Friday, May 16, 2008
In place of drums and samosas
Scrabulous, Scrabble, and Economic Development in South Asia
Is It Africa's Turn? Progress in the world's poorest region
States must act locally in a globalised world
Does the food price crisis enhance the case for self-sufficiency?
Probably the most striking thing about the discussion of rising food prices is that it is transparently wrong.
The most common explanation for the surge in food prices is that developing countries are becoming more populous and more affluent. A spectre of the Chinese and Indians devouring food like locusts is routinely conjured up. It should be apparent that such images, apart from being insulting, are fundamentally flawed.
If it was simply the case that rising demand could push up food prices then they would constantly increase. Humanity has grown steadily in population, affluence and meat consumption since at least the Industrial Revolution. Yet over the past two centuries the trend is for food prices to plummet in real terms rather than to rise. Indeed, it is an achievement that, for the first time in history, large sections of humanity are not threatened by famine. The 45% increase in food prices since the end of 2006 cannot be explained in relation to long-term trends (see graph, page 29).
It is necessary to examine supply in relation to demand. Rising demand is not a problem if it can be counter-balanced by an increase in supply. The reason the Malthusian nightmare of mass starvation has failed to materialise is precisely that food supply has outstripped rising demand in the longer term (see 1st box below). Despite a steadily rising world population the amount and quality of food consumption per head has risen.
Of course the more sophisticated proponents of the threat of imminent food shortages acknowledge that supply plays a role. They talk about such factors as adverse weather, worsened by climate change, and land shortages. But even here there is a tendency to exaggerate rising demand and understate the potential to increase supply.
To understand the trend in food prices it is vital to take a systematic approach. Short-term and long-term factors must be separated. The reasons prices have surged are not necessarily indicative of the secular trends in food production and consumption. It is then necessary to examine the interaction between the supply and demand of food, rather than simply consider each in isolation. Finally, it is worth questioning why the popular view on the food crisis emphasises consumption in such a one-sided way.
Larry Summers is being charged of floating incoherent arguments about globalization by three researchers in a column published in the Financial Times. They argue that Summers is viewing the pace and fruits of globalization from the US perspective, i.e. if the US loses, it is bad and if it wins, it is good. They question Summers' recent argument that the middle class income stagnation (or decrease) and job losses in the US is a product of globalization.
The terms of what constitutes just globalisation cannot be determined unilaterally from the standpoint of the gains and losses within the US. It has to be determined co-operatively, involving discussions over the costs and benefits to all, especially those least able to defend their interests in both rich and poor countries.
The problem Mr Summers identifies, the hyper-mobility of capital, was an outcome that he and the US actively promoted. Attracting foreign capital was one of the raisons d’être of the Washington Consensus-based reforms. Developing countries were forced to change their intellectual property laws. At the US Treasury, Mr Summers was a leading proponent of capital account liberalisation by developing countries. Having swallowed those bitter pills of intellectual property protection and capital mobility as a necessary price for a better future, developing countries are now told that those medicines cause problems that need more – in this case protectionist – medication.
It is undeniable that the best line of defence for protecting workers has to be overwhelmingly domestic – through progressive taxation, improving education, strengthening the bargaining position of labour and improving the safety nets. Since the Ronald Reagan years, the headlong embrace of market solutions has systematically undermined each of these policy responses.