Dani Rodrik's weblog

Another round on food prices

Johan Swinnen responds to Oxfam:

Let me start by thanking Dani Rodrik for putting a reference and summary of my report on his weblog. I also want to thank Mr. Bailey from Oxfam for his response and reference to two Oxfam reports.

In fact, unlike Mr. Bailey’s claim that they contradict my arguments, I think these reports are fully consistent with my arguments; and I invite everybody to read my paper and the Oxfam reports.

In the post-food crisis 2008 report, there is a section “Few winners, many losers” where it is concluded that “only in a few countries are small producers benefiting from higher prices” (p9). Then there is an entire section on “Why are small farmers losing?”, emphasizing that they are often net consumers, that they face many constraints, that small farmers are often women who face greater challenges, etc.

In the 3 pages Summary, there is no mentioning at all that some may have benefited in the developing world – it’s all about the losers. The most positive statement is that “The few developing countries that have followed different paths and invested in smallholder agriculture and social protection have proved to be more resilient to the crisis than their peers.”

Similarly, in two substantive press releases by Oxfam in 2008 on the same issue (*), there is no mentioning whatsoever about benefits (except for “big food trading companies” and some farmers in rich countries). Instead, Oxfam only writes that “the crisis is hurting poor producers and consumers alike” and “high food prices have pushed millions of people … into hunger and malnutrition” and “small farmers have failed to benefit from higher prices” because they are net consumers of food, they are not well integrated in market, they are vulnerable to changes in the weather, are not able to store food, and poor roads and infrastructure block them from getting to the market. Moreover, it is claimed that “farm workers are even less likely to benefit from high prices” because they are very exposed as consumers and have little hope of getting a better wage.

Let’s compare this to the 2005 report. One would assume that if small farmers are net consumers of food they would benefit from low prices – the core argument of the 2008 report. Yet, in the entire 2005 report, there is not a single mentioning that small farmers and rural households are net consumers of food, nor that they are not well integrated in the market and thus less affected by price changes, nor that farm workers may benefit from low prices as they are very exposed as consumers. In fact the only mentioning in the entire report of any benefits from low food prices is a reference to “some economists” (**) who point out that rich country dumping could benefit the urban poor by providing a cheaper source of staple food. However this argument is immediately dismissed as being short term thinking and that in the longer run it must lead to higher food insecurity. The 4-page summary mentions nothing at all about (potential) benefits from low food prices, or that farmers may be net consumers.

Mr. Bailey also claims that one should not expect anything else from a “campaigning organization” and that Oxfam’s role is to raise urgent issues up the agendas of policymakers, politicians and publics precisely to help the losers …

This is close to my argument made in the paper that “One explanation for these observations could be that one should not expect anything else from NGOs. One may argue that, after all, these are advocacy groups and their primary objective is not to provide objective and carefully balanced analyses, but rather to raise attention to problems and to pressure governments to do something about it, or to raise funds for their own projects.” (p9)

In summary, Mr. Bailey’s response supports my arguments.

Finally, while I actually agree with some of the policy prescriptions of Oxfam, I disagree with Mr. Bailey’s final argument that this is just a minor issue of not nuancing the headlines – an issue where only academics worry about. It is certainly the headlines, but not just the headlines. There is far less nuance in the main reports than claimed. Moreover, my concerns about this issue did not emerge from academic considerations, but from being intensely involved in policy discussion on food policy an poverty over the past decades, in Washington, Brussels and many other places. The absence of nuance in such headlines and in reports do have real world implications on the public debate and decision-making.

(*) see:

http://www.oxfam.org/en/pressroom/pressrelease/2008-07-06/g8-must-not-forget-poor-crippled-food-crisis

http://www.oxfam.org/en/campaigns/agriculture/food-price-crisis-questions-answers

(**) the reference is to writings by well-known economists A. Panagariya and J. Bhagwati.

Diagnostics before prescription

The Center for Development Economics at Williams College recently celebrated its 50th anniversary, and I was invited to give a speech.  The topic was “Diagnostics Before Prescription,” and I summarized my views on where development economics is today.

Here is the speech, including Jim Levinsohn’s introductory words on this blog, which are quite funny, but wholly untrue…

Oxfam responds on food prices

Rob Bailey, a senior Oxfam policy adviser on food issues, responds to my summary of Johan F.M. Swinnen’s paper. 

Oxfam International and other organisations stand accused of focusing too heavily on the losers from food price movements, giving the impression that whatever food prices do, poverty gets worse. However this is more than an academic gripe about NGOs being unnuanced and simplistic. It is claimed that the myopic focus on losers results in myopic policymaking. I don’t accept for one moment that this is the case by the way, but let’s start with the question of nuance.

Charge number one: Oxfam, and other international organisations, failed to make sufficient mention of the benefits to consumers of low food prices during the pre-2007/08 era. Here’s a report from 2005 recognising that consumers do benefit from artificially lower prices (whilst poor producers lose out). The paper argues that a more efficient, transparent and far less messy way to provide support to consumers would be through social protection. This would also have the added benefit of not destroying poor farmers’ livelihoods.

Charge number two: Oxfam, and other international organisations, failed to discuss the benefits to producers of higher prices during the crisis of 2007/08. Not guilty. An Oxfam report from 2008 showed that some countries benefited from the price spike, but a greater number lost out. It found the winners had invested heavily in agriculture and social protection. Among the losers, both rural and urban populations suffered.

Why did rural populations lose out in so many countries?

First, most of the rural poor were net consumers. Decades of rich country dumping and underinvestment in developing country agriculture probably helps explain this.

Second, many were unable to respond to price rises, due to poor access to credit, inputs, extension services and land – again a legacy of underinvestment.

Third, the struggle to respond was compounded by the nature of the price rise. This was not a nice, steady reversal of the previous two decades of stagnation. It was an economic shock: prices doubled over two years.

So Oxfam definitely nuances its reports, just not its headlines. And this is the real complaint. But seriously, what is expected of a campaigning organisation? Oxfam’s role is to raise urgent issues up the agendas of policymakers, politicians and publics precisely to help the losers – whether they are losers from conflicts and disasters, drug pricing policies, or in this case food price movements. I’m afraid this usually means a myopic focus on losers in messaging, albeit perhaps to the detriment of our academic credibility. But it does not follow that the result is bad policy-making.

Why? Because whether Oxfam was drawing attention to the corrosive impact of dumping on food producers in 2005, or the calamitous effects of spiralling food prices on food consumers in 2008, its policy prescriptions remained the same:

• increase investment in developing country agriculture;
• dismantle trade distorting subsidies in the North;
• increase social protection to protect poor food consumers.

I welcome the accusation that Oxfam focuses only on losers in its messaging, irrespective of whether prices rise or fall. That’s our job. But I do not accept the implication that Oxfam policy (and by a flattering extension, public policymaking) yo-yos around as food prices rise and fall. It simply does not stand up.

Are high food prices good or bad for poverty?

It depends on whether the poor are selling or buying, of course.

High food prices benefit poor farmers who are net food sellers, and hurt poor food consumers in urban areas. Low food prices have the opposite effects. In each case, the net effect on poverty depends on the balance between these two effects. But you would hardly know it from reading what NGOs and international organizations have produced on the topic. (For my past instances of blowing off steam on the subject, see this and this.)

As Johan F.M. Swinnen notes in a new essay

these basic principles are well known, [yet] we do not find them reflected in most arguments put forward in the food policy debate. For example, there has been hardly any mentioning of the benefits of low food prices for urban consumers and net consuming rural households during the pre-2006 low price era, and there has been very little emphasis in more recent statements on the benefits for producers in poor countries from high food prices.

In 2005, Oxfam International wrote:

US and Europe[‘s s]urplus production is sold on world markets at artificially low prices, making it impossible for farmers in developing countries to compete. As a consequence, over 900 millions of farmers are losing their livelihoods.

Three years later, following a substantial rise in food prices, Oxfam International’s view was that:

Higher food prices have pushed millions of people in developing countries further into hunger and poverty. There are now 967 million malnourished people in the world….

It is unfair to single out Oxfam since organizations like the World Bank, OECD, and the FAO have not been much better. So here is the World Bank in 1990:

The combination of depressed world prices and developing country policies which tax agriculture relative to industry have discouraged farm output and hence lowered rural incomes. Because the majority of the world’s poorest households depend on agriculture and related activities for their livelihood, this … is especially alarming.

And the World Bank in 2008:

The increase in food prices represents a major crisis for the world’s poor.

(All these cites come from Swinnen’s article.)

In other words, the news on the food prices front is always bad for the world’s poor, regardless of whether prices are rising or falling.

Why do these institutions always accentuate the negative? Swinnen argues the reason has to do with international organizations’ incentives to capture media attention, capitalize on “sudden shocks,” and emphasize the negative in the “news” (to which people seem to pay more attention).

Whatever the reason, it makes for bad public policy.

The unsung development miracles of our time

Which are the countries that have improved their human development indicators the most since 1970 relative to their peers? You’d be surprised, as I was, to find that the top 10 is dominated not by East Asian superstars, but by Moslem countries: Oman, Indonesia, Saudi Arabia, Tunisia, Morocco, and Algeria. This year’s Human Development Report is full of neat analysis and results, including this one.

Leaving aside the oil exporting countries, the North African cases are particularly interesting. As Francisco Rodriguez and Emma Samman, two of the report’s authors, note, Tunisia, Morocco, and Algeria have experienced remarkable gains in life expectancy and educational attainment, leaving many Asian superstars in the dust. Only Tunisia among the three is a high growth country, underlining one of the report’s main findings that economic growth and human development often diverge significantly, even over as long a time frame as 40 years.

What was their secret? Determined policies to expand educational opportunities and access to health along with a willingness to depart from the conventional wisdom of the day and experiment with their own remedies. Even though all three North African countries are Moslem, empowering of women seems to have played an important role as well:

There is now substantial evidence that the health and schooling of children can be raised by empowering women, and this is precisely what Tunisia did when it raised the minimum age for marriage, revoked the colonial ban on imports of contraceptives, instituted the first family planning programme in Africa, legalized abortion, made polygamy illegal, and gave women the right to divorce as well as the right to stand and vote for election.

What is somewhat puzzling, as Rodriguez and Samman also note, is that these countries have not made nearly as much progress in democratization.

These new “facts” substantially enrich our understanding of the development landscape over the last four decades.

Can show trials strengthen confidence in the rule of law?

The European Commission apparently thinks they can. Its latest progress report on Turkey concludes its review of the Ergenekon/Sledgehammer cases with the following amazing statement:

“Overall, the investigation into the alleged criminal network Ergenekon and the probe into several other coup plans remain an opportunity for Turkey to strengthen confidence in the proper functioning of its democratic institutions and the rule of law. However, there are concerns as regards judicial guarantees for all suspects. Turkey still needs to align its legislation as regards procedure and grounds for closure of political parties with European standards.”

It is understandable that the Commission needs to be diplomatic, and the caveats indicate that they understand there are problems in the judicial proceedings. But what is not excusable is the faith that the report’s authors retain – after three years of accumulated evidence on deliberate undermining of the rule of law – in these trials’ potential for strengthening democracy in Turkey.

Here is how Wikipedia defines a “show trial”:

“The term show trial is a pejorative description of a type of highly public trial. The term was first recorded in the 1930s. There is a strong connotation that the judicial authorities have already determined the guilt of the defendant and that the actual trial has as its only goal to present the accusation and the verdict to the public as an impressive example and as a warning. Show trials tend to be retributive rather than correctional justice.”

This describes perfectly what is going on in Turkey at present. The Ergenekon/Sledgehammer trials are waged in a highly public manner, supported by media campaigns of disinformation and defamation targeted at the defendants. The prosecutors and the police evince little interest in uncovering the truth or going after real crimes. Planted and forged evidence is deployed widely and uncritically. The government blatantly uses the trials for political gain. And the ultimate objectives are payback and political leverage rather than justice.

Listen to Margaret Owen's description of what's going on in a trial at the moment of some leading Kurdish politicians (ht: Nilgun Gokgur).

“It is clear from the 7,500-page indictment and so-called supporting evidence that there are no grounds for suspecting any actual crimes have been committed, such as references to weapons, acts of violence, or conspiracy for terrorism. Most of the evidence is based on (unlawful) wiretapping and bugging to draw conclusions from private daily conversations, or on routine political propaganda and secret statements by anonymous prosecution witnesses.

Innocent conversations, for example, referring to the purchasing of "tomatoes" or "bread", are construed as codes for bombs and grenades and have found their way into the indictment, along with intimate and personal conversations between family members and friends.”

This trial of Kurdish politicians is separate and independent from the Ergenekon/Sledgehammer trials. But the prosecutorial tactics are identical.

In fact, the state of Turkish justice is far worse than what Owen reveals. In some of the key cases such as Sledgehammer, judicial wrongdoings go much farther and there is very strong evidence that the prosecutors are basing their case on fabricated evidence, disregarding all signs that the documents they use have been forged.

It is too bad that the European Commission cannot tell the difference between real justice and show trials.

Why the Tea Party is bad news for globalization

The Pew Research Center's newest poll on Americans' attitudes to trade contains some striking findings.  The most significant, to me, is that support among Republicans for trade agreements has collapsed in less than a year by 15 percentage points.  Remarkably, most Republicans now think trade agreements are bad for the U.S.

As the table below shows, Republicans who support the Tea Party are even more hostile to trade agreements than the rest. 

Democrats are free traders by comparison!

The fault, dear Brutus, lies in our trade partners

How globalization makes hypocrites of us all – and how we should learn to live with it.  My latest Project Syndicate column is here.

Book recommendations

Here are four very different books that I have greatly enjoyed reading recently. 

Kathryn Schulz's Being Wrong is a fascinating account of how being human means making errors that we refuse to own up to.  Princeton sociologist Viviana Zelizer's Economic Lives: How Culture Shapes the Economy is a must reading if you want to make sense of how the economic realm relates to the social and cultural relationships that surround us. Israeli novelist David Grossman's To the End of the Land is the most moving novel I have read in a long time. IMF economist Rex Ghosh's Nineeenth Street NW is hard to put down if you have ever had nightmares about the literature on speculative attacks on currencies falling in the wrong hands -- those of terrorists!

Happy reading.

The biggest diploma I have ever received

... courtesy of some really nice people at the Catholic University of Peru.