The rice paradox

Sure, freer trade will probably boost production, eventually. But that's little comfort to the urban poor, right now.

Published April 28, 2008 6:19PM (EDT)

You could not ask for a clearer exposition of the theory that free trade will eventually ameliorate the global food crisis than Tyler Cowen's column in Sunday's New York Times, "Freer Trade Could Fill the World's Rice Bowl."

Cowen argues that the export restrictions that many of the world's major rice producers have recently put into place are sending the wrong market signal to the world's rice farmers:

Export restrictions send a message to farmers that their crops are least profitable precisely when they are most needed. There is little incentive to plant, harvest or store enough rice -- or any other crop, for that matter -- as a hedge against bad times...

Restrictions on the rice trade run the risk of making shortages and high prices permanent. Export restrictions treat rice trade and production as a zero- or negative-sum game where one country's gain comes at the expense of another. That's hardly the best way to move forward in a rapidly growing world economy.

How the World Works has no problem with the theory that in the long run, high prices for food commodities and a completely free trade regime would result in greater production (provided farmers don't run into absolute constraints -- such as a lack of land or water or fertilizer inputs). But in the short run, high prices for food result in nasty little things like food riots and other intense displays of political displeasure. Cowen notes that a relatively low percentage of rice is traded internationally, as compared to other popular food commodities. But that's because the biggest producers of rice are also the biggest consumers. In Thailand or China or India, high prices for rice directly affect the standard of living for millions and millions of citizens, right now.

To make the case for free trade in rice to the urban poor in Mumbai or Shanghai or Bangkok, a government would have to find ways of lessening the punch to their pocketbooks and stomachs or face severe short-term consequences. This raises a classic paradox that libertarian economists and assorted Friedman acolytes often appear to underestimate or ignore: efficiently functioning markets require active government intervention. You can't just wave your hand and declare in the New York Times that the answer to high rice prices is to get rid of all export restrictions, without at the same time providing for some kind of short-term cushion to the millions of people who will be harmed by such a policy today or tomorrow.

Governments will act in what they perceive to be their own interest. The great irony that bedevils free trade is that to make it work will require the kind of global attention to winners and losers that might only be possible through a functioning world government that treated all the citizens of the planet as its constituency.

By Andrew Leonard

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

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