Re: Re: query on cashews
(Strictly speaking, it should be Robert Naiman who replies to Brad on these issues, since he (Robert) has studied Mozambique. But here goes.) Before getting into this, it should be mentioned that the World Bank folks are not simply fighting against _raising_ tariffs and non-tariff barriers. Rather, they are engaged in pushing tariffs down. The IMF/WB should pursue the rule of "first do no harm" (especially when dealing with a poor country like Mozambique) rather than trying to fit each country to the same Procrustean bed of free-market solutions (and big dams). But of course they won't follow my prescription. I have seen summaries of a Deloitte and Touche report supporting the Mozambique cashew-nut producers, described as saying: The new study was carried out by international consultants Deloitte Touche and the World Bank's previous policy "should be abandoned" [because]: 1) Indian subsidies to its industry "tilt the playing field" and make competition unfair. 2) Peasants did not gain anything from liberalised exports; extra profits were all earned by "traders" and those few farmers who were able to store nuts until the end of the processing season 3) "Improved management practices continue to contribute to factory efficiency" in the newly privatised Mozambican factories. 4) Mozambique can earn an extra $130 per tonne by processing its own cashew kernels--increasing total earnings from about $750 per tonne to $880 per tonne.. in response to point #1, Brad says: My first reaction is that something's wrong with the subsidy argument. If India *subsidizes* its cashew nut processing industry than Mozambique can capture part of that subsidy by letting Indian workers do the processing--the bigger the subsidy, the stronger the argument for exporting raw nuts. (Unless, of course, you think there is something special and important about the learning-by-doing generated in the cashew processing industry, which I don't). As a non-expert on cashew production, I can think of one important thing that's special about the cashew processing industry (in addition to the external benefits that any manufacturing industry has), I believe, which is that it is one of the few non-agricultural industries that Mozambique has. If M loses that industry, I doubt that the IMF/World Bank would allow them to create a similar new industry, since to do so the way Japan or South Korea created industries would violate the _laissez-faire_ principles that are supposed to reign (but never seem to apply to "intellectual property"). Given M's debts (arising from Renamo's attacks, etc.), the IMF/WB have the leverage to impose their _fiat_. (If the IMF/WB had been around, the US wouldn't have been able to protect its industry after 1860, so that the US would have ended up being an economic colony of England.) According to ENCARTA 96, M also exports sea food, which is similar to agriculture in terms of its long-term spin-offs. As far as manufacturing is concerned, Food processing [mostly cashews?], cotton ginning, and the manufacture of clothing and textiles are principal industries. I would guess that the IMF/World Bank folks would also push for the opening of M to international competition in these industries, too, so any potential benefits of infant industries would be lost. Rather, if experience is to be a guide, the IMF/WB will encourage foot-loose industry based on low wages, that will move as soon as M's workers start raising their labor standards. This contributes to the world-wide "race (or creep) to the bottom," lowering world labor standards toward the lowest common denominator, corrected for differences in labor productivity, infrastructure, environmental standards, tax subsidies, and the like. Unlike PKrugman, ENCARTA notes that: Civil war and a lack of foreign exchange crippled Mozambique's industrial output, which declined by an annual average of 7.1 percent during the period from 1980 to 1988, but expanded by 65 percent in the early 1990s. My second reaction is that, as Paul Krugman wrote, any claim out of Africa that "peasants did not gain anything from liberalized exports; extra profits were all held by the traders" should be viewed with great suspicion: it is a remnant of the old-fashioned belief-- criticized by Dumont a generation ago--that the countryside is a stagnant source of resources to be taxed and exploited to support urban development, that it is important to foreclose any options that rural producers and marketers have that would increase their bargaining power. There's also the possibility that the WB's efforts to free up the cashew trade impose all sorts of transition costs (as the cashew industry shuts down) of the sort that the WB usually ignores. In theory, the workers unemployed by the WB are supposed to be compensated, but somehow the lonely hour of this compensation never comes... Over the past generation such policies have been a disaster for
query on cashews
I don't think it's worth my time forwarding the articles on Mozambican cashews to Krugman, since he's already staked his reputation on the cashew question in the NY TIMES and is unlikely to back down. But we have someone who's a pretty orthodox economist on pen-l. Brad, what do you think of the articles that Yoshie forwarded to us about cashews vis-a-vis Krugman's case? Jim Devine [EMAIL PROTECTED] http://liberalarts.lmu.edu/~JDevine "From the east side of Chicago/ to the down side of L.A. There's no place that he gods/ We don't bow down to him and pray. Yeah we follow him to the slaughter / We go through the fire and ash. Cause he's the doll inside our dollars / Our Lord and Savior Jesus Cash (chorus): Ah we blow him up -- inflated / and we let him down -- depressed We play with him forever -- he's our doll / and we love him best." -- Terry Allen.
Re: query on cashews
I don't think it's worth my time forwarding the articles on Mozambican cashews to Krugman, since he's already staked his reputation on the cashew question in the NY TIMES and is unlikely to back down. But we have someone who's a pretty orthodox economist on pen-l. Brad, what do you think of the articles... Let me look... Not here. I block-deleted a big chunk of unread mail last weekend, and it must have been in there... Could you please send 'em again?
Re: query on cashews
From: Jim Devine [EMAIL PROTECTED] I don't think it's worth my time forwarding the articles on Mozambican cashews to Krugman, since he's already staked his reputation on the cashew question in the NY TIMES and is unlikely to back down. Joe Hanlon's the english-language guru on the topic, here in two posts dated mid 1997 and mid 1999: *** CAN MOZAMBIQUE MAKE THE WORLD BANK PAY FOR ITS MISTAKES? By Joseph Hanlon, Maputo, Mozambique Gemini News Service, September 29 1997 Cashew nut processors in Mozambique are demanding $15 million in compensation from the World Bank, in a ground- breaking attempt to force the World Bank to pay for its mistakes. The claim follows the release earlier this month (September) of a World Bank study which said that a policy the Bank imposed on Mozambique was totally wrong and should be "abandoned". More than 7000 people have been thrown out of work this year, and the newly privatised cashew industry virtually bankrupted. Kekobad Patel, head of the Mozambican Cashew Industry Association, warns that even if the policy is now reversed, most of the factories cannot be reopened without financial help. This will be a personal test for James Wolfensohn, president of the World Bank, and his efforts to make the bank less macho. The new study was carried out at his personal request after he visited Mozambique in February (this year) when he was met by objections to Bank policy on cashew from government, industry and trade unions. NOT JUST A SNACK To Mozambique, cashew nuts are not just nibbles that go with beer -- they are the country's second largest export. Tens of thousands of individual peasants cultivate cashew trees. But the cashew has a hard and acidic outer shell which must be hit with a hammer or cut with a saw to expose the kernel we eat. Mozambique developed a relatively sophisticated processing industry employing 9,000 people, mainly women, to take the kernels from the shells. At World Bank insistence, these state-owned factories were privatised in 1994-5. High bidders at US$ 9 million for the cashew factories were local businesses and not transnational corporations, as had been expected by the World Bank and many outside observers. But as soon as the local business people took over, the World Bank revealed a secret study which claimed the processing industry was so inefficient that the country lost money on every nut processed, and that peasants would earn a higher price for their cashews if raw nuts were exported. The Bank said that raw cashew nuts should be exported to India, where the kernels are removed from shells by families working at home in poor conditions. In particular, the shells contain an acid which damages the fingers of workers, which is why Mozambique has always used mechanical processing with large hammers or saws rather than Indian hand processing. Furthermore, India subsidises its industry. Mozambique had imposed an 20% export tax on unprocessed cashew nuts to compensate for Indian subsidies. Government and industry had already agreed a phased reduction down to 10% over five years, as the new owners repaired war damage and modernised their factories. But this was not enough for the World Bank, which demanded that the tax be removed over three years and exports of unprocessed nut be "liberalised". There was an outcry from the government, industry and trade unions, who demanded reconsideration. They said: 1) the study had been done without talking to people in the industry, and had fundamental flaws; 2) globalisation was forcing a lowering of standards of health and safety at work; 3) it was a myth that peasants would gain; and 4) buyers of the newly privatised factories had been cheated because they had an implicit (and in some cases explicit) promise that there would be protection until they got the industry back on its feet. CONDITIONALITY AND WORLD BANK REFUSAL TO TALK Despite the strong and detailed case put forward by the industry, the World Bank refused to discuss the subject. Instead, the Bank made it a test of strength. The 1995 World Bank "Country Assistance Strategy" made free export of cashew a "necessary condition" of its programme to Mozambique -- the only "necessary condition" linked to such a detailed policy point. The 1996 joint IMF-World Bank "Policy Framework Paper for Mozambique" also required the removal of the cashew export tax. According to the World Bank's "World Development Report 1997", Mozambique is the poorest and most aid dependent country in the world. This is because Mozambique was subject to a 12 year war waged by the old apartheid government in South Africa. This war killed 1 million people and did an estimated $30 billion in damage, which shattered the economy. As a result of this huge destruction, Mozambique is now receiving more than $500 mn per year in aid. But all of this aid is "conditional" on Mozambique having programmes with the IMF and World Bank. With no World Bank
Re: query on cashews
I have seen summaries of a Deloitte and Touche report supporting the Mozambique cashew-nut producers, described as saying: The new study was carried out by international consultants Deloitte Touche and the World Bank's previous policy "should be abandoned" [because]: 1) Indian subsidies to its industry "tilt the playing field" and make competition unfair. 2) Peasants did not gain anything from liberalised exports; extra profits were all earned by "traders" and those few farmers who were able to store nuts until the end of the processing season 3) "Improved management practices continue to contribute to factory efficiency" in the newly privatised Mozambican factories. 4) Mozambique can earn an extra $130 per tonne by processing its own cashew kernels--increasing total earnings from about $750 per tonne to $880 per tonne.. My first reaction is that something's wrong with the subsidy argument. If India *subsidizes* its cashew nut processing industry than Mozambique can capture part of that subsidy by letting Indian workers do the processing--the bigger the subsidy, the stronger the argument for exporting raw nuts. (Unless, of course, you think there is something special and important about the learning-by-doing generated in the cashew processing industry, which I don't). My second reaction is that, as Paul Krugman wrote, any claim out of Africa that "peasants did not gain anything from liberalized exports; extra profits were all held by the traders" should be viewed with great suspicion: it is a remnant of the old-fashioned belief-- criticized by Dumont a generation ago--that the countryside is a stagnant source of resources to be taxed and exploited to support urban development, that it is important to foreclose any options that rural producers and marketers have that would increase their bargaining power. Over the past generation such policies have been a disaster for rural Africa. Thus anyone making such an argument should have to answer two questions: Where does the extraordinary market power held by these traders come from? And why weren't they exercising it under the old trade regime? To argue that it is good to redistribute wealth from rural peasants to urban factory-owners by cutting off their ability to export raw nuts is one thing. To argue that cutting off the ability to export raw nuts does not harm peasants is something else entirely and is hard to credit. My third reaction is that management consultants--like Deloitte and Touche--always claim that the firm they are studying is about to experience enormous increases in managerial efficiency, and they are almost always wrong. And my fourth reaction is that Mozambique would probably be better off spending the money needed to realize that $130 a ton on schools and transportation. Vietnamese and Indian cashew-nut processors are willing and able to pay higher prices on the dock at Maputo than are domestic producers--that's why the domestic industry is crying for protection. And if your domestic industry can't match the costs of foreign producers, that's a powerful sign that this is not an industry into which a country should be pouring its resources. Brad DeLong
Re: Re: query on cashews
BUT IS IT TOO LATE? But is it all too late? The export tax was cut to 14% this year and more than half of Mozambican raw nuts were exported to India. Factories ran out of nuts and by mid-year began to shed staff. Most of the 14 factories are now closed; 7000 of the 9000 workers (most women) are now out of work. Cutting the export tax from 20% to 14%--from about $150 per tonne of cashews to $105 per tonne--caused more than half of Mozambican raw nuts to be exported to India? And caused 80% of the workers to be laid off?
Re: Re: query on cashews
Does Krugman have "a profound knowledge of the actual facts of industry and trade" in Mozambique and of "the relation of individual men to them"? Doesn't he assume, as he does in his "analysis" of Japan, that "rational" choice theory is not only applicable but universally applicable? "Ambitious men and women with large egos" usually have very weak egos. Their "ambition" and "large egos" are in fact signs of clinical narcissism. This blinds them to obvious facts including the fact of their own ignorance. Ted Winslow -- Ted WinslowE-MAIL: [EMAIL PROTECTED] Division of Social Science VOICE: (416) 736-5054 York UniversityFAX: (416) 736-5615 4700 Keele St. Toronto, Ontario CANADA M3J 1P3
Re: Re: Re: query on cashews
Ted Winslow wrote: Ambitious men and women with large egos" usually have very weak egos. Their "ambition" and "large egos" are in fact signs of clinical narcissism. This blinds them to obvious facts including the fact of their own ignorance. Ted Winslow -- Ted Winslow E-MAIL: [EMAIL PROTECTED] Division of Social Science VOICE: (416) 736-5054 York University FAX: (416) 736-5615 4700 Keele St. Toronto, Ontario CANADA M3J 1P3 And, as James Galbraith wrote in "How Economists Got It Wrong" article that we talked about several months ago, modern economics ..."seems to be mainly about itself." Add a winner-take-all economic structure even among economists where one becomes a op. ed columnist at the New York Times, mix with the cult of celebrity, and you have the makings of an intellectual, if not a clinical definition, of narcissism. Joel Blau
