Just yesterday I stumbled across a couple of articles written last month regarding the practice of charging “tourist prices” in developing countries. The first is by Ben Groundwater of the Sydney Morning Herald, entitled “Tip the Scales: Can Excessive Tipping ‘Ruin’ a Destination”, and the second is from one of my daily reads The Traveller’s Point Blog, entitled “Why Getting Ripped Off is Alright”. These two articles were written over a month ago, but I think the debate is an interesting one, so I wanted to revive it here.

The two posts I have linked to above discuss the common practice of charging inflated prices to foreign tourists in developing countries. Both articles argue that there is nothing wrong with paying inflated “tourist prices”, and that the practice should even be seen as a type of “social justice” for the historical exploitation and current economic disparities that the developing world must endure.

The two articles don’t make this point explicitly, but commentators even took the idea so far as to say that it is unethical and even “sickening” for wealthy Western tourists to haggle with impoverished locals in developing countries.

I, however, disagree completely. I proudly admit to haggling with locals while traveling in developing countries. I WILL NOT pay inflated prices simply because I am a tourist, and will haggle until the price is lowered back down to the local standard.

Why do I haggle? Is it because I’m greedy?

Well to explain my stance I have to get into a little bit of basic economics, so please bear with me:

Like it or not, we live in a capitalist world. Now a capitalist system certainly has its faults, but for as long as we continue to use it, we must abide by its rules or inefficiencies will develop. Under a capitalist system prices are set by the market interaction between consumers and suppliers. Suppliers naturally want to charge the highest possible prices for their goods, and consumers naturally want to pay the lowest possible prices. This results in an equilibrium price that is high enough to please suppliers, but low enough that consumers are willing to pay it. However, this system only works when both parties follow the rules, meaning suppliers charge the highest possible prices, and consumers demand the lowest possible prices. When this does NOT happen, inefficiencies develop that spread through the system like a virus. In the case of tourists paying inflated prices, this creates inefficiency from the consumer side. Now I keep using the word inefficiency, but what does that actually mean? Well, in this case the inefficiency is that tourists are creating “false demand”.

The Sydney Morning Herald article describes a situation where the writer willingly paid an Indian vendor 5 times the price of a samosa, then tacked a 100% tip on top of that. His thinking was, “I am relatively wealthy when compared to this samosa vendor, why shouldn’t I pay him more?” The problem here, as I said above is this attitude creates “false demand” from the consumer side. Now do I think that by paying more for a samosa this writer is contributing to the downfall of the Indian economy? No, but when this attitude is multiplied by millions of tourists, this “false demand” is transformed into the “illusion of easy money” which is a real effect that can be seen today in dozens of developing economies around the world.

Please bear with me as I explain further. The problem with “false demand” is that it creates a spike in a previously stable pricing curve, that suppliers are extremely quick and eager to follow, or in other words the “illusion of easy money”. If this samosa dealer can continue to sell to foreign tourists for a 1200% mark-up, why not target foreigners exclusively for his product? In fact, why even limit himself to samosas? Why not start entire businesses targeted at tourists? Our samosa dealer recognizes the fact that he does not need to be price competitive or even product competitive when selling to foreign tourists, because they will “feel sorry for him” and pay what he charges (competitive or not), so why not take advantage of this?

Does it sound like I’m exaggerating? Let me continue. Anyone who has been through a developing country within the past 3-5 years has undoubtedly seen dozens of advertisements for locally run Eco-Tourism projects in that country. Now some of these projects are well organized, well managed, and priced competitively, in other words they are capable of competing at the global level. However, the vast majority are run by inexperienced locals, who have slapped together an unorganized, overpriced project, and are basically relying on “foreign tourists feeling sorry for them” as their means to profitability.

It doesn’t stop with a few communities starting Eco-Tourism projects either. The concept has filtered down into the education system. Take my current country of residence for example, Ecuador, Eco-Tourism is now among the top 5 most popular majors among University students in Ecuador. Why? Because it’s easy money! Why would you bust your ass studying to become an engineer, teacher, IT specialist, or health professional (professions that could directly advance the Ecuador’s infrastructure and the well being of its people), when you can study Eco-Tourism and take advantage of all the money the Gringos are handing out.

Basically, what I am saying is that paying “tourist prices” does not stop with the street vendor. As can be seen in a number of developing countries around the world, it distracts from a traditional “bricks and mortar” strategy to development, and creates a modern day “gold rush” to get a piece of the tourism pie.

Now you may be thinking, so what if tourism in developing countries is inefficient and is based on accepting handouts from foreign tourists? Money is money, they can use it to further develop their infrastructure and advance into a developed nation.

Well, I agree, money is money, and to be honest there is very little that money CANNOT fix in the world of economics and business. However, the concern associated with building a tourism industry based on inefficiency is what happens when tourists no longer feel sorry for you. What happens 20 years down the road when India ranks among the most powerful economies in the world, and foreign tourists are no longer willing to give their money away? Their tourism industry, which has been built on inefficiency, will not be able to compete with well managed and competitively priced international tour operators, and will likely fail.

Conclusion:

While I do absolutely believe that the concept of “tourist prices” has a detrimental and real effect on developing economies, I don’t anticipate it is a practice that will end any time soon. It is simply another obstacle that developing economies will have to overcome in the modern global economic environment.

However, I DO NOT see anything wrong with Western tourists wanting to pay the same prices as locals. In my opinion it is not “sickening” or unethical, it is simply playing the part of a responsible consumer in a capitalist world.

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