The Washington food crisis consensus

Did following the advice of the IMF and World Bank in the 1990s set poor countries up for a big fall when grain prices spiked a decade later?

Published April 23, 2008 7:28PM (EDT)

Everybody's got their own explanation for the global food crisis, and the funny thing is, everyone's probably right, at least partially. In addition to the factors noted in my last post -- growing global demand, bad weather, biofuels -- there's also the falling value of the dollar, low interest rates, and of course, the rising price of oil, which may ultimately be the biggest contributor to global commodity inflation. No single suspect qualifies as the sole arch-villain, but together, they comprise quite the group of conspirators.

At the United Nations Conference on Trade and Development, currently meeting in Accra, Ghana, an UNCTAD official proffered yet another possible explanation: the "structural adjustment program" forced upon the developing world by the IMF and World Bank during the heyday of the Washington Consensus.

Briefly put, "structural adjustment," as understood by policymakers at the World Bank and IMF during the late '80s and '90s, required that in return for loans and international support, developing nations reduce the level of government intervention in their economies, and open themselves up to trade. As economist Robert Wade has pointed out most vociferously, one effect of the ensuing straitjacket was to essentially prevent any other developing nations from following the path to prosperity paved by the East Asian superstars Taiwan and South Korea -- and even Japan. Forget about targeting government incentives to boost strategic industries -- that was now a big no-no. As economist Dani Rodrik has pointed out, the new regime restricted the "policy space" in which governments could maneuver in exchange for sweeping prescriptions that often did not take into account the specific circumstances of individual countries.

The current food crisis presents another possible illustration of how the Washington Consensus could backfire.

From This Day:

[As a result of adhering to IMF and World Bank demands] "The production system of many developing countries underwent serious changes because on one side domestic support for production, that is subsidies to farmers, were generally cut," said official Rolf Traeger.

At the same time there was a very deep trade liberalization that was put in place by the developing countries as part of the SAP. "This means that it was much cheaper and easier to import those products."

When other nations are willing to export food products at prices more cheaply than a nation can produce them itself, consumers in the importing nation will benefit from low food prices, but farmers may find it harder to compete. So agricultural productivity may decline. But what happens when, as is the case right now, food shortages and price spikes spawn a wave of protectionism as countries scramble to secure their own food supply and slap tariffs on exports of key staples, like rice and wheat? If even a wealthy country such as Japan is facing food shortages, then poor sub-Saharan African nations prevented by IMF rules from attempting to goose their agricultural sector are stuck in a serious quandary.

As a way out of the crisis, [Traeger wants] the affected countries to have a rethink of the policies that were put in place in the 1980s and provide technical support, better irrigation techniques, better cultivation techniques as well as financial support to farmers."Infrastructure for rural development is also needed, like roads and marketing mechanisms so that then farmers would know how to market their products," he said.

Traeger's comments echo last December's much talked about New York Times article, Ending Famine, Simply by Ignoring the Experts," in which reporter Celia Dugger described how Malawi spurred agricultural production by aggressively providing fertilizer directly to farmers -- exactly the kind of subsidy frowned upon by Washington Consensus acolytes. And we're very likely to be hearing much more rhetoric in that vein if the current food crisis deepens -- a possibility that becomes more likely every day, as nations scramble to secure their own supplies and global patterns of trade break down.

It's not the whole story -- just as biofuels, or changing diets in China, or low interest rates, aren't, by themselves, the whole story. It may even turn out that high commodity prices, in the long run, are exactly the incentive poor developing nations need to kickstart their agricultural sectors into productivity. But getting to that point without millions of people starving is going to be a struggle.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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