Fundamental lessons on offer amid the hustle and bustle of a 'primitive' market

Man is a social animal. The 19th-century sociologist and philosopher Georg Simmel argued that trade and exchange is 'one of the purest and most primitive forms of human socialisation'. Last month, while travelling through West Timor, I was able to study first-hand how rural markets operate. I could not help wondering why so-called primitive markets such as these work so well when complex financial markets can be so dysfunctional.

Rural markets in West Timor are wonders of trade. Men and women converge on different villages on different days of the week. Everyone knows when to go to which village for these markets, which typically start at dawn and end by 11am. Economists would surely call this scene of bustling rural commerce a 'concentration of liquidity'.

As the late Stanford economist John McMillan argued, the market is a human construction - a tool. It has features to make it work smoothly: mechanisms to organise buying and selling; channels for information flow; laws that define property rights, and self-regulating rules that govern behaviour.

Most rural markets are much more complex than they appear. They sell everything needed for daily life and have their own hierarchies. The stalls of wealthier, established traders are sheltered and in the best locations, while poorer traders just spread their wares on the ground. Specialisation is evident even in this basic setting - there are designated places to buy textiles, fresh meat, vegetables or household goods. These markets also function efficiently as information exchanges. Prices differ depending on who you are and what you know.

In these markets, you can observe the entire range of business evolution, from simple production to wholesaling and final sale. Everything is designed for convenience and to reduce transaction costs.

The permeation of technology, like mobile phones and the internet, even into these remote rural areas, has accelerated the speed at which information travels through these markets. This means even lower transaction costs all round.

With rural markets now linked to global markets, the production and marketing game is changing beyond recognition. You see the effect of high transport costs clearly in rural markets. Here, locally produced goods are ludicrously cheap, but imported good are very expensive.