Acton Institute Powerblog

Making Subsidies History?

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The worldwide Live 8 shows have come and gone, and are being hailed as perhaps the greatest collection of concerts ever. While moments like the introduction of Birhan Woldu or (to a lesser extent) the reunion of the estranged members of Pink Floyd certainly made for compelling television, only time will tell whether or not they will have a significant impact on Africa’s future.

One item of news that could have a significant impact seems to have been lost in the American media shuffle, however. Yesterday, in an interview on Britian’s ITV network, President George Bush indicated a willingness to end agricultural subsidies in the US if European leaders would do the same:

GEORGE BUSH: Let’s join hands as wealthy industrialised nations, and say to the world, we’re going to get rid of all our agricultural subsidies together. And so the position of the US Government is we’re willing to do so, and we will do so with the, uh, with our fine friends in the European Union.

TREVOR MCDONALD: So you would if they would? Because at the moment for example…

GEORGE BUSH: Absolutely…

TREVOR MCDONALD: …cotton farmers in this country get subsidised to the extent of US $230 per cotton acre. You’d get rid of those things if the EU does?

GEORGE BUSH: Absolutely. And I think we have an obligation to work together to do that and that’s why it’s very important that the Doha round of the WTO go forward.

Bush also noted the value of international trade: “The benefits that have come from opening up markets, our markets to them and their markets to us, far outweigh the benefits of aid.”

James Joyner notes that Bush’s challenge is unlikely to bear any fruit:

A bold rhetorical gesture, although ultimately an empty one. The president knows the EU, especially France, will never lift their subsidies. Further, even if they did, the U.S. Congress will not abolish them entirely, as too many congressional districts and states are heavily dependent on agriculture.

I tend to agree with that pessimistic analysis. However, I take some comfort in noting yet again an increased focus on the value of trade as a mechanism for lifting people out of poverty and building wealth in impoverished areas.

More: Writing in today’s Washington Times, Wes Pruden notes a clear-eyed assesment of the situation from a US diplomat:

William Bellamy, the U.S. ambassador to neighboring Kenya, startled the guests at his Fourth of July garden party yesterday with just the kind of bluntness needed to keep African aid in realistic perspective. “Turning on the fire hose of international compassion and asking Kenya and other African nations to drink from it is not a serious strategy for promoting growth or ending poverty.”

Marc Vander Maas


  • I am not convinced that subsidy to American and European farmers hurts Africa as a whole. Wouldn’t Africans be able to buy subsidized goods at a lower price, if the US and Europeans were making low priced commodities availbel for African import?

    When I read about the average price of a vehicle being $70,000 in Tanzania, something tells me that too many low priced goods are not the problem, at least in Tanzania.


  • Marc Vander Maas

    The problem is not so much the inability for Africans to find affordable products. The problem is that American and European subsidies make it virtually impossible for African farmers to sell their goods on a broader market.

    In [url=]an earlier post[/url], I referred to an address by Rev. Gerald Zandstra regarding the corruption problem in African regimes. In that same speech, he told another story that may shed light on this aspect of the problem. He mentioned that during the course of one of his visits to Africa, he asked a group of pastors what message he could bring back to their American counterparts. Their response? “Stop sending us your used clothes.”

    Their reasoning was simple: As developing countries, they only have a few things going for them. One is agriculture, the other is textiles. Western countries flood African markets with subsidized agricultural products, thus killing the local agriculture industry, and then follow up that move by holding clothing drives and dumping tons of clothing into African markets, thus choking off the textile industry as well. In the end, our well-intentioned efforts to help the poor in Africa end up killing off the only viable industries that offer any hope of African self-sufficiency.

    What African nations desperately need are industries capable of building wealth and employing people. In the case of agriculture, European and American subsidies make it virtually impossible for Africans to compete. How are they to build wealth if they are effectively denied access to the biggest and wealthiest markets in the world?

    You can also check out [url=]this post[/url] for an African perspective on these issues.

  • Hmm..why is that? It should add up to a net gain to buy at below market prices, rather than producing products yourself. So Africans cannot match US cotton subsidies, that should be a huge net positive to African governments. The consumer gets cheap cotton, and the African governments pay nothing in subsidy to its farmers.

    I took the point of Rev Zandstra’s example as “sending clothes is a waste of time and money” rather than flummoxing up markets. Free is stil a good price for clothing from a consumer perspective. However, in my experience with the Dominican Missionaries, these donated clothes are typically stolen and shifted to a secondary market, sometimes back to the donor country.

    I think Africa has a whole lot going for it beside competing in commodity markets. Maybe if there was a vehicle available in Tanzania that costs below $70,000, a set of industries would develop around the automobile. Just a thought, but in the USA we have noticed that there are many jobs available connected to the under $70,000 vehicles market.


  • Marc Vander Maas

    “So Africans cannot match US cotton subsidies, that should be a huge net positive to African governments. The consumer gets cheap cotton, and the African governments pay nothing in subsidy to its farmers….”

    …and the African nation – once again – fails to develop a vibrant, growing economy that will allow people to rise out of poverty and build wealth on their own. And if lower prices are the main point of this discussion, I might also that American and European consumers are denied access to potentially cheaper goods from Africa and the price benefits that would result from such competition in American and European markets.

    As for the point of Rev. Zandstra’s example, it would be perfectly reasonable to conclude from his statement that sending clothes is a waste of time and money. However, to stop there is to miss the point. [i]Why[/i] is it a waste of time and money? Because in many cases, it is counterproductive – by sending clothing to be given away, we are actually choking off the market for the local textile industry with the end result being fewer jobs and more poverty. In trying to alleviate the problem, we have made it worse with a good intentioned but badly thought out plan. Put another way – free may be great for the consumer in the short term, but in the long run it destroys any hope of developing industry, creating jobs, and lifting people out of poverty. It leaves Africa, once again, dependent on aid.

    It seems to me that a far better solution lies in the development of free market economies in Africa that have access to and are able to compete in global markets. Whether we like to admit it or not, US and European agricultural subsidies are a huge impediment to African economic development. And without that development, the current situation is not likely to change.

  • Well sure Marc,

    A free market would be awesome for the US and Europeans taxpayers and for African farmers (not African consumers). But I wouldn’t hold my breath in anticipation of free market agriculture.

    In this case, US and European taxpayers are subsidizing cheap commodities for the African consumer, which must be a great gain for Africa. I would welcome it if the oil producing states were to subsidize cheap oil exports to the USA, even if it undermined the local US oil industry.

    I am convinced that most 3rd world development projects can be undertaken without the high theater of the G8 summit. Tanzania, for example can reduce the duties that make for $70,000 vehicles, Kenya can allow competition in its taxicab markets, Bolivia could remove export restrictions on its natural gas (the list goes on) WITHOUT the G8 summit.


  • Marc Vander Maas

    And these African consumers of which you speak – where exactly are they working? Are their purchases subsidized as well?

    I have a feeling that we might be talking past each other here and a fresh voice may be helpful. So let me refer you to a Kenyan economist by the name of James Shikwati, who had this to say about those subsidies (in a [i]Der Spiegel[/i] interview deliciously titled “For God’s Sake, Please Stop the Aid!”)[quote]SPIEGEL: Even in a country like Kenya, people are starving to death each year. Someone has got to help them.

    Shikwati: But it has to be the Kenyans themselves who help these people. When there’s a drought in a region of Kenya, our corrupt politicians reflexively cry out for more help. This call then reaches the United Nations World Food Program — which is a massive agency of apparatchiks who are in the absurd situation of, on the one hand, being dedicated to the fight against hunger while, on the other hand, being faced with unemployment were hunger actually eliminated. It’s only natural that they willingly accept the plea for more help. And it’s not uncommon that they demand a little more money than the respective African government originally requested. They then forward that request to their headquarters, and before long, several thousands tons of corn are shipped to Africa …

    SPIEGEL: … corn that predominantly comes from highly-subsidized European and American farmers …

    Shikwati: … and at some point, this corn ends up in the harbor of Mombasa. A portion of the corn often goes directly into the hands of unsrupulous politicians who then pass it on to their own tribe to boost their next election campaign. Another portion of the shipment ends up on the black market where the corn is dumped at extremely low prices. Local farmers may as well put down their hoes right away; no one can compete with the UN’s World Food Program. And because the farmers go under in the face of this pressure, Kenya would have no reserves to draw on if there actually were a famine next year. It’s a simple but fatal cycle.[/quote]
    So you can see that there’s a more sinister side to subsidies. And how about all those clothing drives I was mentioning?
    [quote]Shikwati: Why do we get these mountains of clothes? No one is freezing here. Instead, our tailors lose their livlihoods. They’re in the same position as our farmers. No one in the low-wage world of Africa can be cost-efficient enough to keep pace with donated products. In 1997, 137,000 workers were employed in Nigeria’s textile industry. By 2003, the figure had dropped to 57,000. The results are the same in all other areas where overwhelming helpfulness and fragile African markets collide.[/quote]
    You keep speaking of how African consumers benefit from American and European subsidies, which may be true to some extent. But the flipside of that deal is that African workers lose their jobs. The subsidies are [i]shrinking the pool of African consumers[/i]. It’s pretty hard to be a consumer if you don’t have a job.

    The issue here is [i]not[/i] whether or not African consumers can purchase goods at a lower price because of subsidies. The issue is whether or not African economies as a whole can develop to the point where wealth is created, aid is no longer needed, and more Africans have the ability to meet their needs on their own.

    I also note that you had this to say: “Tanzania, for example can reduce the duties that make for $70,000 vehicles, Kenya can allow competition in its taxicab markets, Bolivia could remove export restrictions on its natural gas (the list goes on) WITHOUT the G8 summit.”

    Isn’t that my point exactly? If lower tarrifs, increased competition, and international trade are good for the automotive, taxicab, and natural gas industries, why not for agriculture as well?

    [i]note: for some reason, I can’t hyperlink that Spiegel article. The full link is:,1518,druck-363663,00.html.

  • You might also want to check out Shikwati’s [url=]Acton Commentary[/url], “The WTO and the Voice of the Poor,” in which he says, “African countries should ask themselves why rich nations prefer sending donor money to opening markets for their goods.”

  • Well Marc,

    Don’t get me wrong, I am 100% against subsidy and tariff. I am just pointing out that US and European subsidy is a great positive to an African consumer.

    The shrinking pool of consumers and displaced industriies canard has been going around since the time of the Corn Laws. It was not true then, as Lord Acton and the Liberals observed, and it is not true now.