Export Restrictions and the Food Crisis - Essay Example

your full of your supervisor> of your 12 April 2009 Neomercantilist behaviour and hampered market The world has to realize that a rise in a commodity price, even a substantial rise in one of the basic commodities such as rice or oil is not necessarily something that should be fought or avoided by governments, but rather it is an instance of the internal self-regulatory mechanisms of global economic system at work. Only by virtue of the elevated price will the actions of men on this Earth be redirected towards activities better suited to achieve prosperity. This, as a rule, takes the form of eliminating waste and inefficient use in commodity consumption and thus lowering the demand, and allocating more resources for production even at the expense of other production sectors using the same kind of resource, e.g. arable land. None of these two tendencies would show any inclination to appear if the price was not substantially increased. Of course there are bound to be groups strongly opposed to any price shift. It is a great mistake of governments to listen to cries of interest groups, no matter if they are small lobbies or vast populations, and to take actual legal measures pertaining to economy because of them. Subsidizing biofuel, a legal justification of transferring tax money to the hands of fuel consumers and those controlling the fuel and car industries provides a blatant example of governments having yielded to pressures of the above mentioned kind. Subsidizing agriculture in general is another, older example: the domestic group privileged by it is very broad, i.e. all food consumers, and this is perhaps why this ill neomercantilist practice has taken root so early in post-WW2 history, in days much more liberal than ours. Biofuel subsidies alone are a strong incentive for farmers to leave the business of food production in favor of other land uses, while the resulting increase in food prices is merely a reaction to it; thus it can never compensate for its effects, and in absence of other possible factors contributing to development in the opposite direction food prices will tend to remain elevated for reasons of decreased production. Export restriction work independently of biofuel subsidies to push food production still further down, as they prevent farmers from entering the global market, thus making food production less lucrative. True nature of interests behind public calls for restrictionary measures is often unknown to policymakers. Note, however, that I do not call for their increased understanding of these interests. A politician is not and should not be supposed to be a deep knower of the actual economic system existing within the legal and constitutional framework defined by his government. The less he knows of the particular, the better. It is his duty never to let himself be carried away by considerations of particular “problems“, as his job is to guarantee the continuity of the legal and constitutional framework. Any modifications done by lawmakers to the legal framework must be detached from any considerations of things perceived as ongoing public problems, else the politician quickly becomes a tool in a play of interests and his actions will lead to establishing privileged groups, as is seen everywhere nowadays. While privileges assigned to particular persons are seldom seen today, privileged groups defined by their trade or by their niche within the economy are only too abounding. Behind the EU rhetoric of commitment to free trade and free movement of goods, services, capital and persons, there remains a strong element of mercantilist practice in its foreign policy. Trade barriers within the EU have been removed only to set up and reinforce others in EUs relations to the external world (Raza, 3-6). Many proposals have already been issued from various sources of practical liberalization measures to take. Foremost among them pertain to elimination of import tariffs in industrial countries, removing existing non-tariff barriers, limiting the impact of subsidizing on foreign trade and removing limitations in way of foreign investments. Their detailed listing is found in Juergen B. Donges: “Whither International Trade Policies?“ (Donges, 26-27). The protectionist policies of major agricultural producers such as Argentina, India or Russia will ultimately lead to an increase in global commodity prices, i.e. to lack of commodities where they are most urgently needed and their inefficient use in countries where export restrictions apply. The price within the restrictionist country will certainly be relatively low compared to global price applicable in the same artificially restricted economy, but comparing it to the global price that would emerge under unrestricted conditions is impossible, as this will naturally remain unknown until such liberalized market conditions are turned into reality. Under export restrictions, domestic producers are barred from selling their product for real prices, foreign producers in countries following free trade policies slightly benefit from having less competition, and domestic consumers are perhaps the ones who seem to benefit the most – but in the long term, they may be losers too. On the contrary, on removing export restrictions, domestic producers in these countries will obviously benefit by regaining access to the global market and thus being able to sell for better prices. This will raise the price for domestic consumers as well, which will clearly conflict with their short-term interests. The said presupposes that the country in question naturally tends to have surplus production in the relevant commodity, i.e. it is a net producer rather than a net consumer. Otherwise the price under restrictions, now defined as import restrictions, would be higher than the global price. Once protectionist measures are set up, they are exceedingly hard to remove. Their one-sided revocation brings, as a rule, a clear short-term disadvantage to the liberalizing country. Import restrictions, for instance, often originate as a response to another countrys export subsidizing. When they are removed, producers in the liberalizing country are exposed to subsidized competition from abroad. Removing export restrictions leaves the domestic market open to global environment, increasing commodity prices. Also removing a single subsidy would bring a rise in prices, expectedly much more significant than the value of the subsidy removed, as the crop on which subsidy has been removed falls to disfavor among farmers and becomes scarce. Many governments are unwilling to take a step in any of these directions, despite reasonable expectations that the initial surge in prices would stabilize over time. The way out here lies in multilateral negotiations with all countries involved and more willingness on the part of developed countries to remove measures they have once set up in order to protect interests of some groups within them. The ill policy of allowing individual countries and regional groups such as the EU keep the world economy dampened by protectionist measures has one additional peril inherent in it: the peril of war. As von Mises says, “The old liberals were right in asserting that no citizen of a liberal and democratic nation profits from a victorious war. But it is different in this age of migration and trade barriers. Every wage earner and every peasant is hurt by the policy of foreign government, barring his access to countries in which natural conditions of production are more favorable than in his native country. Every toiler is hurt by a foreign country import duties penalizing the sale of the product of his work. If a victorious war destroys such trade and migration walls, the material well-being of the masses concerned is favored.“ (von Mises, 104). What has been said here about import duties and other barriers, can be applied to exports as well. The only legitimate way how governments can help the masses of the poor in a situation when market price of food has become prohibitively high for them is by procuring the foods from the global market at market prices, at government expense, and selling them to the neediest at whatever lower price they chose. This, however, carries with it the need to differentiate between the poor who are entitled to receive such help and between the rest and to prevent the food made cheaper by the government from reappearing on the market; else people other than the intended class would become beneficiaries. Thus we see the task of helping the poor falls clearly within the area of charity, i.e. of deliberate, unenforced giving, where the receiver and the amount given are determined by free choice of the giver (which may or may not be a governmental agency), not by taking the value of the intended gift indirectly from farmers by force of governmental legislature. But it is at least equally doubtful whether the state should use tax money for charity; we might sooner think governments lack a legitimate mandate for that. In an unhampered market, the classes previously defined as poor are helped by the increase in labor prices, which is bound to come, firstly because of the increased food prices themselves, and also because price of labor tends to be increasingly equalized between countries with advancing globalization, as labor migration barriers are removed. Globalization, however, is not something that will come with its full force at a precisely predestined historical moment. If obstructions are put in its way from positions of political power, the natural historical progress towards increased prosperity driven by accumulation of capital and knowledge can be slowed down or made inefficient through redirecting human activity towards actions serving less worthwhile or even detrimental purposes, as we see in case of biofuel production. Major pressures on governments to adopt measures leading to economic depression of the above mentioned origin come from labor protection (migration barriers, minimum wages, import duties), domestic market protection (import restrictions), domestic consumer protection (export restrictions), and other protectionist motives. The altruistic interest to help the miserable ones is apparently the single strongest incitement causing people speak in favor of these mistaken policies the consequences of which are in reality diametrically opposed to the equalitarian aims sought by their proponents. Even great philosophers such as Karl R. Popper were led astray by their lack of readiness to understand and face the laws of economy due to being blinded by emotions in economic matters. In Volume II of his “Open Society and its Enemies“ he, otherwise a convinced liberal, openly advocates some form of state interventionism involving socialist measures such as minimum wages, never realizing what their real, long-term impact is (Popper, 125). The experiment has been tried many times, and the effect is always high price of labor, unemployment, and depression. Equally doomed to frustration are governmental attempts to manipulate with prices of selected commodities by setting up trade barriers, price ceilings and similar. It has been said 65 years ago by one of the foremost economists of Austrian School, and it is equally true today, that “It is not in the power of governments to increase the supply of one commodity without a corresponding restriction in the supply of other commodities more urgently demanded by consumers. The authority may reduce the price of one commodity only by raising the prices of others.“ (von Mises, 247) (italics in the original). Yet we see all major global players such as the U.S., Europe and Japan follow policies of subsidizing agricultural produce in selective manner, according to crop (Sumner). Conclusion Trade barriers, all without exception designed to serve certain groups inside countries applying them, always seriously hamper global market function, and thus also food production and utilization of land. While the European Union appears to be one of the major promoters of liberalization, it also has many restriction measures in place in many fields, notably in agriculture. Situation in the United States is not substantially different. Lately another form of protectionism, namely export restrictions, has become established in other major grain producing countries. Partly this is because they can afford it, as global price is curbed by subsidizing from industrialized nations governments. One of the foremost problems with trade protectionist measures consist in their practical irrevocability caused by natural unwillingness of governments to revoke them unilaterally. Thus, once set up, they tend to persist. All man can do to increase his prosperity on Earth is about eliminating inefficiencies. Inefficiencies in using resources, capital, time (or labor), and the raw finished products taken as inputs for other production. In an unrestricted economy, this is achieved by free choice of business individuals making economic decisions on their own financial responsibility. In a restricted economy, this is no longer possible in its full extent. All produce is thus made more laborious, time-intensive, commanding greater investments and last but not least harder to sell, despite the price being high. While protectionist measures are designed to make some products cheaper, all they can succeed in is making virtually all products associated with the relevant area of production costlier or less available or both. Works cited [1] Mises, Ludwig von. Omnipotent Government. Westport, Connecticut: Airlington House Publishers, 1969. [2] Popper, Karl R. Open Society and its Enemies. Vol. 2. Fifth ed. New York: Harper Torchbooks, 1963. [3] Donges, Juergen B., Whither International Trade Policies? Worries about Continuing Protectionism. Kiel, Germany: Institut der Weltwirtschaft an der Universität Kiel, 1986. [4] Raza, W.: The Liberalization of trade in Services in the WTO: Implications for Public Services in the EU. Paper prepared for Workshop “An Alternative to the Market: The Social, Political and Economic Role of Public Services in Europe. ETUI-REHS, SALSA, Brussels, November 19-20, 2007“. 7 April 2009. [5] Daniel A. Sumner: “Agricultural Subsidy Programs.“ The Concise Encyclopedia of Economics. 7 April 2009. Read More