The economic order is subtly changing.

Economic growth: When people matter 

Pic courtesy: brinknews.com 

The economic order is changing. And it is the United States that is setting the ball rolling.

“In one policy area after another – from trade to taxation to labour markets – the decades old consensus in the United States has been replaced with something very different,” writes Dani Rodrik, Professor of International Political Economy at the Harvard University, in a column he wrote for Project Syndicate. For years, I have read Prof Rodrik with a lot of interest, especially his writings on international trade. A strong champion of free trade, he had always wanted developing countries to reduce tariffs and in the process prepare domestic industry for global competition, thereby bringing in efficiency.

Although he thinks free market enthusiasm among economists is now waning, with developing countries not showing any more excitement at the traditional export-oriented industrialisation model they had vigorously pursued since the days of economic liberalisation, he argues that developing countries should not blindly ape what is happening in America. This suggestion comes at a time when the pandemic has exposed the fault lines making countries go more into a protectionist shell. 

While it is clear that the US has taken a step back from aggressive market fundamentalism, and of course from the so-called Washington Consensus – a set of economic policy recommendation for developing countries that became popular in the 1980s – to now say that developing countries should be doubly cautious and “would be wise to consider their own countries’ circumstances carefully before following America’s lead” in reality points to the ground slowly slipping away for macro-economic policies that created a fear psychosis from rising debt and inflation thereby limiting the fiscal space for human and public sector investments primarily in health, education and agriculture.  

Strange, isn’t it? When the Washington Consensus or the process of market-fundamentalism was pushed to the developing countries, and more importantly to Latin American economies, no one ever told them to be extra cautious before following the economic prescription given the different circumstances and environ that prevailed in each country. The policy prescription for development that the World Bank/IMF had doled out for the developing countries all these years has never been country-specific. In fact, developing countries were hardly left with any policy space to suitably alter or adapt the economic design keeping the domestic circumstances in focus.

As film-maker Michael Moore had in his book Stupid White Men (2001) clearly brought out how every loan that the bank gives comes with roughly 140 - 150 conditionality’s that the recipient country has to follow. That made it relatively easy to dictate and to make sure the countries don’t deviate from the path laid out.

The same mindset prevails when it comes to the continuing farmers protest in India against the three central farm laws. While the fundamental principles on which the Indian laws are based essentially come from the same kind of free market design that is now beginning to be challenged, the US says the contentious laws “will improve the efficiency of India’s markets and attract greater private investment.” Interestingly, when questions are asked about the failure of market reforms in agriculture in the rich developed countries, where farming is faced with a severe economic crisis, we are told that it is not fair to compare given the different conditions that prevail. But when it comes to framing the farm laws, we forget to look at our own needs and circumstances, and we go by the same failed economic thinking that prevails in the western countries -- increasing private investments in agriculture will lead to production efficiency and eventually to price discovery.

Nevertheless, the shift in economic policies since the new American President Joe Biden took over is focusing more on human capital and on  bridging the yawning economic inequalities. Welcoming the “Build Back Better” economic agenda that the President has laid out, Nobel laureate Joseph Stiglitz says it would ‘provide public investments in the nation’s physical and human infrastructure, as well as in our tattered safety net’. He is among the 17 Nobel laureates in economics who have in a signed letter come out openly in support of the new economic package. Given that the wealth of the richest 400 people in America has increased by a whopping $1.4 trillion in just two years -- since 2019 – the call is growing for a reconciliation package that invests more in the poor.

It makes economic sense. As Joe Biden has publicly acknowledged – and he is the first Head of the State to say so explicitly – that the Trickle Down theory has been a failure and his governments focus will be to help incomes increase at the bottom and in the middle, challenges the basic premise on which capitalism is based. More so at a time when workers wages remain frozen since 2009 at $7.25 per hour, and long queues of cars can be seen waiting outside the food banks, the wealth of America’s billionaires during the pandemic has skyrocketed. To give you an idea, the wealth of Elon Musk, CEO of Tesla and SpaceX, has risen by $150,800,000,000; for Jeff Bezos, the co-founder of Amazon, by $75,000,000,000 and Mark Zuckerberg, CEO of Facebook, by $74,200,000,000. No wonder, the Nobel laureates have called for tax reforms – and that too at a time when corporate tax rates have drastically come down over the years -- so as to raise adequate resources to fund public sector investments in areas that are critical to the welfare of the society at large.

On the contrary, in India, mainline economists and policy makers remain untouched by the winds of change. In lot many ways, I find Indian economists are far behind when it comes to meeting the long-term social and economic needs of the country, which will eventually make us realise the Prime Minister’s vision of Sabka Saath Sabka Vikas. Pushing for more aggressive reforms, as the American experience has shown, only leads to accumulation of wealth at the top. The economic design calls for a change, keeping in mind the urgency climate change has thrown up, so as to meet the hopes and aspirations of a growing population. The sooner the change begins to happen, the better it will be. #  

Source: US Economic prescription has many lessons for India. Bizz Buzz, Sept 24, 2021. https://epaper.bizzbuzz.news/Home/MShareArticle?OrgId=249a52f2979&imageview=0 

READ MORE - The economic order is subtly changing.

Markets fail to provide farmers with higher income

 

Inflatable suicide dolls hung on trees outside the French Parliament by farmers.

Pic courtesy -- TRT World

It’s difficult to imagine. At a time when free markets are generally believed to provide farmers with a higher price thereby enhancing farm incomes, the farm gate price for wheat in Canada happens to be much lower in 2017 than what it was 150 years back in 1867. This is not only true for Canada. Even in the US, as per media reports, farmers say the price they receive for wheat is much lower than what was prevalent at the time the four year American Civil War ended in 1865. 

So what happened to markets? After all, wheat is a staple food and its demand, considering the population boom the world has witnessed in the past 150 years, has grown exponentially over the centuries. According to the UN Food and Agricultural Organisation (FAO), wheat production forecast is pegged at 780 million tonnes in 2020-21, an increase of 7.5 million tonnes this year. Given the food insecurity the world is faced with, FAO considers the cereal production estimates (including that for wheat) to be positive.    

Now before you wonder how this could be possible, given the fact that economic curriculum in colleges and universities teaches us that markets provide the rightful price, take a look at an analysis by the US National Farmer Unions (NFU) which explains how the continuously declining peanut prices since 1965 had pushed three out of four peanut farmers out of business in America, and that too at a time when peanut consumption was on the rise. Defying the supply demand logic, the peanut prices slumped from $1 per pound in 1965 to less than $0.25 per pound in 2020, a drop of more than 75 per cent. And if you are still thinking it probably happened because of surplus production, a Washington Post report tells us how just three companies, controlling the entire peanut market, had actually fixed the purchase price. After a lawsuit filed by 12,000 peanut growers, these companies finally agreed to pay $103 million in compensation for deliberately keeping the prices low.   

Peanut is no exception. This kind of match fixing has been going on for decades. Whether in America, Europe or India, what the farmers need to understand is that the match is already fixed. It is not without any reason that market prices, when adjusted for inflation, have remained frozen or have been on a decline over the years. 

Coming back to the issue of wheat prices, a Canadian author, critic and writer, Darrin Qualman, has in an insightful series of blog posts explained how the prices have been on a steep decline since 1867. Adjusted for inflation, the price of wheat per bushel (27 kgs) was close to $30 in 1867. Like on a ski slope, the average price had continuously been on the downward slide ever since. With global emphasis shifting to agricultural exports in the mid-1980s, the prices began to slump further. In 2017, the wheat price collapsed to a little over $ 5 per bushel. The price a Canadian wheat farmer sold his wheat for in 2017 was less by $25 per bushel than what his great grandfather sold it for 150 years back. 

No wonder, while small farmers abandoned agriculture in large numbers, the average size of a Canadian farm has grown to 3,000 acres with the big farms several times larger. While the number of farmers declined drastically, the economic argument in support of market reforms claiming that farm incomes go up when the number of farmers recedes too has turned out to be untrue. America has lost more than 5 million farms in the in less than 100 years, and Australia has lost 25 per cent of its farms between 1980 and 2002. Economists will say this is a healthy development, and will make farming profitable. But surprisingly, the speed at which farmers across the globe have got out of agriculture hasn’t increased farm incomes but on the contrary it has only worsened the agrarian crisis.   

This is the same flawed argument that Niti Aayog too is promoting, saying that farm incomes will double when the number of people on the farm comes down. If this be true, I don’t understand why in Canada, for instance, the farm debt should be exceeding $102 billion, more than double than what it was in 2000. In US, where hardly 1.5 per cent of the population remains in agriculture, farm debt has multiplied to a staggering $ 425 billion in 2020. In France, with only 7 per cent workforce employed in agriculture, more than 44 per cent farmers carry a debt burden of Euro 400,000 and 25 per cent farmers earn less than Euro 350 per month, less than the poverty line. 

While farmers have been denied the rightful price, the consumer prices have been on the rise. In another blog, Darrin Qualman explains that while the price of a bushel of wheat in Canada and US has remained static since 1975, the retail price of loaves of bread produced from each bushel in the US had increased by $ 50 on an average, from $25 in 1975 to a little over $75 in 2015. The same holds true for other food products as well. How can efficiency be only measured in terms of reducing farm gate prices whereas the food processing and retail giants continue to increase prices, walking away with a larger share of the end consumer price? If the markets were efficient, why the food processing and retail giants continue to thrive in inefficiency? 

There is nothing sacrosanct about markets. To believe that markets provide farmers with a higher price is an outdated economic thinking (and education). Markets have historically failed to prop up farm incomes anywhere in the world, a fact that economists failed to acknowledge. Demanding no trading to be allowed below the MSP, protesting farmers are actually seeking a historic correction in economic policy and thinking. This holds the future for a reverberating agriculture, and a new economic design that provides for Sabka Saath, Sabka Vikas. #

Markets have failed to prop up farm incomes. The Tribune. Mar 19, 2021 https://www.tribuneindia.com/news/comment/markets-have-failed-to-prop-up-farm-incomes-227289?fbclid=IwAR0IiGibi8oR20ULhS4y6KWFNsV99V2-H2t7uxnesiQefqKuMFOce7eOuZc

READ MORE - Markets fail to provide farmers with higher income

In US, the big is getting bigger and small farmers are on way out -- My interview

At a time when farmers are up in arms against three contentious agriculture bills passed in Parliament advocating an open market system, agriculture expert and commentator Devinder Sharma talks to Sanjeev Verma on how open agriculture markets have failed to provide relief to farmers even in US and European countries.

What is your opinion about three contentious bills passed in Parliament despite protests from farmers?

These bills have now been passed in Parliament and would soon become law. Considering that farmers have been protesting on the streets for over a month now, it is high time we sit and talk to them and find out what their concerns are, what changes we need to incorporate in the legislation, what kind of safety nets are to be provided and how to regulate private investments and capital flowing into agriculture.

After the bills were passed in Parliament, I saw a lot of excitement among the agri-business companies and mainline economists. They are all saying that farmers are being misled, and in reality they would stand to benefit and get a higher price. My question to them is that if you are willing to pay farmers a higher price than MSP, why can’t you stand with farmers and urge the government to accept their demand of bringing in a fourth bill to make MSP a legal right for farmers? In any case you are saying farmers will get a higher price so why can’t you assure them that in future no trading will take place below MSP?

This means we should ensure that MSP becomes a legal right for farmers. That will be the real freedom for a farmer, when he knows that whether he is selling in Punjab or in Bengaluru, whether inside or outside the mandi, he would at least get the MSP for his produce.

When the industry is promising higher prices that means the industry is willing to procure at a price above MSP. So the entire burden of higher price will not be passed on to the government, the private sector will be a major partner.

Can you throw some light on systems in place in the US, European Union (EU) and Australia, and how farmers there get strong government support and subsidies.

In the US and Europe, open markets in agriculture have been operative for six to seven decades. If open markets were so benevolent, the US or European farmers would not have been in the grip of a severe crisis. In the US, farmers are at present faced with a bankruptcy of $425 billion. This is at a time when the suicide rate in rural areas is 45% higher than in urban areas. This is also at a time when the US farmers receive an average of $60,000 annual subsidy. Whereas, farmers in India get nearly $200 annual subsidies.

The US has big retail like Walmart which has no stock limits. The US has not only ‘one country, one market’, it has in fact ‘one world, one market’ operative. They also have contract farming and commodity trading. The biggest commodity exchange is in Chicago. Despite all this, if the US farmers are passing through severe crises, it is a clear indication that market reforms in agriculture have not helped them. Even the chief economist of the US department of agriculture has said that since the 1960s farm incomes have been on a steep decline.

When 

Ronald Reagan

 was the US President, the then agriculture secretary Earl Butz had made a famous statement ‘get big or get out’. That is what exactly the markets in agriculture look forward to. The result has been that small farmers in the US have been pushed out. Today, the number of farmers has come down to around 1.5% of the population.

US President Donald Trump’s agriculture secretary too has reiterated the same, saying in America the big gets bigger and the small goes out. The same thing happened in Canada and in the EU. If we look at Europe, agriculture is receiving a support of $100 billion every year under the common agriculture policy programme. Of this, 50% goes as direct income support to farmers and yet farmers are in crises there. The stress and depression farmers are undergoing there is an indication that they are faced with declining financial stability on small farms.

What difference do you see in small and marginal landholdings in India as compared to large corporate-owned landholdings in the US or Europe?

In the US, the average landholding is more than 400 acres (160 hectares) and in Australia, it is more than 4,000 hectares. In India, the average land holding size is 1.1 hectare and 86% farmers have landholdings of less than 5 acres (2 hectares). If the open market model of agriculture has not worked for bigger landholdings in America, Canada, Europe and Australia, I don’t understand how it will work for small landholdings in India. Instead of blindly aping the open agriculture market model from there, the challenge here should be how to evolve our own model of agricultural marketing which conforms to the peculiar conditions of Indian agriculture - primarily helping small farmers.

Though the Centre declares MSP on 23 crops, it only procures paddy and wheat. When most of the other crops are sold much below the MSP, how can higher prices be provided to farmers?

Shanta Kumar

 (former Union minister) committee report had said that only 6% farmers in India get the benefit of MSP, which means the remaining 94% are dependent on the markets. If the markets were so efficient, I see no reason why Indian agriculture should be passing through such a terrible crisis. The same markets which did not perform for all these years are suddenly now being seen as saviors of farmers.

With only 6% farmers getting the MSP, the challenge now is to expand the MSP regime throughout the country. We have close to 7,000 

Agricultural Produce Market Committee

 (APMC) mandis across the country. The need is to set up 42,000 such mandis if we have to provide a mandi at a radius of 5 km. Since the government announces MSP for 23 crops, of which only wheat and rice is procured, and with some procurement of cotton and pulses, most of the remaining crops get a lower market price. I am looking forward to a time when we are able to take the MSP regime from the present 6% to benefit at least another 60% farmers. This will help realise the vision of Sabka Saath Sabka Vikas.

As the US and other European markets have a high focus on quality of agricultural produce, where does India stand?

There is no denying that the focus of US agriculture has been on improving the quality, and that is why there has been a rise of major agri-business corporations. They have also focused on building the food value chain. Whenever agri-business companies have stepped in, they have brought in technology to check quality norms. But let us not forget, in the US, because of the takeover of the dairy sector by big corporations since the 1970s, 93% of small dairy farms have been closed down. These dairy farms were also having sophisticated technology. They closed down because the prices crashed and the big business increased milk production.

How do you see the increase in MSP for wheat and paddy since 1970?

In 1970, the MSP for wheat was Rs 76 per quintal. In 2015, after 45 years, it was Rs 1,450 per quintal. This means an increase of 19 times. If you compare this with income parity norms of other sections of the society, basic pay and dearness allowance (other emoluments not added) of government employees have increased by 120 to 150 times during these 45 years. In the case of university and college professors, this has increased by 150 to 170 times and of school teachers by 280 to 320 times in the same period. So what do you expect the farmer to do?

A study done by Organisation for Economic Cooperation and Development in collaboration with the Delhi-based think tank Indian Council for Research on International Economic Relations had shown that between 2000 and 2016-17, Indian farmers lost Rs 45 lakh crore. Can we imagine how much farmers are suffering? Imagine if this loss was encountered by corporates, the entire nation would have woken up to the crises India is facing. But this particular subject is not at all discussed in the media.

The economic survey 2016 tells us that the average income of a farming family in 17 states of India, which means roughly half the country, is Rs 20,000 a year. This means a farmer’s family is surviving on nearly Rs 1,666 per month.

But there are also flaws in the APMC mandi system.

Some flaws have evolved over a period. There is cartelisation and mafia. So, why not reform the APMCs? We need to remove the political influence in mandis and ensure mandis operate in a professional manner. We need to see that there is competition within the APMC mandi.

Bihar did away with the APMC Act in 2006 and it is said that the decision made farmers’ condition worse. But why did not farmers in Bihar protest like farmers in Punjab and Haryana?

If bulk of the delivery in APMC mandis is in Punjab and Haryana, they are the ones who know where the shoe pinches. In Punjab 87% of wheat and paddy is procured. In Haryana, it may be around 80%. But in Uttar Pradesh, only 7% procurement takes place, in Rajasthan it is 4% and in Bihar it was hardly 1%. So, when they do not have any idea what procurement is all about, how do you expect them to stand up and protest?

What do you say about the Essential Commodities Bill passed in Parliament in which commodities like onion, potatoes, cereals, pulses and edible oil have been removed from the list of essential commodities and one cannot know how much stock a person is holding?

This means that we have actually legalised hoarding under the garb of saying that farmers would actually benefit. When there is asymmetry in power, how do you expect a big player to negotiate with a small player? Secondly, when there would be hoarding at this scale, the big storage companies would be calling shots and deciding what the prices would be. #

Source: If Open Markets were so benevolent, farmers in US and Europe wouldn't be in severe crisis. The Times of India. Chandigarh. Sept 26, 2020. 

https://m.timesofindia.com/city/chandigarh/if-open-markets-were-so-benevolent-farmers-in-us-or-europe-would-not-be-in-severe-crises/amp_articleshow/78328364.cms

READ MORE - In US, the big is getting bigger and small farmers are on way out -- My interview