Nationalistic capitalism and the food crisis, Cleo Paskal

More on Food and Cleo Paskal
Agriculture & Food

June 03, 2008

Different countries have divergent approaches to international trade, and these are changing the way food is bought and sold. As world leaders meet in Rome this week to discuss soaring prices, C Paskal considers China’s approach.
There is global concern over the security implications of high, and rising, food prices. Most of the concern revolves around social unrest, but another factor to consider is the differing national responses to securing food and other increasingly scarce resources. Some countries may decide to let the market set the prices, while others are more active in ensuring stable prices over the long term. China, for example, needs affordable food for its population for the sake of domestic stability. That means the government cannot simply allow the market to dictate access. As a result, the way countries like China secure their supplies in the future may change the way the global economy functions.
If high food prices were a blip, China could probably ride it out, but a quick survey of the factors that have gone into the price increases show that this will likely be a protracted crisis. (These factors include: speculation in the marketplace; the large-scale switch to fuel crops; currently productive soils degrading, flooding or drying out; crop pests and diseases moving into new areas or becoming more virulent in old areas; global population increases; the spread of urban and industrial development into farmlands; the rising cost of fuel, transport and fertilizers; and increasing extreme weather events, such as the floods the UK saw this past summer and the 2008 winter snow storm that lashed China).
The end result is that between March 2007 and March 2008, the price of rice has risen 74%, soya (a primary protein for many) has increased 87%, and wheat has climbed 130%. There have been deadly riots in Haiti, protests in Mexico, demonstrations in Italy, unrest in Indonesia over biofuel crops displacing other land use, and difficult times for consumers in China. The Chinese government, worried that rising food costs could add to civil unrest, have already increased food subsidies to the traditionally most “active” group, the students. Other nations have put in place food export restrictions and price controls.
Conventional wisdom states that as crops stagnate or decline and populations increase, those in the developing world will be hardest hit. While this may be true to some degree, China, for one, is working towards creating a major geo-economic shift that will help it secure supply of various strategic essentials, including food.
Typically, countries have two parallel economic policies, a domestic one and an international one. For example, when it comes to its domestic market, the US may tend towards subsidies, especially in areas like agriculture, but internationally it pushes for free markets and open access.
Conversely, domestically China is a bit of an economic “Wild West”, but internationally most major Chinese companies work with the Chinese government (sometimes at a loss) in order to advance national strategic interests. When it comes to international deals, China practices capitalism, but it is nationalistic capitalism.
Globally, this move towards nationalistic capitalism is increasingly on show in the energy sector. Outside the west there is a growing movement toward effectively nationalising fossil-fuel resources in countries like Russia, Venezuela, Bolivia and elsewhere. Oil and gas supplies are tremendously potent political tools. Countries that practice this sort of nationalistic capitalism are much more influential on the world stage than they might be otherwise.
Countries practicing nationalistic capitalism can sign nation-to-nation package deals that cut out the open market completely and overtly link much-needed resources to wide-ranging deals, including military equipment. This is what China has done in Sudan, where it has traded weaponry, training and infrastructure aid for fossil fuel. As a result, China secures oil before it reaches the market.
In an era of food-supply scarcity, it is only logical that crops are included in nation-to-nation deals. For example, one would expect China to add food crops, or farm land, into its growing number of arrangements with African nations, which could explain part of China’s support for Robert Mugabe in that potential breadbasket, Zimbabwe (one report states that China has already received rights to farm 250,000 acres, or 1,000 square kilometres, of corn in southern Zimbabwe). Already in countries such as Laos, Congo, Indonesia and Cambodia, Chinese companies are farming products that will go straight to the home market (sometimes using Chinese labour), and the Chinese government is exploring making the purchase of farmland in foreign countries central government policy. What that means globally is that large quantities of wheat, corn, rice and other crops will never make it to the open market.
In this new reality, countries in which policymakers don’t have control over strategic assets (oil, gas, uranium, shipping lanes and, increasingly, water and crops) are potentially at a geopolitical disadvantage when it comes to trying to out-negotiate countries practising nationalistic capitalism. This is not a statement on the relative morality of varied economic approaches. It is just a statement of the obvious. A Russian government that has the ability to cut off energy supplies to Europe must be taken much more seriously than one that simply gets a drilling fee from transiting multinationals. In an increasingly shifting geopolitical world, it’s a very big negotiating advantage indeed.
Countries that believe the market is always right are stymied by this turn of events. Just before the 2006 G8 summit, Canadian prime minister Stephen Harper spoke for his side when he said, “we believe in the free exchange of energy products based on competitive market principles, not self-serving monopolistic political strategies.” The problem is, an increasing number of national governments don’t see what’s wrong with being self-serving — and that includes securing food supplies.

C Paskal is an associate fellow at Chatham House and adjunct faculty in the Department of Geopolitics, Manipal University, India

3 Comments on "Nationalistic capitalism and the food crisis, Cleo Paskal"

  1. Antal Deutsch June 9, 2008 at 6:32 am · Reply

    Hi Diana, this is an old story Adam Smith would have no problems with. Not that civil servants have become better decision-makers than business-men, but monopolies provide more market controls than competitive positions.The acquisition of monopoly positions is illegal within most civilised market economies (Canada, US, EU etc.) but there is no international law to curb the activity.That is the story.

  2. Cleo Paskal June 9, 2008 at 6:35 am · Reply

    These companies are not monopolies. They are not controlling the market. They are competing in the marketplace against other companies that have headquarters in a range of countries, including the Canada, US and EU. The key difference is the goal of these companies. Free markets and monopolies have one goal: profit. These companies would like to make a profit, but they are willing to lose money permanently in order to advance their national strategic position. This is not dissimilar to the way the military is not expected to turn a profit. It is essentially an approach in which a range of
    products/commodities are shifted from a commercial context into a strategic one.

  3. Guy Stanley June 11, 2008 at 6:58 am · Reply

    Cleo’s instructive article is pointing us “back to the future” in what looks to me like a sort of populist mercantilism: governments try to ensure “secure –i.e. below world price–access to “vital” or “strategic” supplies, thereby worsening the trade distortions already in place from proetcionist trade policies. An American student of Nazi economic polices (Klein–I think) explained Hitler’s strategies from the collapse of the Credit-Anstalt (leading to a German dominated clearing system for the then new states of central Europe) to his Blitzkrieg strategy (short-supply-scarce warfare) to his attack on the Soviet union (lock up vital supplies to maintain a thousand-year Reich) in these terms. Perhaps future scholars –if we can escape the full consequences of this & survive–will put the blame where it rightfully belongs: the failure of the IMF as the custodian of the global monetary system…

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