Bhaskar Dasgupta November 30, 2003

Tags: economics , free-trade

With a Grain of Salt

href="/tag/immigration">immigration has to try to control the demand side by physical barriers, fences, biometric devices, incarceration and the like, economic measures such as restricted welfare entitlements and finally social measures such as exclusions, etc. These almost always fail to take effect, as most structural immigration is driven by economic factors rather than political factors. Political factors will drive intermittent immigration, but it is the economic disparity that drives people to immigrate to wealthier nations. In other words, lack of economic opportunities in their homeland is one of the primary causes for people to leave their culture, history, life, family and friends to go through a dangerous journey, just to get a better “economic” life. Until and unless the supply side is addressed, a security issue will always remain.

Rousseau, a pretty smart fellow, whom you may have heard of, intoned that “man is born free and is everywhere in chains”. He was, of course, referring to political freedom, but while most people are independent on a political basis, they are still in economic chains. I was invited to a launch of an International NGO Coalition (freedomtotrade.org) which demanded global freedom to trade. I have to admit it was an eye-opener to me. The totally ignorant geek that I am, I always figured that NGO’s would be of the humanitarian, social or economic liberal persuasion. In the past, the news would be all of protests against open trade, rather than actually being interested in trading, but here were a bunch of NGO’s, coming from South Africa, India, Pakistan, Nigeria, Kenya, Bangladesh, Turkey, Columbia, etc. all clearly asking the world to set them (their trade) free.

Leon Louw of the Law Review Project in Johannesburg (freemarketfoundation.com) said something which was brilliantly ironic. He said that the real economic miracle in the post world war II time is the accomplishment of modern governments in keeping their people poor. The real economic miracles are countries like India, China, and Uruguay etc, where governments have tried their level best to keep their population poor. He railed against the entrenched interests (NGO’s, governments, scientists, journalists and the like), using the catch-phrases of sustainability, precautionary principles, environmental clauses etc. to keep people poor. He accused them of latter day imperialism, mixed with a rather strong presence of neo-luddites. He particularly reserved his ire for this cry for sustainability and called it voodoo science. Makes perfect sense? It does. According to the theory which is spread, economic development has to be sustainable. Umm, sustainable for whom? The first world or second or third world? Till how long? What has to be sustainable? Why not consume non-renewable resources – are they going to lay eggs if we don’t consume them? And so on and so forth.

Barun Mitra from the Liberty Institute of New Delhi (libertyindia.org) turned the full force of the argument on the agricultural sector and the entire discussion surrounding the current issues about the agricultural trade within the World Trade Organisation. He clearly noted that 6 million farmers in the EU are holding almost 1.5 Billion farmers in the world hostage. Most of the households in the world rely in some shape or form on agriculture and that sector is the most highly regulated of them all. Some of the statistics he gave out were simply amazing, and this one absolutely killed me. It would be funny if it wasn’t so sad. Each European cow gets $2 per day in subsidies, while 40% of India’s population, almost 400 million people, live on less than $1 per day. I am not sure who has the sacred cows, Europe or India! He was quite scathing about the anti globalisation protestors in Europe. He also made a very good point about his failure to see any demonstrations on the high cost of production in Europe, nor any arguments about how to lower the trading barriers on agriculture. He asked simply, has Jose Bove ever managed to come into a small farm in Vietnam and ask the farmer about his opinion on globalisation versus poverty? If the choice is to live a life on less than $1 per day or have the ability to trade freely, I know which one I will take. Another major bugbear was the unreasonable hostility towards GM seeds. Barun further talks about how Indian farmers are demonstrating FOR the Indian government to authorise more GM seeds to be made available. In fact, the sad thing is that there seems to be a flourishing black market in GM seeds, which farmers are desperately purchasing (even fake GM seeds)!

Professor Bibek Debroy of the Rajiv Gandhi Institute of Contemporary Studies, New Delhi took a different tack and explained how difficult it would be for a country like India to ever catch up with USA in terms of GDP per capita. In terms of current statistics, it would take 154 years to catch up, which is patently unjustified and rather gobsmacking. How does anybody create policies which require a country to do a 150 odd year economic plan, assuming the Americans have a good standard of living? This is the reason why Professor Debroy says that he is asking for four rights to be given: the right to choose, the right to be an entrepreneur, the right to property and the right to trade. He wants the government to step out of the way of people allowing them to better themselves and giving them economic freedom instead of hampering their progress.

Thompson Ayodele, an activist from Nigeria (ippanigeria.org), spoke about how his country is devastated by corruption, so did James Shikwati from Kenya. The rule of law, the ability to carry out economic activities in freedom and the right to property, transparency and freedom of press are some of the aspects they talked about and how important it was to make sure that these key issues were given priority in development discussions. In particular, they want to hack away at the thicket of rules and regulations, which proscribe the economic well being of Africans. In fact, they are asking the WTO to remove the barriers to trade and allow them to trade freely in the major economic activity that they have, namely agriculture.

Just what is happening with the WTO and its agricultural negotiations stage? It is rather simple; there are some countries which do not want to open up their markets to agricultural free trade. The main suspects are the USA, EU, South Korea and Japan. Each has different agricultural sectors, but the common part is the sheer political power that their farm sectors have on their respective governments. The USA is beholden to its agricultural sector, recently a huge dollop of aid was given the American farmers, and they are mollycoddled to a huge degree. Mind you, USA is also a big agriculture products exporting nation. It has huge, hyper economic farms and would definitely benefit from a reduction in the worldwide trade barriers in agriculture. Japan and South Korea have a patchwork of small, extremely inefficient farms, which are very highly subsidised, to produce rice and other farm goods at a multiple of international prices. They keep out agricultural produce on the basis of strange safety regulations and even more strange rules and regulations for selling. Just to give you an example, Japan puts a 490% import tariff on rice imports!!

The EU is the kingpin of this imbroglio, and hits the poor farmers of the developed nations in two ways, in addition to yet a third way which it shares with rest of the developed nations. The first way is that it subsidises its farmers based on production units. Hence farmers are compensated with money based upon their production of particular items such as cereals, olives, milk, etc. This was the reason why there are the familiar stories of EU Butter Mountains. When you are protected from the vagaries of the market and are paid to produce, irrespective of the market demand, this is what you will do, make as much as you can. The second way that the EU hurts the developed nations is to give export subsidies. So if you are going to export 1 kilogram of wheat and your production price is say 10 cents above international market price (usually due to the poxy subsidies in the first place), you will give some further subsidy to the farmers so they can export to poorer nations. So the poor sods in the developing nations get hammered. And the EU has the gall to tell the world that it doesn’t mind if the developing nations give their farmers some subsidies. Thank you very much indeed. Nice solution, doh! Have you forgotten that those countries are dirt poor and can’t afford subsidies in the first place?

The third way that these developed nations muck up the poor countries is through aid. Aid sounds very high faluting and comes attached with high morals, but in fact it is a silent killer. Just consider, if Europe is giving food and farm aid to countries like Ethiopia or Sudan, which are suffering from famine, what exactly is it doing? It is flooding the country with cheap grain. For the country to stand on its own legs, the farmers have to start production and sell their crops, but who will purchase their crops when there is free grain flooding into the market from the aid packages? Would it not be easier to wean off the country from this aid dependency and say, ok, you Sudanese farmers, you get free seeds, equipment and we will help in water management, security and the like. Then you sell your grain into the open market and why don’t you sell into our own country first? Our cost will be lower, you will be more resilient, you will be better helped by getting foreign exchange and you will become more efficient and effective.

But oh! No! There is an entire industry which has been built around this “aid” package. In all, the various forms of aid cross 50 Billion dollars per year for the lesser developed countries. Let us not forget the tied aid. Europe says, we will give you a billion dollars, but you have to purchase European grain and goods. That’s really helpful to grow my domestic industry. It is worse than being a drug addict, there is a way out for drug addicts, aid addiction is far more pernicious and habit forming. It also affects a far larger pool of people.

The EU is definitely in the limelight and frankly, in my estimation, Europe, (mainly France) is to blame for this. They are taking this as an anti American stance and want to protect their farmers, its way of life and its unique culture. Mind you, most of this protection is paid for by the Germans (remember Versailles?). Snorts. In this land of epicurean wonder, we saw Jose Bove destroying a McDonalds. In this unique French culture, McDonalds has made the largest sales and is growing at the highest rate in the world, compared to all other countries where McDonald’s operates. In this high cultural ivory tower, there have recently been more than 10.000 heat related deaths and there is a deep introspection as to how their elderly are treated. Do they really want to add the responsibility of condemning billions of people into continuing poverty? The EU should actually not stop this chance to really allow the world’s farmers to get out of the poverty trap and be prosperous. The WTO meeting came and went, but the world’s poor remain. Paraphrasing the immortal words of Moses, Let the poor people trade.

All this to be taken with a grain of salt