Perpetuating Poverty by Protecting Livelihoods

Defending a form of economic serfdom stymies free trade negotiations

The latest round of World Trade Organization (WTO) negotiations foundered last week over policies that seek to "protect livelihoods." On one side stood India and China who insisted that they be allowed use a special safeguard mechanism (SSM) to boost tariffs to prevent surges of cheap food into their countries. Why? As Indian Commerce and Industry Minister Kamal Nath explained, "The main issue was the security of livelihood of millions of poor farmers in India and other developing countries against import surges which could take place." Specifically, India and other developing countries want to impose additional duties to protect their poor farmers from agricultural product price declines caused by import surges. "When I am negotiating, I am willing to negotiate commerce. I am not willing to negotiate livelihood security, I am not willing to negotiate subsistence, I am not willing to negotiate poverty," insisted Nath.

On the other side stood the United States and other big agriculture exporting countries, including Brazil. U.S. Trade Representative Susan Schwab argued that SSMs would push trade liberalization back by 30 years. At the insistence of developing country negotiators, the United States and Europe agreed to cut their agricultural subsidies by 70 and 80 percent respectively. However, some developing country analysts believe that the United States was intransigent on the issue of SSMs because American negotiators wanted to avoid the topic of cotton subsidies, which was next on the WTO agenda. Scandalous U.S. cotton subsidies have depressed the world price of cotton, thus harming millions of poor cotton farmers in Africa and Asia.

Nath and other developing country WTO negotiators are absolutely right: subsidies are bad, period. They should be completely eliminated. But is protecting livelihoods from competition a good idea? In 2002, anti-globalization activist Vandana Shiva asserted, "The only way to protect incomes and entitlements in poor countries is to bring back controls on imports." And she may be right, but at what long-term cost?

First, let's define what we're talking about: what's the difference between a job and a livelihood? Livelihood connotes the earning of income by means other than wage labor. Another implication is that people who have a specific livelihood are somehow entitled to that livelihood. The way activists and policymakers use the term, livelihood rights suggests that people have a right to stay exactly where they are and to and to make a living by doing what they are currently doing. If your father was a farmer, then so are you and so will your grandchildren be. If your mother was a hand weaver, then so are you and so will your children be.

This kind of economic serfdom is a recipe for perpetuating poverty. People who depend upon livelihoods rather than jobs are generally the poorest people in the developing world. This is not a surprise since they make their livings through low-productivity activities like subsistence farming or small-scale manufacturing.

For example, about 75 percent of Indians live in rural areas and 64 percent of the workforce depends on agriculture for their livelihoods. Since agriculture contributes only 20 percent to India's gross national product, this means that nearly two-thirds of the population live on only one-fifth of the India's total income. In addition, nearly 60 percent of farms are smaller than one hectare (about 2.5 acres), while less than two percent are larger than ten hectares. This kind of rural backwardness explains why some 700 million Indians eke out an existence on two dollars or less per day.

Nath and other anti-trade activists argue that trade liberalization will undercut the pittances on which these poor people live. As an example of how trade destroys livelihoods, Shiva claims that imports of cheaper soybean oil, combined with new government sanitary packaging regulations, affected 10 million livelihoods of small-scale producers of traditional cooking oils. Shiva also warned that branded flour is undermining the livelihoods of millions of workers who operate small flour mills. Instead of taking raw wheat purchased at government shops to a local miller to be ground into flour, Indians are increasingly turning to higher quality branded flour. In 2002, Shiva noted, "Prices of coconuts have fallen 80 per cent, coffee prices have collapsed by over 60 percent, pepper prices have fallen 45 percent in India since the WTO declared, in 2000, that India must reduce import barriers."

In fairness, freer trade will force wrenching changes on the farming villages of the developing world. While some farmers in developing countries will be able to compete and become prosperous, most will have to seek more productive work as wage earners in industry or in the service economy.

One objection: What if no wage jobs are available? In that case, it would mean that the developing country is pursuing policies that are stymieing its overall economic growth. In fact, this is exactly what India was doing before 1991 when it ended the its bureaucratically hamstrung "License Raj" through sweeping economic liberalization reforms. After 1991, economic growth took off. As University of California-Berkeley economist J. Bradford Delong pointed out in 2001, if India's current post-liberalization growth trajectory is maintained, in 66 years average Indian real GDP per capita will be equal to that of the United States today. Had it remained on the pre-liberalization path, average Indian incomes would have equaled current American incomes by the year 2250.

Most people in developed countries did not become wealthier by pursuing the livelihoods of their parents. Neither will poor people in developing countries achieve prosperity by following in their parents' footsteps behind a water buffalo. Freer trade generates opportunities for them to join the wage economy and thus to enjoy the gains that an ever more elaborate division of labor makes possible. Policies that aim to protect livelihood security are essentially bribes to encourage people to stay on their subsistence farms and remain in remote villages. Ultimately, protecting livelihoods is a policy to protect and perpetuate poverty.

Ronald Bailey is reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.