"Power tends to corrupt, and absolute power corrupts absolutely." Lord Acton

Critiquing Fair Trade and Dead Aid

Cardus’ Robert Joustra rightly pillories “fair trade” along with the logic of foreign aid in a challenging article, “Fair Trade and Dead Aid: ‘My Voice Can’t Compete with an Electric Guitar.’”

Joustra’s point of departure is sound: “The aid model is not working, and no large-scale cash infusion or debt forgiveness scheme is going to make it suddenly start working. The fair trade brand is too small-scale and ultimately regressive.”

Unfortunately, though, Joustra’s well-placed critique of the fair trade movement underestimates the scope of the movement’s vision. With regard to coffee, for instance, Global Exchange has called for “a total transformation of the coffee industry, so that all coffee sold in this country should be Fair Trade Certified.”

The logic of fair trade in fact requires such wholescale paradigm shifts. But Joustra critiques the movement in part because it does not, on his view, represent the needed “long-term substantive critiques of the global social and political architecture.”

Joustra conclude that “as long as our consciences are salved by feel-good coffee branding and knee-jerk check writing campaigns, we won’t take the hard look we need at the architecture of global capitalism and bring about the social innovation that is necessary for genuine architectonic reformation.”

The problem with fair trade is not that it is not a comprehensive alternative to so-called global capitalism. It is that undermines the proper functioning of the market by artificially manipulating the price mechanism, resulting in all kinds of negative consequences, some of which Joustra notes, promoting “unprofitable work, and subsidizing unprofitable and undiversified economies.”

The critical questions that remain for Joustra and others are these: Does the proposed architectonic alternative to the current system properly value the role of markets or not? Do the corporatist and governmental abuses of “global capitalism” (e.g. subsidies, price fixing, and so on) need to be addressed, or are the philosophies of fair trade and aid not sufficiently communitarian? Is the basic problem free trade and liberal economic globalization itself or the distortions thereof?

U.S. Doctoral Degree Prestige in Science, Engineering, Economics

A recent NBER working paper, “Internationalization of U.S. Doctorate Education,” takes a look at trends in doctoral degrees awarded by American institutions in the physical sciences, engineering, and economics.

From the abstract, “The representation of a large number of students born outside the United States among the ranks of doctorate recipients from U.S. universities is one of the most significant transformations in U.S. graduate education and the international market for highly-trained workers in science and engineering in the last quarter century.”

That transformation wouldn’t be possible without travel and visa allowances, as well as an educational and cultural atmosphere that welcomes immigrants. The trend also speaks to the level of prestige and respect accorded to U.S. institutions and degrees, and the portability and value of those degrees abroad.

A Micro-Lending Prelate

Zenit reports a new initiative by Cardinal Crescenzio Sepe of Naples, Italy: “he is donating a year’s stipend and part of his personal savings to initiate a diocesan bank that will offer micro-credits to the poor.”

I like two things about this project. First, the cardinal is putting his own money to work, furnishing a good example of personal commitment to assist those in need. Second, he is doing so in a thoughtful and creative way, not “throwing money” at a problem. One of his comments: “[F]ar from being a practice of pure welfare, the micro-credit will be the way to make the creativity and ingenuity of our people emerge again.” Bravo, Your Eminence.

A sour note in his remarks is this: “We thought that the globalization of markets would bring us further well-being, wealth for all, and instead we globalized poverty.” This seems to imply that, on balance, globalization has led to impoverishment rather than economic progress—a dubious proposition.

Pirate Morality

By now you’ve read one or more stories about the increasing levels of piracy on Africa’s east coast, brought into the spotlight by the recent capture of a Saudi oil tanker.

Piracy is, of course, simply a specific form of theft, a vice that like all basic vices will be with us to the end of time. Sometimes there is a fine line between state military conflict and piracy, as the case of Sir Francis Drake attests (to the English, a hero and nobleman; to the Spanish, a pirate). The problem of piracy along the African coast has plagued American shipping for as long as the nation has existed: One of the earliest missions undertaken by the US Marine Corps was an assault on the infamous bandit havens of the Barbary Coast (remembered still in the Corps’ anthem as “the shores of Tripoli”).

What I found striking about this particular story on the current problem was the sheer breadth of cooperation in the outlawry, evidently without compunction. In the Somali region highlighted, seemingly everyone, from small businessmen, to government officials, to the “mother of five,” views piracy as a positive feature of local life. On display is the absence of elements of a moral culture necessary for a free and functional society, such as deference to the rule of law and respect for property rights. Granted that the culpability of any number of players may be diminished by the harsh realities affecting an impoverished nation without a functioning central government, it is still a depressing picture of indifference to the common good in pursuit of self interest. Would that the modern-day pirates had the inclination and opportunity to direct their talents and energy in a way that actually created wealth rather than merely siphoning it from the rest of the world.

Free Trade Follies

Last week presidential candidate John McCain distanced himself from economic adviser Phil Gramm, after Gramm’s comments that America had become a “nation of whiners” and that the current concerns over a lagging economy amounted to a “mental recession” rather than any real phenomena.

The press and political reaction was swift and quizzical. What could Phil Gramm possibly mean? Why would an adviser to a presidential candidate publicly broadside the American electorate? As one editorial page wondered, “we can’t fathom the target of his ‘nation of whiners’ zinger.”

Sen. Obama himself seemed a bit (mockingly) incredulous. “Then he deemed the United States, and I quote, ‘A nation of whiners.’ Whoa,” Mr. Obama said. “A nation of whiners?” After his remarks were published, Gramm would later clarify that he was talking about “American leaders who whine instead of lead.”

But Obama’s reading of Gramm’s original remarks seem to be the most natural. “It isn’t whining to ask government to step in and give families some relief,” said Obama.

Well, maybe it is whining, but that’s precisely the sort of family-friendly rhetoric that makes Gramm’s remarks seem unduly harsh by comparison. But does it matter if there is truth to the substance of Gramm’s assertions? A day after Gramm’s statements appeared in the Washington Times, the Washington Post published an article highlighting the findings of a study that characterized the baby boomers as a generation of…”whiners.”

The study by the Pew Research Center found that

More than older or younger generations, boomers — born from 1946 to 1964 — worry that their income won’t keep up with rising costs of living. They say it’s harder to get ahead today than it was 10 years ago. They are more likely to say that their standard of living is lower than their folks’ but that things don’t look too good for their kids either (67 percent of younger generations, meanwhile, feel they have it better than their parents).

This despite the fact that boomers, dubbed here the “gloomiest” generation, have had it objectively better for a longer period of time than any other generation before or since. Anecdotally I had a “boomer” relative tell me the other day that the movie Cinderella Man resonated with her because it happened during a time of economic duress, the Great Depression, that so closely resembles the problems of today. Talk about a lack of correspondence between perception and historical reality!

The real problem with Gramm’s remarks was that they displayed a lack of connection to the perceptions of many Americans, even if his comments corresponded better with reality than many popular perceptions. Part of what makes a successful politician is the ability to understand and sympathize with his or her constituency, beyond the clarity of vision simply to see what the objective truth is. Gramm’s comments were more than just “bootstraps” rhetoric. Perhaps they were meant to be prophetic, in a way that gives people a kick in the rear and forces them to readjust their frame of reference.

And, again, the substance of the remarks didn’t differ much from what the “straight talking” McCain campaign has been saying all along. Last April McCain marched into Ohio, a part of the country hardest hit by globalization of industry, and said, “a person learns along the way that if you hold on — if you don’t quit no matter what the odds — sometimes life will surprise you. Sometimes you get a second chance, and opportunity turns back your way. And when it does, we are stronger and readier because of all that we had to overcome.” This sort of approach takes seriously the realities of both global trade and the plight of displaced workers.

So McCain’s dismissal of Gramm should be understood as having as more to do with rejecting the tone and style of Gramm’s message than the substance. McCain may have learned something from the resonance of Mike Huckabee’s message to blue collar evangelicals that trade needs to be “free and fair.” But for many economic conservatives, reactions to that message were as negative as reactions were to Gramm’s message. Free and fair? Free is fair, right? Maybe it is, but it doesn’t always seem to be so. And simply repeating “free is fair” isn’t going to work rhetorically.

The ideological inability of many economic conservatives to frame their message in a way that resonates with mainstream Americans is what is reflected in Phil Gramm’s comments and the corresponding rejection and derision of Mike Huckabee by many in the GOP (the positive reception of Gramm’s remarks among many economic conservatives underscores this). In politics, communicating the truth effectively is just as important as perceiving it. McCain might be on a steeper learning curve on that score than many of his fellow Republicans.

Britain 1, France 0 — On Free Trade and Agriculture

The Wall Street Journal ran a long article yesterday on a dispute between France and Great Britain over how to proceed with the Common Agricultural Policy (CAP) of the European Union which consumes about 40 per cent of the EU budget, i.e. $75 billion every year.

The French blame the current global food price inflation on free trade and suggest that the EU must expand its current subsidies for every ton of crop production. Moreover, the CAP model should be emulated in other parts of the world. As explained by the French minister for agriculture, Michel Barnier, in an interview with the Financial Times, the argument runs like this:

What we are now witnessing in the world is the consequence of too much free-market liberalism. We can’t leave feeding people to the mercy of the market. We need a public policy, a means of intervention and stabilisation. I think [the CAP] is a good model. It is a policy that allows us to produce to feed ourselves. We pool our resources to support production. West Africa, East Africa, Latin America and the southern shore of the Mediterranean all need regional common agricultural policies.

It is astonishing to see that someone in the hyper-regulated and hyper-subsidized world of agriculture really tries to blame “free-market liberalism” for the food price explosion. It is also not difficult to spot that Barnier’s “recommendation” for developing and emerging economies to copy the CAP model of throwing public money at farmers is only meant to keep out competition from these countries indefinitely. Of course, they do not have the resources to set up such a system but they have a legitimate interest to gain access to rich-world markets.

It is here that we should take a look at the British criticism of the CAP. The British argue convincingly that the decades-long de facto discrimination of the CAP against food from poorer countries deterred farmers in these economies from investing adequately in agriculture. Now that global food demand is increasing this under-investment causes supply constraints from which the developing world suffers in particular.

The CAP is currently under review as the present agreement runs out in 2013. France has always been one of the great beneficiaries of EU agricultural subsidies and it would probably be a far more EU-skeptical country if the policy was not in place (although the French also voted down the EU Constitution in 2005). In order to appease its agricultural lobby other EU member states are likely to look for another weak compromise for the time after 2013. But then European leaders should not claim that their political horse-trading has nothing to do with the crisis facing the world’s poor.

Catholic NGOs Miss the Boat on the Food Crisis

The recent dramatic rise of food prices reflects the worst agricultural crisis of the last 30 years, especially for developing countries whose citizens inevitably spend a larger portion of their incomes for basic needs. The list of countries facing social unrest as a result is long and growing: Cameroon, Egypt, Niger, Somalia, Ethiopia, Mauritania, Bangladesh, Burkina Faso, Haiti, Indonesia, Mexico, Argentina, and the Philippines.

Consequences of these price increases are also affecting the United States, where rice is beginning to be rationed, Europe, where the price of bread in the last six months has grown 17%, and Japan, where butter has disappeared from markets and inflation is appearing for the first time in 10 years.

Many people in the developed world know that the price of oil has risen from $88 to over $114 a barrel in the last six months. But the price of corn, wheat, rice, milk and soybeans have increased even more so; corn and wheat have shot up 70% and rice is up 141% compared to January 2007.

This global crisis is affecting approximately a billion people around the world and the World Bank estimates that it could lead 100 million people into poverty, not to mention starvation.

The causes of this phenomenon are multiple and inter-related. Most economic analysts and agricultural experts have highlighted six main root causes to this emergency:

• In the United States subsidies given to farmers that grow corn used for the production of biofuel (ethanol). A quarter of the national crop production is now devoted to the bio-fuel industry.

• In Europe, the Common Agriculture Policy (CAP) which pays farmers to restrict their output and locks out agricultural products from outside the European Union.
• In Australia, a terrible draught that has lasted 2 years and compromised 60% of the agricultural production.
• Increasing demand for rice, wheat, meat in China and India
• Decrease of cultivated land especially in China and India, where agricultural districts are transformed in industrial areas.
• Increase in the price of fuel which has resulted in an increase in the price of fertilizers.

The market perversions caused by government subsidies for bio-fuel production and the export restrictions mandated by governments in the name of “food security” are particularly damaging and add to what we already know about the law of unintended consequences.

It is interesting and perhaps even surprising to note how the Catholic Church is reacting to this issue, given the Church’s significant role in many developing countries and its presence in many international and humanitarian activities.

Despite heavy lobbying from environmental activists, the Church has given priority to the needs of the human person and his integral development. In practice, this has meant Vatican criticism of bio-fuel subsidies and Vatican support for biotechnology that increases agricultural yields such as the use of genetically modified organisms.

For example, at a recent FAO conference in Brazil, the Holy See’s representative, Msgr. Renato Volante, said “bio-fuel is a serious threat to the natural right of every individual to proper nutrition, causing food riots and an increase in worldwide poverty.” The bishop of San Marino, Luigi Negri, hosted an April 22 event that highlighted the potential of GMOs and new seed specimens that are already being used by 12 million farmers worldwide.And Archbishop Silvano Tomasi the Holy See’s Permanent Observer to the United Nations in Geneva, has blamed poor distribution, rather than the lack of food, for the crisis.

Curiously enough, Catholic non-governmental organizations (NGOs) such as Caritas Internationalis, Sant’Egidio and FOCSIV seem to be behind the curve when compared to the Church hierarchy. The NGOs have generally clamored for more foreign aid but have not addressed core issues as bio-fuels and biotechnology.

Even secular NGOs such as Oxfam and CARE are beating them to the punch and have even called for the elimination of trade-distorting subsidies, export restrictions and price controls.

It is difficult to generalize about such as complex international problem and about a Church of 1 billion people. But it is a shame that Catholic NGOs need to catch up not only with their fellow Catholics as well as their fellow humanitarians.

Straight Talk on Trade

My reaction to any politician claiming to offer “straight talk” is a knowing chuckle (”yeah, right”), and that includes John McCain. So I’ve got to give credit to the so-called Straight Talk Express for a recent campaign stop in Youngstown, Ohio, where the Republican presidential candidate offered some honest and accurate comments on a contentious subject in politically risky circumstances—straight talk, if you will.

The subject was trade, and McCain defended it in a region suffering from the real or perceived effects of the extension of free trade in recent decades. In the heart of labor union-friendly, manufacturing-dependent eastern Ohio, McCain said, among other things:

The biggest problem is not so much what’s happened with free trade, but our inability to adjust to a new world economy.

Protectionism and isolationism have never worked in American history.

I can’t look you in the eye and tell you that I believe those jobs are coming back. What we’ve got to do is provide [displaced workers] with education and training programs that work.

With pro-growth policies to create new jobs, and with honest and efficient government in Washington, we can turn things around in this city.

Pro-growth policies would include, one assumes, lowering the state’s state-local tax burden, calculated by the Tax Foundation as 12.4%, fifth-highest in the nation.

Globalized Criminal Syndicates and Political Authority

This sounds like a book with a compelling narrative: McMafia: A Journey Through the Global Criminal Underworld.

I’ve often thought about the connection between organized crime and legitimate governmental structures. In the NPR interview linked above, “Journalist Misha Glenny points out that while globalization may have given the world new opportunities for trade and investments, it also gave rise to global black markets and made it easier for criminal networks to do business.” There’s a lot of cogent analysis of trade issues and how government policy not only combats but also contributes to the existence of globalized “black markets.”

It has occurred to me more than once, in watching shows like HBO’s “The Sopranos,” that a good deal of the socio-political aspects of organized crime is explicable in terms of alternative (and often obsolete) forms of governance. That is, often when extorting money from business owners, superficially legitimate services are offered, like “protection,” i.e. protection that the official authorities like the police are unwilling or unable to provide.

Can Tony Soprano claim to be the “king,” or at least “kingpin” of a more feudal or monarchical socio-political structure? Perhaps, just perhaps, there is the hypothetical exceptional situation in which the “outlaws” represent a more legitimate form of governance than official but tyrannical structures (think of Robin Hood, for instance).

But there is at least clear precedent for understanding the reverse to be true; legitimate authorities can certainly degenerate into outright banditry even if bandits may not be able to rise to the level of authentic sovereignty. As Augustine has reflected on the nature of legitimate sovereignty,

Justice being taken away, then, what are kingdoms but great robberies? For what are robberies themselves, but little kingdoms? The band itself is made up of men; it is ruled by the authority of a prince, it is knit together by the pact of the confederacy; the booty is divided by the law agreed on. If, by the admittance of abandoned men, this evil increases to such a degree that it holds places, fixes abodes, takes possession of cities, and subdues peoples, it assumes the more plainly the name of a kingdom, because the reality is now manifestly conferred on it, not by the removal of covetousness, but by the addition of impunity. Indeed, that was an apt and true reply which was given to Alexander the Great by a pirate who had been seized. For when that king had asked the man what he meant by keeping hostile possession of the sea, he answered with bold pride, “What thou meanest by seizing the whole earth; but because I do it with a petty ship, I am called a robber, whilst thou who dost it with a great fleet art styled emperor.” (City of God, Book IV, Chapter 4, “How Like Kingdoms Without Justice are to Robberies.”)

And so the appeal to political legitimacy can only be made in recognition of the rule of law, the higher law or the “law beyond law,” that governs all human endeavors.

Absolute and Relative Poverty: The ‘Dogma’ of Economic Equality

On Friday April 11, the Vatican newspaper, L’Osservatore Romano, featured a front-page article on the progress made in international development since Pope Paul VI wrote the encyclical Populorum Progressio in 1967. The author of the article, Fr. Gian Paolo Salvini, S.J., is director of the journal La Civiltà Cattolica. He has a degree in economics and since he has lived in Brazil for many years, he has first-hand experience of development issues.

Salvini’s article is entitled “Incomplete Development” (“Uno sviluppo incompleto”) but his overall assessment of what has happened over the last 40 years is positive. He cites various statistics showing that “spectacular progress” has been made in terms of reducing absolute poverty. The number of people who have to live on less than one dollar a day has fallen from 29 to 18 per cent between 1990 and 2004. Also the data for longevity, child mortality and literacy show clear improvements.

Salvini identifies international trade as one of the key factors that has contributed to this trend. He is aware that progress has been uneven and that improvements in Asia have been far more marked than in Africa. This highlights that “the greatest success stories are due to the formula industrialize for exports”.

His most striking example to illustrate this point is that of South Korea. The fact that the country’s economic indicators were similar to those of Zaire (today the Democratic Republic of Congo) in the 1960s reflects the central importance of engaging with international trade: Korea’s achievement is largely due to its ability to export its manufacturing products to North America and Europe. This also explains why Dependency Theory, which was fashionable in the sixties and which advised developing countries to disengage with global trade, “is not taught anymore”.

The power of trade to transform poor countries is nowadays beyond doubt and Salvini notes that today it is often “the developing world which is asking for more free trade”, whereas Europe and the United States are obstructing the free flow of goods in agriculture.

But towards the end of the article, Salvini raises a more critical point regarding achievements in international development. He says that in contrast to absolute poverty, relative poverty is increasing: “The distance between those who are doing well and those doing badly, or to put it better, those who are doing well and those who are doing less well is growing.”

Salvini does not provide any data to illustrate this point and his assertion is, in fact, questionable. At the Populorum Progressio conference organized by Istituto Acton in Rome in February, Prof. Philip Booth from the Institute of Economic Affairs in London, specifically addressed the issue of relative poverty:

We should recognise that relative poverty has decreased during the process of globalisation .… Most dramatically, the gap between countries that have recently seen rapid growth and those countries that have been relatively well off for many decades has narrowed significantly … Whilst European Union countries, the US, the UK and Japan grow well below the world average (indeed disposable incomes are broadly stagnant across much of the developed world), over half the world’s population now lives in 40 countries that are growing at more than 7% per year. Development is happening and is benefiting huge numbers of previously-poor people.

Salvini may be referring to an increase in income inequality within countries but in that case he is not looking at poverty in terms of human needs and real deprivations, but as compared to an abstract “ideal”.

Reducing income inequality may seem like a noble aspiration, but it is of minor importance. Prioritizing the alleviation of relative poverty would yield the absurd situation where society as a whole is made poorer only to make it more equal. A desire for greater equality should not justify giving up the real and tangible benefits globalization has brought the poor over the last couple of decades.