By Simon Lester in Development — 31 Mar 2010

Too Neoliberal, or Not Neoliberal Enough?

Over at Eyes on Trade, Travis McArthur links to an article about Bill Clinton's views on free trade, which states:

Former U.S. President Bill Clinton says the free-trade agriculture policies he supported as president were a mistake. Many critics blame these policies for contributing to Haiti's hunger problems. As president, Clinton backed trade policies that opened developing world countries to farm products from the United States.

Critics say the subsidies industrialized countries pay to their farmers create unfair competition for developing-world farmers, driving many out of business and leaving those countries at risk of hunger. At a news conference in Port-au-Prince Monday, Clinton said when he helped Haitian President Jean Bertrand Aristide return to power in 1994, Clinton also signed legislation that increased the flow of cheap American rice into Haiti.

But now, he says, "I think it was a mistake. I think it was part of a global trend that was wrong-headed."

Clinton says the theory behind that global trend was that wealthy countries could provide poorer countries with cheaper food than their farmers could grow. That would lead poor countries to skip directly to industrialization. But Clinton says, once he left office and saw the effects of that policy on farmers in developing countries, he changed his mind.

"It is unrealistic to expect that a country can totally obliterate its capacity to feed itself and just skip a stage of development," he says. "It seems almost laughable now that we ever thought it."

McArthur then says:

It’s heartening to see one of the strongest proponents of the neoliberal economic model come to realize just how damaging that model has been. For Mexico, though, this realization has come about 16 years too late.

When NAFTA entered into force in 1994, cheap subsidized American corn from corporate farms flooded the Mexican economy, forcing hundreds of thousands of small corn farmers to leave their farms. Many of these farmers, faced with corn prices below their cost of production, often had no choice but to emigrate to the U.S. to escape economic disaster. During the 2007-2008 global food price crisis, poor Mexicans found out exactly how costly the destruction of the Mexican corn industry could be when tortilla prices, propelled by U.S. corn prices, skyrocketed by 60 percent within a few months.

Now that Clinton has seen the flaws of the unfair trade model epitomized by NAFTA, could he press Obama to renegotiate NAFTA to make it fair for consumers, workers, and farmers in all three NAFTA countries?

This is probably obvious to most readers of this blog, but just for the record, let me note that exports of subsidized U.S. rice (and corn) are neither "free trade" nor the "neoliberal economic model." What Clinton and McArthur should be arguing, in my view, is that by subsidizing rice, the U.S. failed to practice free trade/neoliberal economic policies, and this failure was very harmful to Haitian rice producers. While regional agreements like NAFTA can't do much about agriculture subsidies, the WTO tries to rein them in.

As to how non-subsidized U.S. rice would compare to Haitian rice in terms of price, I would guess that the price of the U.S. rice would be higher, but I'm not really sure. If it were the case that even non-subsidized U.S. rice was hurting Haitian rice producers, I'll just mention that WTO rules allow developing countries to maintain a good deal of protection (and for that matter, they provide developed countries plenty of flexibility for protection, too).

Oh, and one more thing. The article describes Clinton as saying the following: "the theory behind that global trend was that wealthy countries could provide poorer countries with cheaper food than their farmers could grow. That would lead poor countries to skip directly to industrialization." I've read a decent amount on development over the years (though certainly not everything, of course), and I've never heard that theory. To me, that seems like a horrible mangling of something that an economist might have actually said.