31/03/2004

6th IFSA European Symposium

Farming and Rural Systems Research and Extension

European Farming and Society in Search of a New Social Contract:

Learning to Manage Change

Vila Real, Portugal, April 4 - 7, 2004

Globalization: the end of the social contract in agriculture?By

Manuel Belo Moreira

Professor, Instituto Superior de Agronomia, Lisbon

1. Introduction

It is widely consensual that the three decades of continuous economic growth after the second World War benefited largely from the social contract that prevailed in that period[1]. In this paper I am proposing a reflection about the impact of globalization on this social contract, particularly regarding agricultural production and the rural life.

The central argument of this article is that changes in the various dimensions of life in society brought about by globalization make a lot of pressure on the social contract that prevailed since its inception. It is undeniable that this problematic became central to the debate about the future of agriculture and the rural world, in spite of the relevant exceptions introduced by protectionist policies that have been contributing to reduce the impact of globalization.

Focusing only on the economic sphere, globalization can be seen as the beginning of a new phase of capitalist development, initiated on the last three decades of the XXth century. A rupture with past economic paradigms and their political expressions characterizes this new phase, namely in what concerns the role of the State on the economy. That is, after an era of clear Keynesian hegemony, during the 30 post-war years of continuous growth known as the “glorious thirty”, it followed the emergence of the neo-liberal hegemony that paved the way to the globalization age.

My approach will follow essentially a political economy perspective even if in certain moments an appeal is made to other theoretical approaches in order to give relevance to the agencies and contingencies needed to fully understand such a highly complex process.

To address this problematic I will start, in section 2, with a brief description of the post second World War social contract that existed in the industrialized countries, namely regarding agriculture and the rural life. In section 3, a short characterization of the main features of globalization will be enough to highlight fracturing lines in relation to the past. This will allow me to illustrate, in section 4, how these fracturing lines provoked a rupture with the past and how the social contract that was suitable to a period of uninterrupted growth started be questioned and slowly abandoned, being the agriculture and food sector a relative exception. In section 5 other consequences of globalization of agriculture and food will be highlighted and, in section 6, I will make the case of the need to a renewed social contract. In section 7 some conclusive remarks will be put forward.

2. The post second World War social contract

After the second World War the industrialized countries put in practice Keynesian social contracts that, while maintaining the essential features of the market economy, did also heavily rely on State intervention, namely through policies of price support and/or subsidies. Underneath this type of social contracts was the recognition that welfare policies capable of giving minimum levels of safety nets to the population were needed[2]. That is, in that context the Keynesian social contract became considered as the “natural” way to overcome moments of more vulnerability, giving assurance to the people that they could count on State-led safety nets able to provide socially acceptable living conditions. In brief, social contracts implying some level of economic redistribution as a result of the Nation-State action[3].

Concerning agriculture, the typical social contract involved the following features that will be only shortly enunciated:

It provided incentives to promote agricultural modernization in order to increase food and fiber production (either final or intermediate goods) with less or workforce.

It gave assurance that farmers could count with specific safety nets. The rationale underneath this agricultural specificity relied on the consideration that agricultural production is more vulnerable than other sectors due to climatic and commercial risks (high price volatility namely derived from a short term inelastic supply and demand for most of the main agricultural products).

In other words, increasing production and productivity would not only compensate supply shortages in a context where this was a major problem, but it would also help industrial development, either through the acquisition of inputs and machinery or through the liberation of work force necessary to industry and services, but also by allowing savings of foreign currency[4].

To make the social contract operational the State intervention could be synthetically described as the result of general and specific agricultural policies from which I will refer the most elucidating:

General policies:

Welfare.
  • Health.
Transportation and energy-supply infrastructures.
General education.

Agricultural policies:

Market creation and market regulation for agricultural products.
Regulating agricultural inputs market.
Agricultural and agri-food research and development.
Agricultural extension to promote productivity growth and innovation.
Incentives to the use of credit facilities.
In short, a complex mix of policies, varying from country to country, were designed to create conditions to make the tandem innovation/credit more attractive, implying also policies particularly aimed at protecting farmers from price volatility through[5]:
A large panoply of measures of price support.
Tariffs and other barriers against international competition.
Measures to attenuate the problems of the creation of agricultural surpluses such as: quotas, set-aside, export policies, aid to developing countries.
Subsidies to compensate for the productivity differential, in order to maintain economic life on mountain or marginalized areas.
Under this type of social contract the agricultural and agri-food sectors were protected from full international competition. However, the national markets needed to be competitive enough to force farmers to enter the agricultural technological treadmill[6] that was the leading cause of structural changes, namely involving:

The race to adopt innovation, and

The quest to higher and higher productivity levels, meaning less labor needs, and

The structural changes that mark the trend toward less and bigger farms.

These changes were strongly stimulated by the generalized use of the agricultural credit and, on the other hand, they contributed to the reinforcement of the importance of the agro-industrial complex at the upstream and the downstream of agricultural production.

3. The globalization process

The scheme of the next page shows the relationships between different and relevant features of the globalization process, helping to understand the significant changes it provoked on both the economic and social life.

I will further highlight the role of the State on the process of de-regulation, privatization and liberalization that characterizes what has been termed as the Washington consensus. Role of the State that can only can be fully understood if the geopolitical context and the changes on the ideological hegemony are taken into consideration.

The outcome of this process, namely the de-regulation and liberalization of the financial markets, paved the way to the financial tyranny (as Fitoussi 1997 puts it) that granted an overwhelming power to the financial markets.

Putting things shortly, this means that many State prerogatives and usual State intervention started to be challenged by the so-called market judgment[7]. This market judgment emanates from financial analysts, as well as audit and rating corporations, which include people and institutions that are irresponsible from a democratic pointof view and whose criteria rely only on a financial logic.

GLOBALIZATION PROCESS

The obvious problem with this shift is that the financial logic tends to contradict or by-pass the written and non-written rules underlying the Keynesian social contract. That is, with globalization we can see a clash between the financial logic, which nowadays is essentially a global logic, and the Keynesian social contract that still maintains a national character, in spite of all its variants [8].

4. The social contract in agriculture under threat

States under the pressure of the market judgment have been forced to break many of the features of the prevailing social contract. That is, nation-states are being forced to follow a way that, among other things:

Shows a progressive reduction (when not abandonment) of welfare provisions.

Leads to the vanishing of State-led research and development. This is particularly felt in agriculture and on agricultural extension as well.

Relies more on financial markets (insurances, stock markets and derivatives) to guarantee a substitute of the previous State-led safety nets based on public institutions, following the Washington Consensus privatization recipe.

Globalization also brought increasing competition at a global level, induced by the technological revolution (more rapid and cheaper transportation, new logistics management, and information technologies). This was achieved trough:

A substantial reduction of tariffs at a world-wide scale (under the General Agreement on Tariffs and Trade - GATT and the World Trade Organization - WTO).
An increasing pressure on States to put an end to agricultural subsidies, and a large number of international agreements and rules enforced on GATT and WTO. Rules considered necessary to create more favorable conditions to international trade.

As a result of globalization, economic agents and the people in general have been forced to rely more on market relations and less on State intervention.

On the other hand, the context of scarce supply of food and fiber was substituted by a context where demand tends to be inferior to global supply[9], therefore pushing agricultural prices down, and turning obsolete the economic rationale that supported the old social contract.

The results of the increasing competition at the global level illustrate a trend to increase price volatility, which together with the reduction of the safety nets means more labor and farmer instability. However, it must be strongly underlined that the impact of these outcomes shows a significant variation according to the different countries. This happens because the logic and dynamic of globalization have been tempered by State-led policies that grant high levels of protection to the farmers of the richer countries that persist not only on the EU with the Common Agricultural Policy (CAP) but in Japan and the US as well.

This allows a conclusion that globalization of agriculture and food does not have the same impact that it has on other activities and also that there are large differences among farmers. It has full impact on the most vulnerable farmers from the countries that are applying the rules of the Washington Consensus, while large parts of the agri-food sectors of the richest countries have escaped from its effects. Furthermore, this reveals the hypocrite double standards of governments that in spite of supporting and promoting the neo-liberal globalization to developing countries keep high levels of protectionism at home (Berthelot 2001, Stiglitz 2002).

Anyway, even if globalization of agriculture and food is very far from being a complete and generalized feature on the most important economic areas, one should keep in mind that the pressure to liberalize and to deepen the current globalization process will increase if the so-called market judgment and the financial tyranny will intensify their influence.

5. Other consequences from globalization

Increasing competition and price volatility contributes to unleash the technological treadmill, that is, gives a big push to the historical trend to have less farms and bigger farms, fully capitalized. This trend will be particularly felt on the countries that still have important numbers of small family farms, where changes in the agrarian structure will be more important that on the countries already under the influence of the technological treadmill for longer periods. Shortly, with globalization the race to productivism induced by market relations will tend to intensify.

It must also be stressed that the impact of the technological treadmill depends greatly upon the abundance and quality (reliability) of the services needed to put into practice the production and management innovations, namely R&D, extension and commercial circuits. It is also implicit that changes on agriculture and agrarian structures greatly depend upon the development of upstream and downstream industries, and on the way that productive activities can be included on national or global commodity chains (either on mass markets or in niche markets). All these features make the difference between industrialized and rich countries and agricultural and poor countries, particularly explaining why the technological treadmill can be very disrupting in areas where its full application is not accompanied by all the panoply of involving features that are present in industrialized countries, but usually lack on developing countries.

Finally, a crucial aspect needs to be underlined. Since the overall logic and dynamic underneath globalization is based on market signals, all productive choices, including the technological, result from the balance that farmers are able to make between market prices (and subsidies, when they exist) and the costs involved in production. This leads to the logical conclusion that externalities will not be considered when farmers and the other economic agents on the commodity chain make their choices. And, therefore, market failures such as externalities will not be subject to any corrective measure if they are negative or compensation if positive, with all the inconveniences that this could bring to the society[10].

Therefore, the outcomes of these trends could have a strong impact both from a socioeconomic and from an environmental point of view.

From the socioeconomic side, unleashing the treadmill points to agricultural and rural restructuring based on fewer active people on rural areas. This means increasing the pressure towards agricultural exodus, which usually is not the subject of any appraisal of a cost-benefit analysis.

From an environmental perspective, because there are no particular incentives for farmers to assure that they will follow the needed prescriptions to guarantee environmental sustainability.

In fact, since the costs and benefits of unleashing the technological treadmill are only the ones valued on the market place, farmers’ behavior tends to follow a logic exclusively driven by market signals. Therefore, market pressure and short-term considerations will tend to prevail, and any other consideration that could not be translated in prices will tend to be forgotten. This makes the case for new or renewed social contracts.

6. The case for a new social contract

Adopting a prospective view, the range of possible future trends concerning globalization is limited by two extreme situations: on the one hand an utopian globalization and, on the other, a return to complete protectionist practices fueled by increasing nationalist tendencies.

The utopian globalization means that a complete economic integration at the global level will be observed. Rodrik (2002), referring to this, points to what he calls the globalization trilema:

“…the nation-state system, deep economic integration, and democracy are mutually incompatible. We can have at most two out of these three. If we want to push global economic integration much further, we have to give up either the nation state or mass politics. If we want to maintain and deepen democracy, we have to choose between the nation state and international economic integration. And if we want to keep the nation state, we have to choose between democracy and international economic integration”.

This means that a full globalization has too many utopian features to be considered as a feasible outcome on short and medium run[11].

The other hypothesis of a complete return to protectionism or autarchy also seems too radical, even if a certain slowdown of globalization could be a more feasible if not a probable outcome.

Under these circumstances it seems wise to consider only two alternatives: the backlash of globalization on one hand, and a different globalization, on the other hand.

The point is that these two alternatives will need a new or at least a renewed social contract, as it will be explained below.

The backlash of globalization or globalization slowdown means a trend that relies on the enforcement of national policies to respond to the global economic challenges. This higher level of nationalist protectionism will certainly have the support of the loosers of the current globalization process. That is, the workers and civil servants that lost their jobs due to de-localizations or from failures due to global competition, or the ones that have seen their wages highly compressed due to the global outsourcing. It could also count on some fractions of capitalists, namely the ones involved on production of commodities aimed primarily at internal markets, and of most of farmers that miss the good old days of protected internal markets.

On the other pole of the range we can find the trend to a different globalization or alter-globalization, as it is termed by many of the so-called anti-globalization social movements. Movements that support an alternative globalization that is called to provide global answers to global problems. Or, being more explicit, an alternative that could provide responses: 1) to the environmental problems, namely global climatic change; 2) to the increasing risks of global health and sanitary problems; 3) to face global criminality, and 4) that could be capable to make externalities accountable in order to build up new forms of market regulation.