From Brad Plumer:
For the past 20 years, the World Bank and assorted Western governments have been telling Malawi how to conduct its affairs. Stop subsidizing crop prices. Curtail spending. Float your currency. And so on. More recently, in 2000, donors demanded that Malawi dismantle a fledgling program that subsidized fertilizer for poor farmers–who often can’t afford it on their own–on the grounds that the subsidies would make it impossible for a “solid agricultural market to develop.”
Well, it’s hard to flout the donors, and Malawi did as told. What happened next? Some 1,500 Malawians starved to death in 2002, and five million more needed emergency rations in 2005. So, last year, the government finally told its “advisors” to shove off and put the subsidies back in place. Two years of record surpluses followed, and Malawi is now shipping excess maize to Zimbabwe. As Toronto’s Globe and Mail tells it, the subsidies have worked wonders; they’re far cheaper than importing food aid; and even the EU has reversed its stance and pledge to underwrite the fertilizer coupons.
And from The New York Times:
Bank policies in the 1980s and 1990s that pushed African governments to cut or eliminate fertilizer subsidies, decontrol prices and privatize may have improved fiscal discipline but did not accomplish much for food production, the evaluation said.
It had been expected that higher prices for crops would give farmers an incentive to grow more, while competition among private traders reduced the costs of seeds and fertilizer. But those market forces often failed to work as hoped.
“The whole thing was based on the idea that if you take away the government for the poorest of the poor that somehow these markets will solve the problems,” Professor Sachs said. “But markets can’t step in and won’t step in when people have nothing. And if you take away help, you leave them to die.”
Professor Easterly said the bank’s managers had made elementary mistakes. “It was a simplistic, Economics 101 lesson, that if you raise prices, farmers produce more, which makes sense if farmers have roads, access to credit, good access to fertilizer markets,” he said. “But most of the time, farmers were lacking those.”
“It was a simplistic, Economics 101 lesson, that if you raise prices, farmers produce more, which makes sense if farmers have roads, access to credit, good access to fertilizer markets,” he said. “But most of the time, farmers were lacking those.”
Which is why here in the U.S. it has been defined from the earliest days (even back to late colonial days, certainly in the Constitution) that it is a public good to build roads, create and improve navigable waterways, secure markets, etc. If such things had already existed (or if the resources to build them had existed) in Malawi, then fine. But if they don’t, then subsidies are legitimate.
Now the question I ask is, why didn’t those things exist? Was it because money for them wasn’t being raised by taxes? If so, is that because there wasn’t enough productivity to tax (i.e., the country is just damn dirt poor) or is it because the productive people are taking advantage of corruption to duck taxes? Were loans/grants for them denied? Were they asked for in the first place? Was it because the money that would have gone for it was being stuffed in government officials’ pockets? Were they built and then blown up by terrorists?
I’m not pissing on subsidies. From the above it would seem that they did a world of good in Malawi. Great. So – now what? Subsidies won’t last forever. What’s the game plan?