Gifted in Nepal

by Russ Roberts on April 29, 2009

in Trade

In this post, I quoted Robert Frank:

For example, as a Peace Corps volunteer in Nepal long ago, I hired a
cook who had no formal education but was spectacularly intelligent and
resourceful. Beyond preparing excellent meals, he could butcher a goat,
thatch a roof, plaster walls, resole shoes and fix broken alarm clocks.
He was also an able tinsmith and a skilled carpenter. Yet his total
lifetime earnings were less than even a very lazy, untalented American
might earn in a single year.

And that prompted this question:

Why does a spectacularly intelligent and resourceful person in Nepal earn spectacularly less than a lazy untalented American?

My one sentence answer (echoed by a number of folks in different form in the comments to the earlier post) comes from my book, The Choice:

Self-sufficiency is the road to poverty.

The longer answer is that the lazy, unresourceful American of average intelligence has no incentive to learn how to fix a broken alarm clock or butcher a goat or thatch a roof. For the American, these elegant but time-intensive skills have a reward that is far below the cost in foregoing other activities. In Nepal these skills are worthwhile. In America, they are only of any real value relative to the cost if you're working at Plimouth Plantation entertaining tourists. The American is only lazy because he can afford to be. But put that guy on a desert island by himself and he will quickly resemble Tom Hanks in Castaway, a man with no real skills suddenly forced to acquire some and with a very intense incentive to do so.

But that is only part of the story. Why can the American afford so much leisure? The answer is that he has more people to trade with, people who bring more capital and skill to the table. I know nothing about goats, thatched roofs, or alarm clocks. I know a reasonable amount about economics, a skill that is virtually worthless in Nepal. And yet I live like a king relative to the cook in Nepal. I live like a king relative to my great-grandfather who may have been smarter and may have been able to do many things I can never imagine doing. The fundamental reason that is so is because I benefit from the division of labor. By specializing in economics, I am able to leverage the skills of other people who are specializing. It is their specializing, and the opportunity to trade with them, that makes it rational and gloriously pleasant to specialize in economics.

There is much more to say. Specialization and the division of labor is a very complex and subtle idea. I try to untangle some of it here and here. And there is more to say, as some of you noted, about what allows specialization to flourish.

Thanks to everyone who submitted comments.


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