Nathan Morrow Globalization, Free Trade, and Food
Globalization, Free Trade, and Food is perhaps the most important discussion of the 21st century. Today we'll discuss food and food security, and will offer some perspective as to why the USA and other areas may differ in opinion on these matters.
I will discuss international institutions as a prep for your trip to Rome tomorrow. I will let you know how these international organizations fit into the system.
We have had perspectives from many sides but we have not had not the neo-con perspective from the World Trade Organization. Why do so many people throughout the world feel that globalization and free trade is the best way for everyone?
Nathan Morrow's Notes on Globalization, Free Trade, and Food
Disclaimer: Not necessarily Nathan Morrow's opinion.
A Different Approach.
Everyone benefits if people are allowed to do what they do best, and allowed to trade for what they want. This method is just more efficient. The convertibility of currencies and the fungibility of commodities is important. You have to know what your money is worth in the units of other currencies. We need a fixed idea of an exchange rate for your good in your own money. This is ESSENTIAL for globalization, and for countries to join the global economy.
The fungibility of commodities means that one unit of a product is exchangeable for another unit of the same commodity elsewhere. Basmati rice from India must be exchangeable with Basmati rice in Italy.
How does this work? Why do we think free trade and globalization matter so much?
Free Trade and Comparative AdvantageComparative Advantage: -
The ability to produce a service or good at a lower cost is important. This is an opportunity cost, as compared to doing something else. Many people, such as neoconservatives, think there is something "natural" about the advantage they enjoy, even if the advantage or DISadvantage was created by historical accident. If you hear them talk, there's the perception that, say, America's high production of wheat is natural and a historical accident . The belief goes that we have the land, people do what they do to produce the wheat, and so on. When people discuss comparative advantage, that is what they are talking about.
When discussing costs, we are discussing OPPORTUNITY COSTS, or what things cost in relation to the opportunity to do something else. Making parmesan is cheaper in Parma then making asiago because you have the resources, the right milk, the knowledge, and so on. How does this actually work? What is the thinking behind why this make a surplus and makes us all better?
Efficiency: Natural advantage is more efficient. If you increase your efficiency beyond "natural" advantage, as we all know you can create advantages. Governments make lots of policy and investments to increase their natural abilities. Singapore, for example, invests big time in brain surgery. How does this efficiency work?
Two ways:Specialization - Human beings or organizations focus their efforts on a limited number of tasks.
Division of Labor - Adam Smith talks about this. This involves taking a complex thing or task and breaking it down into small components, and then specializing. You've focusing on fewer products
.Up until this point, talking to Slow Food and the Washington consensus sounds similar: they agree that everyone should do what they do best. They DIFFER when it comes to getting down to products and efficiency. Small products and repetitive tasks will produce efficiency.
What are the opinions of groups controlling financial institutions, and why are they against trade barriers and transportation costs?
What takes away efficiency from this perfect market system is a TRADE BARRIER and rising TRANSPORTATION COSTS. The market system drivers want gas to be as cheap as possible, and must ensure trade barriers are not erected to distort this.
Last year's price crisis was the biggest challenge to globalization since the 50's. People put up price controls and bans on food and ONLY food. You saw governments panicking about gas prices as well. This was the first threat to this system, and a real expose of its vulnerability.
Who takes care of these issues of convertibility of currencies? How did that start?
A major national group of organizations concerned with this are the Bretton Woods Organization.
They are the ones entrusted with trying to keep the convertibility system as functional as possible. The fungibility of food commodities, the units with no qualitative differences, are kept straight by standards. Quality has certain benchmarks. The international organizations that do this are like FAOL.
Why is this so important? If you do food security work (like me) and you work in places like Haiti, this will be illustrated. In Haiti, everyone uses a cup of grain. In every village within walking distance, the cup is a different size. In the Congo, you buy a kilo of rice, but the size of the kilo changes constantly, though the price is always the same. So it's always 500 francs. The price never changes. You may call it a weight name but it actually indicates a price, and the weight you GET is negotiated always at the time of sale. So, what is 500 francs? It could be 800 grams, or it could be 1200, depending on the actual price of rice in the market. This is how markets actually ARE and have been for millennia. Local measures were used, and negotiations always occurred.
This WILL NOT WORK for globalization and will make the system fall apart. The cheese tastes better sometimes then other times, wine tastes better, you get more or less for your money. This reality flies in the face of globalization.
What is Bretton Woods?
When we discuss Bretton Woods, we're talking about a negotiated system of monetary exchange. A treaty signed prior to the end of WWII, was created when the Allies met in New Hampshire to sign a treaty on how currency would be handled after the war. Bretton Woods was established by the Reconstruction Bank and the IMF, and would set exchange rates on a currency set by the USA Dollar. Why was the DOLLAR used instead of the GOLD STANDARD?
Britain, France, Belgium, the other allies, hadall pegged THEIR currency to the US dollar. They could have just pegged it to gold. They didn't have any gold after the war. Nobody had any after the war. It was much easier to fly a plane somewhere full of 100 dollar bills then it was to fly a whole bunch of gold.
So where did the gold go?There was not enough gold to reconstruct Europe. and there never was. All the gold was in the hands of people in Switzerland, and just not enough. If you're discussing the reconstruction of an entire continent, it was not enough. And it had already been spent. The UK sent off their gold stores all over the world, and France's store was stolen and probably went to warlords.
After this, you could buy T-BILLS or Treasury Bills, which you could stick in a vault in the bottom of your reserve INSTEAD of gold. The IMF was founded to add liquidity>, short term loans, and guarantees. They in effect said, "T Bills might not be here yet, but we will insure them".
Why did they do this?
People felt financial volatility CAUSED WWII. It allowed the rise of fascism. They needed a stable financial structure to decrease their vulnerability. Globalization began before this, but the convertibility of currencies really jump started it.
What is the IMF?The IMF has a subscription service. If you look at both the bank and the IMF, they have periodic replenishments. They go all over the world, and everyone sends a chunk of T bills or gold, and they pay for their subscription. They are almost like shareholders. The IMF is very different from other UN organizations, and the USA holds more sway then any other nation, as they control almost 25% of the supplies.
HISTORY OF THE IMF
Massive loans were given after WWII from the reconstruction bank, which was a precursor of the World Bank. The USA still had most of the gold in the world, and literally did not have enough dollars to reconstruct Europe. The USA did have gold, but had to pay 28 dollars for an ounce of gold, hindering their printing. Therefore, they needed gold to replace the dollar. The solution to this problem? The bank began giving GRANTS instead of LOANS. This gave rise to our modern international aid infrastructure. Since there is not enough currency, you cannot just give loans. People will never repay them. Grants are therefore, the only way to conduct this business.
Marshall Plan:The Marshal Plan gave over 17 billion in grants. These grants changed the world financial situation from a dollar SHORTAGE to a dollar GLUT. The Europeans bought services and products from the USA in vast amounts. A glut also meant too MANY dollars in the US system. There were issues with places like Belgium buying dollars and exchanging them for gold, as gold was worth more then the official US rate. This cycle kept on going as people attempted to cheat the system. By then, gold was worth more then 28 dollars. The whole system collapsed in 1972.
After 1972, we went back to a fiat system with no world standard, but a faith that government will continue to exist, that money is worth something. Rates have been floating ever since.
International Finance Organization
The IFO gives loans to private investors. The multi investment guarantee agencies guarantee foreign direct investments. The International Settlement for Investment Disputes works to bring down barriers or worries about developing in a developing countries. They give you (the investor) guarantees you will not lose your investment if something bad happens.
Structural Adjustments
What is this?
Structural Adjustment programs are a set of policies to promote free trade and growth. They focus on lowering trade barriers and transport costs.
Countries with SA had World Bank advisors come and say, "We can readjust your loans, or we can give you forgiveness." This began in 1970 as response to oil crisis, and went from structural adjustment to "poverty reduction" as of the late 90's
.What does a SA or poverty adjustment plan look like in action?
One theory is austerity.
You reduce your public sector spending, but this leaves less money for health, education, social programs. Less money, as always, means an outsized impact on the poor. If you reduce your trade barriers, you reduce your public sector. These are the PILLARS of poverty reduction plans.
We know in practice that a reduction in trade barries increases people's vulnerability. People put up trade barriers to protect consumers and people from volatility. Trade barriers and protectionism are popular among the poor, as well as public programs and safety nets. Structural adjustment wants to promote growth in order to expose the poor to more risk. The more risk you take, the more growth you can have. The poor are risk adverse, as they lose more if something goes wrong. Thereby trade barriers and social programs are very popular among the wealthy and powerful.
.Asian Financial Crisis: The Asian Tigers made the case for free trade and structural adjustment . If you practiced free trade and structural adjustment, you could be the next Singapore or Malaysia. After the crisis, this created Bretton Woods 2. The Tigers lost 20 years of development overnight due to financial volatility. They were doing great for 20 years and then, they lost it. They decided to voluntarily repeg their currencies. China and Malaysia are still pegged to the USA dollar to decrease volatility and stability.
This is a brief overview of how UN financial organizations fit into this system. Who will we talk to in Rome?FAO and EFAD. They are part of the UN like the World Bank, but not everyone knows a lot about the UN.
Some background on the UN:The UN is an organization with five organs, which are independent subgroups of a larger organization. The UN General Assembly, which has one participant from each member country. The UN Security Council is subset of the general assembly. The UN Economic and Social Council is an organ that the agencies we will be talking to tomorrow are part of.The UN Secretariat is composed of the the secretary general, an organ in and of himself in his treaties, and in his staff.The International Court of Justice is the 5th organ. What is the UN Charter? Preamble: We the peoples of the UN are determined to promote social progress and better standards of life in larger freedoms.
Why are the UN economic and Social councils an important part of the UN System?The UN was created to promote peace, but it is not exactly clear how the cause of peace is furthered by the UN Economic and Social Council. The UN's main vehicle of peace promotion is creating social rights and standards of well being. The UN'S objectives are thereby: Peace, how do we achieve peace and, social and well being promotion. This is all done through social needs.
Charter Article 55
With a view to the creation of conditions of stability and well-being, which are needed for peaceful and friendly relations among nations based on respect for the principle of equal rights and self-determination of people's, the UN shall promote: Higher standards of living, full employment, and conditions of social and economic progress and development. Solutions of international economic, social, health, and related problems, and international cultural and educational cooperation. Universal respect for, and observance of human rights and fundamental freedoms for all without distinctions as to race, sex, language, or religion.
In the charter, organizations are saying that we will promote peaceful relations through economic connectivity and social promotion. We will look at the Mandate for Food Security from a humanitarian and well-being perspective on the Universal Declaration of Human and Rights, circa 1948.
According to Article 25 of the Mandate: (1) Everyone has the right to a standard of living adequate for the health and well-being of himself and his family, including food, clothing, housing, and medical care and needed social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age, or others lacks of livelihood in circumstances beyond his control. (2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in and out of wedlock, are shall enjoy the same social protection.
Food agencies get their mandate from these articles. If we look at the original UN charter and how it relates to economic and social council, it's all in the "sixties".
What does the Economic and Social Council of the UN do? The Council does studies and reports, and has meetings. This is their mandate. This is what the UN is mandated to do. While people often tear apart the UN for meeting all the time, this is actually what they were MEANT TO DO.
Where did this curious affinity for meetings come from? These articles:Article 62: Make studies and report, recommendations, draft conventions, hold conferences.
Article 64: Collect reports of specialized agencies.
Article 65: Within tech competency, implement recommendations of GA.
Article 66: Assist Security Council on request - more info on food situation in North Korea, for example - ask FAO if they have any reports and do a study if not.
The FAO is a giant building full of meeting rooms. It is their job to meet.! Enshrined in these articles is the idea of TECHNICAL COMPETENCY. People who are technically competent in these specific areas should be hired to advise everyone else
.Charter on Meetings:One is always impressed at these organizations ability to meet and TALK. The UN is supposed to have COMMISSIONS and deliberations.
. 68 - Commissions 69, 70 - Deliberations 71 - Consult non government organizations.
72 - Convene meetings
What are specialized agencies?They report directly to the UN Economic and Social council. FAO, IFAID, ILO, UNESCO, WHO, World Bank Group, and so on.There are other things in the UN System called PROGRAMMES.
Specialized agencies are the mirrors of ministries or secretariats in other countries. The FAO is the counterpart of the Department of Agriculture in the USA. What we in the USA have secretaries for, other countries have MINISTRIES. The UNDP works with PLAN and the Ministry of Finance.
If the UN doesn't just want to meet and deliberate but be operational (actually do stuff,) they start a PROGRAMME.
Specialized agencies don't have a mandate for operational work, but programmes do. The General Assembly gets together and says they want to take care of something - hunger, aids, whatever. They ask 3 or more specialized agencies to sponsor the program, organizations like the World Food Organization or UNICEF.
Take the UNAIDS program as an example.- WHO, UNICEF, and WFP were the original sponsors of the program. You need more then one specialized agency to support a programme. Programmes are created when the need exists for ACTION rather then MEETINGS.
IFAD: One of the three Rome based food agencies. A UN specialized agency and international financial institution, it was founded in 1978 as a partnership between OPEC, other developing countries, and OECD. The OECD is the "country club of the UN", the richest nations who give donations. 5 million people died the last time the oil market was volatile. Their mission is to enable poor rural people to overcome poverty, and to make a unique governance structure that gives developing countries a real voice.
What exactly does IFAD do? Low interest loans and grants to aid agricultural development. 9.5 billion currently invested in 732 programmes and projects from small grants to USA 50 million loans.
They do...Natural resources management, for improved land and water access. Promote agricultural technologies and services. Perform financial services. Provide market and Agricultural inputs. Provide rural off-farm employment and enterprises. Provide policy programming processes - local and national.They review projects to make sure they are compliant with policy on nutrition and gender.
IFAD Partners:Government
Bilateral and multilateral organizations
UN organizations
Sister agencies in Rome - FAO and WFP.NGO's and civil society.
Grassroots organizations.
Private sector/foundations.
How is IFAD financed? There are three main sources - member contributions, loan reflows, and investment income. You want to make other countries guilty. You want to ask them, "Have you given? This other guy did!" The USA put up $956 million in initial capital. There are three year replenishment cycles, and approximately 45% of IFAD's resources come from donors. IFAD does not, however, have a celebrity spokesperson. :(
FAO:Founded in 1945, the FAO was moved to Rome in 1951. Dionne Warwick is a FAO good will ambassador. Awesome!
FAO'S MANDATE:
Raise nutrition levels.
Improve agricultural productivity.
Better the lives of rural populations.
Contribute to world economic growth. Here we see two main ideas of this course playing off one another: productivity vs. well being.
"Achieving food security for all is at the heart of FAO's efforts." - to ensure people have regular access to enough high-quality food to lead active and healthy lives.
The FAO is voluntary funded. You can contribute to FAO and be a member or NOT. The USA has pulled out of the FAO at several points in history. This is one of the reason there are no Americans at the FAO. The Dutch, however, are over-represented in the FAO. If you are Dutch and apply at FAO, 15 points are docked from your score. The USA is a underrepresented major donor country. We give a large amount of money and are underrepresented.
FAO Activities:Gather and share agricultural information.
Hold meetings to discuss agriculture policy.
Some coordination functions like FIVIMS (Food Information Vulnerability and Security Information Mapping Service) or GTO'S. (Global Terrestrial Observations System looking at land use the world over).
FAO also deals with fisheries and woodlands.
Occasional projects to support agricultural ministries.
Will partner with governments to go out for additional fundraising, like Thailand or Bangladesh for small fish ponds. (They have stopped doing this to a large extent.) Increasingly active in emergency projects.
WFP:The other organization in Rome. It was founded in 1963, and was proposed to the General Assembly by George McGovern (still a WFP goodwill ambassador). It is a multi-lateral food aid program active in 80 countries. They are arguably the coolest good will ambassadors, featuring spokespeople like Drew Barrymore and Cesaria Evoria.
UN Rome Agencies: WFP: Largest humanitarian organization in the world.
FAO: Increasing emergency capacity and coordinating emergency information.
IFAD: Reducing vulnerability for rural poor.
Article 2: Everyone is entitled to all the rights and freedoms set forth in this Declaration, without distinction of any kind, such as race, color, sex, language, religion, political or other opinions, national or social origin, property, birth, and other statuses. Furthermore, no distinction shall be made on the basis of political, jurisdictional, or international status of the country or territory to which a person belongs, whether it be independent, trust, non-self governing or under any other limitation of sovereignty.Gender is mainstreamed, but some UN focus occurs from:UNICEFUNFPAUNAIDS
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