Helping Heavily Indebted Poor Countries (HIPCs)

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Helping Heavily Indebted Poor Countries (HIPCs) (1/10/05)

In some ways economies are a lot like people. Just as people don't jump straight to adulthood, economies have to follow a sort of maturing process as well. The specifics differ from economy to economy, of course, but as a starting point let us just say that hunter gathers would have a tough time self transitioning their civilization into a knowledge economy. There has got to be an intermediary element, and thus far agriculture has proven a very effective one, generally followed up by industry and then service based economies.

Things get more complicated once we take a global perspective. Bear with me, this will take a second.

When one nation makes it past an agricultural economy it isn't as though the entire lot of them just drop their plows and start pounding anvils. Some continue doing agriculture and reap the benefits of their fellow citizen's improvements in efficiency, which is why we can start talking about hydroponics and the like. This process is actually rather handy because the nation can still retain an ability to feed itself, which is usually a good thing.

A problem can arise, however, when the nation adopts policies to help these folks out, such as by subsidizing them. With the market in an unsubsidized state prices would have fallen due to an excess of supply and farmers would have moved on to more profitable crops or even other industries. When markets are subsidized, all of that doesn't happen. The farmers stay in the game. Since supply is high there is extra food, and food is perishable so it has to go someplace because we don't like throwing out the product of our labor.

So we put the food on the international market. Poor countries can't afford to make their own food, right? So this is good. Our food, which is at a really low price because of the excess supply and subsidization, goes to a poor country where those folks buy the food because the price is so good, eat it, and then have the energy to run off and build a developed country like our own.

Unfortunately this isn't correct. As I said above, agriculture is one of the first industries that has to develop so a country can amble along towards a knowledge economy. When they do that, they instead find a bunch of cheap really good agriculture from developed economies on their doorsteps. What are they to do? Well, you ask your good friends, the developed countries, for some help. Of course you don't want to seem foolish so you don't ask them to stop giving you food and instead try to make some sort of magic happen to get your citizens past the agricultural point and on the path towards industry, a transition that normally requires vast amounts of infrastructure, scientific know-how, and healthy people with money to buy the products of industry so the economy doesn't collapse. All of which is just about as impossible as it sounds.

The Institute for Agriculture and Trade Policy (IATP) has been monitoring all of this for 12 years now. Their latest report included these gems from the US:

Wheat was exported at an average price of 43 percent below cost of production;
Soybeans were exported at an average price of 25 percent below cost of production;
Corn was exported at an average price of 13 percent below cost of production;
Cotton was exported at an average price of 61 percent below cost of production;
Rice was exported at an average price of 35 percent below cost of production.

So take an industry like cotton. After emancipation in the US a lot of folks headed back towards Africa, and a lot of them were experienced cotton farmers. They built an industry that, between their experience and a near perfect cotton growing climate, produces cotton on par with developed country's cotton in nearly everyway save one:

Their government is poor and can't pay to subsidize them so their products can't compete with developed country's cotton.

No one wants to ask people to change their way of life. No one wants to. But at a certain point, human decency requires we discuss this issue and attempt to find a way to help folks out. Our "less than the cost of a coffee" donations do nothing for sustainable development and hurt local producers who need to be doing good to set afire the torch of economic progress.

Easy alternatives exist. Developed country's farmers could sell their excesses to companies that can turn their crops into a non-traditional product, such as ethanol from corn, or soy wax from soybeans. Given the various fuel crisises and environmental concerns biofuel is a particularly attractive alternative. There is even one company, aptly named Changing World Technologies, that has a process to turn any organic matter, even your table scraps and certainly any agricultural product, into oil. Black gold. Or green gold, depending on your perspective. Were a gas brand to be developed from genuine 87 octane "bio-oil", consumers might be willing to pay a few extra cents a gallon in return for closing the carbon cycle and helping out the developed countries. Existing western subsidized farmers wouldn't even need to retrain for a new industry.

So here's a forward you can really feel good about. Send this to everyone you know. Form a PAC. Sign a petition. At the least a study needs to be done to look into this matter. The ideas in the last paragraph may not be the best answers but you and those you know might come up with one that is. The quicker the better.