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Rejoinder
Rejoinder Food, agricultural and trade policy to the year 2000
J. V. S. Jones
This article, partly in response to Fred Sanderson’s article (pp 363-73), challenges the narrow approach of forecasting the future food situation by extrapolating current trends, and the view that little can be done to improve the predicament of the ‘poorest of the poor’. This article argues that we must look for ways of breaking out of the vicious circle of low income, low economic demand, low productivity and low levels of resource utilization. The author is a Lecturer in Food Policy and Community Development, Department of Food Science and Nutrition, Queen Elizabeth College, London W8 7AH, UK.
‘Fred H. Sanderson, ‘World food prospects to the year 2000’, Food Policy, Vol9, No 4, November 1984, pp 363-73. *North-South: A Programme for Survival, The Report of the Independent Commission on International Development issues under the Chairmanship of Willy Brandt, Pan Books, London, 1980.
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Sanderson’s article’ attempts to foresee the food situation in the year 2000, assuming present trends continue. It is noted that the developed agricultural systems of the industrialized countries do have the potential of increasing food supply further, and that some developing countries, notably the newly industrializing countries and oil-producing countries, which have good export earning potential, will provide increases in demand, but probably not to the extent of the preceding decade or two. He does not hold up much hope, however, for ‘the poorest of the poor’, presumably meaning the least developed countries overall, and the poorer strata of the more advanced developing countries. In other words, if their problems are to be solved in the coming period, a whole new range of economic policies are needed - which presumably Sanderson does not believe particularly likely. The only hope he can give, is more food aid and other forms of economic assistance, and an ‘employment-oriented development programme’. His pessimism in this area might well prove valid, since radical changes in economic policy at the international level do not appear particularly forthcoming at present. The Brandt Report2 did attempt to challenge sharply the type of approach embodied in Sanderson’s article, and inject a new urgency into the task of thinking through new ways to solving the pressing problems of the world economy. However, in spite of its popular appeal, it had little impact upon governments of the industrialized countries, to whom it was directed. Some of the reasons for this will be discussed later. The main point here is that if we are serious about solving the food crisis of the poor, in all its urgency, we must examine the extent to which present agricultural and food policies, and economic policy in general, are preventing progress, and how alternative approaches might be able to change radically the predicament of the poor. We must look for ways of breaking out of the vicious circle of low income, low economic demand, low productivity and low levels of resource utilization. It is to those questions that the present commentary is addressed. FOOD POLICY
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1984
Rejoinder
The case for food self-suffkiency If developing countries are to overcome their nutritional problems, it is neither politically nor economically desirable to rely upon the agricultural surpluses of the Western industrialized countries. First, food trade (and more especially concessionary trade) usually comes with political strings that prevent developing countries from trying out new economic and trading policies which would help to extricate them from their poverty (only becoming apparent when recipient countries do attempt to carry out something of that kind). Second, the continued availability of such surpluses, at prices developing countries can afford, is by no means guaranteed. In the first place, it is natural that food exporters will always seek to sell to the highest bidder, and in the case of most developing countries (and many developed countries) carrying food deficits, as well as being subject to increasing population pressures, ordinary prices are likely to be pushed beyond their reach. On the other hand, when food producers cannot obtain competitive prices, they will be forced by domestic political and economic considerations to curtail production, thus supporting higher export prices (Sanderson also makes this point). For similar reasons - because there is some limit to the amount of subsidies these countries will permit when faced with their own economic problems - the availability of ‘concessionary’ food is likely to be limited, and, moreover, will also be subject to inflationary pressures due to excessive demand, thus putting even concessionary food beyond the reach of needy countries or communities. Besides, even with the best will in the world, depending upon concessionary food imports tends to have a depressing effect upon domestic food prices, and hence food production, thus undermining self-sufficiency goals.3 (How that might be avoided, is reviewed briefly later). The case for raising the level of self-sufficiency in basic foodstuffs, therefore, seems overwhelming.4 The next step in the argument is to examine why this has been so hard to achieve. %ince most concessionary food comes in the form of wheat or dairy products, there is also the ‘taste transfer’ factor which mitigates against satisfying nutritional needs from domestic agricultural resources. 4Note that food self-sufficiency by no means precludes food trade. In particular, the food resources of developing countries are largely complementary to those in Western countries. The EEC, for instance, has a high level of self-sufficiency, but is also the largest food importer. The point is, once developing countries attain a high level of economic activity - and greater self-sufficiency in food would be one of the determinants and indicators of that - trade in all commodities, including food would be enhanced. This argument is developed further at a later point. ‘Susan George, Feeding the Few: Corporate Control of Food, Institute for Policy Studies, Washington, DC. The countries cited were Afghanistan, Bangladesh, Brazil, Egypt, Ethiopia, India, Indonesia, Mali, Niger, Pakistan, Philippines, Senegal and Upper Volta.
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Investment
policy and agricultural
constraints
Because it is closely bound up with economic policy as a whole, at both national and international levels, as well as with political and social factors, analysis of the problems is extremely complex. Only a summary discussion can be given here. Essentially, the cause of low productivity in agriculture, the ultimate factor inhibiting self-sufficiency in food, is overwhelmingly the chronic lack of investment in the agricultural sector. The reason for that, however, is not necessarily the lack of investment resources - though, of course, if these could be made available by whatever means, that would certainly ease the problem. Susan George5 produces an interesting table derived from World Bank figures comparing the contribution of agriculture to gross domestic product with the total current expenditure on agriculture for various countries. In all cases (with the exception of Brazil), the average contribution of agriculture to GDP for the years 1960-73 was in the range 3040%) whereas current expenditure on agriculture in 1973 was only l-7%. In other words, decision makers in developing countries have given greater priority to other sectors at the expense of agriculture (ie the old ‘colonial mentality’ of letting agriculture and food take care of itself has, to a greater or lesser extent, prevailed, especially in 375
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sub-Saharan Africa which, as Sanderson noted, is likely to be the most serious food deficit area during the coming period). Even when investment resources have suddenly become more available as a result of favourable export situations (especially for the oil-producing countries and the newly industrializing countries), these have largely been squandered on luxury imports, grandiose projects and been allowed to suck in relatively cheap food imports which undermined what there was of the agriculture sector. The recent history of Nigeria is a prime example,6 and only now is some priority being given to agriculture. Indeed, virtually all the oil-producing countries have been through the cycle of bathing in the flood of petrodollars and grand design of rapid industrialization, only to find their earnings progressively absorbed by food imports. Moreover, it is soon discovered that export earning capability has been grossly overestimated, failing to take into account the vagaries of the Western economies to which they have to export. In short, they find themselves as susceptible to the political and economic forces of the international economy (dominated by the West) pushing down their prices as their less fortunate brethren who have had to depend on the export of less strategic or ‘low value’ products. In general, therefore, developing countries are, to a greater or lesser extent (depending on the nature of their exports and the level of development of their economies), faced with earning less for their exports (in real terms) and at the same time paying inflated prices for industrial products and food imports than would be the case if there were a more equitable distribution of economic power in the world. (This situation is now having major negative repercussions on Western industrialized countries, and, as will be argued in due course, is the underlying cause of the present world recession.) In effect, that represents a massive, cumulative loss of investment resources. Even when investments are made in developing countries - for instance by multinational corporations - they, more often than not, provide the basis for further massive losses of investment resources. Thus, ‘superprofits’ gained through the exploitation of cheap labour and other resources are by various means transferred out of the country (‘tax holidays’ being a typical condition for the investment) so that the potential investment resources generated by the original investment are not available for new investments that would help to raise the level of economic activity further. In short, had developing countries not been deprived of investment resources by various mechanisms, and at the same time, had investment in agriculture received a higher priority, virtually all by now could have been more or less self-sufficient in basic, domestically produced foodstuffs.
The need for new economic policies
6O Oculi, ‘Dependent food policy in Nigeria’, Review of African Political Economy, No 15/16, 1979.
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The positive side to this negative experience is that it does provide the stimulus for the urgent rethinking on economic strategy needed to break out of the vicious circle of dependency and underdevelopment. It is particularly embarrassing that developing countries find themselves having to import food when a majority of their people are engaged in the agricultural sector. Thus, many countries are now committed to giving greater priority to agriculture and food supply, as well as to new ways of retaining in the country a greater proportion of investment FOOD POLICY
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% is,
of course, more complex then this in that national governments are not usually ‘national’but reflect or represent interests
of Panicutar so&t classes Or QrPuPs-
more often than not, a privileged minority. Nevertheless, pressure will still be exerted from ‘below’ - ie the majority of people and these will reflect in the decisions taken if only to forestall major rebellions. For the purposes of the present argument, which is concerned with international contradictions, we shall assume on the whole that national governments will ultimately have to reflect, to a greater or lesser extent, the broad interests of the majority of people.
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resources generated by agriculture and other sectors, upon which more rapid economic development in the future depends. However, on the whole, progress is still slow and hesitant. In the absence of understanding its causes, there is still the lingering hope that the present world recession will somehow subside, that export earnings will improve of their own accord, and that once again international financial assistance will become more readily available. The need to break with past economic ideologies, in other words, has yet to be realized, with the Brandt Report, among others, adding fuel to the flames of hope and confusion. The remainder of this commentary, therefore, is an attempt to dispel the confusion and inject a note of realism into the hope by considering the type of strategy required to give developing countries (and others) a chance of overcoming the powerful constraints imposed by the current state of the world economy. Space does not permit a comprehensive discussion, and in any case, each country would have to develop its own strategy, taking into account its past history, and the internal social, political, economic and resource constraints. For present purposes, therefore, the discussion will focus upon agricultural development and trade policy, which should be sufficient to demonstrate the general principles involved, and, in particular, the mutual interdependence of the internal and external dimensions of economic policy. Whether or not progress along the lines proposed will materialize is, of course, another matter. That depends upon a multiplicity of political factors, and also how persistent and intransigent the present economic recession turns out to be. It is possible that a series of ad hoc interventions, as is already typical, will suffice to ease the situation and promote some progress, thus preventing the implementation of more radical policies that could produce more lasting solutions (which presumably is Sanderson’s belief). Alternatively, the internal and external political contradictions might prove too great for anything very much to happen. However, if the causes of the problems are understood by decision makers, and proposals for solving those problems are brought to their attention, that would at least provide some basis for positive policies to emerge. In themselves, there is nothing particularly novel in the proposals to follow. Rather, the discourse gives theoretical and strategic support to certain measures now being introduced on an ad hoc basis, and policies already tried on a limited scale in response to particular historical circumstances, but not forming a part of an overall strategy. The proposals do conflict quite sharply, however, with current thinking, and the discussion incorporates a substantial critique of certain conventional wisdoms embodiedin, for example, the Brandt report. We start from the assumption that domestic political and economic pressures will naturally force national governments to consider their own interests first, and, in particular, that when the domestic economy is threatened by external development, governments will take measures to protect national interests. ’ That is precisely what has been happening, step by step, as the world crisis has progressed. Conventionally, this creeping ‘protectionism’ is viewed as a necessary evil (and, it is hoped, temporary). Consequently, more often than not, too little is done too late. The alternative argument, to be expounded here, is that such ‘protectionism’ is an essential element of the strategy needed to end the current crisis of development in all countries. Viewed in this way,
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governments would take the necessary measures in advance of economic decline. Rather than await external developments that might mitigate the situation (and which may never happen), they would be stimulated to focus upon the development of resources within the country over which they do have (or could have) some control.
Internally
orientated
strategies
The driving force of development of any kind is increasing demand. In a modern, cash economy, that can only mean increasing incomes. The first steps to stimulate agricultural production, therefore, are to raise wages to increase demand and raise prices for agricultural producers represented by Steps 1 and 2 in Table 1. The argument against this, of course, is that for the individual employer, it increases costs. However, that in itself paves the way for improving efficiency and introducing more productive technology in order to supply the demand created by higher incomes in other sectors. That in turn gives rise to higher incomes (due to higher productivity) and further increases in demand which fuel more economic development. It is a fundamental contradiction of economic development that individual employers want to pay their workforce as little as possible and for every other employer to pay as much as possible. That is why economic development to date has always proceeded in fits and starts. A modern administration has the technical means (information technology, manipulation of concentrated financial resources, etc) to smooth out those contradictions. However, that also requires a clear understanding, on the part of administrators, of the underlying economic and political forces at work. Typically, the latter element is missing, mainly because administrators, in the last analysis, tend to represent specific vested interests which gives a distorted view of those forces. For instance, wages are kept down in order to render the country more attractive to multinational investors. If that is to be successful, cheap food must be available. In effect, therefore, the rural and urban workforce serve to subsidize the profits of the investors, which, as already noted, may or may not be re-invested in the country. That cannot be a reliable basis for economic development. Other means must be sought (and are available) to attract the multinational investor. The positive response of farmers to higher prices (and vice versa) is well-documented whether in the USA, the EEC, China or Tanzania.s Other things being equal, the increased incomes act as a major stimulus to the rest of the economy, since it increases the demand for
Table 1. A strategy for raising agricultural productivity: the priorities. Step 1: Step 2:
‘For the latter two examples, see Gek-boo Ng, ‘incentive policy in Chinese collective aariculture’. Food Policv. Vol 4. No 2, Mav 1579, pp i&88; A. V&son, “Agric&tur6 looks for “shoes that fit”: the production responsibility system and its implications’, World Development, Vol 11, No 8, 1983, pp 705-730; F. Ellis, ‘Agricultural price policy in Tanzania’, World Developmenf, Vol 2, No 4, pp 283-83.
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Step 3:
Sten 4: Step 5: Step 6: Step 7:
Raise wages in order to promote demand - linked with rationing and price controls of basic foodstuffs to assist the poor and minimize inflation. Incentive producer prices linked with ‘land-to-the-tiller’ type policies in order to promote production and marketing of agricultural products. Job creation through establishing industries and other enterprises supplying goods and services required by the rural sector thus completing the cycle (or spiral) of economic activity. Local storage facilities and strategic grain reserves to compensate for seasonal variations inorder to enhance foodsecurity and price stability. Improve land productivity - water supply, fertilizer, improved varieties, better tillage practices and pest management. Improve labour productivity - appropriate mechanization policy based upon economic criteria. Back to Step 1 at a higher level and so on.
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non-agricultural goods and services, which, in turn, raises income and stimulates employment in other sectors, thus completing the economic cycle (or spiral) as represented in Steps 1 to 7 in Table 1. Other things rarely are equal, and several further comments are necessary, concerning internal aspects, as well as a more thorough examination of the external dimensions of domestic economic policy.
0
0
‘Anna Louise Strong, The Rise of the People’s Communes, New World Press, Peking, 1959; J. Myrdal, Report from a Chinese Vi//age, Heinemann, 1965; K. Griffin, Land Concentration and Rural Poverty, 2nd edition, Macmillan, 1961 (Chapter 7, ‘An assessment of development in Taiwan’). “See for instance F. Ellis, ‘Agricultural marketing and peasant-state transfers in Tanzania’, Journal of Peasant Studies, Vol 10, No 4, 1993, pp 214-241. “This has been developed in an unpublished paper: J. V. S. Jones, ‘How appropriate is “appropriate technology”?‘, mimeo, Queen Elizabeth College, London, UK, 1960. An expanded and more readily available version under the title: ‘Technology and science policy for development: the priorities’, is in preparation. The ideas are partially developed in Clive Thomas, Development and Transformation, Monthly Review Press. 1974.
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0
Agricultural price incentives cannot work effectively if not passed on to the actual producer. Hence the need for ‘land-to-the-tiller’ type policies. These can take many forms as exemplified by the two contrasting approaches of China and Taiwan.’ The higher agricultural prices must be sustained and should not be subject to large seasonal fluctuations. This depends upon adequate storage facilities and adequate marketing structures. If farming communities had prospects of higher incomes through stable prices, with technical support they could be stimulated to finance and/or construct their own storage facilities at local level. Some centralized, strategic stores would normally be necessary to deal with major seasonal variations in production, and to forestall speculation and a black market. A suitable marketing structure for developing countries is the marketing board. For good reasons, these have had a bad reputation because, frequently, they have been the instrument to keep down agricultural prices in order to supply cheap food to urban consumers (in order to keep wages down), or to sell on the world market at a profit to earn revenue.” That works until producer disincentives reduce production to the point where there is no marketable surplus. Moreover, the revenue so obtained has tended to finance large, unproductive bureaucracies rather than industries supporting agriculture. As a part of the strategy proposed here, marketing boards have an essential role to play. The leading question associated with Step 3 (Table 1) is what sort of industries and other enterprises? This, of course, is of crucial importance, but it is largely beyond the scope of the present discussion. l1 Suffice to note here that there must be goods and services upon which farmers can spend their extra income, ranging from agricultural inputs to raise productivity such as fertilizers, equipment, etc, to various consumer goods and services to facilitate the distribution of agricultural surpluses and incoming goods, including financial services. Too often, industrial development has proceeded independently of agriculture and the development of local resources, relying instead upon imported inputs which not only have the effect of stimulating economies elsewhere, but also become a means of transferring investment resources out of the country via transfer accounting and other restrictive practices associated with the unequal terms of trade. Price policies for non-agricultural goods are important and have an impact upon farmers’ incentives to improve productivity. This applies particularly to agricultural inputs. For instance, in their haste to stimulate the utilization of fertilizer, governments frequently resort to subsidies rather than offer higher prices to farmers so that they can afford to purchase it at its value. In contrast, at a crucial stage, the Taiwan government, which owned the fertilizer factory, actually inflated fertilizer prices in response to an apparently insatiable demand, but farmers still bought it, presumably 379
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l
because the terms for selling rice made fertilizer a worthwhile investment.t2 ‘Appropriate mechanization policy’ is also beyond the scope of the present discussion. The main general point that can be made here is that mechanization has more often than not displaced work rather than created it, and this almost always can be traced to various types of subsidy which cannot later be recovered.
All of the steps outlined in Table 1, in one way or another, have been well-worked in economic policy, at least at the rhetorical level. For them to become a strategy, however, they must be implemented in the order given so that the stimuluses will work themselves through and stimulate one another. When put into practice hitherto, it is common for almost the reverse order to prevail (and hence depends excessively upon credit), and the price and wage incentives are never reached! The driving force of the strategy is thus lost forever in the mire of contradictions and debt.
The external dimensions
‘*K.
Griffin,
The
AgrarianChange, 1979, pp 125-30. 380
Political Economy of 2nd edition, Macmillan,
How rapidly an internally orientated strategy of the type described can be established and progress made depends crucially upon the successful management of external trade, many factors of which are, to a greater or lesser extent, beyond the control of national governments. A policy to mitigate those factors is thus an essential complement to the strategy. For instance, in the early stages, it is likely that some commodities might be available more cheaply on the world market than can be produced locally because of higher productivity (better technology) available elsewhere and/or lower wages. Relatively cheap food, perhaps under concessionary terms, might be available at prices lower than those prevailing locally. Allowing such imports to compete with local production would clearly undermine the whole strategy and must be controlled. Second, some imports are likely to be more beneficial than others, with some playing an essential role in establishing the strategy, especially primary commodities not available in the country, and capital goods. Priority would clearly have to be given to these in the allocation of whatever foreign exchange and credit as is available. Imports must not be allowed to substitute for what can be produced locally. Third, the development of domestic resources to meet local needs must not be to the neglect of production for export, for without foreign exchange, progress in raising productivity and developing resources would be painfully slow. Maximizing foreign exchange earnings is the most difficult area of policy, partly because there are conflicts of interest between production for export and production for domestic needs, and partly because prices depend upon the state of the international market, over which developing countries, individually, have little control. However, as will be argued, developing countries acting together can improve the situation, which would be enhanced if every country became more self-sufficient and had stronger domestic economies. Finally, the other source of external finance, international credit, is full of pitfalls, as all developing countries know to their cost. Clearly, if favourable terms can be negotiated, this can have a great impact upon developing the nation’s productive resources. The main problem is that all debts, whether on concessionary terms or not, have to be paid back FOOD POLICY
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out of export earnings. This tends to skew the selection of projects, either directly or indirectly, in favour of those which have good export-earning potential rather than those which will develop resources to meet local needs. If export earnings are indeed enhanced, they could cover both the costs of paying off the debt and act as a new source of foreign exchange to finance other projects. Whether or not that happens depends upon what prices the new exports can attract which, in turn, depends upon what progress can be made in the improvement of the terms of trade to ensure higher prices. I shall now elaborate on these points.
A critique of free trade ideology A policy of import controls as outlined above flies in the face of conventional thinking on free trade, the virtues of which seem enshrined on tablets of stone by Brandt, following GATT and other international organizations. However, free trade is an ideal concept. In practice, trade has only ever been free up to a point, depending upon the state of national and international markets and the terms of trade. In particular, no country has established a modern economic structure on the basis of free trade. Even Britain, the champion of free trade in the last century, imposed a 75% duty on imports from India at a crucial point in order to protect its infant textile industry. Today, all countries operate protective mechanisms to a greater or lesser extent when particular sectors are threatened. The high incentive policy for EEC agriculture, for instance, could not be sustained without tariffs. Even the well-established steel and textile industries of Europe are protected to some extent from cheap imports (some would say, belatedly, since large sections of those industries have already been destroyed). In fact, protectionism, the obverse to free trade, does not prevent trade as is sometimes suggested. Import controls merely mean selective trade, preventing some, encouraging others. Thus, in the 1930s when the West was in deep recession, large sections of its engineering industry were kept in business through exports to the USSR - a protected economy in the extreme - which was building up its industrial base. The developing countries of today, once they have had a chance to develop their economies and raise income, could provide a similar market, and that would indeed be instrumental in ending the world recession. However, their economies cannot develop if they are constantly undermined by uncontrolled imports and loss of investment resources by the processes already mentioned. Second, it is argued that free trade and competition enhances efficiency and the promotion of comparative advantage in the development of the world’s resources. That only applies, however, when all countries are competing on a more or less equitable basis. Then it can act as a major stimulus for investment in new technology and new systems of production. The extent to which free trade operated was indeed an important factor in generating the economic boom and improved productivity in the Western economies during the 1950s. However, it was not the driving force. That was the rapidly increasing demand generated first by the need to rebuild the war-torn economies, but more important, by the large increases in people’s income as a result of improved productivity and investment in the productive sector (supported by improved credit facilities for the consumer). The two
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aspects stimulated one another. When incomes no longer increased, demand subsided, resulting in the series of mini-recessions in the 196Os, and the more sustained recession since then. It is the demand by people for higher incomes, more goods and services, and improved living conditions, as well as their actions to secure those demands, which are the driving forces for trade and development. The main champions of free trade today are the multinational firms. Under the umbrella of free trade, it allows them to invest where it is most profitable, locating production where labour and other resources are cheapest, and freely exporting to where the markets are strongest, sustained by incomes derived from sectors which have not relocated or cannot relocate. The logic, other things being equal, would be to locate all production in the cheap labour areas (provided the goods can be transported economically) but then there would be precious little left in the way of employment in the developed economies to provide the market! Clearly, governments will have intervened long before. That is the primary contradiction of the free trade argument.
The politics of international
trade
As long as developing countries are weak economically and politically, they will never obtain fair prices for their goods. Being forced to sell cheap, they will never accumulate investment resources on the scale required for rapid economic development. They need to develop a strategy to improve their bargaining position in the determination of international commodity prices, and as much skill in manipulating the market as the multinational firms and other agencies working on their behalf. Trying to obtain international agreement among producers of particular commodities, however, is full of political contradictions. One country desperate to sell its produce at any price may undermine the whole agreement of a price structure. Many countries simply do not have the capacity to hold back sales in order to allow prices to rise, because they have to sell in order to buy food, pay off debts, or whatever. Raising levels of self-sufficiency not only in food, but also all other basic needs, is the only way of increasing bargaining power, both vis-ci-vis competitors and the international buyers’ market. The most successful group of producers by far, because of the strategic nature of their commodity, is undoubtedly those producing petroleum. Through their organization, OPEC, the countries involved were able to hike their prices up (back to the real levels prevailing in the early 1950s) once and for all eliminating the erosion of their incomes by the economic purchasing power of the West. They have since had to retreat somewhat because of slackened demand due to the continuing recession - for which they have even been used as the scapegoat, notwithstanding that the price hike initiated a temporary boom in Western economies, against trend, due to the demand for goods enhanced by their increased purchasing power! Here, we have a glimpse of the positive effect on Western economies of improved commodity prices. We also have a glimpse of the extreme difficulty of maintaining a united front in the face of a weakening market which the West has been able to play upon, thus weakening the power of OPEC. For less strategic commodities, and those produced in many countries with greater economic problems, it is much more difficult to even make an agreement, let alone sustain it - as the experience of the coffee and
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copper equivalents to OPEC has proved.13 (In fact, both these organizations when they existed brought in the major consuming nations which complicated matters somewhat). However, what the experience of OPEC illustrates is that developing countries must organize themselves and act together if they are to win higher prices for their exports. (‘If they don’t hang together they will hang separately’14). One thing is certain - they are not going to be offered higher prices on a plate.
The role of international
13See for instance C. Payer, ed, CommoditV Trade of the Third World. Macmillan. London, 1975. 14Adapted from A. G. Frank, Crisis in the Third World, Heinemann Educational Books, London, 1981. See pp 116-25 for a fairly pessimistic assessment of the chances of developing countries coming together for various commodities.
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credit
The other ingredient in the Brandt recipe is the massive injection of international finance and economic aid to the developing nations. This, too, is a non-starter. In the first place, when would-be donor countries have economic problems of their own, they are not likely to give high priority to overseas economic aid. It is therefore idealistic to hope for that. Second, there has to be some hope on the part of donors of eventually getting their money back. There cannot be much confidence in this when developing countries are unable to cope with paying back loans acquired during the last two decades. From the developing countries’ point of view, they too are fearful of taking up new loans when they are saddled with the repayment of old debts. They are not encouraged either by the huge inflation in interest rates (which also puts pressure on concessionary rates). In any case, official economic aid can only be a trickle compared with the loss of investment resources that have to be sustained by developing countries, as already discussed - with the developing countries having the audacity to present economic aid as some kind of charity disregarding that it is ‘their’ multinational firms, banking institutions, and so on, that have provided the mechanisms by which the developing countries have their investment resources appropriated. Furthermore, such economic aid that is forthcoming is paid for by the ordinary taxpayer, while multinational firms, with their huge network of subsidiaries spread over many nations, have the means of avoiding tax altogether, through the use of ‘tax havens’ and other devices. They will only return investment resources to particular developing countries if it is in their own private interests to do so. That is the basis of the independent economic power of the multinational firm. Their huge concentrations of financial resources could be made more generally available if national governments in all countries made appropriate fiscal decisions. Meanwhile, developing countries cannot wait for this possibility. They have to use whatever international credit as is available in order to accelerate the process of development. Even food aid has a role here. Food surplus countries are often more conducive to offering concessionary food than concessionary finance. Thus, if developing countries are short of food, concessionary food saves on imports and monies that would have been spent on food could, with a judicious, domestic food price policy, be used to finance the development of local food resources or whatever. For the foreseeable future, however, the major source of international finance and advanced technology will be the multinational firm. Developing countries must, therefore, be prepared to negotiate the best possible terms, perhaps playing one firm off against another during the
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process. During the course of bargaining, in which the multinational corporations are highly skilled, they are capable of putting up all kinds of threats and promises. However, they are in business to sell their wares, and they are competing against others. That is the strength of developing countries’ bargaining position. Developing countries must, therefore, be even more highly skilled in negotiations than the multinational corporations. The most important criteria is to ensure that any investment actually contributes towards developing local resources to supply local needs, and fits in with an overall development strategy. That, in essence, is how all the developed countries of today broke out of their economic backwardness.
Conclusion If a lasting solution is to be achieved to the world’s food problems, fundamental changes in economic policy at national and international levels are required. The course of action discussed here already exists in embryonic forms: more investment in agriculture; more attention to economic strategy as a whole; import controls in response to national problems; trade negotiations among developing countries in order to present a united front at UNCTAD. How far such developments will go in the coming period is a moot point. The path will surely not be smooth, for the economic and political contradictions between nations are great. They may be too great for anything much to happen. For instance, those developing countries with some limited power may be able to sustain some advantages which will prevent them coming together with others. It all depends upon how severe the economic crisis becomes, and how quickly world leaders perceive its true causes: the lack of buying power of developing countries due to the cumulative expropriation of their investment resources.
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1984
J. V. S. Jones
This article, partly in response to Fred Sanderson’s article (pp 363-73), challenges the narrow approach of forecasting the future food situation by extrapolating current trends, and the view that little can be done to improve the predicament of the ‘poorest of the poor’. This article argues that we must look for ways of breaking out of the vicious circle of low income, low economic demand, low productivity and low levels of resource utilization. The author is a Lecturer in Food Policy and Community Development, Department of Food Science and Nutrition, Queen Elizabeth College, London W8 7AH, UK.
‘Fred H. Sanderson, ‘World food prospects to the year 2000’, Food Policy, Vol9, No 4, November 1984, pp 363-73. *North-South: A Programme for Survival, The Report of the Independent Commission on International Development issues under the Chairmanship of Willy Brandt, Pan Books, London, 1980.
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Sanderson’s article’ attempts to foresee the food situation in the year 2000, assuming present trends continue. It is noted that the developed agricultural systems of the industrialized countries do have the potential of increasing food supply further, and that some developing countries, notably the newly industrializing countries and oil-producing countries, which have good export earning potential, will provide increases in demand, but probably not to the extent of the preceding decade or two. He does not hold up much hope, however, for ‘the poorest of the poor’, presumably meaning the least developed countries overall, and the poorer strata of the more advanced developing countries. In other words, if their problems are to be solved in the coming period, a whole new range of economic policies are needed - which presumably Sanderson does not believe particularly likely. The only hope he can give, is more food aid and other forms of economic assistance, and an ‘employment-oriented development programme’. His pessimism in this area might well prove valid, since radical changes in economic policy at the international level do not appear particularly forthcoming at present. The Brandt Report2 did attempt to challenge sharply the type of approach embodied in Sanderson’s article, and inject a new urgency into the task of thinking through new ways to solving the pressing problems of the world economy. However, in spite of its popular appeal, it had little impact upon governments of the industrialized countries, to whom it was directed. Some of the reasons for this will be discussed later. The main point here is that if we are serious about solving the food crisis of the poor, in all its urgency, we must examine the extent to which present agricultural and food policies, and economic policy in general, are preventing progress, and how alternative approaches might be able to change radically the predicament of the poor. We must look for ways of breaking out of the vicious circle of low income, low economic demand, low productivity and low levels of resource utilization. It is to those questions that the present commentary is addressed. FOOD POLICY
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The case for food self-suffkiency If developing countries are to overcome their nutritional problems, it is neither politically nor economically desirable to rely upon the agricultural surpluses of the Western industrialized countries. First, food trade (and more especially concessionary trade) usually comes with political strings that prevent developing countries from trying out new economic and trading policies which would help to extricate them from their poverty (only becoming apparent when recipient countries do attempt to carry out something of that kind). Second, the continued availability of such surpluses, at prices developing countries can afford, is by no means guaranteed. In the first place, it is natural that food exporters will always seek to sell to the highest bidder, and in the case of most developing countries (and many developed countries) carrying food deficits, as well as being subject to increasing population pressures, ordinary prices are likely to be pushed beyond their reach. On the other hand, when food producers cannot obtain competitive prices, they will be forced by domestic political and economic considerations to curtail production, thus supporting higher export prices (Sanderson also makes this point). For similar reasons - because there is some limit to the amount of subsidies these countries will permit when faced with their own economic problems - the availability of ‘concessionary’ food is likely to be limited, and, moreover, will also be subject to inflationary pressures due to excessive demand, thus putting even concessionary food beyond the reach of needy countries or communities. Besides, even with the best will in the world, depending upon concessionary food imports tends to have a depressing effect upon domestic food prices, and hence food production, thus undermining self-sufficiency goals.3 (How that might be avoided, is reviewed briefly later). The case for raising the level of self-sufficiency in basic foodstuffs, therefore, seems overwhelming.4 The next step in the argument is to examine why this has been so hard to achieve. %ince most concessionary food comes in the form of wheat or dairy products, there is also the ‘taste transfer’ factor which mitigates against satisfying nutritional needs from domestic agricultural resources. 4Note that food self-sufficiency by no means precludes food trade. In particular, the food resources of developing countries are largely complementary to those in Western countries. The EEC, for instance, has a high level of self-sufficiency, but is also the largest food importer. The point is, once developing countries attain a high level of economic activity - and greater self-sufficiency in food would be one of the determinants and indicators of that - trade in all commodities, including food would be enhanced. This argument is developed further at a later point. ‘Susan George, Feeding the Few: Corporate Control of Food, Institute for Policy Studies, Washington, DC. The countries cited were Afghanistan, Bangladesh, Brazil, Egypt, Ethiopia, India, Indonesia, Mali, Niger, Pakistan, Philippines, Senegal and Upper Volta.
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Investment
policy and agricultural
constraints
Because it is closely bound up with economic policy as a whole, at both national and international levels, as well as with political and social factors, analysis of the problems is extremely complex. Only a summary discussion can be given here. Essentially, the cause of low productivity in agriculture, the ultimate factor inhibiting self-sufficiency in food, is overwhelmingly the chronic lack of investment in the agricultural sector. The reason for that, however, is not necessarily the lack of investment resources - though, of course, if these could be made available by whatever means, that would certainly ease the problem. Susan George5 produces an interesting table derived from World Bank figures comparing the contribution of agriculture to gross domestic product with the total current expenditure on agriculture for various countries. In all cases (with the exception of Brazil), the average contribution of agriculture to GDP for the years 1960-73 was in the range 3040%) whereas current expenditure on agriculture in 1973 was only l-7%. In other words, decision makers in developing countries have given greater priority to other sectors at the expense of agriculture (ie the old ‘colonial mentality’ of letting agriculture and food take care of itself has, to a greater or lesser extent, prevailed, especially in 375
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sub-Saharan Africa which, as Sanderson noted, is likely to be the most serious food deficit area during the coming period). Even when investment resources have suddenly become more available as a result of favourable export situations (especially for the oil-producing countries and the newly industrializing countries), these have largely been squandered on luxury imports, grandiose projects and been allowed to suck in relatively cheap food imports which undermined what there was of the agriculture sector. The recent history of Nigeria is a prime example,6 and only now is some priority being given to agriculture. Indeed, virtually all the oil-producing countries have been through the cycle of bathing in the flood of petrodollars and grand design of rapid industrialization, only to find their earnings progressively absorbed by food imports. Moreover, it is soon discovered that export earning capability has been grossly overestimated, failing to take into account the vagaries of the Western economies to which they have to export. In short, they find themselves as susceptible to the political and economic forces of the international economy (dominated by the West) pushing down their prices as their less fortunate brethren who have had to depend on the export of less strategic or ‘low value’ products. In general, therefore, developing countries are, to a greater or lesser extent (depending on the nature of their exports and the level of development of their economies), faced with earning less for their exports (in real terms) and at the same time paying inflated prices for industrial products and food imports than would be the case if there were a more equitable distribution of economic power in the world. (This situation is now having major negative repercussions on Western industrialized countries, and, as will be argued in due course, is the underlying cause of the present world recession.) In effect, that represents a massive, cumulative loss of investment resources. Even when investments are made in developing countries - for instance by multinational corporations - they, more often than not, provide the basis for further massive losses of investment resources. Thus, ‘superprofits’ gained through the exploitation of cheap labour and other resources are by various means transferred out of the country (‘tax holidays’ being a typical condition for the investment) so that the potential investment resources generated by the original investment are not available for new investments that would help to raise the level of economic activity further. In short, had developing countries not been deprived of investment resources by various mechanisms, and at the same time, had investment in agriculture received a higher priority, virtually all by now could have been more or less self-sufficient in basic, domestically produced foodstuffs.
The need for new economic policies
6O Oculi, ‘Dependent food policy in Nigeria’, Review of African Political Economy, No 15/16, 1979.
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The positive side to this negative experience is that it does provide the stimulus for the urgent rethinking on economic strategy needed to break out of the vicious circle of dependency and underdevelopment. It is particularly embarrassing that developing countries find themselves having to import food when a majority of their people are engaged in the agricultural sector. Thus, many countries are now committed to giving greater priority to agriculture and food supply, as well as to new ways of retaining in the country a greater proportion of investment FOOD POLICY
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% is,
of course, more complex then this in that national governments are not usually ‘national’but reflect or represent interests
of Panicutar so&t classes Or QrPuPs-
more often than not, a privileged minority. Nevertheless, pressure will still be exerted from ‘below’ - ie the majority of people and these will reflect in the decisions taken if only to forestall major rebellions. For the purposes of the present argument, which is concerned with international contradictions, we shall assume on the whole that national governments will ultimately have to reflect, to a greater or lesser extent, the broad interests of the majority of people.
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resources generated by agriculture and other sectors, upon which more rapid economic development in the future depends. However, on the whole, progress is still slow and hesitant. In the absence of understanding its causes, there is still the lingering hope that the present world recession will somehow subside, that export earnings will improve of their own accord, and that once again international financial assistance will become more readily available. The need to break with past economic ideologies, in other words, has yet to be realized, with the Brandt Report, among others, adding fuel to the flames of hope and confusion. The remainder of this commentary, therefore, is an attempt to dispel the confusion and inject a note of realism into the hope by considering the type of strategy required to give developing countries (and others) a chance of overcoming the powerful constraints imposed by the current state of the world economy. Space does not permit a comprehensive discussion, and in any case, each country would have to develop its own strategy, taking into account its past history, and the internal social, political, economic and resource constraints. For present purposes, therefore, the discussion will focus upon agricultural development and trade policy, which should be sufficient to demonstrate the general principles involved, and, in particular, the mutual interdependence of the internal and external dimensions of economic policy. Whether or not progress along the lines proposed will materialize is, of course, another matter. That depends upon a multiplicity of political factors, and also how persistent and intransigent the present economic recession turns out to be. It is possible that a series of ad hoc interventions, as is already typical, will suffice to ease the situation and promote some progress, thus preventing the implementation of more radical policies that could produce more lasting solutions (which presumably is Sanderson’s belief). Alternatively, the internal and external political contradictions might prove too great for anything very much to happen. However, if the causes of the problems are understood by decision makers, and proposals for solving those problems are brought to their attention, that would at least provide some basis for positive policies to emerge. In themselves, there is nothing particularly novel in the proposals to follow. Rather, the discourse gives theoretical and strategic support to certain measures now being introduced on an ad hoc basis, and policies already tried on a limited scale in response to particular historical circumstances, but not forming a part of an overall strategy. The proposals do conflict quite sharply, however, with current thinking, and the discussion incorporates a substantial critique of certain conventional wisdoms embodiedin, for example, the Brandt report. We start from the assumption that domestic political and economic pressures will naturally force national governments to consider their own interests first, and, in particular, that when the domestic economy is threatened by external development, governments will take measures to protect national interests. ’ That is precisely what has been happening, step by step, as the world crisis has progressed. Conventionally, this creeping ‘protectionism’ is viewed as a necessary evil (and, it is hoped, temporary). Consequently, more often than not, too little is done too late. The alternative argument, to be expounded here, is that such ‘protectionism’ is an essential element of the strategy needed to end the current crisis of development in all countries. Viewed in this way,
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governments would take the necessary measures in advance of economic decline. Rather than await external developments that might mitigate the situation (and which may never happen), they would be stimulated to focus upon the development of resources within the country over which they do have (or could have) some control.
Internally
orientated
strategies
The driving force of development of any kind is increasing demand. In a modern, cash economy, that can only mean increasing incomes. The first steps to stimulate agricultural production, therefore, are to raise wages to increase demand and raise prices for agricultural producers represented by Steps 1 and 2 in Table 1. The argument against this, of course, is that for the individual employer, it increases costs. However, that in itself paves the way for improving efficiency and introducing more productive technology in order to supply the demand created by higher incomes in other sectors. That in turn gives rise to higher incomes (due to higher productivity) and further increases in demand which fuel more economic development. It is a fundamental contradiction of economic development that individual employers want to pay their workforce as little as possible and for every other employer to pay as much as possible. That is why economic development to date has always proceeded in fits and starts. A modern administration has the technical means (information technology, manipulation of concentrated financial resources, etc) to smooth out those contradictions. However, that also requires a clear understanding, on the part of administrators, of the underlying economic and political forces at work. Typically, the latter element is missing, mainly because administrators, in the last analysis, tend to represent specific vested interests which gives a distorted view of those forces. For instance, wages are kept down in order to render the country more attractive to multinational investors. If that is to be successful, cheap food must be available. In effect, therefore, the rural and urban workforce serve to subsidize the profits of the investors, which, as already noted, may or may not be re-invested in the country. That cannot be a reliable basis for economic development. Other means must be sought (and are available) to attract the multinational investor. The positive response of farmers to higher prices (and vice versa) is well-documented whether in the USA, the EEC, China or Tanzania.s Other things being equal, the increased incomes act as a major stimulus to the rest of the economy, since it increases the demand for
Table 1. A strategy for raising agricultural productivity: the priorities. Step 1: Step 2:
‘For the latter two examples, see Gek-boo Ng, ‘incentive policy in Chinese collective aariculture’. Food Policv. Vol 4. No 2, Mav 1579, pp i&88; A. V&son, “Agric&tur6 looks for “shoes that fit”: the production responsibility system and its implications’, World Development, Vol 11, No 8, 1983, pp 705-730; F. Ellis, ‘Agricultural price policy in Tanzania’, World Developmenf, Vol 2, No 4, pp 283-83.
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Step 3:
Sten 4: Step 5: Step 6: Step 7:
Raise wages in order to promote demand - linked with rationing and price controls of basic foodstuffs to assist the poor and minimize inflation. Incentive producer prices linked with ‘land-to-the-tiller’ type policies in order to promote production and marketing of agricultural products. Job creation through establishing industries and other enterprises supplying goods and services required by the rural sector thus completing the cycle (or spiral) of economic activity. Local storage facilities and strategic grain reserves to compensate for seasonal variations inorder to enhance foodsecurity and price stability. Improve land productivity - water supply, fertilizer, improved varieties, better tillage practices and pest management. Improve labour productivity - appropriate mechanization policy based upon economic criteria. Back to Step 1 at a higher level and so on.
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non-agricultural goods and services, which, in turn, raises income and stimulates employment in other sectors, thus completing the economic cycle (or spiral) as represented in Steps 1 to 7 in Table 1. Other things rarely are equal, and several further comments are necessary, concerning internal aspects, as well as a more thorough examination of the external dimensions of domestic economic policy.
0
0
‘Anna Louise Strong, The Rise of the People’s Communes, New World Press, Peking, 1959; J. Myrdal, Report from a Chinese Vi//age, Heinemann, 1965; K. Griffin, Land Concentration and Rural Poverty, 2nd edition, Macmillan, 1961 (Chapter 7, ‘An assessment of development in Taiwan’). “See for instance F. Ellis, ‘Agricultural marketing and peasant-state transfers in Tanzania’, Journal of Peasant Studies, Vol 10, No 4, 1993, pp 214-241. “This has been developed in an unpublished paper: J. V. S. Jones, ‘How appropriate is “appropriate technology”?‘, mimeo, Queen Elizabeth College, London, UK, 1960. An expanded and more readily available version under the title: ‘Technology and science policy for development: the priorities’, is in preparation. The ideas are partially developed in Clive Thomas, Development and Transformation, Monthly Review Press. 1974.
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0
Agricultural price incentives cannot work effectively if not passed on to the actual producer. Hence the need for ‘land-to-the-tiller’ type policies. These can take many forms as exemplified by the two contrasting approaches of China and Taiwan.’ The higher agricultural prices must be sustained and should not be subject to large seasonal fluctuations. This depends upon adequate storage facilities and adequate marketing structures. If farming communities had prospects of higher incomes through stable prices, with technical support they could be stimulated to finance and/or construct their own storage facilities at local level. Some centralized, strategic stores would normally be necessary to deal with major seasonal variations in production, and to forestall speculation and a black market. A suitable marketing structure for developing countries is the marketing board. For good reasons, these have had a bad reputation because, frequently, they have been the instrument to keep down agricultural prices in order to supply cheap food to urban consumers (in order to keep wages down), or to sell on the world market at a profit to earn revenue.” That works until producer disincentives reduce production to the point where there is no marketable surplus. Moreover, the revenue so obtained has tended to finance large, unproductive bureaucracies rather than industries supporting agriculture. As a part of the strategy proposed here, marketing boards have an essential role to play. The leading question associated with Step 3 (Table 1) is what sort of industries and other enterprises? This, of course, is of crucial importance, but it is largely beyond the scope of the present discussion. l1 Suffice to note here that there must be goods and services upon which farmers can spend their extra income, ranging from agricultural inputs to raise productivity such as fertilizers, equipment, etc, to various consumer goods and services to facilitate the distribution of agricultural surpluses and incoming goods, including financial services. Too often, industrial development has proceeded independently of agriculture and the development of local resources, relying instead upon imported inputs which not only have the effect of stimulating economies elsewhere, but also become a means of transferring investment resources out of the country via transfer accounting and other restrictive practices associated with the unequal terms of trade. Price policies for non-agricultural goods are important and have an impact upon farmers’ incentives to improve productivity. This applies particularly to agricultural inputs. For instance, in their haste to stimulate the utilization of fertilizer, governments frequently resort to subsidies rather than offer higher prices to farmers so that they can afford to purchase it at its value. In contrast, at a crucial stage, the Taiwan government, which owned the fertilizer factory, actually inflated fertilizer prices in response to an apparently insatiable demand, but farmers still bought it, presumably 379
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l
because the terms for selling rice made fertilizer a worthwhile investment.t2 ‘Appropriate mechanization policy’ is also beyond the scope of the present discussion. The main general point that can be made here is that mechanization has more often than not displaced work rather than created it, and this almost always can be traced to various types of subsidy which cannot later be recovered.
All of the steps outlined in Table 1, in one way or another, have been well-worked in economic policy, at least at the rhetorical level. For them to become a strategy, however, they must be implemented in the order given so that the stimuluses will work themselves through and stimulate one another. When put into practice hitherto, it is common for almost the reverse order to prevail (and hence depends excessively upon credit), and the price and wage incentives are never reached! The driving force of the strategy is thus lost forever in the mire of contradictions and debt.
The external dimensions
‘*K.
Griffin,
The
AgrarianChange, 1979, pp 125-30. 380
Political Economy of 2nd edition, Macmillan,
How rapidly an internally orientated strategy of the type described can be established and progress made depends crucially upon the successful management of external trade, many factors of which are, to a greater or lesser extent, beyond the control of national governments. A policy to mitigate those factors is thus an essential complement to the strategy. For instance, in the early stages, it is likely that some commodities might be available more cheaply on the world market than can be produced locally because of higher productivity (better technology) available elsewhere and/or lower wages. Relatively cheap food, perhaps under concessionary terms, might be available at prices lower than those prevailing locally. Allowing such imports to compete with local production would clearly undermine the whole strategy and must be controlled. Second, some imports are likely to be more beneficial than others, with some playing an essential role in establishing the strategy, especially primary commodities not available in the country, and capital goods. Priority would clearly have to be given to these in the allocation of whatever foreign exchange and credit as is available. Imports must not be allowed to substitute for what can be produced locally. Third, the development of domestic resources to meet local needs must not be to the neglect of production for export, for without foreign exchange, progress in raising productivity and developing resources would be painfully slow. Maximizing foreign exchange earnings is the most difficult area of policy, partly because there are conflicts of interest between production for export and production for domestic needs, and partly because prices depend upon the state of the international market, over which developing countries, individually, have little control. However, as will be argued, developing countries acting together can improve the situation, which would be enhanced if every country became more self-sufficient and had stronger domestic economies. Finally, the other source of external finance, international credit, is full of pitfalls, as all developing countries know to their cost. Clearly, if favourable terms can be negotiated, this can have a great impact upon developing the nation’s productive resources. The main problem is that all debts, whether on concessionary terms or not, have to be paid back FOOD POLICY
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out of export earnings. This tends to skew the selection of projects, either directly or indirectly, in favour of those which have good export-earning potential rather than those which will develop resources to meet local needs. If export earnings are indeed enhanced, they could cover both the costs of paying off the debt and act as a new source of foreign exchange to finance other projects. Whether or not that happens depends upon what prices the new exports can attract which, in turn, depends upon what progress can be made in the improvement of the terms of trade to ensure higher prices. I shall now elaborate on these points.
A critique of free trade ideology A policy of import controls as outlined above flies in the face of conventional thinking on free trade, the virtues of which seem enshrined on tablets of stone by Brandt, following GATT and other international organizations. However, free trade is an ideal concept. In practice, trade has only ever been free up to a point, depending upon the state of national and international markets and the terms of trade. In particular, no country has established a modern economic structure on the basis of free trade. Even Britain, the champion of free trade in the last century, imposed a 75% duty on imports from India at a crucial point in order to protect its infant textile industry. Today, all countries operate protective mechanisms to a greater or lesser extent when particular sectors are threatened. The high incentive policy for EEC agriculture, for instance, could not be sustained without tariffs. Even the well-established steel and textile industries of Europe are protected to some extent from cheap imports (some would say, belatedly, since large sections of those industries have already been destroyed). In fact, protectionism, the obverse to free trade, does not prevent trade as is sometimes suggested. Import controls merely mean selective trade, preventing some, encouraging others. Thus, in the 1930s when the West was in deep recession, large sections of its engineering industry were kept in business through exports to the USSR - a protected economy in the extreme - which was building up its industrial base. The developing countries of today, once they have had a chance to develop their economies and raise income, could provide a similar market, and that would indeed be instrumental in ending the world recession. However, their economies cannot develop if they are constantly undermined by uncontrolled imports and loss of investment resources by the processes already mentioned. Second, it is argued that free trade and competition enhances efficiency and the promotion of comparative advantage in the development of the world’s resources. That only applies, however, when all countries are competing on a more or less equitable basis. Then it can act as a major stimulus for investment in new technology and new systems of production. The extent to which free trade operated was indeed an important factor in generating the economic boom and improved productivity in the Western economies during the 1950s. However, it was not the driving force. That was the rapidly increasing demand generated first by the need to rebuild the war-torn economies, but more important, by the large increases in people’s income as a result of improved productivity and investment in the productive sector (supported by improved credit facilities for the consumer). The two
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aspects stimulated one another. When incomes no longer increased, demand subsided, resulting in the series of mini-recessions in the 196Os, and the more sustained recession since then. It is the demand by people for higher incomes, more goods and services, and improved living conditions, as well as their actions to secure those demands, which are the driving forces for trade and development. The main champions of free trade today are the multinational firms. Under the umbrella of free trade, it allows them to invest where it is most profitable, locating production where labour and other resources are cheapest, and freely exporting to where the markets are strongest, sustained by incomes derived from sectors which have not relocated or cannot relocate. The logic, other things being equal, would be to locate all production in the cheap labour areas (provided the goods can be transported economically) but then there would be precious little left in the way of employment in the developed economies to provide the market! Clearly, governments will have intervened long before. That is the primary contradiction of the free trade argument.
The politics of international
trade
As long as developing countries are weak economically and politically, they will never obtain fair prices for their goods. Being forced to sell cheap, they will never accumulate investment resources on the scale required for rapid economic development. They need to develop a strategy to improve their bargaining position in the determination of international commodity prices, and as much skill in manipulating the market as the multinational firms and other agencies working on their behalf. Trying to obtain international agreement among producers of particular commodities, however, is full of political contradictions. One country desperate to sell its produce at any price may undermine the whole agreement of a price structure. Many countries simply do not have the capacity to hold back sales in order to allow prices to rise, because they have to sell in order to buy food, pay off debts, or whatever. Raising levels of self-sufficiency not only in food, but also all other basic needs, is the only way of increasing bargaining power, both vis-ci-vis competitors and the international buyers’ market. The most successful group of producers by far, because of the strategic nature of their commodity, is undoubtedly those producing petroleum. Through their organization, OPEC, the countries involved were able to hike their prices up (back to the real levels prevailing in the early 1950s) once and for all eliminating the erosion of their incomes by the economic purchasing power of the West. They have since had to retreat somewhat because of slackened demand due to the continuing recession - for which they have even been used as the scapegoat, notwithstanding that the price hike initiated a temporary boom in Western economies, against trend, due to the demand for goods enhanced by their increased purchasing power! Here, we have a glimpse of the positive effect on Western economies of improved commodity prices. We also have a glimpse of the extreme difficulty of maintaining a united front in the face of a weakening market which the West has been able to play upon, thus weakening the power of OPEC. For less strategic commodities, and those produced in many countries with greater economic problems, it is much more difficult to even make an agreement, let alone sustain it - as the experience of the coffee and
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copper equivalents to OPEC has proved.13 (In fact, both these organizations when they existed brought in the major consuming nations which complicated matters somewhat). However, what the experience of OPEC illustrates is that developing countries must organize themselves and act together if they are to win higher prices for their exports. (‘If they don’t hang together they will hang separately’14). One thing is certain - they are not going to be offered higher prices on a plate.
The role of international
13See for instance C. Payer, ed, CommoditV Trade of the Third World. Macmillan. London, 1975. 14Adapted from A. G. Frank, Crisis in the Third World, Heinemann Educational Books, London, 1981. See pp 116-25 for a fairly pessimistic assessment of the chances of developing countries coming together for various commodities.
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credit
The other ingredient in the Brandt recipe is the massive injection of international finance and economic aid to the developing nations. This, too, is a non-starter. In the first place, when would-be donor countries have economic problems of their own, they are not likely to give high priority to overseas economic aid. It is therefore idealistic to hope for that. Second, there has to be some hope on the part of donors of eventually getting their money back. There cannot be much confidence in this when developing countries are unable to cope with paying back loans acquired during the last two decades. From the developing countries’ point of view, they too are fearful of taking up new loans when they are saddled with the repayment of old debts. They are not encouraged either by the huge inflation in interest rates (which also puts pressure on concessionary rates). In any case, official economic aid can only be a trickle compared with the loss of investment resources that have to be sustained by developing countries, as already discussed - with the developing countries having the audacity to present economic aid as some kind of charity disregarding that it is ‘their’ multinational firms, banking institutions, and so on, that have provided the mechanisms by which the developing countries have their investment resources appropriated. Furthermore, such economic aid that is forthcoming is paid for by the ordinary taxpayer, while multinational firms, with their huge network of subsidiaries spread over many nations, have the means of avoiding tax altogether, through the use of ‘tax havens’ and other devices. They will only return investment resources to particular developing countries if it is in their own private interests to do so. That is the basis of the independent economic power of the multinational firm. Their huge concentrations of financial resources could be made more generally available if national governments in all countries made appropriate fiscal decisions. Meanwhile, developing countries cannot wait for this possibility. They have to use whatever international credit as is available in order to accelerate the process of development. Even food aid has a role here. Food surplus countries are often more conducive to offering concessionary food than concessionary finance. Thus, if developing countries are short of food, concessionary food saves on imports and monies that would have been spent on food could, with a judicious, domestic food price policy, be used to finance the development of local food resources or whatever. For the foreseeable future, however, the major source of international finance and advanced technology will be the multinational firm. Developing countries must, therefore, be prepared to negotiate the best possible terms, perhaps playing one firm off against another during the
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process. During the course of bargaining, in which the multinational corporations are highly skilled, they are capable of putting up all kinds of threats and promises. However, they are in business to sell their wares, and they are competing against others. That is the strength of developing countries’ bargaining position. Developing countries must, therefore, be even more highly skilled in negotiations than the multinational corporations. The most important criteria is to ensure that any investment actually contributes towards developing local resources to supply local needs, and fits in with an overall development strategy. That, in essence, is how all the developed countries of today broke out of their economic backwardness.
Conclusion If a lasting solution is to be achieved to the world’s food problems, fundamental changes in economic policy at national and international levels are required. The course of action discussed here already exists in embryonic forms: more investment in agriculture; more attention to economic strategy as a whole; import controls in response to national problems; trade negotiations among developing countries in order to present a united front at UNCTAD. How far such developments will go in the coming period is a moot point. The path will surely not be smooth, for the economic and political contradictions between nations are great. They may be too great for anything much to happen. For instance, those developing countries with some limited power may be able to sustain some advantages which will prevent them coming together with others. It all depends upon how severe the economic crisis becomes, and how quickly world leaders perceive its true causes: the lack of buying power of developing countries due to the cumulative expropriation of their investment resources.
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