Apr 13, 2009

False economy

Damn it. I am barely finishing reading a splendid book on the economic history of the world that another one is coming out and seems to be a must read. Well, that is the impression that I get from reading Easterly's review (in today's FT) of "False Economy: A Surprising Economic History of the World" by Alan Beattie, the FT’s world trade editor.

Easterly thinks "the book is rife with interesting conundrums: the Nile river valley is one of the most fertile places on earth, yet Egypt imports half of its wheat; Peru rather than California has captured the US asparagus market; West Africa is the perfect location and climate to produce cocaine for Europe, but coke is instead made in distant Colombia – then routed through West Africa.

Beattie’s explanations, the best parts of the book, are on his home turf: international trade. In a wonderful exposition that should make it into all undergraduate economics classes, Beattie argues that, fertile Nile or not, Egypt is not so much importing wheat as importing water. Only the Nile provides water for the mostly desert country. Wheat takes much water to grow, so the water imports are contained in the wheat imports. By importing wheat, Egypt conserves its own water for drinking and uses other countries’ water to grow wheat shipped to Egypt. This is a wonderful illustration of how trade allows countries to import scarce resources, buying in the goods that would use them, and export their abundant resources, by selling the goods that use those.

To Beattie, the surprising and sad thing is that there are so few “water” exchanges and other such beneficial trades. This is partly because special interests distort trade. For example, the US preaches free trade to Africa, but prefers to keep out African cotton and give $4bn in subsidies to 10,000 American cotton farmers instead. Why? Senators in those farming states would block any reform of the cotton subsidy.

Is importing Peruvian asparagus a happy counter-example of US free trade policy? Unfortunately not, Beattie tells us. It was part of a drug war programme to subsidise Peruvians to grow asparagus rather than coca leaves, giving them privileged access to the US market.

And the cocaine still pours out of Colombia, not West Africa, because even an illegal export needs good roads to get the coca leaves to the factory and then to the port. West Africa’s lack of good roads, Beattie points out, costs it much more in lost exports than even trade policies such as those on cotton."

I'm adding it to my shopping cart...obviously.

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