Democracies don’t have famines

July 31, 2011

Quote of the week from Roger Kerr:

Less edifying was a session titled ‘An Uncertain Harvest: Investigating Global Food Security’. Malthus seemed to have a couple of seats at the table in a round of agonizing about food security and whether the world can feed its population in the 21st century.

I made the point that food security is often the code word for agricultural protectionism. It has been the excuse for the common agricultural policy and protection of Japan’s rice farmers, for example. If markets are allowed to work, trading is free, and property rights and contracts are secure, it is hard to see why global supply and demand will not balance over the longer term.  As one delegate said, there’s never been a famine in a democracy.  

Consumers never win from protectionism and in the long-term producers don’t either. New Zealand is proof of that.

We might have been dragged kicking and screaming into the real susbisdy-free world in the 1980s but New Zealand farmers are much the stronger for it now.

Protectionism increases the power of politicians and bureaucrats which adds costs and uncertainties.

It also upsets the law of supply and demand, creating unwanted surpluses or unnecessary shortages.

Aid might be needed in the short-term but the best way to tackle famine is to open borders and ditch subsidies.

Fair Trade is a compelling slogan but the only really fair trade is free trade.


Protectionism favours few, costs many

June 19, 2011

Unions and some of Dunedin’s citizen’s are agitating for KiwiRail to buy new wagons from Hillside Workshop.

Roger Kerr explains what’s wrong with that:

Here we are seeing the same old protectionist fallacy. Assuming KiwiRail has got its numbers right, building rolling stock here at higher cost would mean its customers would face higher prices across the board. They would grow less and create fewer jobs.

Many of the customers would be in the export sector. The badly needed rebalancing of the economy would be hampered. And of course KiwiRail would be an even bigger drain on taxpayers.

More than 20 years after the painful but necessary reforms of the late 1980s and early 90s some people still haven’t got the message – protection favours few and costs many.

This is a lesson Candians have yet to learn too. Dan Gardner writes about Canada’s failure to make the most of its potential for increased food production:

Canadian consumers pay far more for dairy and poultry products than they would in a free market. Supply management also makes it difficult or impossible for producers to achieve the economies of scale needed to drive costs down. Perhaps worst of all, it impedes trade liberalization.

“Our government will also continue to open new markets for Canadian business in order to create good jobs for Canadian workers,” the Conservatives promised in the Speech from the Throne. That’s good. Canada is a trading nation and the steady expansion of free trade is very much in our interest. But then came this: “In all international forums and bilateral negotiations, our government will continue to stand up for Canadian farmers and industries by defending supply management.”

And what’s the affect of supply management?

Who pays? Consumers who often don’t know they are. Who benefits? A small number of farmers who are highly organized and concentrated in certain ridings. Politicians who swear to defend the status quo get the gratitude of the former without incurring the wrath of the latter — while any politician who dares to even consider change gets no gratitude and lots of wrath.

“Look at us,” Larry Martin suggests, “and look at New Zealand, sitting out there in the middle of the ocean, not close to anything.” In the world of food, New Zealand is a “superpower.” And yet, thanks to daring reforms in the 1980s, New Zealand’s farmers owe almost none of their income to government support. “You think, ‘if we could do even half of what they have done wouldn’t we be in great shape?’”

Yes, those “failed” polices of the 80s made our economy freer and are one of the major reasons we’re getting the benefits from increased demand for commodities.

Instead of producing things the world doesn’t want or need at considerable cost to the domestic economy through subsidies, we’re following market signals to produce what the world wants to buy.

Hillside  workers should stop wasting their energy trying to return to the bad old days of protectionism. Instead, they should concentrate on developing the flexibility to produce what someone wants to buy at a price they’re prepared to pay.

KiwiRail is already costing the country too much, we can’t afford to add to those costs by subsidising Hillside.

Hat tip: Offsetting Behaviour & Something Should Go Here who both discuss Gardner’s piece.


Who benefits from protection?

March 30, 2009

Subsidies are just a transfer of funds from taxpayers to producers and as taxpayers are also consumers they end up paying more twice  – first through their taxes and then through higher prices.

The subsidies also blind producers to market signals so they produce more than the market requires.

The other weapon in the protectionists armour is tariffs. They are also a tax which costs both producers and consumers because goods subject to tariffs cost more.

So who benefits from protection?

In the short term inefficient producers and politicians. In the long term no-one because protection stunts economic growth.

The global recession could provide an opportunity to reduce protectionist policies because it costs too much, but the signs aren’t promising as the Inquiring Mind notes in a post on the rising tide of protectionism.

Anti-Dismal   illustrates the problem of protection with this:


Protectionism will prolong problems

March 4, 2009

If there is one lesson which has stuck in the minds people who survived the ag-sag of the 80s, it’s that governments give and governments take away.

Subsidies turn producers into beneficiaries, at the mercy of political whim, and increase costs for consumers.

We know only too well the dangers of government interference in markets and New Zealand farmers are a shining example of doing what we do best under our own steam.

That doesn’t mean the recession will be easy for us, but as Federated Farmers’ president Don Nicolson warns the real threat is not the recession itself but other governments’ reaction to it:

Protectionism is emerging from its economic crypt and seeping into legislation from Cairo to Washington.

With protectionism New Zealand’s voice carries genuine diplomatic weight. We’ve been there and come out the other side better, stronger and fitter.

The time has come to use our “poster” status to ensure a protectionist repeat of 1930 never takes place. The stakes are high, very high.

Subsidies for producers are taxes for consumers which do more harm than good in the countries which provide them and they also make it more difficult for those, like New Zealand farmers, who produce more efficiently but face unfair competition in international markets.

Protectionism comes in many forms, not just direct subsidies. Feel-good campaigns which encourage people to buy-local and outrage when local firms lose out to foreign competitors as happened last week when Swazi lost the contract to supply our Defence Force are protectionist too.

We can not expect others to open their borders to our produce if we shut our doors to theirs and we will pay a very high price if we give our trading partners an excuse to buy local themselves.

New Zealand has a lot to lose if short-term recession-busting measures result in subsidies and tariffs which will protect our competitors and reverse the painfully slow but steady progress towards globabl free trade.

But every other country will lose out in the long term too because the only fair trade is free trade.


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