Free Trade

Perpetuating Poverty by Protecting Livelihoods

Defending a form of economic serfdom stymies free trade negotiations

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The latest round of World Trade Organization (WTO) negotiations foundered last week over policies that seek to "protect livelihoods." On one side stood India and China who insisted that they be allowed use a special safeguard mechanism (SSM) to boost tariffs to prevent surges of cheap food into their countries. Why? As Indian Commerce and Industry Minister Kamal Nath explained, "The main issue was the security of livelihood of millions of poor farmers in India and other developing countries against import surges which could take place." Specifically, India and other developing countries want to impose additional duties to protect their poor farmers from agricultural product price declines caused by import surges. "When I am negotiating, I am willing to negotiate commerce. I am not willing to negotiate livelihood security, I am not willing to negotiate subsistence, I am not willing to negotiate poverty," insisted Nath.

On the other side stood the United States and other big agriculture exporting countries, including Brazil. U.S. Trade Representative Susan Schwab argued that SSMs would push trade liberalization back by 30 years. At the insistence of developing country negotiators, the United States and Europe agreed to cut their agricultural subsidies by 70 and 80 percent respectively. However, some developing country analysts believe that the United States was intransigent on the issue of SSMs because American negotiators wanted to avoid the topic of cotton subsidies, which was next on the WTO agenda. Scandalous U.S. cotton subsidies have depressed the world price of cotton, thus harming millions of poor cotton farmers in Africa and Asia.

Nath and other developing country WTO negotiators are absolutely right: subsidies are bad, period. They should be completely eliminated. But is protecting livelihoods from competition a good idea? In 2002, anti-globalization activist Vandana Shiva asserted, "The only way to protect incomes and entitlements in poor countries is to bring back controls on imports." And she may be right, but at what long-term cost?

First, let's define what we're talking about: what's the difference between a job and a livelihood? Livelihood connotes the earning of income by means other than wage labor. Another implication is that people who have a specific livelihood are somehow entitled to that livelihood. The way activists and policymakers use the term, livelihood rights suggests that people have a right to stay exactly where they are and to and to make a living by doing what they are currently doing. If your father was a farmer, then so are you and so will your grandchildren be. If your mother was a hand weaver, then so are you and so will your children be.

This kind of economic serfdom is a recipe for perpetuating poverty. People who depend upon livelihoods rather than jobs are generally the poorest people in the developing world. This is not a surprise since they make their livings through low-productivity activities like subsistence farming or small-scale manufacturing.

For example, about 75 percent of Indians live in rural areas and 64 percent of the workforce depends on agriculture for their livelihoods. Since agriculture contributes only 20 percent to India's gross national product, this means that nearly two-thirds of the population live on only one-fifth of the India's total income. In addition, nearly 60 percent of farms are smaller than one hectare (about 2.5 acres), while less than two percent are larger than ten hectares. This kind of rural backwardness explains why some 700 million Indians eke out an existence on two dollars or less per day.

Nath and other anti-trade activists argue that trade liberalization will undercut the pittances on which these poor people live. As an example of how trade destroys livelihoods, Shiva claims that imports of cheaper soybean oil, combined with new government sanitary packaging regulations, affected 10 million livelihoods of small-scale producers of traditional cooking oils. Shiva also warned that branded flour is undermining the livelihoods of millions of workers who operate small flour mills. Instead of taking raw wheat purchased at government shops to a local miller to be ground into flour, Indians are increasingly turning to higher quality branded flour. In 2002, Shiva noted, "Prices of coconuts have fallen 80 per cent, coffee prices have collapsed by over 60 percent, pepper prices have fallen 45 percent in India since the WTO declared, in 2000, that India must reduce import barriers."

In fairness, freer trade will force wrenching changes on the farming villages of the developing world. While some farmers in developing countries will be able to compete and become prosperous, most will have to seek more productive work as wage earners in industry or in the service economy.

One objection: What if no wage jobs are available? In that case, it would mean that the developing country is pursuing policies that are stymieing its overall economic growth. In fact, this is exactly what India was doing before 1991 when it ended the its bureaucratically hamstrung "License Raj" through sweeping economic liberalization reforms. After 1991, economic growth took off. As University of California-Berkeley economist J. Bradford Delong pointed out in 2001, if India's current post-liberalization growth trajectory is maintained, in 66 years average Indian real GDP per capita will be equal to that of the United States today. Had it remained on the pre-liberalization path, average Indian incomes would have equaled current American incomes by the year 2250.

Most people in developed countries did not become wealthier by pursuing the livelihoods of their parents. Neither will poor people in developing countries achieve prosperity by following in their parents' footsteps behind a water buffalo. Freer trade generates opportunities for them to join the wage economy and thus to enjoy the gains that an ever more elaborate division of labor makes possible. Policies that aim to protect livelihood security are essentially bribes to encourage people to stay on their subsistence farms and remain in remote villages. Ultimately, protecting livelihoods is a policy to protect and perpetuate poverty.

Ronald Bailey
is reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

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  1. Ronald Bailey says that the call by anti-globalization activists to “protect livelihoods” is a tactic to stymie free trade negotiations and a recipe for perpetuating poverty.

    Who needs a big wordy article when the whole thing fits fine with one period?

    FP!

  2. Makes one wonder if “The Wealth of Nations” was ever discussed at whatever university Nath was educated at.

  3. It sounds like farmers in India are learning from farmers in the USA. Indian honey is pretty good by the way. I bought some in an Hallal food shop.

  4. I have become a anti-free trade convert. Last week, I bought a pretty decent bottle of Beaujolais-Villages at a local grocery store for $12. This would have been impossible under free trade.
    Thank you, French tax payers for making this possible for me and keep up the subsidies.

  5. Everything you said in the article might be true, but the way it’s written makes you sound like you hate the indian farmers. More elaboration on how lower farm subsidies would help the farmers a lot more than tarriffs would make you sound more sympathetic.

  6. Indian honey is pretty good by the way.

    Boy, I’ll say.

    I bought some in an Hallal food shop.

    Oh, you meant the kind from bees. Never mind.

  7. Hoorah free trade. That said all things in moderation. It would kind of be fucked up destroy these farmers livings when they don’t have viable alternatives. I doubt India has much of a support system for this kind of thing. I am all for wealthy countries taking away there illegal subsidies and tariffs because they have the money to “retool” there citizens. Most third world countries don’t. Further historically when countries first start expanding economically they have had protectionist policies (including us). This is one of the more disturbing aspects found in libertarian thought a no holds barred push towards open markets. Some times you have to take a slow gentle approach toward an ideal to avoid major suffering.

  8. I just can’t get that upset at anti-globalization activists when the govt has just let Doha go down in flames.

  9. “I just can’t get that upset at anti-globalization activists when the govt has just let Doha go down in flames.”

    I just can’t get that upset at people who oppose legalizing medical marijuana when the govt has let bills to legalize medical marijuana go down in flames.

  10. RC Dean FTW.

  11. I understand the indian and chinese peasant farmers should study comparitive advantage a little more. However, the idea that they should trust that americans won’t flood them with subsidized cotton and corn(after all Kissinger is quoted as saying we need to “use food as a weapon on developing nations”)…Shouldn’t we americans be the ones to step up and make the first gesture of good will? I’d think we have a few more people who understand the overall good impact of free trade in our country meaning we’d have a little better odds of affecting change in america. Why not try and put more pressure on the politicians to cut the farm bill by 95% before we write everyone-hate-on-peasant-farmer articles….is this really going to connect with a lot of indian policy makers?

  12. The needs of the few (farmers, in this case) outweigh the needs of the many (starving people in need of cheaper food).

    People in this country who try to prevent Wal-Mart/Sam’s Club from coming to a town (or try to drive them away if they’re already there) are falling for the same logical fallacy: The needs of the few (local small business owners) outweigh the needs of the many (local population who would benefit from lower prices on nearly everything).

    This error in logic is pretty much the basis of the economic polocies of the left.

  13. I agree that Indian subsistence farmers should seek employment elsewhere, but we cannot expect them to do it without help — the kind of help Americans, Europeans and Japanese have had from the mid-19th century on. For example, they need decent, free public education. In India, most funding for public schools is stolen, and most teachers never show up for the job, which is a sinecure.

    Poor people need decent, free healthcare — at least inoculations and clean water.

    Without this kind of basic social safety net, what you are advocating is merciless cruelty. Millions will starve or live in the gutter because they never even had a chance to learn how to read. It is one thing to demand that adults better themselves and seek opportunities, but it is unreasonable to demand that impoverished 6-year-olds learn to read on their own, and get inoculations, toothbrushes and clean water on their own. It is unreasonable to expect parents to provide these things when they themselves are illiterate and have never used a toothbrush. You have to break the cycle by helping people — especially children.

    We in the West and in Japan have NEVER depended entirely on the free market. We have always had a strong safety net compared to places like India.

  14. The main issue was the security of livelihood of millions of poor farmers in India and other developing countries against import surges which could take place.

    And now “surge” is part of economic nonclementure? Sheesh!!

  15. The needs of the few (local small business owners) outweigh the needs of the many (local population who would benefit from lower prices on nearly everything).

    Good point. However, it can be tough to bring public opinion on side when ‘the few’ have a big, emotional sob story, and ‘the many’ benefit in a much more diffuse (although, in the aggregate, much more significant) way.

    Anyone ever see the miniseries on PBS called The Commanding Heights? Kinda outdated now, but they described this phenomenon quite aptly:

    No one ever sits around the Christmas tree saying, “Gosh, through freer trade/lower prices, we were able to buy so many more gifts this year.”

  16. Most people in developed countries did not become wealthier by pursuing the livelihoods of their parents.
    Government as defined by Webster’s dictionary; the system or policy by which a political unit is governed. Govern being defined as; to guide, rule, or control by right or authority. All governments rule their people with controls (laws), and they vary greatly in the different governments. All governments guide their people, to live as the government desires. This does not vary much, for all governments guide and control the majority of their people to live so that the minority can live in extreme excess.
    For example in the U.S.A., the wealth is distributed as in this way: 60%for the top 5%, 35% for the next 35%, with 5% left for the last 60%.
    how is this different,better??

  17. “For example in the U.S.A., the wealth is distributed as in this way: 60%for the top 5%, 35% for the next 35%, with 5% left for the last 60%”

    No, it’s not. But nice try just making shit up.

  18. do not take my word ,look it up

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