April 19, 2000
RECKONINGS / By PAUL
KRUGMAN
A Real Nut Case
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hen Seattle
Man went to Washington, his activities were coordinated in large part
by a Web site, www.a16.org. Browsing the site, I was struck by the
critique of the World Bank, written by Robert Naiman -- the activist
who threw a pie in the face of Michel Camdessus, the former
International Monetary Fund chief, a few months ago. Mr. Naiman's
favorite -- indeed only -- example of how bank-imposed policies
inflict economic damage is the way the bank "destroyed Mozambique's
cashew nut processing industry, by forcing Mozambique to remove export
tariffs on raw cashew nuts."
Cashew nuts? It turns out that this is one of those stories that
anti-globalists tell over and over, part of the canon that supposedly
proves the righteousness of their cause. Such tales rarely get
fact-checked; nobody asks whether the moral of the story is really as
clear-cut as it seems. So let's look at the truth behind this
particular legend.
Mozambique's cashews are grown overwhelmingly by small farmers. The
great majority of the country's 19 million people live on the land; at
least a quarter of them grow cashews. Until 1995 farmers were forced
to sell those nuts to a state monopoly at artificially low prices; the
state company then processed the nuts, employing about 10,000 workers.
In 1995 the processing plants were privatized, bought mainly by
foreigners, and the state monopoly was eliminated. But it was replaced
by a stiff export tax levied on raw, but not processed, nuts. This in
effect prevented the farmers from selling their product on the world
market, and forced them to continue selling cheaply to domestic
processers.
The World Bank demanded, as a condition for new loans, that this
export tax be reduced.
The reason for this demand is familiar to anyone who knows
something about the political economy of the third world. In poor
countries organized urban workers (and factory owners) typically have
far more political clout than much more numerous but illiterate and
unorganized farmers; the result is an often extreme policy bias
against the countryside. Governments frequently tax the rural poor to
subsidize urban industries -- industries whose workers are very badly
paid by Western standards, but nonetheless receive much higher wages
than most of their compatriots. This case -- in which peasants were
forced to sell their crops cheaply in order to protect the jobs of
10,000 processing workers -- fits right into the pattern.
You might try to justify the cashew tax on the grounds that it
promotes industrial development, and will eventually make everyone
better off. (Did someone say "trickle-down economics"?) But -- again
characteristically in such cases -- while processed nuts do command
higher prices than raw nuts, Mozambique's nut-processing industry
requires imported machinery and other inputs, and the tax on exports
discourages raw-nut production. On balance the export tax almost
certainly subtracts from, rather than adds to, the country's miserably
low income.
The World Bank is evil, then, because it tried to end a policy that
not only made Mozambique as a whole poorer, but directly hurt millions
of impoverished small farmers. Its high-minded critics want to keep
the prices those farmers receive low, on behalf of 10,000 politically
influential workers and a handful of foreign factory owners. No doubt
the faithful will say it ain't so, that farmers aren't hurt by the
export tax because the burden falls on a mysteriously invisible class
of rich middlemen. But why should so morally dubious a case -- one in
which the bank was defending the interests not of multinational
corporations but of starving peasants -- be a touchstone for the
opponents of globalization?
The answer, I believe, is that anti-globalists, though they are
quite sure that international trade hurts poor countries, have an
annoying problem: Most people in those countries want to export more,
not less. So the anti-globalists trumpet one of the few cases in which
a third-world group actually advocates export restrictions. Somehow
nobody notices that this group actually represents a small, relatively
privileged minority, and that its demands would directly harm a much
larger group of even poorer people. And thus Seattle Man maintains his
comfortable sense of moral superiority.