Governmentt Failures FINAL.pdf

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University of Toronto St. George
Political Science
Christian Campbell

- locating the bates reading in the isi reading we did for last week -> the following is what isi looks like from the perspective of the farmer - marketing boards play a big role in agricultural policy -> i. can dictate what the domestic price of crops is, governments depress this price through monopsonies -> of course, if you live in a country where agricultural producers are powerful political actors/ groups, they may be able to sit at the table and influence the process, but in most african countries this is not the case -> government uses monopsonies as a way to accumulate trade surplus, taxing farmers, with farmers often receiving half (for their sale) than the international price -> governments often justify this move by claiming that they mean to accumulate money which they will then use to cushion suppliers in the event of failure, absorbing loss of money using money they’ve siphoned off the agricultural sector in years previous (remember: agricultural goods are volatile, vulnerable to international market) -> but in fact, what happens most often is that governments spend that money, because they need it immediately, and pass the burden onto farmers anyway -> in particular, this money often goes to the bureaucracy that corresponds to monopsony in the form of higher salaries -> remember, governments, in the context of isi, are favouring urban sectors as they are favouring a strategy of development on the basis of industrialisation through favourable taxation policies, subsidising inputs, etc. -> under isi, governments also benefit the industrial sector at the expense of the agricultural sector by overvaluing the exchange rate, making it cheaper for industries to import capital equipment but also making exports more expensive, as we discussed last class -> legal government rate vs. illegal black market rate -> countries still of course overvalue and undervalue their currencies though it’s much more common now to let your rates float to the market price with the most undervalued currencies being those of the asian export economies (especially the chinese yuan but including the malaysian and taiwanese currencies, so even after moving from a pegged currency regime to a market float, the currency still remains undervalued) -> governments also try to keep the domestic price of food low, needing food for workers (preventing food riots in urban areas) -> urban consumers, then, have more political influence than small-scale rural farmers -> but governments have less control over food crops through monopsonies than they do over cash crops so prices for food crops have a greater tendency to respond to supply and demand and the government is forced to manipulate the price of available food (itself buying food or, in the event of increasing prices, flood the market) - ii. governments also intervene in the market for manufactured items (or secondary goods) using protectionist policies against foreign competitors (like tariffs, quotas, permits, etc.) to ensure that new industries do not face competition meaning that prices of manufactured goods will be high -> because of the bubble that isi creates around market, inefficient producers are able to remain competitive - the two factors above combine to drastically reduce the purchasing power of farmers -> counterintuitively, iii. the government subsidises the price of inputs (needed by farmers) -> government, controlling land and water, divert both to commercial farmers -> most policies are targeted to benefit large-scale farmers (as they are supposed to be more productive and tend to be more politically powerful) - looking at these same policies from the perspective of the government -> there are three theories about what governments’agendas are -> i. governments seek to maximise welfare (to secure higher purchasing power); ii. governments respond to political demands (urban interests, large-scale commercial farmers); iii. governments try to maintain political control -> the argument being that in light of these three, the interventions of governments in the market become clear - re: political demands, urban dwellers tend to be much better organised than peasants, sensitive to food prices, desiring the prices of goods that they produce to remain high while food prices remain low -> poor subsistence farmers obviously have less power than commercial farmers, too - re: that last point about political control -> if the market were to work seamlessly, without government intervention, then the government would not be able to use markets and prices in order to benefit supporters only -> in this sense, the market is a public good, with everyone having access to it upon existence -> if the government were to rationalise economic production by letting the market determine the prices, then the government would not be able to manipulate prices to benefit certain sectors of the population (those they need to make happy in order to stay in power) and to siphon selective benefits off into supporters -> so public resources in this context are not used for economic efficiency but in order to create and hand out rewards -> what happens here, bates argues, is that “collective deprivations” can be turned into selective benefits -> these policies are not good for agricultural sectors or, indeed, for african economies as a whole, with an overall negative effect, but are still selectively beneficial - bates is advancing here a particular theory of human behaviour -> thinking back to the modernisation and dependency theorists -> the former juxtapose traditional vs modern people while the latter came along and posited that all human beings are rational but rational within different frameworks/circumstances -> bates is coming into this debate at a time when everyone is looking at these african countries and their agricultural sectors and deeming african economic policy irrational, saying they’re digging their own holes and undermining their own countries -> one of bates’overarching normative claims is that
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