Food Crisis and Shameless Protectionism
Innovation and Entrepreneurship are commonly associated with high technology. We think of the Silicon Valley garage as the Platonic ideal of an innovative place. Despite this stereotype, innovation happens everyplace. And thank goddness, because if there were no such thing as innovative hunting and gathering, we would all still be, well, hunting and gathering.
The revolution in farming, not computerization, is arguably the most important innovation of the 20th century. History may well remember Deng Xiaopeng's liberalization of small-farm profit incentives as a greater innovation than GUI computing or WSYWIG printing. But farming innovation has stagnated in many respects, and part of the problem is that people just don't get angry enough about protectionism.
The moral imperative is for the world to encourage innovation everywhere. To be more specific, what I mean by the world is "rich urban economies" and by everywhere is "poor rural economies." Sadly, the rich world tends to protect older and dying sectors from competition coming out of the LDCs. In a Washington Post op-ed today, Sebastian Mallaby describes the current food crisis very effectively in terms of what some friends and I might call a dynamic market failure (i.e. an equilibrium that fails by limiting potential growth):
Part of the solution to the food crisis, as the Oxford economist Paul Collier has written, is to promote large-scale commercial agriculture in the poor world. But for that to happen, investors have to know that there will be a market for their exports. They won't risk their money if Congress is going to subsidize their American competitors. They won't risk their money if European prejudice is going to prevent them from using the best seeds that scientists offer. And they won't risk their money if the governments of developing countries short-circuit their profits with crazy export bans.
In short, the governments of the world are conspiring to undermine farming in developing countries. Do they mean to inflict hunger on tens of millions of people?
The logic is pretty simple if you want to encourage entrepreneurship in poor, rural areas. Get the incentives right! Local farmers need demand for their potential product before they can obtain capital to grow. If rich countries restrict the external market through import restrictions, destroy competitive pricing through home subsidies, and restrict the internal market through aid (i.e. free imports of their countries' farming exports), the poor would-be farmer cannot win.
Economists are often viewed as cool and remote. But what motiviates economists are passions just as intense as those inspring rock concerts to fight poverty and mass media hypercoverage of hurricances, plane crashes, and earthquakes. The current food crisis is improverishing hundreds of millions, but doing it so softly and abstractly that often only a handful of cool and remote economists in rich countries get angry whereas typical politicians - reflecting constituents - remain oblivious.
For those keeping score, Congress passed the latest $290 billion farm bill with a veto-proof majority, 318-106 in the House and 81-15 in the Senate.
While Deng Xiaopeng's might have liberalized small-farm profits, rural Chinese land is still not privately-owned, which limits Chinese agricultural productivity.
Posted by: Mr. Econotarian | May 27, 2008 at 12:04 PM