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Saturday, October 05, 2002

One curios association revealed at the recent WSSD and in subsequent writings is the apparent agreement between some libertarian free-trade thinkers and bureaucratic leftist fair-trade thinkers. Both have attacked rich countries for subsidies, tariffs and quotas which distort commodity markets to the apparent detriment of poor countries. Recent examples of this apparently contradictory cohabitation appear in a Reason magazine article:

Yet anyone who considers the ways in which the rich and powerful use government to get what they want will understand that fighting for the poor and downtrodden requires defending the free market. Consider the subsidies and trade barriers that benefit affluent Americans and Europeans at the expense of producers in developing countries who are struggling to eke out a living.


The protesters who march under the banner of the Anti-Capitalist Convergence may not be inclined to hear this message when it comes from representatives of organizations they see as irredeemably evil. But perhaps they'll listen to Oxfam International, a group with impeccable "progressive" credentials that is "dedicated to fighting poverty and related injustice around the world."

In a new report, Oxfam shows how the injustice of U.S. cotton subsidies contributes to poverty. "Cotton subsidies in the U.S.," it argues, "have been the single biggest force driving down world prices."

Doctrinaire libertarian free-traders might benefit from looking at other Oxfam reports since their opposition to economic controls is selective and inconsistent. A recent article in Spiked dealing with coffee prices gives a fuller perspective:

But for the 25million small-scale farmers who produce most of the world's coffee beans, the price of the commodity is a far more serious issue. A slump in the price of coffee, to just over half the level it was at three years ago, has devastated people's lives. In real terms, the price of coffee is just one quarter of its level 40 years ago.

New sources of production in Vietnam and higher productivity in Brazil have helped create a glut in the coffee market. And the slump in prices has had a serious impact on countries that are heavily dependent on coffee production, including Burindi, Ethiopia, Rwanda and Uganda.

Oxfam's position on coffee, a crop not produced in rich countries, advocates price controls to redistribute wealth from rich consuming countries to poor producing countries. Subsidies, tariffs and production quotas as well as moral extortion are the tools to effect redistribution.

Oxfam's apparent inconsistency is not the interesting part of this, politics is not about consistency. The interesting part is that if all the world's cotton, like coffee, was produced in poor countries they would still be poor. Libertarian bleating about rich world tariffs, subsidies and quotas misses the mark by failing to understand the free-trade system they advocate. Commodity production is not the path to wealth. Having a comparative advantage in the production of inherently low priced commodities is cold comfort when the tiny profits are counted, especially since it is a risky activity subject to failure due to a host of factors such as weather and disease.

Oxfam's notion of regulated prices is not the road to prosperity and development either. It is institutionalized poverty. As Oxfam notes, the price of coffee in real terms has dropped steadily over the past few decades, a trend we see with other commodities and resources, everything from metals to natural fibers. The idea that poor countries can follow the same path of commodity trade to wealth that rich countries followed in the past is false today and on closer examination is a myth, it didn't happen that way for rich countries either.

The real money is made by adding value to commodities. Make and sell cloth rather than cotton, clothing rather than cloth. Sell candy rather than cocoa, furniture rather than logs. Poor countries require a complex system of property rights, laws and capital investment to develop manufacturing capabilities which add value to their commodities. This is the real battle ground for subsidies, tariffs and quotas as well as related trade controls such as patents. In parallel poor countries would benefit from pursuing modern industries such as software development and business services rather than agriculture as the road to development. Software development is intellectually less demanding than farming and less capital intensive. There are higher margins and more room for competition. They have comparative advantages in this labor intensive activity since their income requirements are lower. India and some Asian countries are showing the way.

posted by back40 | 10/05/2002 09:28:00 AM


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