The Hidden Power of Butter

I came across a very interesting case study about Norway. In summary, there was a direct correlation between two seemingly unrelated factors: the price of butter & Norway’s population growth rate. Due to the expansion of trade, the demand of their butter increased, and because the supply could not keep up with the demand, naturally, the price of this commodity increased.

This is a phenomenon that is constantly taking place in free markets all over the world, but this case study gives us the unique insight into how free markets are auto-regulatory.

The increase in the price of butter led to a decrease in the population growth. Stop here, for a few moments, and think about how this might have happened.

The majority of workers involved in the process of making butter were women. Also, the butter industry employed a large percentage of women. Suddenly, since butter prices increased, these women’s hourly wages increased. Therefore, by raising an additional child, they would be giving up the opportunity to make a larger sum of money. The opportunity cost of staying at home to raise a child increased. As a natural response to this incentive, the birth rate decreased.

This is a pattern that is occurring all over the world, and it makes our growth, as humans, sustainable. A lot of these pattens can be explained by the opportunity cost of women in their respective society. Look at the differences between underdeveloped and developed countries. In Africa the birth rate is very high, while in Japan & the U.S. it is relatively low (even negative in some cases). Also look at the differences between growth rates in the cities and the suburbs. Cities tend to provide more job opportunities for women thus increase their opportunity cost of raising children.

As a country, there is a choice between allowing the free market to function effectively and auto-regulate, or forcefully deciding to intervene. We discussed Norway’s example.

What did China do? China implemented the one child policy. Let’s look at a brief overview of their recent history, leading up to this policy. In 1949, The People’s Republic of China was formed, led by Mao Zedong. Soviet-style 5 year plans were set in motion, aimed at developing heavy industries such as steel. The whole country was run by the state (no free market power). From 1958-1961, the largest famine in history took place. Between 1962 & 1972, China’s growth peaked, with nothing to hold it back. (around 300 million births) It’s growth levels became unsustainable.
Especially after considering where it was, China’s rise to becoming a global superpower is quite astounding. I’m planning to dedicate a blog post to explain the ‘miracle’ of China’s growth.

Government intervention is not good. Many people view government intervention as necessary and beneficial to general welfare. Let’s take a look at the example of the taxation on inelastic goods such a cigarettes in the U.S. which is widely accepted. There are two aims of this tax: to decrease the health damage done by cigarettes and increase government revenue. Government revenue definitely goes up, but less than 5% of that revenue was spent on health related research. (this shouldn’t be surprising) This tax also affects the poor far more drastically. So far this isn’t leading to overall welfare. But at least the health damage is less, right? Unfortunately not. (This is where it get interesting) Because individuals are spending more money to get the same amount of cigarettes, they use each cigarette more effectively. What does this mean? They smoke each cigarette right down to the filter, maximising its value. Researchers show that those last few puffs near the filter are actually the most damaging. Due to the imposed taxes, each cigarette now poses a far greater damage. In addition, this taxation promotes the sale and purchase of counterfeit cigarettes, also relatively more detrimental. Less health damage? Seems unlikely. Once again, government intervention is not good.

We ventured slightly off-topic there. Let’s take a look back at population growth. Did you know that over 60% of the Saudi population is under 20 years old? That’s a large growth rate, and poses serious threats to our future. Don’t worry, free market forces are currently at work while you’re reading this. I’m optimistic about the future of Saudi Arabia, and the future of Saudi women in our society. Women are getting more opportunities to join the work-force, are becoming more out-spoken, and even more involved in the private sector. One of the people I personally look up to in the Saudi business world is also an inspiring woman! Nowadays, almost all arguments surrounding women’s employment are in context with women’s rights and gender equality. It goes without saying that equality is important, but I hope you have gained a different perspective to this issue and now see how women’s employment can actually save the future of Saudi Arabia.

Butter is a super-hero. It gets its strength from free markets. Always remember the hidden power of butter.

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