Topic: International Economics and Development

Subsidies Fail to Save French Farms

French farmers harvest billions of euros every year in government support through the Common Agricultural Policy (CAP). Yet those lavish subsidies and trade barriers have failed to achieve one of their primary objectives: saving the French family farm.

According to a study just released by the French Statistical Institute (INSEE), and reported in today’s Financial Times, an average of 100 French farms have gone out of business EVERY DAY for the past 50 years. The number of farm workers in France has dropped by two-thirds in the past 25 years. France’s farm exports have been declining by 3.4 percent per year since 1999, and farm household income has actually fallen during the past decade, while the incomes of non-farm households in France have been going up.

The decline of the French farm has occurred despite, or perhaps because of, the generous support of the CAP. France’s farmers receive the equivalent of $11.6 billion a year in handouts, more than one fifth of total European Union spending on agriculture. Those subsidies have arguably kept French farms from becoming more competitive and thus contributed to their long-term decline.

When the EU’s farm commissioner, Mariann Fischer Boel, warned that French farmers should seek second incomes outside the farm sector to survive, the French farm minister denounced her comments as “an insult to the social model to which European citizens are profoundly and legitimately attached.”

Is an agricultural “social model” that costs billions of euros a year and only adds to the decline of the French farm worth holding on to?

Rock on, Canada

I realize I have already blogged about agriculture today, and normally I would spare you a second blog entry, but there has been an important development in agricultural trade circles. Canada has requested consultations (the first step in a full-blown trade dispute) with the United States over U.S. farm programs.

Specifically, the Canadians want to discuss the subsidies given to U.S. corn farmers, and the damage they did to other world corn producers because of price suppression effects. Enquiring minds in Canada also want to know more about the amount of trade-distorting support that the United States paid to its farmers overall in “certain years” (the press release doesn’t specify which).

It’s hard to say at this point what effect, if any, this development will have on the U.S. farm bill debate, or the WTO negotiations in the Doha round. But it would be a stupid brave Congress indeed that paid no heed to the WTO effects (in litigation or negotiation) of American farm subsidies when drafting a new farm policy. History has shown that the costs of farm welfare to consumers and taxpayers tend to get short-ish shrift when juxtaposed with the farm lobby, but firms facing possible retaliatory sanctions or failed market access ambitions as a result of an adverse ruling against the United States might carry more weight.

Some Quick Links on Farm Policy Reform

Cato’s Center for Trade Policy Studies is putting together its ideas for a sensible farm policy (the current farm bill comes up for renewal later this year). Needless to say, the Cato plan will look substantially different from the anachronistic, interventionist pork-fest that was the 2002 Farm Bill.

In the meantime, those interested in U.S. farm policy might like to check out the following links: today’s editorial in the Washington Post and an article by Jonathan Rauch in Friday’s National Journal. Both contain plenty of arguments for what is wrong with U.S. agricultural policy today and are best read on an empty stomach. For a good overview of the farm bill debate, this article by Catherine Richert (Congressional Quarterly) is a pretty good bet.

Rich and Successful Flee France

Johnny Hallyday, the French singer and actor, has had enough of high taxes in France and decided to move to Switzerland.

According to Hallyday, “Like many people in France, I have had enough of paying these ridiculous taxes we are forced today. That’s it, I’ve made my decision.”

French politicians are reported to be shocked. Jean-François Copé, the Budget Minister, has even said that “Johnny Hallyday was not carrying out his patriotic duty of paying his taxes to his own country.” It appears that no prominent politician in France has even considered the possibility that Hallyday may be right to want to keep more of the money he has earned!

Of course this is not the first time that a French celebrity has opted to live in a country with lower income tax. Some years ago, Laetitia Casta, a French supermodel, got upset over high taxes in her home country and left for London.

There she joined tens of thousands of her compatriots, who find the French taxes too burdensome and job opportunities too scarce. Casta’s flight would have been unremarkable had it not been for the fact that she was cast as the model for the bust of Marianne, symbol of the French Republic, an honor formerly held by Bridgitte Bardot and Catherine Deneuve.

The above stories personify the conflict between the image of France purveyed by the governing elite and the reality. On the one hand, France is portrayed as a strong and confident country, whose people, unlike the Americans, are committed to “social solidarity.” On the other hand, there is the reality of high taxes, high unemployment, uncertainty, and a general feeling of malaise. As more of the young, educated, and successful French move abroad, the welfare state will grow more unsustainable.

The question is, do Nicolas Sarkozy and Segolene Royal recognize the need for deep reforms, or will the victor of this year’s presidential elections turn out to be the younger version of Jacques Chirac?

High-Tech Immigrants vs. Low-Tech Congress

Any scan of the business pages will reveal anecdotally that foreign-born scientists, engineers, and entrepreneurs are playing an important role in our high-technology economy. A Duke University study released yesterday on ”America’s New Immigrant Entrepreneurs” confirms that fact.

Conducted by a team of researchers at Duke’s Pratt School of Engineering, the study surveyed thousands of U.S. high-tech companies and examined a decade of patent records. The study found that:

  • One-quarter of all engineering and technology companies launched between 1995 and 2005 had at least one key founder who was foreign-born. Those companies with at least one immigrant co-founder produced $52 billion in sales and employed 450,000 workers in 2005.
  • India was the most common home country among the foreign-born entrepreneurs, followed by the United Kingdom, China, Taiwan, and Japan. Most of the immigrant-founded companies were in the software and innovation/manufacturing services sectors.  
  • Foreign nationals living in the United States were listed as inventors or co-inventors on almost a quarter of the patents filed from the United States in 2005.

Many members of Congress worry that the United States may be losing its edge in high technology industries. Yet the same Congress maintains a cap of 65,000 on H1-B visas that allow highly skilled immigrants to live and work in the United States, a cap that falls far below the actual needs of our nation’s resurgent high-tech sector.

The Duke study shows clearly why Congress should raise the cap — unless congressional leaders believe America already has too many high-tech companies and patents too many new inventions. 

Is Bush Helping Africa?

On Sunday, December, 31, the Washington Post featured a banner headline reading “Bush Has Quietly Tripled Aid to Africa.” The article noted:

The president has tripled direct humanitarian and development aid to the world’s most impoverished continent since taking office and recently vowed to double that increased amount by 2010 — to nearly $9 billion.

The moves have surprised — and pleased — longtime supporters of assistance for Africa, who note that because Bush has received little support from African American voters, he has little obvious political incentive for his interest.

“I think the Bush administration deserves pretty high marks in terms of increasing aid to Africa,” said Steve Radelet, a senior fellow at the Center for Global Development.

Conservative press critics might be surprised at the positive tone of the article, which ran for 34 column inches, about a third of a page. But one could also wonder why the Post, in all that space, couldn’t find room for a single critical comment from a foreign aid skeptic. For decades, economists have argued that government-to-government aid bolsters dictatorial governments, increases dependency, and discourages local entrepreneurship and enterprise. People can hardly fail to note that Africa has been the largest recipient of economic aid for decades, and the continent remains poor and undeveloped. So will Bush’s huge increase in aid be more successful? The outlook isn’t good.

Post readers who want the full story might consult foreign aid critiques by pioneering development economist P. T. Bauer, former World Bank economist William Easterly, Ugandan journalist Andrew Mwenda, longtime aid practitioner Thomas Dichter, Cato’s Ian Vasquez, or four African economists, or this story from the BBC.

The iPod Nano: Assembled in China, designed and enjoyed in America

Among the Christmas presents in our house this year were two iPod Nanos. On the back of each of these nifty devices is the inscription, “Designed by Apple in California. Assembled in China.”

That tells a more accurate story than the more common but misleading “Made in China.” As with many other high-tech devices, iPods are indeed assembled in China, but the real guts of the device—the design, the brand name, the more sophisticated components—come from countries outside of China.

To those obsessed with the trade balance as a zero-sum scorecard, another iPod imported from China merely adds to our growing bilateral trade deficit with China. Granted, assembling iPods does create jobs for Chinese workers that probably pay higher than average wages, so China does benefit. But who is getting rich from all the iPods Americans bought this Christmas, and who is getting the most enjoyment from them?

The answer: Americans.