There Goes the Washington Consensus

The International Monetary Fund warns that spiraling food inflation threatens the survival of 100 million people; the World Bank warns that it could bring down some 33 governments. As I wrote on TIME.com last week,

The sociology of the food riot is pretty straightforward: The usually impoverished majority of citizens may acquiesce to the rule of detested corrupt and repressive regimes when they are preoccupied with the daily struggle to feed their children and themselves, but when circumstances render it impossible to feed their hungry children, normally passive citizens can very quickly become militants with nothing to lose. That’s especially true when the source of their hunger is not the absence of food supplies but their inability to afford to buy the available food supplies. And that’s precisely what we’re seeing in the current wave of global food-price inflation. As Josette Sheeran of the U.N. World Food Program put it last month, “We are seeing food on the shelves but people being unable to afford it.”

When all that stands between hungry people and a warehouse full of rice and beans is a couple of padlocks and a riot policeman (who may be the neighbor of those who’re trying to get past him, and whose own family may be hungry too), the invisible barricade of private-property laws can be easily ignored. Doing whatever it takes to feed oneself and a hungry child, after all, is a primal human instinct. So, with prices of basic foods skyrocketing to the point that even the global aid agencies — whose function is to provide emergency food supplies to those in need — are unable, for financial reasons, to sustain their current commitments to the growing army of the hungry, brittle regimes around the world have plenty of reason for anxiety.

The reason for this food crisis is the current structure of global inequality (as someone noted recently, the rich demand fuel for their SUVs, turning farmland to biofuel production at the expense of food needed by the poor) combined with the basic Malthusian reality of scarcity: The very spread of capitalism in previously closed economies such as India and China has spurred rapacious demand for oil and natural gas (whose price rises have an inflationary effect on food prices), and the emergence of a middle class pretty much the same size as America’s, who are not only seeking cars and appliances, but are also eating more meat — and producing a single calorie of meat protein takes seven to 12 calories of grain, which has dramatically increased inflationary pressure on grain prices.

The interesting thing, though, is that solving this particular crisis will require that the World Bank and IMF abandon the economic orthodoxy that they imposed globally during the 1990s — the “Washington consensus,” that frowns on things like government spending on feeding the poor.

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12 Responses to There Goes the Washington Consensus

  1. Ziad says:

    The free market should only be enforced on the poor. For the financial industry and Wall Street, we have the rigged market. Make high risk investments with a central bank’s loose monetary policy, keep the money when times are good, and have the government bail you out at taxpayers’ expense when things go bad.

    Rinse and repeat. As it was for the S&L fiasco, so it is today with Bear Sterns (tip of the iceberg)

    Also, the weakening dollar has encouraged commodity investment as a hedge against inflation and the Federal Reserve printing press (the Iraq war isn’t going to pay for itself, you know) driving prices up further still.

  2. Bernard Chazelle says:

    What’s not to like about the Washington Consensus? As I wrote recently:
    “per-capita income for nearly half of the world’s countries was lower in 2000 than it was a decade earlier.”

    I don’t know of any economic model that can outline a scenario by which China and India reach first-world standards of living and the US does not have to change its lifestyle radically or go to war for resources.
    This (not terrorism) might well be the defining issue of this century.

  3. Pat S. says:

    I am with Bernard. I’m hopeful that the radical-lifestyle changes take place and not the war option, but there’s clearly no reason to be sure it won’t be the latter.

    Still, Tony, I think your argument against biofuels is somewhat cynical. Ethanol production in the United States is turning into the next pointless government money pit — unlike its more efficient cousin Brazilian sugar cane (the import of which faces an American tariff) — but the idea that biofuels are only grown to keep rich people consuming isn’t entirely fair. Without the development of more efficient fuel technologies — and biofuels, while imperfect, are at least a first step in this direction — greenhouse gases are only going to be emitted at a greater and greater rate, causing the world to warm further and crop production to be more adversely impacted. This NY Times article lays it out nicely: http://www.nytimes.com/2008/04/17/business/worldbusiness/17warm.html?_r=1&ex=1366171200&en=328ad25cda6f6fa2&ei=5088&partner=rssnyt&emc=rss&oref=slogin

  4. Realist says:

    Tony, you are missing a key piece: the quantity of oil, natural gas and coal origninally under ground on Earth is finite by design, therefore their production (actually extraction) rates will follow a bell-shaped curve. This concept was advanced by Shell geologist M. King Hubbert who in 1956 predicted that US oil production would peak in 1970 as it did. It also holds for mineral ores, e.g. of uranium.

    Today most credible analysts predict global Hubbert’s Peak for oil (“Peak Oil”) for 2010-2012. After that, a relentless decline.

    Couple that with the desire in OECD countries to keep the happy motoring way of life, and the desire in emerging countries (mainly China and India) to adopt it, and you have the perfect storm of rising demand and declining supply. Neoclassical economists will tell you that it will spur the development of substitutes. Indeed, only that those substitutes are corn ethanol and soy biodiesel, so that the global rich and middle class wanting to fill up their tanks will increasingly outbid the global poor wanting to eat.

    This is much worse than plain old Malthus. He could have never imagined that over the course of 20 years food production could be cut in half due to diversion of agricultural feedstock into fuel production.

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  8. Great post thx a lot !

  9. Anny Pretty says:

    I don’t know of any economic model that can outline a scenario by which China and India reach first-world standards of living and the US does not have to change its lifestyle radically or go to war for resources.
    This (not terrorism) might well be the defining issue of this century.

    Anny Pretty From USA

  10. Rinse and repeat. As it was for the S&L fiasco, so it is today with Bear Sterns (tip of the iceberg)

  11. izmir seren says:

    Today most credible analysts predict global Hubbert’s Peak for oil (“Peak Oil”) for 2010-2012. After that, a relentless decline.

  12. What’s not to like about the Washington Consensus? As I wrote recently:
    “per-capita income for nearly half of the world’s countries was lower in 2000 than it was a decade earlier.”

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