We've going around and around on this whole ag subsidies thing. I thought it would useful to break it down into more manageable pieces. Part one is "how do we feed the world." Part two is "how do we ensure a decent living for people in rural America (or France or Australia etc)." Part three is "how do we manage our environmental resources."
So, part one....As I understand it LTG and I both want to feed the world (aren't we a couple of nice guys!?). We have two radically different approaches though. LTG wants to help the poor get food by subsidizing supply thereby reducing prices. I argue that we should give money to the poor to buy their own food - in effect, I want to subsidize demand. Both involve injecting government money from rich countries into the world market. Leaving aside the relative prices of these two approaches for the moment, what are the different consequences of subsidizing supply versus subsidizing demand?
If we subsidize demand we allow the market to determine who buys what from whom. We also allow the market to determine who ultimately will profit from the government money being injected into the market. If poor people in India want to buy from their neighbors they will and Indian farmers will profit. If poor people in India prefer to buy imported food from California they will and American ag companies will benefit. Price will play a key role in that...so might quality differences. If they chose to buy food from 3rd world sources this will have the additional benefit of increasing economic growth in countries that desperately need it.
If we subsidized supply we would not only be increasing supply we would be determining WHERE that increased supply comes from. And since only the rich countries can afford to subsidize, it will be ag companies in the wealthy "North" that get all the new profits.
So even if we assume that we can feed the world by both approaches and if we assume that both are more or less equally costly and efficient, there are profound differences in the distributive consequences of the two approaches. So let's talk about this for a while before we move on to part 2: ensuring a decent living for rural Americans.
15 comments:
If getting cash directly in the hands of the worlds' poorest were to prove logistically infeasible (as I fear it probably is) would you support subsidizing production instead?
No.
But the reason I say "no" is because I know that subsidizing production creates more poor people in exactly the part of the world we are trying to help. So we'd be better off TRYING to get as much cash as is feasible to as many poor people as possible.
First of all, I don't accept your easy dismissal of the practicality of foreign aid on a massive scale.
Second, we know what the world looks like with subsidies but without trying to get cash to people for food. That is exactly what we have now. All subsidizing supply gets us is rich ag business in Europe and the USA. It does not feed the people on its own. So in the end, we'd HAVE to go back to subsidizing demand to get the job done.
We have a simple choice.
Choice 1: We can feed people by directly feeding them either by giving them cash or the food itself.
Choice 2: We can waste billions on ag subsidies in rich countries THEN try to feed people by directly feeding them either by giving them cash or the food itself.
To me the choice is obvious. Choice 1 is the best way to go. Once you realize that subsidizing supply alone has not and cannot address world hunger, you must turn to subsidizing demand. If your only goal is feeding the hungry in the world, there is no need to do both.
Thus, I conclude that people who support ag subsidies do not do so out of concern for world hunger. They have other motives which we can get to in part 2 of this managed three part thread.
I should also say that the distributive implications of subsidizing farming in rich countries alone make me oppose them. It is literally creating poverty in the part of the world that can't afford any more poverty.
If we did nothing at all, no food aid and no subsidies, we would be doing more for the developing world than we are now. We would have at least stopped hurting their economies.
I hate to be a party pooper, but we all know it really is extremely difficult to get foreign aid directly into the hands of the individuals who need it. I don't think anyone has yet figured out how to do it. Non-governmental organizations try their best to distribute aid, but the logistical problems are overwhelming. Paying cash subsidies to governments and hoping they will use this to buy food wouldn't work either, for obvious reasons. So I am not sure option #1 is feasible--and I am not dismissing it lightly. Nevertheless, I agree it would be good to try, regardless of whatever our other agricultural policies may be.
Dr. S. yes foreign aid is difficult. But I am curious what you think about my main point about distributive consequences.
Also, on the foreign aid thing. While it may be difficult we know that subsidizing ag industries in rich countries cannot feed the poor at all so even a difficult approach would be an improvement. That's not even counting the distributive issues which are the main point I was making in the original post.
Ultimately, the best way to reduce world hunger is to reduce world poverty. We can't do that if we engage in policies that directly undermine the one economic advantage the poorest countries have.
What do you think about the distributive issues?
What about subsidizing production in developing countries - direct aid to farmers there to save them from the economic repercussions of (necessary) overproduction?
[Of course, this is the least politically likely: shifting ag subsidies from US companies to their would-be overseas competitors.]
The risk of putting a billion people on the dole is inflation.
I'm not sure third world countries have an economic advantage in food production. Many have poor soil and poor climates. Most lack the capital for intensive agribusiness that can compete with US agribusiness. They also lack regulatory oversight mechanisms to encourage good environmental, labor, or food safety practices, almost guaranteeing that the economically successful farms will be those that exploit the most, pollute the most, and use unsafe chemicals. Third world countries seem to have only one thing going for them in agriculture: dirt cheap labor - i.e., poor exploitable peasants. To the extent they get raised out of poverty, they lose this advantage.
What will happen really is that US agribusiness will ship jobs and production overseas to take advantage of lax environmental/labor/safety laws, then will fight like hell to prevent any US regulators from barring importation of products made without proper environmental/labor/safety conditions. These will put local farms abroad out of business in a serious way.
So the primary beneficiaries will be the largest US agribusiness able to relocate overseas, and the losers will be local third-world farmers and US consumers.
This is an issue in all free trade discussions. The assumption of free traders is that these issues I raise are - as a matter of theory or theology - always less salient than the economic benefits that flow from freer trade. I think this is a fact-intensive inquiry that has to be developed on a case-by-case basis. The health and safety risk is an added problem not present in other forms of production (e.g., steel) that weighs towards, at least, heavy regulation and inspection of imports.
LTG, you keep changing the subject. Do you think that subsidizing agriculture in rich countries has the distributive implications I suggest in my original post?
RbR asks, "What do you think about the distributive issues?" Here's how I see it.
Like RbR, I begin with the principle that the most efficient, most effective situation for any sector of the economy is a global free market, completely unfettered by regulations, subsidies, tariffs, etc. From that starting point I then work backward, asking how the economic sector in question differs from the ideal case. Usually that line of inquiry will suggest areas where some form of government intervention might be needed deal with any shortcomings of the free market, in either the positive or normative economic sense.
Agriculture deviates from the ideal economic sector for several reasons. First, food is not a widget--it is food. Food is necessary to live and I believe eating is a human right. Since an efficient market matches supply to demand, but does not meet all demand, this raises a red flag. Vulnerability to shocks is another big concern. RbR's suggested method of government intervention is simplicity itself: give people enough money to shift the demand curve, and the supply curve should follow in due time. In the absence of other considerations, other proposals might be equally good but I think none could be better.
The second difference between agriculture and the ideal situation is that food is perishable, yet nature constrains when and where different foods can be produced, so timely transportation and locality of production are more complicated. The market for agriculture is not a single market but a continuous set of overlapping markets: a banana produced in Australia is not equivalent to one produced in Chile, so there are different supply curves.
The third difference is agriculture is that almost anyone can produce it: No industrial base is required. This makes it almost unique among economic sectors. In developing countries, especially rural villages, which must participate in the world market to purchase industrial goods yet which lack the infrastructure and capital to engage in industry of their own, agriculture is the only economic sector in which these people can compete right now.
So when industrialized nations dominate the agricultural sector, poor people in developing nations are left with no any good options--there is no other industry or labor market in which they can find employment. The solution imposed by capitalism involves mass migration to urban centers, uprooting rural populations, where these people and their young children labor in sweatshops for pennies a day. Worse still, those impoverished rural folk who cannot or will not move end up engaging in the only other sorts of "industry" other than agriculture in which they can engage: human trafficking, opiate production, etc. This is why dumping food into developing nations has been so bad for them.
The urban-rural divide is critical here. The advanced science and productivity of big agribusiness--not to mention economies of scale--ensure that eventually the small rural peasant will be unable to compete in the global market. So urbanization will have to happen, as it has in the industrialized world (and the upheavals from the industrial revolution were pretty horrible here too). But until it does, I can see the value of temporary import duties in places like the Congo to protect the agriculture there and cushion the shock. Combined with the direct cash infusions RbR proposes, that should help stabilize the rural economy in developing countries while making sure the urban poor in those countries can still afford to buy food at the inevitably higher prices that will result from tariffs.
So that's what I see. How'd I do, RbR? :-)
I'm still on topic.
RBR writes in the original post" If we subsidized supply we would not only be increasing supply we would be determining WHERE that increased supply comes from. And since only the rich countries can afford to subsidize, it will be ag companies in the wealthy "North" that get all the new profits."
Apparently RBR wants to see now if I agree with that statement. Absolutely it is true that if we subsidize suppliers we determine which suppliers will be able to overproduce.
Let's ask direct questions, then. I have said repeatedly that the mechanism RBR proposes for helping developing-world farmers back to profitability is an increase in food prices. Do you agree or not? If not, why not? I presume yes, which is why you have now shifted to advocating direct subsidies to the world's poor.
A followup question: you have said that we are at the "mature" phase now where food prices in the developing world are actually higher than they should be in the as a result of subsidies. Why, then, are we not seeing local third world agriculture able to compete?
In other words, are we dumping or not? We can't be both underselling and overpricing.
I am reminded of the fights over deregulating power in California in the 1990s. When the bill was enacted in 1996, Democrats (then briefly a minority in the legislature) insisted that a cap on prices be retained in the law - that under deregulation, prices would not be allowed to rise above then-current levels. The power companies and Republicans complained that this was interfering in the free market. Democrats countered that if the free market wasn't going to provide cheaper power, as promised by the advocates of deregulation, then what good was it? Put your money where your mouth is. Republicans seemed to think that the free market in electricity was a virtuous end in itself. It's not. And in must-have markets like electricity and food, it is probably a bad idea.
Yes, the mechanism is an increase in prices but in conjunction with increased economic growth in the poor regions of the world which means few people who will struggle. I had intended to address that in previous comments but we so easily get wrapped up in simultaneously arguing about four or five different aspects of this problem that I lost tract. That is why I'm trying to start by addressing a very focused point first and then gradually expanding it.
Now, back to my point. Since you agree that if we subsidize the rich ag companies, they will be the only ones to profit from the new production then do you also agree that by subsidizing ag companies in the rich countries we are giving them an advantage on the world market vis a vis their competitors in poor countries. Is that correct?
Talking about whether food is a product like any other is changing the subject. I don't want to engage in that debate on this thread. Like I said in my response to LTG, we are getting tangled up in 10 different arguments at once here and I want to start with a narrowly focused point and gradually expand it.
Do you or do you not think that if we subsidize ag companies in the rich part of the world then those companies would be the only direct beneficiaries of the added government money? I think LTG answered that and so now we can move on gradually.
When I said "increased economic growth in the poor regions of the world which means few people who will struggle."
I meant "fewer" not "few"
So RbR, time for round two?...
Post a Comment