Here is an interesting graph that may get some discussion going.
It shows the effect of government policies on agricultural prices in Thailand. The zero line represents a price neutral outcome. Below the zero line shows that farmers are getting less than they would if the government adopted price neutral policies. Above the line shows the opposite. The most important factor during the 1970s was the so-called “rice premium” which taxed rice exports both to generate government revenue and to reduce domestic rice prices for urban consumers. The premium was abolished in 1986 and in 1987 the government introduced the first “rice mortgage” scheme which had the effect of increasing domestic prices.
The data are taken from page 60 of this fascinating report on Distortions to Agricultural Incentives in China and Southeast Asia by Kym Anderson and Will Martin. (I hope I have interpreted their data correctly – please let me know if you think I haven’t.) Here is a key quote from their report:
Prior to the 1980s, agricultural price policies, together with trade and exchange rate policies, almost always reduced farmers’ earnings in China and Southeast Asia. The only exceptions were the Philippines in the latter 1960s and Indonesia in the latter 1970s. That explicit or implicit taxation declined from the early 1980s, however, and from the mid-1990s in China and 2000 in Southeast Asia the average NRA [nominal rates of assistance] switched sign and became slightly positive. (page 6)
Populist policies have got a lot of making-up to do.
2 responses so far ↓
1 Susie Wong // Nov 26, 2009 at 5:54 pm
According to the graph, it argues that government policies prior to 2000 worked against agricultural prices. In other words, the previous Thai government policies from 1970s to 2000 worked against the Thai farmers, only from 200o Thaksin’s government policy onward that the agricultural prices were above the zero line which gave farmers a better deal.
I have an agree and disagree arguments to make.
Agree:
I agree that “from the mid-1990s in China and 2000 in Southeast Asia the average NRA [nominal rates of assistance] switched sign and became slightly positive. (page 6)”. Like most other developing countries government in Latin America and Africa, Thaksin had introduced populist policy which benefited the Thai farmers. China was also attempting to bridge the gap between urban and rural sector for the country stability.
Disagree:
I think the chart and its argument provide only one-dimensional perspective of the multi-faceted historical context during 1970s-2000s. It failed to explain the politics of the past period which had played a crucial role in the economic and political development of China and Southeast Asia. Basing on one-dimensional graphic chart, the historical fact could be distorted. Let me explain my argument in three sections:
I) “Prior to the 1980s, agricultural price policies, together with trade and exchange rate policies, almost always reduced farmers’ earnings in China and Southeast Asia.” I argue against this statement for the following:
a) Prior to 1980s, China was preoccupied with its internal chaos of proletarian cultural revolution from 1966-1976 (1966-1969 on Mao’s Cultural Revolution and 1969-1976 the Gang of Four problem). China didn’t have any agricultural policy toward any farmers, it was a central plan economy, everyone worked for the State and the whole country were simply starving. In other words, Mao was pursuing an equal distribution of poverty.
b) Prior to 1980s, Thailand was the host country for the U.S.military base against Vietnam, Laos, and Cambodia in the Vietnam War. During the 1960s, Thailand was still truly backward agricultural country. The First National Economic Development Plan (1961-1965) was initiated by Dr. Puey Unphakorn who also laid down the financial foundation for Thailand’s future industrialization in his capacity as the Governor of the Central Bank. Foreign Direct Investment began to pour in. Import liberalization for infant industry was introduced. From the Second to the Fourth National Plan (1966-1976), amidst the 1973 world oil crisis and depression, Dr. Puey successfully moved the country toward export-oriented industries which had made Thailand a higher GNP than its immediate neighboring countries at the present time (Laos, Cambodia, Vietnam, Myanmar). Prior to 1980s, three-fourth of the Thai farmers were engaged as communist insurgencies, thus, the agricultural price policies had no impact on them. Thailand revenue at the time was not based on the Thai farmers, it was based on the USAID and the Pentagon during the Vietnam war.
II) “The only exceptions were the Philippines in the latter 1960s and Indonesia in the latter 1970s.” I also think this statement fails to reflect the reality of those two countries political economy.
a) Prior to 1980s, both the Philippines and Indonesia were not seriously undertaken their National Economic Development Plans as other ASEAN countries at the time. As a result, their GNP currently are far behind Thailand, Malaysia, and Singapore. More importantly, Singapore ( South Korea and Taiwan) has been focused on urban development to increase its human capital and high value-added industries which has made Singapore now a developed country, while Thailand, Malaysia, the Philippines and Indonesia are still a developing country because of their policies against urban development and only put an emphasis on rural development and agricultural growth.
Based on 2004 Purchasing Power Parity GNP Per Capita in international $
Singapore $27,370
Malaysia $ 9,720
Thailand $ 7,930
Philippines$ 4,950
Indonesia $ 3,480
III) “That explicit or implicit taxation declined from the early 1980s,”
I argue in contrary to the statement for the following reasons:
a) In early 1980s, Deng policy which reversed Mao’s policy began to take effect. Deng, the pragmatic reformist, came to power in 1978 and opened up China to the world as well as initiated the reform toward market economy. Graduated with economics degree from France, Deng strongly believe in market mechanism. Deng’s “Seek Truth from Facts” policy had made the Chinese farmers better off because Deng let the market worked its rule. China was still a mixed economy of central plan and market economy. Thus, I think it is inaccurate to say that it was the explicit or implicit taxation declined that was responsible for the better off of the Chinese farmers when in fact it was the opposite. In other words, the article said that it was the government intervention when in fact it was the government less intervention in the case of China.
b) In the case of Thailand, in early 1980s, Prem initiated the negotiation with the members of the Communist Party of Thailand. Consequently, the amnesty was declared. This helped to end the violent fighting between the government and the communist fighters. In addition, the U.S. poured in all kinds of aids for agricultural development as the communist fighters turned farmers, i.e. IFPRI to increase rice productivity, road infrastructure, etc. It wasn’t the explicit or implicit taxation decline rather it was the external assistant that determined the welfare of the Thai farmers at the time. Prem initiated the policy that created peace and prosperity for the Thai farmers but according to this chart it was the contrary.
I think the chart is too one-dimensional to explain the complex situation from 1970s-200o in China and Southeast Asia.
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2 jonfernquest // Nov 27, 2009 at 3:13 pm
Thanks for this wonderful article.
These issues are really important and in the news everyday, yet so few people seem to be discussing them rigorously and historically outside of academia.
There is a huge gap between the econometric theory here and institutional and policy reality. Like what exactly is a “price neutral outcome” in terms of measurable economic policy variables and economic history.
I have been explaining the vocabulary in articles on rice policy for years at a newspaper. On the other hand I have an MSc in economics specializing in econometrics and math econ. The gap between theory and practice is what I find both really frustrating and also intriguing. If there was a trail of citations from newspaper to academia things would be a lot clearer. Also there is the standpoint of a teacher supervising research projects and trying to get sources for students. The bibliography of the paper is mostly very recent though from materials I have collected discussions centered around the economics of food and agricultural in Thailand go back several decades (e.g. Ammar Siamwalla). If someone did an extensive bibliography on this it would be wonderful. Then there is also the question whether what has been written is even available to Thai students in Thailand.
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