The new robber barons
- Ivo Vegter
- 21 Feb 2011 09:45 (South Africa)
It has become traditional for assorted malcontents to engage in violent displays of blackmail and extortion against large companies. The infamous Battle of Seattle of 1999 was when the leftist anti-globalisation movement came of age (if you’ll excuse the sarcastic phrase). Since then, every gathering held by the World Trade Organisation has been mobbed by stoning (or stoned) youths, yelling their heads off about how unfair the world is.
The world is unfair, that’s true. But that’s exactly why the World Trade Organisation exists. It aims to lower trade barriers to permit individuals and companies to more freely and more cheaply transact across borders. In essence, if you want to sell me something, the World Trade Organisation thinks neither of us need to ask a government bureaucrat for permission first. It also thinks I shouldn’t pay more, nor you profit less, because we have to pay bribes to tax collectors at assorted points along the delivery route.
It is equally true that many companies are happy to be protected by tariffs, subsidies, licensing regimes and import duties. That’s why they call it “protectionism”. Those companies might lobby for all they’re worth, but they consist of citizens just like you and me, and should be equal before the law. Preferential trade rights mean they’re more equal than others. This is unjust.
However, the anger for this ought to be directed at governments. The same politicians who maintain the unholy state-corporatist alliance by doling out tenders, tax breaks, subsidies and protection from competition in return for political support have created a far worse brand of parasite, however.
The modern robber baron is not a cigar-smoking capitalist in a three-piece suit. Today’s robber baron wears jeans and checked shirts, and lives in a comfortable, rustic farm house on a spread in the Loire Valley, East Anglia, Shikoku, or Nebraska. His idyllic way of life is so romanticised that he is receives money from his more productive countrymen to maintain it.
The typical European cow gets a subsidy of $2.20 per day. One quarter of the world’s human population lives on less. The US spends over $10 million per day to subsidise cotton farmers. That’s three times what it spends in aid to sub-Saharan Africa.
The history of rich-world farm subsidies is a nasty tale of damaging market gluts of agricultural commodities like milk, butter, sugar, wheat, tomatoes and wine. (Who’d have thought it?) But the politicians that caused this problem haven’t read the Economics 101 text books that explain why price manipulation causes shortages and surpluses. So, their answer to failed regulation is ever more perverse regulation. To solve problems like a “butter mountain” or a “milk lake”, they take the obscenely perverse step of paying farmers not to farm.
Other farmers are paid to produce crops for non-food purposes such as biofuel. There isn’t really a market for it, so the legislators pull the same trick as paying farmers not to farm, but in reverse: they write a law to create an artificial market, by forcing consumers to buy ethanol in their fuel.
If you live in America, Europe or Japan, and you’re not paid to live the life of Thoreau on a rustic farm, you should be angry. You get to pay twice for your food – once via tax and once at the store. You should be doubly angry because your government shames you.
When it doesn’t dump surplus food on poor countries to undercut local farmers and drive them out of business, it causes artificially high food prices which undermines market demand in the developing world. An artificial imbalance between supply and demand can be tolerable for a while, if you have wealth as a buffer. It cruelly hurts poor people in the economies of the developing world, however.
Paying farm subsidies with one hand and offering aid with the other is an ironic symptom of the rich world’s support for its pet farmers. Much of the aid would not be necessary if only African farmers – and their South American and Asian counterparts – had a fair chance of selling their produce worldwide. But how do you compete, after paying for shipping and storage, with a farmer who lives in the lap of luxury at taxpayer expense?
In addition to subsidies, the rich world’s farmers also have convenient support from their regulatory agencies. I recently spoke to an engineer for a major food producer in South Africa, who called in an expensive American consultant to help with the processes needed to get past that country’s byzantine Food and Drug Administration rules. Far from getting specific instructions, the rules proved to be so vague and complex that producing food for export involved far more risk and cost than it was worth. Europe is no better on the regulation front.
Meanwhile, the angry hippies are demanding even stricter rules, involving entirely silly fears over modern agriculture technology. Clearly, they don’t want the poor world to become particularly efficient at farming either.
The Doha round of World Trade Organisation talks is the forum where these issues are supposed to be addressed. It started late in 2001, and spent most of the decade spluttering in fits and starts towards failure.
The former WTO director-general, Peter Sutherland, who is an Irish lawyer, banker and former EU Commissioner, stated the obvious last week when he said that progress on Doha is much too slow. Along with Indian economist and Columbia University professor Jagdish Baghwati, he presented a report to the World Economic Forum in Davos in which it was proposed that the talks be concluded by the end of 2011. However, observers fear that there are still too many obstacles – particularly on farm subsidies – on the table.
It seems hopelessly optimistic to think Doha will achieve much. It will likely fail. And when it does, the anti-global idiots – who, like their politicians, have never stooped to study Economics 101 either – will cheer.
They will be cheering for death and starvation and the perpetuation of an aid-dependent poor world. I hope they have fun doing so. I hope it makes them happy.
However, the adults in the rich world should have more sense. They should be ashamed of supporting the robber barons occupying their farms at taxpayer expense. They should tell them that protests, strikes and blockades will not be tolerated as a response to cutting farm subsidies. They should tell their farmers to make an honest living, just like everyone else.
The developing world, meanwhile, might as well leave the table. Get up and go it alone. Shame the developed world and take the moral high ground. Unilaterally remove trade barriers like import tariffs, export subsidies, excise taxes and customs duties. Get rid of the red tape that makes trade more difficult and expensive than it ought to be. Spend energy fighting corruption, instead of supping with rich-world trade negotiators.
Much of the benefit of free trade will be derived from trade with other developing countries, anyway. Besides, it’s not like begging and groveling to rich-world bureaucrats in exotic locations has been a great success.
The developing world, led by countries like Brazil, China, India and South Africa, should adopt a new position if the Doha round does reconvene this year.
I’d headline it: “Down with the robber barons.” I’d have been considerably more rude if I didn’t think it ought to be fit for the seven o’clock news. DM