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By Devinder Sharma
A global academic fraternity is trying to push globalisation by creating the illusion that it reduces poverty, eliminates hunger and promotes economic growth for all. Why shouldn't we hold these economists responsible for faulty economic reasoning and policies that keep thousands of people in poverty and rob farmers of their livelihoods, asks Devinder Sharma
Just before the failed Cancun WTO Ministerial in September 2003 there was a flurry of activity in economic circles. Studies emerged that concluded that a drastic reduction in agricultural subsidies in rich and developed countries would have no appreciable impact on global commodity prices.
The timing then was perfect and the underlying premise clear. Prominent economists in the developed countries (and their clones in developing nations) had ganged up to throw a protective ring around much of the US$ 320 billion agricultural subsidies that farmers (in reality, big transnational companies) in OECD (Organisation for Economic Cooperation and Development) countries were getting.
Now, Columbia University professor Jagdish Bhagwati has joined the bandwagon. Writing in the Far Eastern Economic Review (and quoted in The Economist March 23, 2005 ) Bhagwati says: “Agricultural subsidies are certainly undesirable. But the claim that removing them will help the poorest countries is dangerous nonsense and a pernicious fallacy.” His colleague, Arvind Panagariya, goes further by arguing that subsidies make food cheaper for importing countries.
Again, the timing is perfect. The next WTO Ministerial is to be held in Hong Kong in December 2005.
This is not the first time that Columbia University has emerged at the top of the global academic fraternity that unabashedly defends globalisation. Also, it is not unusual to see regular columns written mainly by American university professors in various periodicals of developing countries. Using their academic credentials, they write as if they have the right to sermonise. The world must sit in rapt attention, grasping every word that flows from their tainted pens -- tainted because they have the monumental task of protecting their own livelihood security by promoting flawed American economic policies.
Jagdish Bhagwati, I thought, was a breed apart. After all, he holds several eminent positions including member of UN Secretary General Kofi Annan’s high-level advisory group of the NEPAD process in Africa . As former external adviser to the director general of the WTO, special policy adviser to the UN on globalisation, economic policy adviser to the director general of the erstwhile General Agreement on Tariffs and Trade, I thought Bhagwati would by now have realised the fallacy of pushing for an unjust globalisation, that too by creating the illusion of reducing poverty, eliminating hunger and promoting economic growth for all.
What Jagdish Bhagwati calls “dangerous nonsense” is actually a reflection of the economic lunacy that he and his tribe find themselves in. Growing anger against the fundamentally unsound economic prescriptions being doled out by these economists has already pushed at least 54 developing countries into what I call a Dark Age. Most developing countries have now become net food importing countries, gradually destroying the food self-sufficiency so assiduously achieved. Economists therefore are now desperately searching for alibis to protect themselves against public outrage.
Bhagwati’s colleague Arvind Panagariya uses the same fallacious argument: “A study in 1999 found that 33 of the 49 poorest countries import more farm goods than they export; 45 of them are net importers of food. Subsidies depress the price of agricultural products on world markets. That hurts rival exporters, as Burkina Faso can testify. But importers gain.”
Economists at the IMF/World Bank will always echo such beliefs. This time it’s the turn of Stephen Tokarick of the IMF who even works out how India would benefit a bit, but the rest of South Asia would be $ 164 million worse off. Sub-Saharan Africa would lose $ 420 million, while North Africa and the Middle East would face a cost of $ 2.9 billion.
The underlying premise is the same: agricultural subsidies in rich and developed countries should not be scrapped.
Before we go any further let me say that there is no denying the fact that some of the least developing countries are dependent on food imports. But sound economics should surely aim at pulling these countries out rather than pushing them into dependence. These countries have to emerge out of the Dark Age and become economically strong. This can only happen if the world joins hands to pull them out of the economic morass they find themselves in. And if you are wondering how this can be attempted or achieved, let me take you back to the time when India and China -- a third of world humanity -- emerged out of hunger and starvation.
India ’s independence came against the backdrop of the Great Bengal Famine. Soon after Independence , India had begun to seek food aid and, in fact, emerged as the biggest food importer of the 20th century. For a country living a virtual ‘ship-to-mouth’ existence, there was little hope.
The political ramifications of importing food were felt by the then prime minister Jawaharlal Nehru. As early as 1955 Nehru realised the pain of being food dependent and in his independence day address from the ramparts of the Red Fort, he said: “There is nothing more humiliating for any country than to import food. Therefore, everything else can wait but not agriculture.”
I am so glad that Jawaharlal Nehru did not seek the advice of Jagdish Bhagwati and his economist gang or else India would have remained a hopeless case, as much of Sub-Saharan Africa is referred to today. Fortunately, Nehru and his able successors followed the reverse route to globalisation to attain economic sovereignty. Lal Bahadur Shastri and Indira Gandhi later laid the foundations for a ‘famine-avoidance strategy’ to make the country food self-sufficient. The strategy included raising tariffs to ensure that cheaper imports do not marginalise farming communities. Given the right policy framework and incentives, the Indian farmers did the rest.
China too followed almost the same agricultural path to growth. Despite hiding behind the bamboo curtain, China ’s remarkable turnaround in agriculture laid a strong foundation for economic and political sovereignty. Both China and India have conclusively demonstrated how important it is for any country to get out of the dependency syndrome. Both these countries wouldn’t have emerged onto the global map if they had followed the misguided path that the IMF/World Bank and mainline economists have been relentlessly pursuing. If India and China could do it, and do it effectively, why can’t the same model apply for the rest of the developing world, including Africa ?
That makes me think of father of India ’s white revolution Dr Verghese Kurien’s words: “I am credited with (making) a public statement -- which, incidentally, I have not denied yet -- that a world without economists would be a lot better place for humankind. May the tribe perish -- for they never are where the action is.”
For the 45 poorest and net food importing countries that Arvind Panagariya is worried about, the right path is not to stay dependent on food imports from the United States and the European Union but to close the national borders by raising tariffs and bringing in policies and a support mechanism that provides an enabling environment for farmers to grow more. If Indian and Chinese farmers could do it there is no reason why African farmers cannot become economically viable.
But that will not be allowed to happen. After all, the transnational corporations can only garner more profits if one part of the world is kept hungry. We all know that mainline economists are working overtime to ensure that globalisation increases the dependence of more and more developing nations on agribusiness corporations. It is always a hungry stomach that can be exploited, and they know that.
One such way is to denounce input subsidies paid to farmers in developing countries, labelling them ‘trade distorting’. At the third annual international conference on policies against hunger, organised by the German government in Berlin , in October 2004, John Nash, a World Bank economist, took pains to defend the domestic subsidies being doled out to European Union farmers. In 1999, 56% of all EU agricultural expenditure -- approximately 78 billion euros -- took the form of direct payment to farmers.
These subsides are believed to be non-trade distorting and therefore justified. At the same time, the indirect input subsidies that developing country farmers receive are painted as the villain of the free trade regime, requiring immediate discontinuance. When Nash was asked what developing countries should do in the event of a withdrawal of the minuscule agricultural support being made available through cheaper farm inputs, he replied: “In the World Bank’s thinking, the best way to encourage agriculture in the developing countries is to shift the farm subsidies to laying out rural infrastructure like link roads, providing electricity etc.”
Infrastructure development is the surest way to make agriculture productive, he concluded. “If rural infrastructure is what is needed to prop up agriculture than you will agree that the rich industrialised countries have already got a well-knit infrastructure in place,” this writer said, and asked: “Why should European farmers or, for that matter, a few million farmers on either side of the Atlantic then be getting such huge support as direct payments?” You guessed it. John Nash very conveniently ignored the question. Does it not mean that in the name of free markets, developed countries actually practise ‘socialist’ agriculture? How can those who swear by the market economy keep their own farming systems inside a well-fortified closed circuit?
The rich and developed countries have perfected a well-established state intervention programme to ensure that their farmers get a minimum level of income. Markets, therefore, have no meaning for farmers in developed countries. Whether they live in the US , France , Germany , Switzerland , Japan or Australia , they are financially insured and insulated against the volatility of global markets. It is only the poor farmers in developing countries who are forced to face the vagaries and cruelty of the markets. For the rich, the scandalous cover of ‘green box’ subsidies protects direct payments. For the almost 3 billion farmers in the developing world, even their own governments (based on the faulty advice of mainline economists) are refusing to address the consequences of the grossly uneven playing field to which they are being exposed.
Instead, an unnecessary fear is being created over rising food prices for the urban poor. The food scare is aimed at the urban middle class, with the full knowledge of the political clout they wield in developing economies. Jagdish Bhagwati has played his cards well. He knows that the G20 countries, for instance, will not be able to antagonise their own middle class. They will therefore not push for the removal of domestic support -- provided through ‘green box’ and ‘blue box’ -- beyond a point. And that remains the last hope for protecting western agriculture subsidies.
Let us now understand the realities of cheap food. First let us look at how the prevailing subsidy structure is making food expensive in the developed countries. Surprised? Well, that is why it is kept hidden from the public gaze.
Take rice as an example. An average Indian farmer produces a kilo of paddy at approximately Rs 6.25. Taking the prevailing conversion rate of Rs 44 for a US dollar, each dollar would buy roughly seven kilos of paddy. Can the economists tell us where in the developed world you can get seven kilos of rice for a dollar? How come the Indian farmer is priced out of the market? Isn’t there something terribly wrong with the way economics is dictating the trade agenda? Even in the retail market, a kilo of rice is available for Rs 10, which means you can get more than four kilos for a dollar. On the other hand, look at the retail market in the UK . A kilo of rice is available at 2.54 pound sterling -- enough to buy 20 kilos of rice from India .
European and American consumers stand to gain immensely if they were to scrap the monumental domestic support to their farmers. Firstly, it would mean that taxpayers in these countries do not have to support inefficient and environment-unfriendly production systems in their own countries. And if the US were to instead import its entire rice requirement it would be available at a much cheaper rate than what the American consumer is currently paying. Isn’t it economically unsound therefore to follow a marketing system whereby the total rice output of the United States is worth US$ 1.2 billion and the subsidies paid to rice growers stands at US$ 1.4 billion?
Do consumers in the United States realise that they can collectively save at least US$ 1.4 billion every year on rice by refusing to subsidise their producers? Cheaper imports from developing countries would further lower the retail price of rice. It would price out domestic rice producers, but the real beneficiary would be the consumer. And in turn it would help millions of small rice producers in Asian countries who would then be able to find a substantial export market, thereby raising incomes.
Let us take another example. Let us look at how Denmark , for instance, manipulates the market and that too by truly following WTO norms.
Danish pea farmers do not benefit from price subsidies. Danish split pea processing companies do not benefit from processing and marketing aids. Danish pre-cooked split pea exporters do not benefit from export refunds. Obviously you would conclude that they are very efficient producers and, of course, very competitive. But hold on.
Since Danish pea farmers do not have to recover their full production costs from the sale price of peas supplied to processing companies, the price at which peas are supplied to processing companies is substantially reduced. As a consequence, the price at which pre-cooked split peas is offered for sale is substantially below the price that Indian pulse growers can offer. The provision of direct payments thus enables Danish suppliers of pre-cooked split peas to capture markets that they would never otherwise have been able to supply. Indian pea producers are simply unable to bid competitively in the global market.
Let me make it very clear. The comparative advantage cited by developed countries is actually built on agricultural subsidies. Withdraw agricultural subsidies and there is no comparative advantage left for most crops. That is why mainline economists do not compare the cost of production of agricultural commodities but invariably look at the supply chain management.
No wonder then that pea imports into India have multiplied four times over the past five years. While Indian pea producers have been priced out by the subsidies imports, Danish consumers have, in reality, paid more for the peas they consume. If Denmark had stopped making direct payments to pea growers, and instead imported peas at a much lower available price from India and Africa , Danish households would have made considerable savings. Isn’t that sound economics? But then the market economy, as we well know, does not operate on common sense anymore.
What happens when cheaper and highly subsidised agricultural imports come into developing countries? The small and marginal farmers who have been cultivating these crops are the first to be thrown out of work. Gradually they abandon farming and migrate to urban centres looking for menial jobs. Even if food is available to them at reduced prices, they do not have the means to buy it. The reason is simple: unlike in industrialised countries, the producer in developing countries is also the consumer. Unless he first produces and earns his livelihood he cannot afford to buy from the market.
It is for this reason that some 320 million people, a third of the world’s 840 million hungry, go to bed hungry in India . Not because there is not enough food in the country, but because these people cannot buy food even at ‘below the poverty line prices’. They do not have the money to buy the cheap food that the government makes available to them. What they need is jobs, and that can come only from agriculture. After all in a country that has 600 million farmers -- every fourth farmer in the world is an Indian -- there is no other way to provide productive employment for all than to make agriculture more attractive.
The globalisation that the neoliberal economists are trying to justify takes away these jobs. The poor in urban centres become eternally dependent upon cheap, subsidised food. It destroys their ability to produce the quantity of food that they now import. This is the outcome of a vicious cycle started by mainline economists in the name of globalisation. If every country was encouraged to have a food production and management system that allowed its farmers to produce for the nation’s requirements, the world wouldn’t witness the kind of inequality that prevails today, and its resulting socio-economic consequences.
But even as we debate the issue of agricultural subsidies the International Food Policy Research Institute in Washington DC and some economists at Cornell University have begun demanding subsidies for consumers. In reality it means subsidising the expansion of food supermarkets. If nearly 80% of agricultural subsidies are cornered by big farms and agribusiness corporations, an equal amount of consumer subsidy will be eaten by the Wal-Marts. Let’s see how the mainline economists justify this demand.
Meanwhile, every year, millions of people are being pushed into penury and driven from their only means of livelihood as mainline economists continue to misguide the political leadership. That makes me wonder: when will we begin to hold economists accountable? After all if a bridge collapses we prosecute the engineers. A negligent doctor can be held responsible for the death of a patient. Here, hundreds of thousands of people suffer silently and continue to pay the price of faulty economics. Why can’t we hold the economists responsible?
InfoChange News & Features, March 2005
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