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|Corn laws, rice laws and the poor|
Ushio - July 2004
For almost three years, talks have been going on to try to achieve a new phase of world trade liberalisationóthe Doha Development Round, named after the capital of Qatar in the Middle East, where the talks began, and named for the supposedly prime aim of the round, namely to help poor countries to develop their economies.
The most crucial issue in the round concerns the most basic product of all: food. Agriculture is the main activity in many poor countries, and import barriers in the rich world, particularly in the European Union, Japan and the United States, restrict poor farmers´ opportunity to export food. That prevents poor countries from growing in the way Japan did so successfully in the pastóby steadily expanding its exports. Many poor countries also have high barriers against imports of each other´s food, too. But if the rich world were to lower or even scrap its food import barriers, then poor countries might follow that example.
That, at least, is the theory. Yet very little progress is being made. Rich countries are not volunteering to reduce their food import barriers, even though farmers make up a tiny proportion of their populations. The Europeans and the Americans have both made minor proposals to scrap some subsidies. Japan has offered none. Unless there is a miraculous change, it looks like the Doha round will either fail or be a disappointment.
Why? The idea of helping the poor by importing their goods ought to be popular: it could be a cheaper and better way to help than simply sending aid money, and in this age of terrorism from failed poor countries, helping their economies might sound like a good idea. It is indeed a good idea. But the sad truth is that most people are selfish. They like the idea of helping other people in principle. But in practice, their main concern is helping themselves, especially when the "other people" are foreigners, far away. Politicians evidently think they will only lose votes by making seemingly generous trade concessions, not gain them.
Fine: it is better to understand how people really think and act rather than dreaming that they might think and act differently. And the reality is that to argue for food-trade liberalisation on charitable grounds is to make the wrong argument. The right argument would be to appeal to selfishness. For the strongest reason why rich countries should abolish farm subsidies and food import barriers is that they themselves would benefit most. That applies most strongly to Japan.
I was reminded of this in early June when looking at a small ornament that stands on the bookshelf behind my desk at The Economist. It is a memento of a British man who was born almost exactly 200 years ago, on June 3rd 1804, and who is notable for two things, one selfish to me, one selfish to Britain.
The man´s name was Richard Cobden, and he was the son of a poor farmer. He made his fortune trading cotton textiles, before making his two notable achievements. The one that is selfish to me is that he was instrumental in supporting the foundation of my magazine, The Economist, when it was launched in 1843. The one that is selfish to Britain is that he was the leader of a huge campaign to abolish trade barriers against food imports, which were known as "the Corn Laws". That campaign was eventually successful, in 1846.
By all accounts Cobden was an energetic campaigner but also a very persuasive person. His argument for the abolition of the Corn Laws was based both on selfishness and charity: in early 19th-century Britain, the food-import barriers helped bring on periods of starvation for ordinary workers, at times when the harvest failed or if wages were low. But also, in good times as well as bad, the import barriers and price controls acted to raise the price of the most basic commodity, bread, thus making workers poorer, less well-fed, and less able to spend their money on other goods. The Corn Laws were, in effect, a tax on bread. It hurt ordinary people and it hurt the British economy.
Although there is no longer any starvation in the rich countries today, thank goodness, the same selfish argument applies to the food-import issue. Subsidies to farmers and import restrictions combine to levy a heavy cost on ordinary households, both through the taxes they pay to government to support farmers and through the higher prices they then have to pay for basic food.
According to the Organisation for Economic Co-operation and Development, the cost of that country´s farm support in 2002 was equivalent to a tax on every American household of $366. In the same year, the cost, in higher prices and in subsidies, of the European Union´s Common Agricultural Policy was 686 euros for every European household, or $646 at that year´s exchange rates. The highest food tax of all the big rich countries, however, was in Japan. There, the cost of subsidies and artificially high prices was equivalent to a tax of nearly Y120,000 for every Japanese household.
Today, although the Japanese economy is recovering strongly, it still suffers from consumer demand being too weak. Yet the government is in no position to cut real taxes, because the public finances are so heavily in deficit and debt. In such circumstances, food-trade liberalisation could play a very useful role. By abolishing (or, at least, phasing out) farm subsidies, the deficit would be reduced. And by liberalising trade as well, food prices would fall, thus making households better off, and better able to spend their money on more valuable goods and services. It would be like giving every Japanese household a cut in taxes.So the Doha Development Round need not fail. It need not fail if politicians and commentators were to drop the bad argument of charitable generosity and were to adopt instead the more accurate and better argument of selfishness. It is in the Japanese people´s own interests to abolish food-trade barriers. As Richard Cobden would have said, it is time to abolish the Rice Laws!