Killing the Golden Goose
June 25, 2008
Alvaro Vargas Llosa
WASHINGTON—We tend to judge this year’s food crisis, marked by seemingly indomitable prices, from the point of view of those who are suffering. It might be useful to judge the crisis also from the point of view of those who are causing it. That’s where the real lessons will be learned.
Let’s take Argentina, one of the world’s top producers of grains and soybeans. Agriculture, both traditional and industrial, employs a third of the country’s work force and accounts for half of its exports. Three months ago, President Cristina Fernandez de Kirchner declared war on the countryside by raising taxes on farm exports. The decision took an already alarming tendency to new heights—both her government and that of her husband, Nestor Kirchner, whom she succeeded, have squeezed farmers in order to maintain a political machine based on patronage and wealth redistribution under a populist state.
This time, the Buenos Aires government decreed that export taxes would shadow price fluctuations on the world market, in practice raising them to 45 percent of farmers’ revenues. If we add to the other taxes paid by farmers and the rest of Argentine society, we are talking of landing a tax burden of up to 75 percent on farmers.
The government believes that by limiting exports, it will create a domestic glut and keep the price of food down in Argentina. It’s the same delusion on which other governments, from India to Egypt to Morocco, have based their policy of limiting certain farm exports this year. But the ongoing assault on Argentine farmers’ exports, coupled with price controls and an inflation rate that borders 30 percent, according to most economists who are not on the government payroll, is killing the incentive to keep up or expand production. The result is a drop in international supply at a time when demand is insatiable. Chinese cattlemen—and therefore consumers of milk and meat—are paying the price of the Argentine government’s attack on soybeans.
Fernandez de Kirchner’s tax decision and the four ensuing strikes that have taken place in the last three months have already cost Argentine farmers $2 billion. The disincentive that this creates for future investments is obvious. Even before the public break between the Kirchners and the country’s farmers, the policy of plundering the countryside had deterred investors. This is why economic growth in the first quarter of 2008 was barely 0.6 percent greater than in the last quarter of 2007.
The Argentine administration is one of two dozen governments that are currently limiting the supply of grains and other commodities. Never ones to miss a signal, commodity traders anticipate that all of this will tend to worsen the gap between those who seek and those who offer farm products on the world market. Prices, therefore, continue to rise—and rise. The universal hysteria over food prices is perfectly justified.
In the case of Argentina, the underlying problem is the populist culture. Compared to the average citizen, the Kirchners, both lawyers, are rich and educated, and they have access to a sea of information. But their minds are frozen in the 1970s, their formative period—a time when the Argentine revolutionary left took the populism incubated in previous decades under Juan Peron to its most extreme excesses, unleashing an armed struggle against the “system” that eventually brought about a brutal military dictatorship. The Kirchners, I should add, belonged to the group known as “let’s arm ourselves and you go,” made up of those who left physical revolutionary exertion to others while they felt good cheering from their living rooms.
Fernandez de Kirchner, a refined woman whose weakness for designer clothes and jewels is legendary in Latin America, calls farmers “the oligarchy.” However, the immense majority of them are small and midsize entrepreneurs who, unlike big agribusiness concerns, have not been constantly showered, under her government and that of her husband, with subsidies—except for an undervalued currency.
In a more parochial world, the Kirchners would have caused harm that was only felt locally. In the global village, the consequence is international. Together with other populists, the Kirchners teach us that mistakes are no longer confined to home and that, in the 21st century, hunger is not so much a condition as a policy.
Alvaro Vargas Llosa is the editor of “Lessons from the Poor” and the director of the Center on Global Prosperity at the Independent Institute.
Alvaro Vargas Llosa
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Alvaro Vargas Llosa is Senior Fellow and Director of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. He is widely published and has lectured on world economic and political issues including at the Mont Pelerin Society, Naumann Foundation (Germany), FAES Foundation (Spain), Brazilian Institute of Business Studies, Fundación Libertad (Argentina), CEDICE Foundation (Venezuela), Florida International University, and the Ecuadorian Chamber of Commerce. He is the author of the Independent Institute books The Che Guevara Myth and Liberty for Latin America.
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