Category: International Trade

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.

Blog author: kschmiesing
Friday, April 25, 2008
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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.

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.

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.

Hostility towards globalization is not the exclusive territory of the left in Italy. Giulio Tremonti, a former minister of the economy in Silvio Berlusconi’s centre-right government, has written a book called Fear and Hope (La Paura e la Speranza), largely arguing against free trade and the opening of international markets.

Tremonti blames the recent rise in the prices of consumer goods on globalization and says that this is only the beginning. The global financial crisis, environmental destruction, and geopolitical tensions in the struggle for natural resources are also fruits of globalization, according to Tremonti. He identifies the main problem as a lack of international governance of the process of globalization and calls for a new Bretton Woods-like system to confront the multiple crises caused by what he calls “marketism”.

The “dark side of globalization” can only be countered by a return to European values: tradition, the family, and the nation, adds Tremonti. Europe “needs a philosophy which makes politics and not economics the primary mover [of globalization]. This can only work if we go back to the roots of Europe, these are the roots of Judeo-Christianity”.

This “cure” to the ills of globalization remains vague (as one would imagine in a book of only 112 pages). Still more puzzling is his insistence on a contrast between market principles and traditional European values. The idea that a return to values must be coupled with a stronger politicization of the world economy clashes with experience. More regulation and state interference not only tend to reduce growth and living standards but also create new opportunities for rent-seeking and corruption, and thereby undermine the traditional virtues that Tremonti supports.

He misses the opportunity to discuss how certain values are enhanced by the market and how international competition has in fact strengthened Europe by highlighting its best qualities, both technologically and culturally, while repressing its worst.

Tremonti’s vision is inward-looking and profoundly pessimistic. Some market-oriented Italian commentators have pointed out that his ideas seem dangerously close to old-style protectionism. It is clear if Europe followed his analysis, it would be led on a path of future irrelevance both as an economic and a cultural model.

Fidel Castro

In today’s Detroit News, Rev. Robert Sirico, president of the Acton Institute, argues for the end of the trade restrictions against Cuba. Fidel Castro, recently retired from the position of el lider maximo, held the small island nation in the tight grip of his totalitarian regime, effectively stagnating all economic development for the past 50 years. The United States embargo against Cuba gave Castro a scapegoat to blame for the economic woes that oppressed the Cuban population and helped him maintain control. Now, Fidel Castro has left office and the United States has a new opportunity to reassess its foreign policy with Cuba.

So, how should we move forward? Sirico writes:

Now the United States needs to rethink its policies. A vibrant trading relationship will prevent the new regime from continuing to scapegoat its Northern neighbor. It will inject much-need cultural and political influence. It will permit growing travel, emigration and immigration. In time, normalcy will pervade.

I recently talked with a Cuban acquaintance of mine about Cuba. He expressed the growing dissatisfaction that Cubans feel for the Castro regime (I spoke with him the week before Castro retired). The nation is impoverished financially, but also emotionally. People have forgotten how to be entrepreneurial; how to act on their ideas to make change. The difficulty of travel between such geographically close locations (the United States particularly), especially by Cuban citizens, the lack of economic contact with the United States, the religious opression experienced by Cubans until recently, and the tight control of ideas allows this feeling of woe to stew in its juices. The way to change is to open up: to make travel easier, to send missionaries, to allow Cubans to attend U.S. universities, to import Cuban cigars, and to encourage tourism to Cuba. Now is the time to free the Cubans.

AGAIN Magazine has published my “Conflicted Hearts: Orthodox Christians and Social Justice in an Age of Globalization.” The magazine is produced by Conciliar Press Ministries, Inc., a department of the self-ruled Antiochian Orthodox Christian Church of North America.

Excerpt:

Just as there is no real understanding of many bioethical issues without a general grasp of underlying medical technology, there is no real understanding of “social justice” without an understanding of basic economic principles. These principles explain how Orthodox Christians work, earn, invest, and give to philanthropic causes in a market-oriented economy. Economic questions are at the root of many of the problems that on their face seem to be more about something else—poverty, immigration, the environment, technology, politics, humanitarian assistance. In the environmental area, for example, the current debate on global warming is just as much focused on how to finance the means of slowing the rising temperatures of the earth as it is on root causes. And the question always is: Who will pay?

What, exactly, is social justice? It is an ambiguous concept, loaded with ideological freight. No politically correct person would dare oppose it. To be against “social justice” would be tantamount to opposing “fairness.” Today, the term is most often employed by liberal-progressive activists and a “social justice movement” that advances an economic agenda which includes such causes as a “living wage,” universal health care and expanded welfare benefits, increased labor union powers, forgiveness of national debts in the developing world, and vastly increased transfers of foreign aid from rich countries to the poor. Because religious conservatives tend toward support for free market economic systems, they have largely shunned the “social justice” agenda and its government-based solutions.

Read the entire article here.

Blog author: jballor
Thursday, February 7, 2008
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In any period of economic transition there are upheavals at various levels, and winners and losers (at least in the short term). We live in just such an age today in North America, as we move from an industrial to a post-industrial information and service economy, from isolationism to increased globalization. There’s no doubt that there have been some industries and regions that have been more directly affected than others (both positively and negatively).

Michigan, for example, has been one of the most manufacturing-rich states in the nation for the last century, and has been running record unemployment numbers for the last decade or so, as manufacturers move to more friendly economic environments, both within the US and without. Not least of these factors contributing to Michigan’s competitive disadvantage is the high labor costs associated with a labor union-laden state.

The perception that manufacturing workers are simply being left behind in the new economy is pervasive, such that popular opinion is shifting away from free trade. As Fortune magazine reports, “A large majority – 68% – of those surveyed in a new Fortune poll says America’s trading partners are benefiting the most from free trade, not the U.S. That sense of victimhood is changing America’s attitude about doing business with the world.”

As an aside, this is a perception that doesn’t quite match up with the typical caricature of globalization. After all, how can both America (as the “imperial” dominator) and the developing world (as the exploited poor) both be made worse off by international trade?

If it were truly the case that global trade weren’t mutually beneficial, that would be one thing. What’s visible on news reports everyday are the layoffs, buyouts, and unemployment levels in the US. What isn’t always so visible is the extent to which Americans depend on the low prices associated with many imported goods. One group you might think should know better than the average American about such complexities are professional economists. (more…)

The Council on Foreign Relations is hosting an online debate (in blog form!): “Policy for the Next President: Fair Trade or Free Trade” (HT).

From the introduction: “Jonathan Jacoby, associate director of international economic policy at the Center for American Progress and Robert Lane Greene, an international correspondent for the Economist, debate the shape of trade policy for the next U.S. administration and whether new trade deals should come with strings attached.”

The first two entries by each party are posted.

In one of this week’s Acton Commentaries, Ray Nothstine and I juxtapose a static, sedentary dependence on government subsidies with a dynamic, entrepreneurial spirit of innovation.

The impetus for this short piece was an article that originally appeared in the Grand Rapids Press (linked in the commentary). I have two things to say about these stories and then I want to add some further reflections on the world of agricultures subsidies.

First, I found the article’s “hook” to be quite shoddy and lame. The blatant attempt to “shock” the reader into a reaction of disgust that a billionaire like Dick DeVos, yes, “that Dick DeVos,” got a whopping “$6,000 in federal farm subsidies from 2003 to 2005.” That’s roughly $2k a year for three years.

Unsurprisingly, DeVos’ spokesperson didn’t know anything about it. It’s ludicrous to think that a guy with as much on his plate as Dick DeVos would have any time for what is essentially pocket change for a billionaire. Does the fact that DeVos got a subsidy even though he campaigned on eliminating government waste make him a hypocrite?

Judge for yourself, but I think these payments say more about the government’s inefficiency and waste than they do about DeVos’ integrity. People of all income brackets pay tax professionals to maximize their returns. For the very wealthy, it’s simply a process that’s on a bigger scale, that’s much more thorough, and with many more loopholes than when you or I go to H&R Block. The more diversified your holdings, the more likely there are a plethora of tax breaks for you to exploit. The breathless lede to this story was simply off-putting to me, especially given the rather clear political undertones of the insinuations.

“Simplify, man.”

What’s the real lesson? As a recycling hippie once told The Simpsons‘ Principal Skinner in a quite different context, “Simplify, man.” Simplify the tax code and eliminate all these special interest loopholes.

But the complaint about the story’s hook is really a minor quibble compared to my second point. In a companion piece, Lisa Rose Starner, executive director at Blandford Nature Center and Mixed Greens says that farm subsidies are essentially about “social justice.” That’s right, subsidies are about social justice. They’re about the social injustice of subsidizing a product so that people from poorer nations around the world, who would like to do more than simply engage in subsistence farming, can’t compete in a global marketplace because prices are artificially deflated. So, our subsidies are feeding the rich at the expense of the poor in more ways than one.

Of course, the pat response is that other nations are subsidizing too, so our subsidies are just leveling the playing field. To be sure, the world of agricultural business is a complex one, as many of the commenters on our piece point out. Direct farm subsidies are just one thin slice of the government’s intervention into agriculture. Perhaps they’re the most obvious, but they may also not be the most insidious. As one astute reader wrote to me, “The web of market interference in ag is broad and complex.”

Simplify, man.

Update: The Detroit News ran a version of the original piece here.