June 21, 2005

How To Help Africa: Free Agro Trade

Currently the Western countries have strong protections built up around domestic agricultural sectors. In the US, the sugar industry is notorious for its protections - which end up costing little kids every time they buy candy or chocolate in the stores. In Europe, the CAP or Common Agricultural Policy is a heavily losing venture that strives to maintain the cultural lifestyle of many continental Europeans at the expense of the economic growth for the EU and the world.

This is especially maddening because economists explain to us that agriculture is one industry that acts most like the idealized version of the world used in traditional economics. Perfect competition, perfect substitution of goods, etc. It doesn't have these things, and not just because of government interference, but agriculture is closer to perfect competition than most any other sector. That's because corn is corn, beet sugar is beet sugar and even though it will taste different depending on many different factors, most of those don't factor greatly into specific markets.

The fact that agriculture is closer to perfect competition is probably a big reason it's regulated. Perfect competition in traditional economics, after all, entails very thin profit margins. Thin profit margins are a great pretense to ask for government help.

Of course, when the government is making food more expensive, it hurts people who need to buy food. It hurts most the people who can least afford it, because an apple, a block of cheese or an artichoke ends up costing more than they would otherwise. But one large group of people are hurt most of all - the poor agricultural producers in other countries that cannot compete with Western subsidies and tariff walls.

Decades after the West pioneered industrial free trade, agricultural free trade is the half-black bastard baby nobody wants to mention. It making food more expensive, it's kept poor farmers in latin America, Asia and Africa poor and it's keeping the underdeveloped world underdeveloped. The developing countries are clamoring for agricultural free trade because they have low costs and we have high demand. It would be cheaper for consumers to buy from theme and it would benefit those countries to sell to us. Pork barrel politics continue the cycle of protecting these pseudo-monopolistic agribusinesses from more efficient alternatives.

So while everyone in Europe is talking about how the US has a moral duty to pay more and about an ethical imperative to assist the world's poorest continent, they're not even mentioning the damage done by the trade walls against the poorest farmers. Sure, the EU loves free trade when it comes to a US steel tariff, but if somebody suggests opening up their laughingly inefficient agriulcutral sector to competition from the developing world and suddenly free trade takes a back seat to cultural sensitivity - and to votes.

As Reason points out, the barriers the West puts up against agricultural trade causes more economic harm than the aid we send them. Our anti-trade policies are actually a bigger problem than any reticence to 'give.' More importantly, we could actually be helping Africa at a profit to both us and them. We would get lower prices by buying from Asia, Africa and Latin America; developing countries would see an influx of cash greater than current aid packages; we could afford to cut most foreign aid to Africa and elsewhere, lowering our taxes, and be safe in the knowledge that there was a net-positive balance going there anyway; and most importantly the money would go to the producers instead of the governments.

When money goes to corrupt, often unelected governments, they dole it out to friends and family, they spend it on police forces, they spend it on palaces, they turn it into execution prison camps, and they otherwise consolidate their power. We do a disservice to democratization and liberalization efforts when we reinforce undemocratic, corrupt regimes. We make things worse when we empower governments that are untested. We should be trying to get the money directly to Africans and others. That way they have the power, they have the wealth and they have more control over where that money goes. To advance a thought from Jefferson: when governments control the money individuals can receive, you have tyranny; when individuals control the money government can receive, you have freedom. By empowering the private sector, growing the free market economies and creating jobs and economic opportunity for average Africans, Asians and Latin Americans we can advance the goal of spreading democracy.

And as an aside, it's funny that Tony Blair is trying to pressure Bush into coughing up some dough for Africa and Kyoto while Blair just turned down pressure from Solana (EU) and Chirac to give more money to the EU by lowering their rebate. I don't think they should have to pay back more, but it's not a coincidence that both the Uk and US are hesitant to pony up dough to poorly thought out but tearful pleas to give out money.

It's hard to correct the people who want more money for African governments. They have a compelling case: these people are gut-wrenchingly poor of a sort not even most Great Depression survivors would understand. They battle genocide, democide, violence, religious strife, famine, a continent awash in malaria and an entire generation threated by AIDS. It's very difficult to correct someone's method, but it's an important distinction. There's no such thing as "doing something" without specifics. You can't "give help" without a target and a process. Empowering governments, even elected governments, is the wrong way to go. We need to give Africa the same medicine we had: economic growth fueled by open markets that reward work instead of ethnicity and creativity instead of fearful silence. It's tempting to just send cash and hope that everything works out, but it would actually help if we further lowered trade barriers to help these countries develop their own method of sustaining themselves.

There is the African Growth and Opportunity Act, which gives preferential trade deals to African countries that meet certain standards for freedom and democracy. Currently 37 countries meet the requirements and they've been improving under its provisions and making more exports and imports with the US. So US business actually benefits from this arrangement because they're buying our stuff and we're buying theirs, so we get two-way trade that benefits producers and consumers on all sides. It's a good deal, but it's not enough. Africa has a limited industrial sector and agricultural is where they could really pull in some profits quickly. We need to cut our subsidies and NTBs targeted at agricultural and cut the tariffs that are holding down poor people around the world.

Let's see, we could help poor people, help US consumers, foster further liberalization, stop being trade-policy hypocrites and do it at a net profit for those involved. Or we could make direct cash transfers this year that will need to be further augmented over and over again every year as cronies return the money to their European bank accounts. Not a tough choice.


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