False Economy - Alan Beattie [84]
Like many Europeans, I grew up watching repeated episodes of direct action by French farmers complaining about the threat to their livelihoods. With a flair for theater that suggests many have in fact missed their metier, the farmers have repeatedly blocked or set fire to trucks containing imported lambs from Britain and dumped tons of surplus vegetables in village squares as a protest against low prices. I have yet to see, and I do not expect to, a mass demonstration of French consumers marching down the Champs-Elysees chanting in unison (in French, obviously): "What do we want? Somewhat cheaper sugar! When do we want it? Phased in over a seven-year period!"
Just as Olson's theory predicts, within the farming community it is the concentrated lobbies that have the clout. This is on open display in the so-called Doha round of trade talks, which were launched in 2001 in the eponymous capital of the Gulf state of Qatar and stuttered painfully in the years following, with agriculture proving a particular stumbling block.
It has been calculated that the effect of reforming farm subsidies in the Doha round of talks would cause an average fall in the overall household income of Japanese farmers of just 1.4 percent, and in the United States it would be statistically indistinguishable from zero. For most farming households, agriculture is actually a sideline—they derive most of their income from other work. But those losses would be concentrated in the big farms that scoop up most of the subsidies and the benefits of trade protection, and that have the money and the clout to organize politically. Agricultural liberalization would cut the income of the wealthiest 10 percent of American rice farmers by 19 percent, and the wealthiest 10 percent of cotton farmers by 10 percent. Moreover, because the value of the subsidies is reflected, or "capitalized," in the land the farmers own, their removal would also seriously reduce the value of their assets, by 26 percent for the rich rice farmers and 12 percent for cotton growers. Subsidies and protection have a ratchet effect: once they are given, it is hard to take them back.
International trade has often been the ground on which these fixtures are fought out. Historically, import tariffs are generally one of the earliest types of levy that governments have managed to exact, with income and sales taxes following later. It is easier to tax goods passing through a port than it is to keep records of the incomes of everyone in the country, still less every time something is bought or sold across an entire economy. But in rich countries that original justification has long since ceased to wash. Tariffs in most economies have become explicitly protectionist, raising the price of cheap imports to prevent higher-cost domestic producers from being undercut.
So what are the reasons why tariffs persist? One is simply the effect of inertia: once protection is in place, it is politically painful to remove it. Both domestic producers and those, like the Peruvian farmers, who have privileged access usually argue vociferously against across-the-board reductions in tariffs. Another obvious reason is that they are specifically what lobbyists ask for. Because tariffs can be varied between goods, they are a good way of targeting protection on a particular industry. And it is easier for that industry to defend the continuation of a tax, which raises government revenue, rather than a public subsidy, which evidently gives it away.
So what kind of industries tend to get protected? Intriguingly, they tend to be those that are failing, not those that are succeeding. When I took over as trade editor at the Financial Times, it struck me after a short while that covering most of the high-profile international trade disputes—textiles, clothes, shoes, steel, sugar—was a little like touring a retirement home peopled with the decrepit has-beens of European, American, and Japanese farming and manufacturing, who spent their time doddering about, complaining about the insolence of the young foreign whippersnappers pushing