individuals, organizations, and governments to take the extreme positions we have already discussed, while reviewing more fully all four positions expressed in the table above. In Chapter 3 we will look at some producer-organization damage estimates and at some labor union documents; at some extreme and more moderate media descriptions of the used-clothes trade; and at government trade policies and practices around the world. In Chapter 4 we will look at some Swedish and international NGO attitudes and practices - including some possible alternative policies, and controversies regarding them.

Then we begin our own analysis. Part II-A - which focuses on commercial used-clothes imports in general (not on subsidies) - is divided into three chapters: Chapter 5 is totally theoretical; Chapter 6 is based on an empirical study in Rwanda, which unfortunately is a very special case; and Chapter 7 is a brief but wide-ranging sociological and historical review of the re-use of used clothes. Though somewhat ambiguous, the conclusions tentatively reached in the first (theoretical) chapter are basically corroborated in the second (empirical) one, and in the final sociological and historical review as well.

Part II-B consists of two theoretical chapters: In Chapter 8 we look at the direct impact of subsidies, without regard to their cost, or to any possible alternative uses of the aid funds. Then in Chapter 9 we consider alternative uses of the aid funds, and of the clothes.

Part III summarizes the previous sections briefly and then outlines our policy recommendations. Various Appendices are also attached, including statistical tables and fuller explorations of issues too lengthy for the main text, as well as References and numbered Source Notes.

Any of the chapters can be read independently of any or all others. Except for the general point that the commercial market for used clothes seems to be working quite well both internationally and within most LDCs, none of the parts or chapters is really crucial to our argument, except for the last chapter of Part II-B (Chapter 9). Nevertheless, because the larger context is both fraught with emotion and little dealt with in serious economic literature, we believe it is worthwhile to take this opportunity to explore the full context of the used-clothes trade somewhat thoroughly. Those who wish to focus only on the most specific question we have been asked - whether Sida should continue to subsidize used-clothes exports - should feel free to skip straight to Chapter 9.

Our conclusions

Based mostly on economic theory, and thus having abstracted from most (but not all) of the messy details, we will come to rather clear conclusions:

1. In a simple ideal world, used-clothes imports would result in net welfare gains.

2. In the real world, where there may be positive externalities associated with clothes production, and where markets may be less than fully functioning so that there may be chronic high unemployment, then used-clothes imports may result in net welfare losses.

3. The exceptions, where used-clothes imports would not result in net welfare losses (or perhaps in any welfare losses at all), would be if there is no supply, or if there is no effective demand.

4. Even if there is no effective demand (so that people are too poor to buy clothes), there are probably more effective uses of scarce development aid resources, and thus more effective ways of helping the poor, than subsidizing used-clothes exports.

5. If there is no supply, subsidies may be justified on humanitarian grounds.

Thus we will ultimately come to the conclusion that possible damage from imports, and probable better uses of aid funds, militate against freight subsidies in almost all situations; we believe that there are generally - but perhaps not always - better uses for scarce development aid funds than subsidizing used-clothes exports.

But we want to be clear about several points:

1. While economic theory is fairly clear, empirical studies tend to be somewhat murkier; we acknowledge that, in many cases, the situation may be far from clear in practice.

2. While we believe in recycling and re-use wherever and whenever feasible, and we empathize with individuals and NGOs in Sweden who have used clothes available and who want to assist development processes in Second and Third World countries, we believe it is important to understand both the real and the perceived potential for damage from used-clothes imports. Consequently, we will spend some time exploring union and media images of the used-clothes trade.

3. But we want to be clear that we have no sympathy for the view that valuable goods such as used clothes, and the labor and materials embodied in them, should be wasted, with garments burned, for instance, or reduced to raw fibers, in order to increase possibilities for employment. Far better employment-generating solutions exist. While we empathize with those in less-developed countries who believe that their industries are being harmed by cheap used-clothes imports, we do not generally believe in protection against imports, and we would not want to be misinterpreted as advocating such protection. (Making factor markets work better, so that capital and labor can find alternative employment, and producing for export, are better responses.) Consequently, we will spend some time exploring the general pattern and recent history of trade regulations worldwide, which will demonstrate that there is no trend towards increased protection in this area.

4. Finally, while we empathize with those who might desire that the very clothes which they have donated, collected, or sorted, might be given (with the help of freight subsidies) directly into the hands of the people in greatest need, we want to point out that there may well be greater benefits possible for those people, derivable from alternative uses of both the used clothes and the development funds available. Consequently, we will spend some time exploring some of the problems inherent in direct subsidized delivery, and some alternatives.

So, in summary, we shall conduct a largely theoretical exploration of the effects of used-clothes imports in general and of subsidies in particular, with concern not only for market effects, but also for social and political ones. We shall not look much at the specifics of Sida-funded projects, but we shall describe the used-clothes trade in general (including its broad context), which is how we will begin.