Judging the EU's Common Agricultural Policy

Autor: Michal Lehuta | 15.2.2006 o 23:46 | Karma článku: 6,89 | Prečítané:  2630x

Normative Justification for CAP? Assessing the European Union’s Common Agricultural Policy with the Theories of Rawlsianism, Utilitarianism, and Libertarianism

Normative Justification for CAP?

Assessing the European Union’s Common Agricultural Policy with the Theories of Rawlsianism, Utilitarianism, and Libertarianism

 

Author: Michal Lehuta, B.A.

International University Bremen

Date: February 15, 2006

Course: Normative Theories of International Order

Instructor: Prof. Dr. Peter Mayer

Word Count: 5,502

 


1       Introduction

            In this paper, I will try to asses the justification for and effects of the European Union’s Common Agricultural Policy (CAP) by confronting it with three normative theories of social order: Rawls’s liberal justice theory, utilitarianism, and libertarianism.

            The question of CAP is pertinent with regard to the recent struggle over the EU financial perspective for 2007-13 as well as the reform of the farming regime. Moreover, the protectionism in agricultural sector has been a major issue at both the Uruguay and the current Doha round of the WTO negotiations, with the questions of ‘fairness of trade’, dumping, development and poverty relief playing a role in normative rejection of the CAP regime. In fact, Borrell and Hubbard (2000) stipulate that CAP is the most disruptive institution in international agricultural trade. The expected gains in real incomes in case the international trade in agricultural products was freed range in hundreds of billions dollars in the next few years (World Bank 2005).

            CAP consumes almost a half of the EU budget resources - € 43.6 billion in 2004 (about € 95 per head of the EU25 population annually), that is distributed to only about 2% of the EU labor force employed in the agriculture sector. Only Japan has higher per ton levels of support to agriculture (HM Treasury 2005, 53), its total support being still only about a third of that of the European Union. In addition, the absolute amount of price supports of the United States is even lower than that of Japan (Borrell and Hubbard 2000, 18). The greatest beneficiaries in financial terms are commonly quoted Queen Elisabeth II and Prince Albert of Monaco (for their great land properties). CAP artificially raises the price of food for EU citizens by almost 50%, its transfer efficiency is about 25% (Lipsey and Chrystal 2004, 90), it has severe environmental as well as trade-distorting effects. In some cases subsidies are given to promote non-production rather than the opposite.

            In order to satisfy my research aims, I will firstly present the three strands of normative theories as defined above. I will focus on the evaluating criteria these may provide to be better able to asses CAP in the later part of my paper, following more or less closely Will Kymlicka’s 1990 Contemporary Political Philosophy: An Introduction. Delicacies and controversies of each theory will be mostly avoided in order to stay on track with being able to answer the research question of this writing.

 

            Second, I am going to present the CAP as a policy bundle, its goals, instruments, brief history, and consequences, focusing on both the EU-wide as well as world-wide effects. Then, I will critically evaluate the current state of CAP with respect to the normative criteria outlined in the first part of my paper – taking Ethan B. Kapstein’s 1999 article (“Distributive Justice and International Trade”, Ethics and International Affairs 13, 175-204) as an inspiration in this undertaking. Concerning the time period of my critique, the paper will focus on the whole history of the CAP despite the partial reforms started in 1993. I will conclude with a short comparison of the three assessments, summarizing remarks, policy implications, and points for further elucidation.

2       Normative Theories of Political-Economic Order

            For the evaluation of the Common Agricultural Policy, I chose three normative political theories: that one of John Rawls’s left-wing liberalism, pragmatic utilitarianism, and property-based libertarianism. I will start with Rawls so as to begin with the most intervention-leaning theory of the three.

 

2.1  Rawlsianism

            Since his publication of A Theory of Justice in 1971, John Rawls brought political philosophy back to the foreground after decades at the periphery of the mainstream scholarly interest. Rawls’s general formulation of ‘justice’ goes as follows: “All social primary goods – liberty and opportunity, income and wealth, and the basis of self-respect – are to be distributed equally unless an unequal distribution of any or all of these goods is to the advantage of the least favoured” (Kymlicka 1990, 52). Inequality thus can be justified when it leads to the benefit of the relatively poor (i.e., when inequality is functional – motivating and accrediting effort, for example). Inequality of ‘opportunities’, however, cannot be functional when a person is not able to mitigate some objectively not-changeable circumstances of his/hers (such as inheritance, class, gender, or good health at birth).

            In order to solve potential trade-offs, Rawls comes up with a supplement of two priority rules defining superiority of (negative and positive) liberties for all, at the same time as a superiority of justice over efficiency (total welfare). For these reasons, Rawls’s theory of justice, dealing with distributive justice in particular, is commonly referred to as that of ‘liberal equality’.[1]

            To base his normative arguments, Rawls uses the concept of ‘intuitive equality’ of a hypothetical social contract situation (Kymlicka 1990, 58-63). If anybody was to choose a social arrangement without any prior knowledge about his/her ending-up position in the societal ladder or the abilities of others, it is rational to strive for an arrangement that guarantees an equality of opportunities. In such a case, then, people’s fate is to be determined by their own choices only rather than circumstances they cannot influence. This would mean, Rawls argues, that people would choose an arrangement with the richest poor, a typical maxi-min risk-aversive strategy of game theory.

            In political reality, the ‘equality of opportunities’ principle can be reflected in public insurance and redistribution (transfer payments), a mixed-economy of both economic freedom as well as equalizing of externally-to-the-individual arising inequalities (not arising from his/her own choices). Although for some (e.g. Ronald Dworkin), the mixture of the two structuring principles would be an expression of the same conception of equality, in reality, the ‘equality of what’ debate resembles rather a compromising struggle on the freedom-equality continuum (underlined by the discussion over the objectivity of constraints as well as conflictual trade-offs between the two extremes).[2]

            What is contradictory in Rawls, and we ought to keep this in mind, is that the theory of ‘the greatest benefit to the least advantaged’ is ambiguous when applied to the economy in the short and the long run. In the short run, when the economic ‘cake’ is fixed, one can make the poor better off via coercive redistribution. In the long run, however, when the size of the cake depends on the productivity and efficiency of all, redistribution has highly de-motivating incentives. This analogically holds for the functionality of inequality and the equalization of opportunities.

 

2.2  Utilitarianism

            Utilitarian normative theory is, according to Kymlicka (1990, 9-49), ultimately based on two intuitive attractions. First is that only men and women are the measure of all welfare, since it is impossible to deny that human happiness is valuable in itself. And second, only acts of policies having an identifiable effect can be judged for their appropriateness, for there is no such test for other behavioral claims. Combining the two, it follows that the morally right act or policy is apparently that one which produces the greatest happiness for the members of the society.

            The issue is not that simple though – there are still issues to be solved. How shall we actually comprehend or measure human welfare, for instance? Welfare of whom (individuals or society) should be maximized, and who should be responsible for achieving that? The definition of utility can thus, depending on the answers to the preceding questions, vary from welfare hedonism, through (‘rational’) preference satisfaction to mental-state utility (Kymlicka 1990, 12-18). In a practical political economy, moreover, the differences in understanding whose welfare is to be maximized, we can meaningfully distinguish between economic nationalism on the one hand (focused on the maximization of national welfare), and economic cosmopolitanism/liberalism, where concerns about non-nationals are taken into account as well.

            Having solved the question of whose utility is to be maximized, one has to present the procedure of how this maximization could come about. For classical utilitarianists such as Jeremy Bentham, the goal was to bring about ‘the greatest happiness of the greatest number’. Since we live in a world of scarcity, however, the satisfaction of people’s preferences is by definition conflicting and limited. Some preferences, if incompatible with the maximum utility overall, will need to go unsatisfied, although each person is to given an equal consideration (Kymlicka 1990, 31).

            Additionally, one would also like to know how to assess or measure whether certain type of actions increases or decreases the total welfare. For the reasons of various accounts of human welfare, Kymlicka (1990, 18) denies any straightforward method of measuring utility. For welfare economists (to-be modern utilitarians), however, it is the gross domestic or national product (GDP/GNP) in real terms over the medium term serving for the social utility function. Although having many flaws itself, GDP/GNP is, for practical reasons, the only widely-used variable for totaling a nation’s value of output or judging economic policy effects. Possible welfare analysis of agricultural policies was, for instance, performed by Bullock and Salhofer (2003). Using the production possibilities frontiers and Pareto criterion, Bullock and Salhofer conclude that these policies in general comprise a “constraints to the social welfare function” (Bullock and Salhofer 2003, 225).

            Politically, utilitarians often justify sacrificing some minority interests to the benefit of the whole. At the same time though, this can be seen as an attack on unjust privileges of few at the expense of the majority (for instance if granted by the state). Agnostic utilitarians are skeptical about the possibility of being able to judge the utility consequences of an action or policy to their final end, and would suspect social institutions to cause more harm than good. Some would argue that massive redistribution of wealth is desirable from a utility-maximizing point of view, because of the decreasing marginal utility of income. Others would praise an unhampered free market for its efficiency and wealth creation (Kymlicka 1990, 45-46).

 

2.3  Libertarianism

            Modern libertarianism has its roots in classical liberalism of the 18th and 19th centuries, building on thinkers such as David Hume or John Locke, with modern followers embodied in Friedrich A. Hayek or Robert Nozick. The basic principles of libertarian political theories are 1) liberty - freedom to act in any way except of that which may inflict upon the same right of others - and 2) private property - whether in form of self-ownership, ownership of capital, or ownership of fruits of one’s labor. The first principle springs actually from the second, implying that (property) rights of ones end where the rights of others begin.

            It has to be stressed, however, that libertarianism is not a single one coherent theory. Some libertarians favor the free market for its efficiency, as do utilitarians (Kymlicka 1990, 125-132). Others, more fundamentally, think of it as the only not unjust social order, regarding all government intervention except of that protecting property and contracts as unjustified.[3] F. A. Hayek, in addition, denies the possibility of judgment about justice or injustice of a market outcome as such, viewing the unhampered market as a ‘spontaneous order’ of human interactions neutral to the aims of any individual.

Many libertarians use, implicitly or explicitly, a priori deontological reasoning to justify private property or other rights. Hans Herman-Hoppe among others, for instance, contributed to the scholarly world with so-called ‘argumentation ethics’. Basic principle of this is the method of counterfactuals: if from a set of rules all but one are contradictory, rational people should chose the only non-contradictory one. Let us take the ‘law of first appropriation’ as an example. If a ship sinks and in the rush five people manage to get on the life-boat first, do the others have a right to question their ‘property’ of being in the boat? Hoppe would argue that they do not – because otherwise anybody could claim that right as well, and how is one non-arbitrarily to decide whose claim is more valid or delivers more utility? Observing that an intersubjective utility comparison is scientifically not feasible, any normative claims would necessarily have to be arbitrary or emotional (‘aesthetic’). Hence, only a free market (voluntary) exchange is undeniably a Pareto-improvement and a morally justified action in libertarian perspective. Moreover, someone’s merit when acting is not inherent to the action itself (as liberals tend to presume), on the contrary, it is valued differently in different time, place, by other market participants.

            For libertarians, respecting private property, democratic redistribution is inherently immoral. That is so, because political decision, if not unanimous, benefits some (usually but not always the majority) at the expense of others (the outvoted minority), using government’s monopoly of coercion as threat in violating taxpayers’ rightly-acquired property. Only voluntary redistribution - that is, charity, can be moral from a libertarian point of view, since morality when defined as an enforced obligation loses its prima facie (e.g., Anthony de Jasay, F. A. Harper). Moreover, many libertarians fear the possible never-ending process of equalizing circumstances suggested by Rawls, for the possibility of it leading to an “oppressive social intervention, centralized planning, and even human engineering” (Kymlicka 1990, 152; for more consult Hayek’s 1947 Road to Serfdom).

Politically, then, libertarianism argues that we do not have to draw a line between the free market and social policy. Instead, it advocates minimum state intervention: in order to respect people’s choices it is rejecting any rectification of unequal circumstances. The agnosticism about utility measurement or its interpersonal comparison, together with dispersed information about preferences and scarcity (for an overview consult F. A. Hayek’s ‘knowledge problem’), as well as the undeniable welfare achievements of the free market, then, lead this normative theory to advocate a laissez-faire approach to economic policy instead (Kymlicka 1990, 46).

 

3       The Common Agricultural Policy

            The Common Agricultural Policy of the European Union has been a heated subject of and criticism over the entire period of its existence since the early 1960s (for an early critique see Sampson and Yeats 1977, for instance), few analysts however understand its peculiarities more closely than a few basic numbers. Let me illuminate to the reader some of its main characteristics to facilitate the normative evaluation further on.

 

3.1  Goals, Instruments, and History

            The CAP is originally targeted towards securing constant food supply for the European economic community in order for it to be self-sufficient. In addition it serves as a redistributory mechanism to raise incomes of farmers within the EU, as well as to compensate agricultural exporters not being able to supply to the efficient world market. More recently, the Common Agricultural Policy adopted a food safety and rural development functions (European Commission 2004). Other authors stress the need for agricultural stabilization - that is, counteracting the income and price fluctuations inherent to the farming business with years of good and bad harvest. These analysts seem to, however, to a large extend neglect the free-market solutions fighting volatility, such as private intervention purchases for arbitrage or saving and insurance (Lipsey and Chrystal 2004).

            Materials of the European Commission (EC) are openly propagandistic about the Policy. In its bulletin on CAP (European Commission 2004), the narrative starts with a romantic portrait of the indispensable role the farmer plays in a society, going on with the statistics on how much lower than average his/her income in agriculture is (not mentioning the other sources of income (only 23 per cent of EU15 farmers are classified as full time), the average or higher-than-average household farmer income; confront: HM Treasury, 2005, 26-28). The conflict of interest in the EC in informing about the CAP is evident when confronting it with the ‘public choice theory’. Let us, for that reason, be more objective instead.

            There are four main instruments of CAP: import tariffs, direct subsidies to inputs and outputs, export subsidies and intervention purchases (Borrell and Hubbard 2000, 18; Lipsey and Chrystal 2004, 88). In order to keep the internal prices high, an external tariff limiting cheap imports, intervention purchases heightening the internal price, and export subsidies motivating export of surplus goods at the world- or lower price are necessary (see Figure 1 below). Direct subsidies, in addition, help the farmers directly, relieving them of about a third of their costs of production.

Figure 1: Market Price Support

(Source: HM Treasury 2005, 58)

            This way, CAP consumed 43.6 billion euros from the EU budget in 2004 (producer support of which was 38 billion). It keeps consuming about this much every year, and is not going to stop until at least 2013, for German chancellor Schröder and French president Chirac (former minister of agriculture) agreed in October 2002 that payments be frozen, adjusted to inflation, until at least this date (Carney 2004, 45-46; The Economist 2005). The indirect costs of CAP in maintaining higher consumer prices are estimated at 57 billion euros (for the EU of twenty-five members in 2004; HM Treasury 2005, 21). Together with national-level payments of about 11 billion, the total European support to agriculture climbs to an immense €108 billion annually.

            In order to comprehend the policy, it is useful to consider its historical background. CAP came into being after the Second World War, when food supplies were still unstable, and common market of the European Economic Community was only being constructed. Charles de Gaulle at the time said that “a country that cannot feed itself is not a great country”. This food-independence rhetoric in fact did work for the after-war Europe: as early as 1960 (three years after the creation of the six-member EEC), the proposals for common agricultural policy for the Community were being proposed (passed in 1962). Before the creation of the European monetary system (later union), the farmer payments system was enormously complicated, with necessary adjustments to the exchange rate ups and downs, and a creation of an own version the so-called ‘green money’ (Grant 1997).

            In 1992/93, a McSharry reforms started a process of changes to the CAP in it being more environment-friendly and less output-based. Another significant alterations of CAP were passed in 2003: the stress has been moved from price supports to direct income payments, with 90% of support being now classified as not trade distorting (The Economist 2005). The economic effect of direct payments are, however, very similar to those of price support, even though the WTO claims it to be “trade not-distorting”. Although the price support decreased from 33 to 14 per cent during the 1990s, this has not lead to any elimination of trade distortions, rather the opposite (Carney 2004, 45).

 

3.2  EU-wide effects of CAP

            The consequences of common agricultural policy on the European continent are then vastly numerous. The welfare outcome can be described as ‘lose-lose’ as opposed to ‘win-win’ in game-theoretical terminology – the aggregate EU income is reduced, with scarce resources being drawn from productive industries into agriculture, causing it to deliver more goods than desired. Stoeckel and Breckling (1989; in Borrell and Hubbard 2000, 20), an example of an economic model estimating costs of resource misallocation, claim that the CAP was responsible for a loss of one million jobs in the manufacturing sector alone.

 

3.2.1        Distortions on the tax (financing) side

            Common Agricultural policy is financed essentially through two sources: via the EU budget on the one hand, and via the tax on consumers (a “CAP” or “food tax”) in form of high food prices protected by tariffs on the other. As quantified above, in fact, it is the EU consumers bearing most of the costs of subsidies to producers (HM Treasury 2005; Roberts et al. 1999 in Borrell and Hubbard 2000, 18-19). Ritson (1997; in HM Treasury 2005, 20)  argues that CAP in effect works as an additional value added tax for groceries of about 15 per cent. Messerlin (2001, Ibid.) estimates that prices for agricultural products are about 14-17 per cent higher than they would be with a full CAP reform.

            This way, subsidies to agriculture draw resources from other, efficient industries, lowering thus the production and profitability of other sectors in the economy. Hence, the impacts of CAP extend beyond the agricultural sector. As a result, thanks to the costs and resulting resource misallocation, the total output (and income) of the EU as a whole is reduced. The estimate of associated costs to the EU only runs at $49 billion (Borrell and Hubbard 2000, 21), comparing the present CAP constellation to the one of it being repealed completely. With the admission of the 10 new states into the Union in 2004, these countries (especially Poland with a great agricultural sector) will add to the rising agricultural bill after direct payments to these countries’ farmers are equalized around 2011. In addition, even before entering, these countries had already to adopt high EU external tariffs, increasing their particular food product prices by percentage in double-digit terms on average (e.g., rice, sugar, canned fruit or mushrooms).

3.2.2        Distortions on the on the price (expenditure) side

            CAP, in accordance with its goals, raises incomes of the EU farmers by around $70-80 billion a year. The payments are distributed very unequally, however, with the biggest farmers getting most support of the cake. The Economist (2005) estimates that a quarter of the benefits goes to 5 per cent, and up to 80 per cent of the CAP is paid to only 20 per cent of the subjects in the agricultural sector. The greatest beneficiaries are as a matter of fact Queen Elisabeth II and Prince Albert of Monaco. The 30 biggest farmers get about €390,000 a year in subsidies (The Economist 2005).

            The price support, as well as the direct payments, cause significant overproduction - food surpluses. The media commonly talk about the “wine” or “milk lakes”, “cereal mountains” bought up by intervention purchases. Once in a while, then, news about tons of overproduced tomatoes being dumped into the Atlantic Ocean, or rye being burned for energy fill the headlines.

 

3.3  Global economic effects of the CAP

            CAP causes significant distortions in international trade: the cheap subsidized EU surplus exports, being dumped overseas, lower prices in international markets, hurting thus otherwise-competitive producers from developing countries. As an example - the EU, “despite being perhaps the world’s highest-cost producer of sugar, came to be its largest exporter as well, dumping mountains of sugar on world markets” (talking beet sugar vs. cane sugar; Carney 2004, p. 46).[4] Switzerland (though not EU but only an European Economic Area member), for example, exports more beef to Argentina than vice versa. Moreover, agricultural sector is especially important in countries where negative effects of CAP are most visible. In the poor developing countries, agriculture accounts for about 40 per cent of GDP, 35 per cent of exports, and 50-70 per cent of total employment (HM Treasury 2005, 51).

            Pure economics could, perhaps counter-intuitively, predict a positive effect of subsidized dumping on the rest of the world. Ricardian trade theory, in particular, stipulates that even if country A has an absolute advantage in production of all goods in question, it is the comparative advantage (opportunity costs) that defines what which country produces. That is, there will always be a good or service in which a country will have a comparative advantage. The prediction is hard to substantiate, however, with the North-South trade, where developing countries, partly thanks to poor governance, property right enforcement and corruption, cannot compete on any other grounds than simple primary resource production. Recent Word Bank estimates thus suggest that a CAP reform could lift 52 to 95 million people out of extreme poverty by 2015 as a result  of gaining competitiveness (HM Treasury 2005, 51).

            Another malice external effect of CAP is that of increasing outside-EU foodstuff price volatility. Stabilized demand and fluctuating dumping in the European Union reduces the world demand and moves the world supply, causing the world prices to change more than they would do otherwise .

            Some analysts go as far as to calculate for how many deaths in developing countries is CAP indirectly responsible. Pollard, Mingardi et al. (2003, 10) assume that about 6600 people die every day in the world of starvation or malnutrition because of the trade rules of the EU, that is one person every 13 seconds.

 

4       CAP in the Light of the Three Normative Theories

            After having presented the core principles of the three normative theories, and the structure and effects of the Common Agricultural Policy, let me combine the two in an assessment of the CAP’s justification. Deep analysis of problems involving “moral trade-offs” (e.g., consumers interest vs. of that of farmers, or risk-averse consumers vs. price-oriented ones) will, for practical reasons, have to be mostly left out apart from instances directly related to a particular theoretical argument.

 

4.1  CAP in the light of Rawlsianism

            At a first sight, common agricultural policy can be seen as a concrete embodiment of Rawls’s ideas on social justice: poor farmers are getting money and protection from foreign competition, while the European consumer has a guaranteed supply of fresh groceries. This would be a very short-sighted view, however.

            First, the effects of CAP are clearly anti-social. Food expenses, which are significantly increased as a consequence of the Policy (estimates talk about up to 50% on average; Lipsey and Chrystal 2004, 90), generally comprise a significantly higher ratio of total household expenditures of lower classes. CAP thus, through increasing food prices and this way being financed via a sort of regressive taxation, affects the worse-off most negatively.

            Second, CAP is terribly poorly targeted. Even if European Commission (2004) claims that agricultural incomes are lower than the EU average, this does not hold for all EU countries, neither does it for all agricultural households. Eurostat (2001, in HM Tresury 2005, 28) shows that farmer household incomes are 127 per cent of the national average in Ireland (country enormously benefiting from the CAP), 131 per cent in Finland, 161 in Luxembourg, and 267 per cent in the Netherlands. Why discriminating between farmers on the one hand and other little-earning workers, is another question unanswered.

            Moreover, even if CAP did not hurt the poor in particular, other forms of redistributional mechanism to the needy can be more effective. In this light, the reform process started in early 1990s, shifting the focus from price support to direct payments, brings more sense to the regime. International economics theory (e.g., Krugman and Obstfeld 2003) often stresses that the ‘winners’ from trade liberalization outweigh the ‘losers’. Therefore, even under the Rawlsian lenses, protectionism in a great majority of cases does not make sense normatively, for an aggregate increase in welfare due to trade opening (‘winners’ gaining more than the ‘losers’ lose) increases the total amount of resources possible to be redistributed. Even from the liberal justice point of view, then, free trade with compensation is a superior arrangement than agricultural protectionism.[5]

            In the end it is possible, from a free-market point of view, to regard the inequalities of income and wealth between not-competitive farmers and others as functional (Rawlsian requirement), for they facilitate economic restructuring through providing incentives for farmers and resource to transfer out of the agricultural sector (Lipsey and Chrystal 2004, 88-89). CAP support does the exact opposite.

 

4.2  Utilitarian Analysis of the CAP

            If we take the real Gross Domestic Product as the defining utility criterion, the picture is rather clear. The welfare losses of CAP have been quantified by various sources. The bill has been estimated to €108 billion in 2004 by OECD (in HM Treasury 2005, 21). Borrell and Hubbard (2000) put the welfare costs of the CAP at 0.9 per cent of GDP every year (about the same amount). This is an average cost to an EU family of four of around €950 a year. Furthermore, the €100 billion annual cost of CAP represents nearly 100 per cent of the agricultural sector’s net value added produced (Wichern 2004 in HM Treasury 2005, 20). Even the most conservative sources estimate a loss for the EU economy of around €100 billion over the period of the next financial perspective (2007-13). The environmental costs (e.g., significant extinction of farmland bird species), as well as dynamic effects of lower capital accumulation and productivity gains in competitive industries, are difficult to estimate.

            Moreover, only about 10 per cent of the transfers reach farmers in their need; 36 per cent goes to capitalization, 26 per cent to landowners, and about another quarter of the financial support is lost through economic deadweight losses (OECD 2003 in HM Treasury 2005, 22). The spill-over effect of CAP in significantly increasing the wealth of non-farmer land-owners, resulting from high demand for land, is also disturbing, especially since around 50 per cent of all EU farmland is owned by non-farmers.[6]

            Subsidizing farmers thus, from an utilitarian point of view, does not make any sense, for it only reduces the total amount of welfare of Europeans as a whole. On the other hand, it has to be admitted that the positive possible effects of CAP (food security, lower social inequality) are hardly represented in the measure of the gross domestic product.

            From a world-community utilitarian point of view, however, CAP is even more damaging. Although European countries are commonly proud to boast with the highest contributions to the Official Development Assistance (ODA) in the South, the world support for agriculture in advance countries, of which EU accounts for about a third, was five times the total ODA in 2000 (Lipsey and Chrystal 2004, 87). It is normatively much more desirable, therefore, to abandon protectionist agricultural policies in order to effectively relief the world’s poor.

 

4.3  Libertarian Critique of CAP

            Common Agricultural Policy goes against libertarian principles by definition. It is clearly an involuntary redistribution initiated by the states’ territorial monopolies of coercion, without any aim of protecting property rights or enforcing contracts. Moreover, it does not serve any purpose of delimitations of the right to freedom, which could form a justification under libertarian political philosophy (Gerken 2004). On the contrary, not only does CAP force all to pay for it through taxes if they like it or not, it also denies the liberty of thousands to trade freely with other nationals. This way, it is incompatible with the ‘order of liberty’ as defined by Gerken (2004), where state’s intervention is justified only when two expressions of the right to freedom clash (for instance, right to run a factory and the right to breath clean air).

            Libertarians also share most of the utilitarian concerns against CAP – for they support free trade and private property, the essential elements of an unhampered market. Moreover, food security, another argument used to justify CAP, is not an issue in the world foodstuff market any longer. The ‘green revolution’ in India and other developing nations, as well as efficiency gains in the very European Union (almost doubled between 1970 and 2000 in milk and potatoes, for example) undermine any claims for trade restrictions from a secure food supply position.

            Furthermore, from a cosmopolitan point of view, there are plausible libertarian arguments concluding that market opening is even more efficient than official development assistance in achieving higher sustainable living standards for both developing as well as developed countries.

5   Conclusion

            The European Union’s Common Agricultural Policy is a highly-disputed bundle of tariffs, subsidies, and other kinds of government intervention with the aim of keeping food prices and farmers income high in Europe. It consumes almost a half of the European Union budget, with even higher than that costs yet levied on European consumers through higher prices. Although the European Economic Community was founded on the idea of free trade and open borders, it is rather unfortunate that the EEC/EU had in various forms spent most of its history waging trade war on others, most particularly the developing nations (Carney 2004, 43.

            All three theories used to judge CAP in this paper, namely Rawlsianism, utilitarianism, and libertarianism, interestingly come to very similar conclusions: the CAP is inefficient (welfare-reducing), ineffective (with its transfer efficiency of about 25%; Lipsey and Chrystal 2004), wrongly-targeted, distorting international trade, drawing resources from competitive industries, damaging the natural potential of developing countries, damaging to the environment, and heating up the North-South clash via halting the WTO trade liberalization negotiations in already two rounds (Uruguay and Doha).

            The inefficient redistribution of CAP can be partly explained as a relic of institutional path-dependency of the post-war era, involving strong lobbying groups and weak reform mechanisms of the European Union. Acemoglu and Robinson (2001) explain the repeating campaigns of farmers for inefficient redistribution as an encouragement for newcomers in order to maintain political power in the future. Borrell and Hubbard (2000, 26) stress that relatively small number of producers have large incentives to form lobbying coalitions, while large numbers of consumers have individually small motivation to do so.

            With all hope, the reform process started in 1992 and 2003 should, after the freezing moratorium ends in 2013, proceed, and proceed significantly. What the EU and the world needs is a sort of Anti-CAP League, political interest group construed after the Anti-Corn Law League of the 19th century Britain. Australian and New Zealand’s liberal reforms of the late 1980s can also serve as an example to the new agricultural regime.

 


5       List of References

  1. Acemoglu, Daron & James A. Robinson (2001): “Inefficient Redistribution”, The American Political Science Review 95(3), 649-661.

  2. Borrell, Brent & Lionel Hubbard (2000): “Global economic effects of the EU Common Agricultural Policy”, Economic Affairs 20(2), 18-29.

  3. Bullock, David S. & Klaus Salhofer (2003): “Judging agricultural policies: a survey”, Agricultural Economics 28, 225-243.

  4. Carney, Brian M. (2004): “The Common Agricultural Policy: How the European Union Distorts Trade with Non-EU Nations”, in: Heritage Foundation: The Index of Economic Freedom 2004, 43-48. Available at: <http://www.heritage.org/research/features/index/chapters/pdfs/Index2004_Chap4.pdf>. Retrieved on: February 9, 2006.

  5. European Commission (2004): “The Common Agricultural Policy Explained”. Available at: <http://europa.eu.int/pol/agr/index_en.htm>. Retrieved on: February 2, 2006.

  6. Grant, Wyn (1997): The Common Agricultural Policy, The European Union Series. New York: St. Martin’s Press.

  7. Gerken, Lüder (2004): The Constitution of Liberty in the Open Economy. London: Routledge.

  8. Her Majesty’s Treasury (2005): A Vision for the Common Agricultural Policy. Norwich: HMSO. Retrieved on: January 31, 2006. Available at:                       <http://www.hm-treasury.gov.uk/media/E76/04/A_Vision_for_the_CAP.pdf>.

  9. Kapstein, Ethan B. (1999): “Distributive Justice and International Trade”, Ethics and International Affairs 13, 175-204.

  10. Krugman, Paul R. & Obstfeld, Maurice (2003): International Economics: Theory and Policy. Boston: Addison Wesley.

  11. Kymlicka, Will (1990): “Utilitarianism”, in: Kymlicka, Will: Contemporary Political Philosophy – An Introduction. Oxford: Clarendon Press, 9-49.

  12. Kymlicka, Will (1990): “Liberal Equality”, in: Kymlicka, Will: Contemporary Political Philosophy – An Introduction. Oxford: Clarendon Press, 50-94.

  13. Kymlicka, Will (1990): “Libertarianism”, in: Kymlicka, Will: Contemporary Political Philosophy – An Introduction. Oxford: Clarendon Press, 95-159

  14. Lipsey, Richard G. & K. Alec Chrystal (2004): “Price Theory In Action: The Problems of Agriculture”, in: Lipsey, Richard G. & K. Alec Chrystal: Economics, 10th edn. Oxford and New York: Oxford University Press, 87-90.

  15. Pollard, Stephen, Mingardi, Alberto, Philippe, Cecile & Sean Gabb (2003): “EU Trade Barriers Kill”, A Center for New Europe report. Available at: <http://www.cne.org/pub_pdf/2003_09_04_EU_barriers_kill.pdf>. Retrieved on: February 9, 2006.

  16. Rawls, John (1999): A Theory of Justice. Oxford: Oxford University Press.
  17. Sampson, Gary P. & Alexander J. Yeats (1977): “An Evaluation of the Common Agricultural Policy as a Barrier Facing Agricultural Exports to the European Economic Community”, American Journal of Agricultural Economics 99 (February), 99-106.

  18. The Economist (2005): “Europe’s Farm Follies”, in: The Economist (December 10, 2005), 25-30.



[1] Let me stress that the word ‘liberal’ here means more ‘left-wing’ than the classical-liberal (libertarian) meaning of the word, in the sense of attributing positive rights to individuals - rights to expect something to be done by others.

[2] Taken to extreme, in theory, all human constraints could be explained as ‘objective’ and thus liable to equalization, which puts ‘liberal justice’ on a slippery slope.

[3] Some do not stop at the ‘minimal state’ solution either. See, for example, Hans-Hermann Hoppe’s Democracy – The God That Failed (Transaction, 2001), or the The Myth of National Defense: Essays on the Theory and History of Security Production (Mises Institute, 2003).

[4] The last year’s (2005) sugar regime reform would suggest mitigation of the negative effect in this realm. The empirical data is, as for now, not yet available.

[5] It could be added that this very idea was at the foundation of CAP, when European common market was only being created. Neither of the ‘compensation’ theories, however, does count with dozens of years of generous support after a market integration is completed.

[6] This is also the major reason why the greatest benefactors of CAP are persons such as Queen Elisabeth II or Prince Albert of Monaco.

 

 

 

 

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