Food Crisis: The Moral Failure of Liberal Economists

August 30, 2008

Time was when writers lampooned economists for “knowing the price of everything but the value of nothing.” Today, they seem to be unaware even of the price of things!

By Aseem Shrivastava

From Hardnews (Delhi, India) August 2008
(Original title: (Stiglitz and Sen: Profit and Pain”)

An economic transaction is a solved political problem. Economics has gained the title of queen of the social sciences by choosing solved political problems as its domain.
— Abba Lerner

Nobel economist Joseph Stiglitz has recently expressed his views on the ongoing food crisis around the world. Given his pre-eminence in the profession and his vast experience as an advisor to governments, his views deserve to be scrutinized carefully.

The Stiglitz diagnosis

Stiglitz traces the problem of inflation in food and energy prices around the world to the policies that have been enacted in the US and elsewhere during the past few decades. He finds fault with the massive financial deregulation and generous tax cuts for the rich in the Anglo-Saxon world since the Thatcher-Reagan years, attributing to them rightly the “huge increase in inequalities in most countries,” the dramatic fall in household savings rate in the US, significant declines in employment prospects for most people everywhere and most worryingly, threats to nutrition standards even in the so-called developed world. A less flattering catalogue of global failures would be hard to summon.

The proliferation of opaque financial products in the wake of deregulation didn’t so much manage risk as enhance it, converting the world economy into a gambler’s paradise (since most countries were made to choose similar policies of deregulation — by the IMF and the World Bank), which has been systematically transferring wealth and real income from the poor to the rich globally, relying on the unerring precision of market forces.

Additionally, Stiglitz points to two significant policies of the Bush administration that have exacerbated food and energy crises in recent years. He points to Washington’s war on Iraq. Bush’s foolish policies have made the connection between food and energy markets tight, thanks to a misguided biofuels programme during the past few years.

Stiglitz makes it a point to underscore how Third World agriculture has been put in severe jeopardy not just because of benign neglect by governments, international financial institutions and aid agencies, but also because of unfair competition from a systematically and heavily subsidized agriculture in the rich world. This last is a criminal hypocrisy (the West being at the forefront of the messianic crusade for ‘free’ markets) too

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banal to belabor. The powerful World Bank is once again waking up slowly to the resilient truth that there is simply no way to reduce (let alone eliminate) poverty in the world without paying special attention to agriculture.

The Stiglitz remedy

What according to Stiglitz is the solution?

“Rich countries must reduce, if not eliminate, distortional agriculture and energy policies, and help those in the poorest countries improve their capacity to produce food. But this is just a start: we have treated our most precious resources — clean air and water — as if they were free. Only new patterns of consumption and production — a new economic model — can address that most fundamental resource problem.” (The Guardian, June 15, 2008)

Other than a euphemistic argot all too familiar in Orwellian times and the habit-bound economist’s search for the universally right ‘model’ to implement everywhere, a technocratically enlightened formula for guaranteed success, the above words could have come from Jesus Christ himself.

So where does Stiglitz fall short?

Stiglitz wants rich countries to “reduce, if not eliminate distortional agriculture and energy policies.” But don’t we already know they will never do this? Stiglitz keeps appealing to a constituency he already knows has long been morally deaf. For someone sacked by the US Treasury from his plum position near the top of the World Bank not so long ago, Stiglitz certainly knows this. Under the revolving door system the Americans have between their highest public and corporate offices, it is a sure wager that it was precisely the annoyance at Stiglitz on the part of the global investor class that prompted his sacking. Then why does he pretend otherwise?

“The world” he appeals to for merciful economic policies in the future is in actual fact the world’s tiny and shrinking class of corporate captains, precisely the bunch which sponsors the lobbies and policy elites which have led the relentless, decades-long campaign for financial deregulation, the very phenomenon Stiglitz holds responsible for the mess around us. This band of global corporate czars lives better than the royalty of other ages of humanity. It takes a dozen flights on private jets every week and dines every evening on wine and caviar which have been flown half way around the world especially for their banquets. Why should they listen to mad men like Stiglitz?

For at least half a generation many have been trying to persuade the governments of the rich nations to remove the unjust agricultural subsidies that harm Third World agriculture. Why have the governments of the rich nations not followed this morally impeccable advice? Is it not because they are influenced by transnational businesses maximizing profits globally? Is it not because they are cynically Machiavellian?

The real world

The latter hypotheses can hardly be dismissed. Consider what US Senator Hubert Humphrey said 50 years ago:

“I have heard that people may become dependent on us for food. To me that is good news because before people can do anything, they have got to eat. And if you are looking for a way to get people to lean on you and be dependent on you, in terms of their own cooperation with you, it seems to me that food dependence would be terrific.”

So the idea, far from helping “those in the poorest countries improve their capacities to produce food” (as Stiglitz continues to wish in vain) is to keep them permanently locked into a state of fundamental economic dependence on the West. (Did we ever get done with colonialism?) If Stiglitz and his panglossian followers think that times have changed (and the West is more civilized after all these decades of folly upon culpable folly), they should listen to President Richard Nixon’s chilling words from a more recent decade: “Let us remember that the main purpose of aid is not to help other nations but to help ourselves.”

More recently, in 1986, John Block, the US Agriculture Secretary said:

“The push by some developing countries to become more self-sufficient in food may be reminiscent of a bygone era. These countries could save money by importing more food from the US.”

If Stiglitz thinks such an opinion is unusual, he might ask himself if it is fundamentally different from the following view:

“Food self-sufficiency is a peculiarly obtuse way of thinking about food security. There is no particular problem, even without self-sufficiency, in achieving nutritional security through the elimination of poverty (so that people can buy food) and through the availability of food in the world market (so that countries can import foo
d if there is not an adequate stock at home)…The focus has to be on income and entitlement, and the ability to command food rather than on any fetishist concern about food self-sufficiency…”

The words belong to Stiglitz’s illustrious colleague and fellow-Nobel laureate Amartya Sen. He gave an interview on the topic of world hunger to The Guardian in 2002.

Sen writes as though trade, income and entitlement were there just for the asking! He surely knows enough history to know that food has always been a weapon of warfare. He writes:

“There are situations in which self-sufficiency is important, such as during wars. At one stage in the Second World War, there was a real danger of Britain not being able to get enough food into the country. But that is a very peculiar situation, and we are not in one like that now, nor are we likely to be in the near future.”

Iraq was invaded by Washington, London and Canberra within a year of Sen’s interview.

Sen’s “trade fetish” is symptomatic of a global pandemic among academic economists. It only indicates his deep-seated conditioning by the economics profession as it has been shaped by a decadent intellectual culture in the western world after World War II. The intellectuals of the ex-colonies have never considered decolonizing their minds. Sen is the leading example. They might do well to read Tagore and Gandhi once more.

State of the dismal science

This sums up the professional consensus within “the dismal science.” The real world for most hungry people (we know for sure after recent food price inflation) is very different from what economists imagine it to be. In the latter’s world, poor nations, on the verge of industrial breakthroughs and massive transfers of labour away from agriculture to more “productive” and lucrative occupations (events which have not transpired yet in countries like India and China), can feed themselves much like Belgium or the Netherlands do — by importing food from abroad (from rich countries which do not even have to have a comparative advantage in the production of food, but have profligate treasuries and ignorant, gullible taxpayers to fund the subsidies and can thus let their agribusinesses sell cheaper than anyone else in the world market).

From the real world where the poor and the powerless live under hegemonies of forced production and consumption along lines dictated by the megacorps, the latter’s ‘international’ financial institutions, and also their State patrons, things couldn’t look more different. Global markets could never seem so innocent to hungry, suicide-prone farmers in India or Africa, as they do to technocratic dreamers in the seminar rooms of Columbia or Cambridge.

Why economists perpetuate misunderstanding

In times as transparently and confidently unjust as ours, it’s either dim-witted naiveté or outright knavery for economists to continue to keep their technocratic heads buried in the “innocent” sands of social “science.” They keep pretending that economics and politics belong to different planets.

Economists are dispassionate thinkers practicing disinterested science. Economics is on its way to becoming a pure science. Society and human communities are irrelevant. In any case, “there is no such thing as society.” Governments are a nuisance. They ought to stay away from markets. Markets are omniscient. They know everything that needs to be known (and not just about prices). Markets are free of politics. (What have they got to do with corporate power and influence?) They are the repositories of the best virtues in human nature. Therein rules liberal utopia.

Thou shalt not doubt these time-tested verities.

These are the kernels of truth that adorn the seminar rooms of the economics profession around the world today. America’s imperial conquests are more obvious in the ‘intellectual’ realm than in any other, with an obviously unscientific bubble economics (suitably insulated from facts) always leading the charge. Give or take a little here, some there, and you get the spectrum of opinions within the economics profession. They all must have not human communities — but the ‘free’ market at the heart of their conformist meditations.

Every economist — and Stiglitz and Sen are iconic iconoclasts within the tribe — is career-habit-and-hide-bound to pay his homage to the wisdom of market forces, even when he is critical of them (as both Sen and Stiglitz are in measurable degree). Such are the touchstones of the theology that today provides the primary justification for the widespread ecological and social ruin being precipitated by globalized growth around the planet.

The world has been “liberalized, privatized and globalized” with a messianic passion over the past few decades in the name of this putatively omniscient economics. It teaches the ancient virtue of patience. A little pain for some now, so that everyone can gain more tomorrow. As long as the masters of the universe are allowed a free hand to invest anywhere from the Mariana Trench to the moon. Trickle-down truths. Stale air. They all have faith in it, even if they are Sen or Stiglitz.

But as always, the cash-strapped housewife or the woman slaving at the construction site (or the one waiting in queue for one of those employed to break an arm) knows better than the pundits.

Time was when writers lampooned economists for “knowing the price of everything but the value of nothing.” Today, they seem to be unaware even of the price of things! They are desperate to rescue their fading conscience after having long back traded it away for professional success and career advancement. Moral failure was always on the cards. Now the writing is all over the wall for anyone with eyes to read.

The writer is an economist and independent researcher

India down as World Bank ups its poverty threshold

ENS Economic Bureau Posted online:

Wednesday, August 27, 2008

The number swelled to 456 million in 2005 from 420 million in 1981

NEW DELHI, AUGUST 26: Compared with 1981, 36 million more Indians are

now living below the poverty line, according to the new poverty

estimate released by the World Bank. Based on new data and higher

costs of living across the world, the World Bank has revised its

threshold of poverty to less than $1.25 a day, up from the previous

measure of one dollar a day. And this redefinition paints a sorry

picture of the poverty scenario for Indian policymakers in particular.

As per the new definition, the number of po

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or in India swelled to

almost 456 million people in 2005, up from 420 million in 1981. In

relative terms, however, the percentage of Indian poor has declined

from 60 per cent in 1981 to 42 per cent in 2005.

There is, however, a significant mismatch between the Indian

government’s official poverty estimates in 2004-05, which were to the

tune of 301.72 million people or 27.5 per cent of the total

population. However, unlike the World Bank figures, India’s official

estimate is based on the average calorie intake per day as opposed to

average daily wages. Speaking to The Indian Express, Pronab Sen, chief

statistician of India, said, “We don’t accept the World Bank estimate

of poverty since it is based on a single-figure formula, which is not

suited to the Indian situation. It doesn’t take into account the price

differentials between urban and rural areas or even between different

states.” The World Bank says its redefinition of the poverty line is

not arbitrary. It is the average poverty line found in the poorest

10-20 countries, it says. In the global context, the total number of

people living on less than $1.25 a day is 1.4 billion or roughly 26

per cent of the world population.


WHILE THE number of poor according to the new definition has grown,

that of people living on less than a dollar a day has declined to

266.5 mn (24%) in 2005 from 296 mn (42%) in 1981

THIS MEANS the number of people just above this line is still very

high and it is not falling

THOUGH A high growth has helped alleviate poverty, the Bank also

highlighted the importance of making growth more inclusive

Related Stories Rupee falls below 44,

Rajasthan Patrika Newspaper

Indianexpress com

5days HUNGER STRIKE demanding inclusion of 805 tribal villages in 5th Schedule,

Venue; Indira Park on 25-8-08 Monday at 11-00 Am

Inauguration By – Sri Medha Patkar, National Convener, National Alliance of Peoples Moments (NAPM)

Sri P.Chennaiah, Secretary, Andhara Pradesh Vyvasaya Vuthidarula Union (APVVU)

Sri S.Jevan kumar, vaice president, Human Rights Forum (HRF)

In Hydrabead ( August 25 to 29th,2008) during the Sessions, a dharna would be organized for 5 days, demanding inclusion of 805 tribal villages in 5th Schedule, the proposal which has been pending for the last 28 years with Govt. of India.

· Hundred tribal youth will participate from 5 districts

· You can support one day meal to the participants

(Rs 50 for one day one person- it covers mooring Tiffin and night Dinner)

· You can contribute one day expenses for tent and carpets.

(Rs 2000)

· You are requested to come and participate and give your support services (like writing reports, press notes, talking with media and making translations.

· You may mobilise your contacts and bring them to Sathyagraha site.

'Farmers worse off than lowest-paid babus'

CIFA representation to Prime Minister on Farmers income

Surinder Sud in New Delhi August 18, 2008 08:33 IST

The apex body for farmers’ organisations has stated in a representation to the government that even big farmers were worse off than the lowest-paid government employees. It has charged the government with discrimination against farmers vis-�-vis workers from other sectors.

While the government has taken no more than four months to implement the Sixth Pay Commission report, even going beyond the recommendations, there has been little action on the report of the National Commission on Farmers headed by Dr MS Swaminathan even after 22 months. This commission had suggested measures to ensure that the net take-home income of the farmers was comparable with that of civil servants.

This has been stated in the representation submitted by the Consortium of Indian Farmers Associations to Prime Minister Manmohan Singh. It has quoted from the report of the Arjun Sengupta Commission on unorganised sector workers and some studies by the Planning Commission and other organisations to support its contentions.

The Arjun Sengupta report had said that the average monthly income per household from cultivation was Rs 1,578 a month for small farmers and Rs 8,321 for big farmers in 2003. In comparison, the lowest-paid government employee got the pay and perks exceeding Rs 10,000 a month.

The Planning Commission studies have shown that the income ratio for agricultural workers and non-agricultural workers has deteriorated steadily from 1:1.8 in 1950-51 to 1:2.8 in the period 1978-79 to 1983-84 and further to a whopping 1:5.2 in 1998-99 to 2003-04.

The CIFA memorandum, signed by its general secretary Chengal Reddy, has also referred to a study conducted by the Hyderabad-based NG Ranga Agricultural University to point out that a farmer needed to cultivate 15 to 20 acres (6 to 8 hectares) of dry land to earn an income of Rs 4,000 (equivalent to that of a peon) in Telengana and Rayalseema in Andhra Pradesh.

In the coastal areas of the state, the farmers needed to cultivate paddy on at least 10 acres (4 hectares) to earn the same level of income. The average farm holding in India is less than 2 hectares.

For the plight of the rural people, Reddy has blamed the apathy of the government towards the farmers, as reflected in the fixation of low minimum support prices for crops. He has cited the report of the Parliamentary Standing Committee on Agriculture (report No 41 dated 22 July, 2008) to substantiate this plea.

The report had stated that the prices of agricultural produce received by the farmers were lower than the market prices and were often less than the cost of cultivation. The committee had favoured fixation of remunerative prices for the farm produce.

The Swaminathan Commission had recommended that the MSP should be at least 50 per cent more than the weighted average cost of production. While some relatively less consequential and peripheral suggestions of this commission have been included by the government in its national policy on agriculture, the key recommendations have so far been ignored.

The CIFA has also pointed out that the marginal farmers usually turn landless labourers and the small farmers become marginal farmers during their own lifetime. This amounted virtually to their demotion. The government employees, on the other hand, have been assured at least three promotions during their service.

“Wide, unacceptable disparities in farm and non-farm incomes have occurred mainly because the agriculture produce is underpriced for decades and the surplus amount is transferred to organised sector workers including the government employees, whose productivity does not increase even nominally with successive pay raises,” the representation has maintained.

Farmers vs peons

Business Standard / New Delhi August 20, 2008, 5:48 IST

By pointing out that the overwhelming majority of farmers are economically worse off than the lowest-paid government employee, the apex body of farmers’ organisations has not unveiled any secret. This has been well known for some time. And although the spate of suicides by farmers in recent years has not usually been by the poorest among them, the severe problems faced by farmers have come into focus. The service done by the Confederation of the Indian Farmers Associations (Cifa) is to dig out some intriguing evidence from reports of various committees and commissions, in order to make its point. Cifa has simultaneously sought to highlight the steadily growing gap between income levels in the agricultural and non-agricultural sectors. This is a matter of special concern, especially considering that the proportion of the population depending on agriculture for subsistence is still more than 50 per cent, while the share of agriculture in GDP has dropped to 18 per cent. By definition, the average income in the non-farm sector will be nearly five times what it is in agriculture. Indeed, Cifa quotes studies done in the Planning Commission to show that the ratio is 1:5.2 — whereas a quarter-century ago it was 1:2.8.

Cifa has alluded to the findings of the Arjun Sengupta commission on unorganised workers to affirm that the earnings of even the bigger farmers compare rather poorly with those at the lowest rungs of the government system. The average monthly income per household from cultivation was reckoned by the commission at a paltry Rs 1,578 for small farmers and Rs 8,321 for the big farmers. By way of comparison, the lowest-paid government employee now gets Rs 10,000 a month. It is an easy point to make after this that while the government has taken no more than four months to implement the 6th pay commission report, and in fact improved on the commission’s recommendations, little action has resulted from the report of the National Commission on farmers, headed by M S Swaminathan, in 22 months.

The important issue is what keeps farm incomes low, and what needs to be done about it. The answer, however, is not what the Swaminathan commission suggested, namely to raise the government’s minimum support prices (MSP) by at least 50 per cent more than the weighted average cost of production. This is a solution that will add to food costs, and cause inflation. It could even result in an increase in the general incidence of poverty, because the primary link to poverty is food prices. Rather, the solution lies in bringing about a structural transformation in the economy, achieving significant productivity gains on the farm and simultaneously reducing the number of people who live off agriculture. That means creating more non-agricultural jobs, which in turn means achieving rapid growth in the sectors and activities that generate the maximum number of entry-level jobs. One obvious answer that this points to is labour-intensive manufacture of simple products, as the Chinese have shown. But this requires a change in the country’s labour laws, which the country’s politicians will not allow. If legislators could see the link between labour laws and the existence of rural poverty, perhaps their attitudes might change.