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Government Failures in Development

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Political Science
Sophia Moreau

Politics of Development: Week 8 - November 1 , 2010st Government Failures in Development - Governments in Africa tax the output of farmers and subsidize agricultural outputs o Produce economic inefficiencies like price distortions, non-competitive rents, violate economic interests of most farmers, governments in Africa tend to undermine the market o Could otherwise be seamless market interaction - Elements of Agricultural Policy: o Cost of inputs o Cost of outputs o Cost of secondarymanufactured goods - Inputs and manufactured goods are expenses, cost of outputs is income o ZLoZZ}KZ ]}ZK7}KK[Zo]o]Z}}7]]o] depends on these three things - LKL }L]Z]L] 7ZZZoKLZ}L[L}LZKl7Zpend on government policy o Government intervention: Depress the cost of outputs, decrease price farmer will get for final product Increase the price of manufactured goods, under conditions of ISI, costs are fairly high To make up for previous two interventions, decreasing income while increasing expenses, governments subsidize the cost of inputs - Government depresses price of crops o Do it through monopsonies, a marketing structure that sets the price for a crop, buys all of the crop for a farmer, stores it, and resells it either domestically or on the international market No competition between farmers, farmers unable to export themselves, must sell to marketing board that is state run Everyone gets same price in a particular year for a particular product Price set, price stable, no way to get a better price Government use monopsonies to control domestic prices, particularly controlling them downward, producers get prices that are less than those on international market, use marketing boards to tax farmers Farmers will receive far lower value for crops the produce for export than what government is able to sell it for on the world market, government keeps huge percentage of profits from crops N Effectively, governments are taxing farmers Governments justify this with the claim that the government, the state, will accumulate money that they will use to cushion, subsidize suppliers in the years when market prices of agricultural products fail
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