WTO:
In an era of economic lunacy by Devinder Sharma (India): Full Article
Bhagwati, Globalisation and hunger
March 2005
In an era of economic lunacy
By Devinder Sharma
Just before the failed Cancun WTO Ministerial in September 2003, there
was a flurry of activity in the economic circles. Studies came out
concluding that any drastic reduction in agricultural subsidies in the
rich and developed countries would not make any appreciable impact on
the global commodity prices. The timing of the reports was crucial.
The underlying premise was crystal clear. Prominent economists in the
developed countries (and their clones in the developing countries) had
ganged up to throw a protective ring around much of the US $ 320 billion
agricultural subsidies that farmers (in reality the big transnational
companies) in the OECD - Organisation for Economic Cooperation and
Development -- were getting.
It is now the turn of the Columbia University
professor, Jagdish Bhagwati, to join the bandwagon. Writing in the Far
Eastern Economic Review (and quoted in the Economist March 23, 2005), he
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, defends it further by arguing that these subsidies make food
cheaper for the importing countries. The timing is again perfect. The
next WTO Ministerial is scheduled to be held at Hong Kong in December
2005.
This not the first time that Columbia university has
emerged somewhere on the top of the global academic fraternity that
unabashedly defends globalization. At the same time it is not unusual to
see regular columns in various periodicals in the developing countries
mainly from American university professors. Using their academic
credentials, they write as if they have the right to sermonize. The
world should sit in rapt attention and grasp each and every word of
wisdom that flow from their tainted pen - tainted because they have the
monumental task to protect their own livelihood security by promoting
the flawed American economic policies.
Jagdish Bhagwati, I thought was still 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 a former external adviser to the director general
of the WTO, special policy adviser to the UN on globalization, economic
policy adviser to the director-general of the erstwhile General
Agreement of Tariffs and Trade, I thought he would have by now realized
the fallacy of thrusting an unjust globalization and that too by
creating an illusion of reducing poverty, eliminating hunger and leading
to economic growth for all.
He agrees that agricultural subsidies are
'undesirable'. But in the very next sentence makes a complete turnaround
and defends the subsidies by saying that it would make food expensive
for the net food importing countries, and therefore terms the demand for
its scrapping as a 'dangerous nonsense'.
This reminds me of the hypocrisy of the developed
countries that had been earlier echoed by the former World Bank Chief
Economist Nicholas Stern. While travelling through India sometimes back,
he had denounced subsidies paid by rich countries to their farmers as
"sin ...on a very big scale" but warned India against any
attempts to resist opening its markets. "Developing countries must
remove their trade barriers regardless of what is happening in the
developed countries."
In reality, what Jagdish Bhagwati now calls as
"dangerous nonsense' is actually a reflection of the economic
lunacy that he finds himself and his tribe in. The growing anger against
the fundamentally unsound economic prescriptions being doled out by
these economists has already pushed at least 54 of the developing
countries1 into what I call as a 'dark age'. A majority of the
developing countries have now become net food importing countries
thereby gradually destroying the food self-sufficiency so assiduously
achieved2. Economists therefore are now desperately searching for alibis
that can protect them from public slur.
His colleague Arvind Panagariya also 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." Economist from the IMF/World Bank
would always echo such analysis. This time it is 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 billion3.
The underlying premise is the same: agricultural
subsidies in the rich and developed countries should not be scrapped.
Before we move any further, let me answer this. There
is no denying that some of the least developing countries are dependent
upon food imports. Good economics would surely aim at pulling these
countries out rather than pushing them perpetually into the dependence
syndrome. Needless to say these countries need to emerge out of the
'dark age' and become economically strong. This can only happen if the
world agrees to cooperate and join hands in puling them out of the
economic morass. And if you are wondering how this can be attempted or
achieved, let me take you back to the times when India and China - a
third of world humanity --- literally emerged out of hunger and
starvation.
India's independence came in 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 twentieth
century. After all, for a country literally on a 'ship-to-mouth'
existence, there was little hope4. The political ramifications of
importing food were felt by the then prime minister, late Jawaharlal
Nehru. It was as early as in 1955 that Nehru realized 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 otherwise India would
have remained a 'gone case' as most of the Sub-Saharan Africa is today
referred to as. Fortunately, Nehru and his able successors followed the
reverse route to globalization to attain economic sovereignty. Lal
Bahadur Shashtri and Mrs Indira Gandhi later laid the foundations of a
'famine-avoidance strategy' to take India out of the blue and turn the
country food self-sufficient. The strategy included raising tariffs to
ensure that cheaper imports do not marginalize the 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 the strong foundations 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 couldn't have emerged on the
global map if they had followed the misguided path that IMF/World Bank
and the mainline economists have been relentlessly pursuing. If India
and China could do it, and do it so effectively, why can't the same
model follow for the rest of the developing world, including Africa?
Isn't it economic insanity to suggest dismantling a food
self-sufficiency structure that virtually saved almost half the humanity
from being led to a slaughter house??
And that makes me wonder whether there is truth in the
words of the father of India's white revolution, fondly called as the
'milkman of India', Dr Verghese Kurien, when he said: "I am
credited with having a public statement - which, incidentally, I have
not denied yet - that a world without economists would be a lot better
place for the human kind. May the tribe perish - for they never are
there where the action is."5
For the 45 poorest and net food importing countries
that Arvind Panagariya is worried about, the right path is not to remain
dependent upon food imports from the United States and the European
Union but to close the national borders by raising tariffs and to bring
in policies and support mechanism that provide an enabling environment
for their farmers to grow more. If Indian and Chinese farmers could do
it, there is no reason why the 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 globalization increases dependence of
more and more developing nations on the agribusiness corporations. It is
always a hungry stomach that can be exploited and they know that.
One such way is to denounce the input subsidies paid
to developing country farmers and label it as 'trade distorting'. At the
third annual international conference on 'policies against hunger',
organized by the German government at Berlin in October 2004, John Nash,
a World Bank economist was at pains to defend the domestic subsidies
being doled out to European Union farmers. In 1999, 56 per cent of all
EU agricultural expenditure of approximately 78 billion euros was in the
form of direct payment to farmers.
These subsides are believed to be non trade-distorting
and therefore are justified. At the same time, the indirect input
subsidies that the developing country farmers receive were painted as
the villain of the free trade regime and needed to be immediately
discontinued according to the economist. Asked what the developing
countries should do in the event of withdrawal of the miniscule
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."6
In simple words, 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 industrialized countries have already got a
well-knit infrastructure in place," this writer said, and asked:
"Why do the European farmers or for that matter a few million
farmers on either side of the Atlantic should then be getting such huge
support as direct payments?"
You guessed it right. John Nash very conveniently
ignored to answer the question. Does it not mean that in the name of
free markets the developed countries actually practice 'socialist'
agriculture? How can those who swear in the name of market economy
actually keep their own farming systems inside a well-fortified closed
circuit??
In other words, 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 the developed country farmers. These farmers, whether they
live in the US, France, Germany, Switzerland, Japan or Australia, are
financially insured and insulated from the volatility of the global
markets. It is only the poor farmers in the developing countries who are
being forced to face the vagaries and cruelty of the markets. For the
rich, the scandalous cover of "green box" subsidies protects
direct payments.7 For almost 3 billion farmers in the developing world,
even their own governments (based on the faulty advice of the 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 knowing well the political clout they wield in the
developing economies. Jagdish Bhagwati has surely played his cards well.
He knows that the G-20 countries, for instance, will not be able to
antagonize their own middle class. G-20 countries will therefore not be
able to push for scrapping domestic support - provided through 'green
box' and 'blue box' --- beyond a point and that remains the last hope
for protecting the 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 can you get seven kilos of rice for a dollar? How come than the
Indian farmer is then priced out of the market? In that case, 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, good 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 will mean that the tax payers in these countries do
not have to support inefficient and environmentally-unfriendly
production systems in their own countries. And then, if the US were to
instead import its entire rice requirement it would be available at much
cheaper price than what the American consumers are now paying. Isn't it
economically foolish 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 the US consumers realize that they can collectively
save at least US $ 1.4 billion every year on rice by refusing to
subsidize their producers? Cheaper imports from the developing countries
will further lower the retail price of rice. It would surely price out
domestic rice producers but the real beneficiaries would be the
consumers. And in turn it would help millions of small rice producers in
the Asian countries, who would then be able to find a substantial export
market thereby raising incomes.
Let us take yet another example. If you are wondering
as to why Indian pea producers are unable to competitively bid for
processed foods in the global market, let us see how Denmark, for
instance, manipulates the market and that too by truly following the 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. So obviously, you will think that they
are very efficient producers and of course very competitive. But hold
on.
Since pea farmers do not have to recover their full
production costs from the sale price of the peas supplied to processing
companies, the price at which pea is 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 prices that
Indian pulse growers can offer. The provision of direct payments thus
enables Danish suppliers of pre-cooked split pea to capture markets,
which they would never have been able to supply in the absence of direct
aid payments.
Let me make it very clear. The comparative advantage
that is cited by developed countries is actually built on agricultural
subsidies. Withdraw the agricultural subsidies, there is no comparative
advantage left for most of the crops and I repeat for most of the crops.
That is why the mainline economists do not compare the cost of
production of agricultural commodities but look invariably at the supply
chain management.
No wonder, pea imports into India have multiplied four
times in the past five years. While the Indian pea producers have been
priced out by the subsidies imports, the Danish consumer has in reality
paid more for the pea they consume. If only Denmark had stopped making
direct payment to pea growers, and instead imported pea at a much lower
available price from India and Africa, the saving for Danish household
would have been enormous. Isn't that sound economics? But then, market
economy as we well know now does not operate anymore on common sense.
What happens when these cheaper and highly subsidies
agriculture imports come into the developing countries? The small and
marginal farmers who have been cultivating these crops are the first
ones to be thrown out of its cultivation. Gradually they abandon farming
and migrate to the urban centers looking for menial jobs. Even if the
food is available at low prices they often do not have the means to buy
it. The reason is simple; unlike the industrialized countries, the
producer in the 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. It
is not because there is not enough food in India. It is 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 has made
available for them. What they need is a job and that can come only from
agriculture. After all in a country which has 600 million farmers,
every fourth farmer in the world being an Indian, there is no other way
to provide productive employment for all than to make agriculture more
attractive.
The globalization that the neoliberal economists are
trying to justify takes away these jobs. The poor in the urban centers
therefore become eternally dependent upon cheap and subsidized food. It
destroys their ability to produce the quantity of food that they now
import. This is the outcome of a vicious cycle that the mainline
economists have spun in the name of globalization. If only each country
was encouraged to have a food production and management system that
allows its farmers to produce for the nation's requirements, the world
wouldn't have witnessed the kind of inequality that prevails and the
resulting terrible socio-economic consequences.
But hold your breath. While we go on debating the
issue of agricultural subsidies, the International Food Policy Research
Institute in Washington DC, and some other economists at Cornell
University, already have begun demanding subsidies for consumers. In
reality it means subsidizing the expansion of the food super markets. If
nearly 80 per cent of the agricultural subsidies are cornered by
big farms and agribusiness corporations, an equal amount of consumer
subsidy would be eaten by the Walt Marts. Wait and see how the mainline
economists would justify the demand for the sake of the food retailers.
Millions are meanwhile being pushed into penury with
each passing year. Millions are being driven away from their only means
of livelihoods and thousands are perishing, as the mainline economists
continue to misguide the political leadership. And that makes me wonder
when will we begin to hold the economists accountable? After all, if a
bridge collapses, we prosecute the engineers. If a doctor is held
responsible for the death of a patient, we take him to court. Hundreds
of thousands of people have silently suffered and continue to pay the
price of faulty economics. Why only economist should be allowed to go
Scot free? Why can't we hold them responsible?
The world has suffered enough from economic lunacy. It
is time to stand up and make mainline economists accountable.
(Devinder Sharma is a New Delhi-based food and trade
policy analyst. Responses should be mailed to dsharma@ndf.vsnl.net.in)
1 Mark Malloch Brown, administrator of the UN
Development Program, while releasing the annual Human Development Report
had said: "In the so-called great decade, a very significant hard
core of countries ended further behind with more poor people."
2 Sharma, D. 2003: " WTO and Agriculture: The
Great Trade Robbery" published on Z Net, Sept 2 Click
here for external link
3 IMF working paper 03/110
4 Sharma, D 2003: "Politics of Diversity and Food
Security" chapter in the book The Value of Nature: Ecological
Politics in India, edited by Smitu Kothari, Imtiaz Ahmad and Helmut
Reifeld, Rainbow Publishers New Delhi
5 Kurien, V 1997: An Unfinished Dream, Tata McGraw
Publishing Company Ltd., New Delhi
6 Sharma, D 2005: Montek's warped policies, Deccan
Herald, Bangalore, Feb 5 2005
7 For more about this scandalous jugglery of the
'green box' payments and how it impacts the developing country farmers,
see the author's article: Green Box subsidies must go. Economic and
Political Weekly, May 15-21, 2004. [editorial insert Click
here for external link]
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