A Bitter Harvest from Farm Subsidies
By Christopher Farrell
Does the fight against global terrorism threaten global trade? Unfortunately, it does. Countries everywhere are tightening their border controls on the movement of goods, capital, and people. Companies are starting to clamor for protection against "unfair" international competitors as the world economy slips into recession. The U.S. government, a bastion of laissez-faire economics in the global economy, is talking less about open borders and free-flowing capital and more about fiscal activism and regulatory initiatives. And protests against globalization, mute in the immediate aftermath of the terrorist strikes against America, are starting to pick up again.
All this explains why the stakes are unusually high at the fourth ministerial meeting of the World Trade Organization in Doha, Qatar, in early November. The fight against terrorism needn't slow down the trend toward an integrated world economy. Government leaders should take the talks as an opportunity to further liberalize trade in agriculture, goods, and services, especially now that China is poised to join the WTO. Terrorism should not be allowed to menace globalization.
STRATEGEMS AND SUBSIDIES.
Indeed, the biggest problem in the world economy today is too little globalization. Far too many nations, including many of the world's poorest countries in Africa and the Middle East, are insufficiently tied into the global economy. The rich countries can take a bold step toward strengthening the integrated world economy by agreeing to drop their protectionist barriers against trade in agriculture at the WTO meeting.
Problem is, the European Union remains determined to protect its farmers by emphasizing environmental issues. The U.S. Congress, meanwhile, is eager to boost subsidies to America's beleaguered farmers. There are many justifications for the subsidies here in the U.S.: Protecting the family farm, shielding farmers from foreign competition, defending national food security, preserving the environment, shoring up rural America, and maintaining a way of life.
These are all vital public goals. Yet a consensus is growing among economists that farm subsidies aren't achieving any of these ends well. After seven decades of government support, perhaps it's time to free farmers from their reliance on the public dole.
SEEDS FOR GROWTH.
President Clinton, in his last tour of Europe during the twilight of his Presidency, spoke at Britain's Warwick University and called upon the world's wealthiest nations to let the poorest countries freely compete for markets where the latter have a natural advantage -- like agriculture.
"If the wealthiest countries ended our agricultural subsidies, leveling the playing field for the world's farmers, that alone would increase the income of developing countries by $20 billion a year," Clinton said. The International Food Policy Research Institute calculates that eliminating trade barriers to food would generate an economic benefit of nearly $36 billion for both the developed and developing regions of the world by 2020.
The economic benefits of free trade should be obvious. Freer trade invigorates growth by providing entrepreneurs access to bigger markets. Trade encourages the spread of new technologies and manufacturing techniques. Free-flowing capital, despite the occasional spike in volatility, funds profit-making opportunities anywhere in the world. The impact of freer trade on growth could be staggering.
Over the past two centuries, as national boundaries have shrunk in importance and open borders expanded, the pace of economic development has quickened. Britain needed nearly 60 years to double its output per person, beginning in 1780. It took Japan 34 years, starting in the 1880s. But South Korea took only 11 years after 1966. Free trade is no panacea for raising living standards, but it's probably one of the best mechanisms we know for creating the conditions for better material well being.
The era of farm subsidies is passing in the global economy. A commitment at the next WTO meeting to end farm subsidies in the rich nations would be a concrete step toward strengthening the global economy in these troubled times.
Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over National Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BW Online
Edited by Beth Belton