CURRENT CHALLENGES FOR AGRICULTURAL POLICY



December 1978


Western Journal of Agricultural Economics

with adjustment problems. Unfortunately,
the Community has taken a step back from
the common prices it had established by
1968. That set of common prices would have
encouraged some necessary adjustments. The
use of green currencies has destroyed that
important element of the CAP, and at the
same time reduced the pressure for adjust-
ment.

A means of dealing more directly with the
adjustment problem is needed. Here the
challenge to our capability for institutional
innovation is great. For example, it might be
useful to have an International Adjustment
Fund that would help to finance projects de-
signed to facilitate the adjustment process.
The rationale for such a Fund is that the
world at large benefits from freer world
trade. Yet an individual country finds it dif-
ficult to internalize the political trade-off
since the economic exchange is seldom per-
ceived as between domestic producers and
domestic consumers, but rather as a loss by
domestic producers to the benefit of foreign
producers.

An international institution would perhaps
have a better chance of bringing about posi-
tive adjustment policies than would domestic
institutions. It would be perceived as bring-
ing in resources from outside to deal with
what is commonly viewed as a problem
whose source is external. The capital for such
a Fund could be provided from a small levy
based on the GNP of individual countries —
perhaps the closest measure of consumer
benefits one could find.

The details of such a proposal would take
us rather far afield for now. However, the
concept is nothing more than an application
of the well-known compensation principle of
welfare economics fame, with the objective
being to provide actual compensation. Ag-
riculture would be a likely beneficiary of such
a proposal for it, more than perhaps any other
industry, has highly specialized resources

8The high specificity of agricultural resources is due not
so much to the specificity of labor and entrepreneurial
skills, as to the complex of factors associated with land,
including temperature, rainfall, and daylight.
and thus provides the economic basis for
profitable trade.8

Foreign assistance is an important aspect of
our trade policy. The challenges for this pol-
icy are also numerous. Despite the substan-
tial involvement of the United States in the
world economy, we remain surprisingly
parochial in our policies toward that
economy. We fret over foreign investments
in our economy, when we ourselves are a
major investor abroad. We complain about
competitive threats from abroad, when we
ourselves are a major exporter, and must con-
tinue to export if we are to import essential
raw materials. We pride ourselves on our be-
nevolence with foreign aid. However, if our
contribution is measured as a share of our
GNP, we rank 12th among the 14 indus-
trialized countries, and have ranked that low
for a long period of time.

I would like to single out two of our chal-
lenges with foreign assistance for attention
today. The first is the problem of raising our
commitment to foreign aid. Unfortunately,
we tend to view foreign assistance as benevo-
lence, when in fact it should more properly
be viewed as an investment. Viewed very
pragmatically, markets for our products will
grow only as per capita incomes in other
countries grow. The greatest potential for
such growth, of course, is among those coun-
tries with the lowest per capita income.
Somewhat less pragmatically, but no less im-
portant, development efforts abroad lead to
resource development, expanded supplies of
raw material and production technology, and
synergistic creativity. We ignore these po-
tentials at our own risk.

The second challenge has to do with the
form and policy emphasis that our foreign as-
sistance takes. In the process of reforming
our foreign assistance programs we may have
gone overboard in our emphasis on “basic
needs.” This is not to quarrel with the desire
to help the poorest of the poor. It
is to ques-
tion whether we are treating symptoms
rather than dealing with more basic causal
factors. Agriculture now tends to be viewed
as an employer of last resort, when both
theory and empirical evidence suggest that

240




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