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Export-Oriented Agriculture and Food Securityin Developing Countries and India

Utsa Patnaik

The set of economic policies labelled economic liberalisation, stabilisation and structural adjustment adopted by

developing countries over the last 15 years have had and are having a profound impact on the nature of the development

process in these countries, and especially on their food security. It is the aspect of food security as affected by foodavailability and income shifts which is the focus of this paper.

The paper argues that the undeclared aim of these policies appears to be the restricting of domestic income growth

and absorption of the products of developed countries by the populations of developing countries in order to release

resources for growth of the exportable products demanded by the developed world. In support of this the paper

looks at the international division of labour in agricultural production in a historical perspective and contends that

the theory of comparative advantage cannot explain either the history or the pattern of international specialisation

because it contains a logical fallacy: relative costs cannot he defined at all for a large range of trade relations.

The paper also comments on the new pattern of demands on tropical agriculture emerging in the developed countries

and the new drive to obtain tropical importables on favourable terms.

DURING the last 15 years, 1980 to 1995,

more than 80 developing countries havebeen following over various sub-periods a

virtually identical package of economicpolicies, labelled 'economic liberalisation,

stabilisation and structural adjustment

programmes', under the tutelage of the inter

national lending agencies - the InternationalMonetary Fund (IMF) and the International

Bank for Reconstruction and Development

(World Bank). They have done so as theobligatory condition imposed on them for

[borrowing in order to finance their external

(payments deficits. Such a comprehensive

orchestration from metropolitan centres ofpolicy measures with an identical overall

thrust for developing countries across theglobe, is unprecedented and has never been

seen before in the post-war era. These polic ies

have had and arc having a profound impacton the nature of the development process in

the countries concerned, and on their food

security in particular. It is the aspect of foodSecurity as affected by food availability and

income shifts on which we propose to focus

in this paper.

India is a relative latecomer to the group

(of adjusting countries in that the Fund-Bank

determined package started being

implemented from mid-1991; the macro-

economic impact of the policies, though

predictable on theoretical grounds and on

the basis of the experience of other countries,'s showing up in the data sources only with

considerable lag, though in some respects

he direction of the impact is already quitelear. In discussing the impact of the policies

the agrarian sector and on food security

in India, we will therefore draw upon the

Experience of other developing countries,

khile supplementing it with the available

formation on the trends in the domesticEconomy.

This paper is in three parts. In the first we

discuss the main content of the Fund-Bankadministered policies and argue that even

though the ostensible aim is the correctionof external payments imbalance and

'structural' reforms required to sustain this,

the policies themselves are internallycontradictory and not consistent with this

declared aim. They do appear to be fully

consistent however with the undeclared aimof restricting domestic income growth and

absorption of their own products, by the

populations of developing countries, in order

to release resources for growth of the

exportable products demanded by thedeveloped world. They arc also consistentwith opening up markets for metropolitan

capital where substitution of domestic

productive capacities by imports rather than

income expansion, appears to be the mainmechanism of securing large' markets.

We argue that the rationale of the first

objective emerges clearly when we look at

the international division of labour in agricultural production, in a historical perspective.

The climate-soils speci ficity of crops and the

concentration of natural bio-diversity intropical and sub- tropical areas, has led histo

rically to a high degree of import dependenceby developed countries on imports fromthese regions and their policy regime vis

a-vis third world agriculture has been geared

accordingly to sustaining their imports-basedhigh living standards. The populations of

northern countries have made continuous

and sustained demands on the limited produc-

tive capacity of tropical lands while the converse has not been true. The theory of 'compa-

rative advantage' cannot explain either the

history or the present pattern of internationalspecialisation because it contains a logical

fallacy: relative cost cannot be defined at allfor a large range of trade relations.

We argue that despite some advances in

productivity in the third world and in biotechnology in advanced countries, to date

the sustenance of imports-dependent high

living standards in the latter appears to havebeen, possible only at the expense of the

decline of basic foodgrains production for

local third world populations. It is in thisrespect that there is a strong adverse effect

on food security. The emerging inverse

relation between food production and

exportable production is a pan-developingcountries phenomenon which is particu larly

marked in those which have taken structural

adjustment loans in the 1980s and have beenpushing agri-exportables for a number of

years. The inverse relation is just beginning

to emerge in India as well.The second section comments on the new

pattern of demands on tropical agriculture

emerging in the developed countries duringthe last two decades and the new drive to

obtain tropical importables on favourable

terms. It argues that the present economicpolicies (SAP with trade and investment

liberalisation) objectively achieves this aim,

whatever the putative aim might be, byrestricting domestic mass consumption

growth in the third world countries againsta scenario of declining investment, andthrough openi ng up of the agrarian economy,

induces cropping pattern and product use

shifts away from basic necessities for localpopulations. Food security is seriously

undermined and in countries which started

with low average levels of nutrition, prc-

famine conjunctures are rapidly created. Anymoderately severe economic shock is then

enough to plunge the vulnerable into actual

starvation.

The th ird and last part briefl y explores the

emerging class dimensions of support forand oppos ition to the new policies in India.

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I

Putative and Real Agendas inthe Agrarian Sector

The new economic orthodoxy which has

been introduced globally, by now is so wellknown as to require only the briefest

recapitulation. It involves at the nationallevel the apparent 'withdrawal of the state'

from economic activity : however an essential

aspect of this 'withdrawal' has beenunprecedentedly vigorous and active state

intervention to reverse previous policypackages and introduce comple tely new ones;

tar from being passive, the state activelyimplements a new policy package under

Fund-Bank tutelage. Short- to medium-termmeasures include very tight fiscal and

monetary policy amounting to sharpdomestic

deflation, devaluation, removal of protection

(trade liberalisation), removal of subsidies;longer run measures include opening up the

economy to the free inf low of foreign capital ,

privatisation of public-sector enterprisesincluding the financial sector, removal of

exchange controls and eventually fullconvertibility, export promotion and in the

agrarian sector encouragement to agri-exports and commercial agri-business.

While all this is put within a framework

of the desirable, 'efficiency' promotingeffects of the free operation of capitalist

markets, this is evidently something of a

smokescreen, in that a reified notion of 'theefficient market' is used to validate specific

packages of interventionist measures whichhave never been implemented in this form

in the developed countries themselves evenwhen they had payments imbalance

problems, but are today exclusively appliedto developing countries. The benefits of

these policies in turn accrue exclusively tothe global metropolitan sector.

The core of the new economic dispens

ation, then, is detlationary contraction of theeconomy combined with the privatisation of

industry and infrastructure, and the dismantling of all controls and protection in the

process of promoting liberalisation', that isthe unrestricted inflow of goods and capital.

'Deflation' is to be understood as incomedeflation and not price deflation; indeed rapid

price inflation in necessities like foodgrainsis a preferred instrument of mass real income

deflation in many cases including in India.

(While pushing for the full liberalisation of

trade and investment flows into indebted

countries, even the most ardent northernliberalisers do not however advocate the free

mobility of labour or question immigrationrestricting policies in their own countries).

To sum up, the policy package extends infact far beyond the requirements ofcorrecting

external imbalance alone; the latter is used asa validating device to bring in a total reversal

of the policy regime hitherto followed.

Let us see what the IMF itself has to sayabout the policy measures actually imple

mented under its guidance by 78 indebted

countries in the course of the 1980s.

It is evident that demand-contractingmeasures were undertaken in almost all cases

and wage restraint plus exchange rateadjustments in a major ity (Table 1). The cuts

in central government expenditure andreduction in the budget deficit ratio, as is

wel l known by now, were almost invariablyachieved by slashing productive investment

and cutting outlays on health and education.

These were the logical corollary of theemphasis on the reduction of state investment,

privatisation and the promotion of marketpricing of health and education services.

Now income def lating, demand-contractingfiscal and monetary pol icies have been time-

honoured though crude and painful ways ofreducing imports and thus helping to correct

an external deficit. When an entirepopulation's average income falls owing to

deflation, it is obviously forced to consume,save and import less. In a developing country

where average income is low and the

distribution of income is highly skewed tobegin with, income deflation has serious

results: there is higher unemployment, andpoverty increases further from already high

levels. This happens even with unchangedincome distribution owing to the fall in

average income; in addition regressive fiscaland other policies (lower tax rates on the

well-to-do, cuts in social subsidies, wagerestraint) also worsen income distribution.

Public goods availability suffers with social

sector cuts.

But is it really necessary to incur such ahigh economic and social cost which is

mandatory with a generalised deflation?Many economists not subscribing to the

current economic orthodoxy have argued

that it is not necessary: the desired effect ofreducing imports and improving the trade

balance, can in fact be obtained at very muchlower social cost by specifically targeted

export promotion and import controls, andthrough a system of allocat ing scarce foreign

exchange to priority uses. The associated

internal budgetary balance can be improved,not by growth-reducing cuts in investmentand in vital social sectors, but by widening

the tax base, ensuring less evasion and bycutting unnecessary state expenditures.

Generalised deflation of the economy is not

necessary for the desired end; it has beenlikened to trying to cure a headache by

cutting off the head.

EXPERIENCE OF ADJUSTING COUNTRIES

A well known set of UNlCEF-sponsored

studies [edited by Cornia, Jolly and Stewart1987] on the impact of SAP and liberalisa tionon capital formation, growth and human

development indicators, have unfolded a

damning indictment. In 55 countries imple menting SAP duri ng 1980-85, out of a total

of 124 years for which data were available,in 71 years change in real investment rates

were cither negative or showed negligiblechange compared to the previous year; out

of 186 years, in 155 years GDP per capita

either fell or showed insignificant change.In a majority of countries, proportionately

more so in Africa and in Central America,poverty levels rose, as did infant mortality

rates, while literacy campaigns received asetback as health and education outlays were

cut sharply under the mandatory Fund-Bankrequirement of reducing government

expenditure [Pinstrup-Andersen, Jaramilloand Stewart 19871. However much the Fund-

Bank might protest that it does not specify

that productive investment and the social

sectors be cut, the signals it sends out

regarding the desirability of the withdrawalof the state from investment, privatisaton of

hitherto public-sector enterprises, and a'rational' market costing of health and

education services, are all consistent withpublic expenditure cuts necessarily taking

these forms.

A more recent paper by R van der Hoeven

(1994) summarises the latest IMF studies onLatin America. Taking all countries which

implemented liberalisation and adjustment,between 1980 and 1990 the per capita GDP

declined by 9 per cent, the minimum wageby 31.7 per cent and agricultural wage by

26.5 per cent. The proportion of the poorrose from 41 to 44 per cent wi th a larger

impact on the urban poor. The averagesnatura lly conceal large variations wi th a few

countries performing reasonably and others

approaching disaster scenarios wi th up to 25per cent decline in per head income (Bo livia ,

Argentina, Guyana, Hait i, Nicaragua) whilecountries like Chi le, Co lombia and Barbados

have seen stagnation in per head GDP. Theabsolute numbers of people in poverty in

Lat in Amer ica have increased by 45 per centfrom 91.4 mn to 132,7 mn over the decade

[Psacharopoulos 1993). The cold statisticsconceal acute social distress: in some

countries worst affected, bizarre symptomsof social tensions have emerged, as in Brazilwhere large numbers of urban child beggars

TABLE I: IMF-SUPPORTED PROGRAMMES IN

78 COUNTRIES IN 1980s

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are killed by police and slavery is reported

to have re-emerged as the destitute give uptheir freedom in return for subsistence.

The IBRD data on sub-Saharan Africa,

show that during the decade 1980-1989 outof 33 countries, 12 countries with 40.8 per

cent of the popula tion of the region registered

average annual per head GDP decline rangingfrom zero to 2 per cent and another nine

countries with 40.4 per cent of totalpopulation registered declines exceeding 2

per cent per annum. Thus 81.2 per cent ofthe total population of sub-Saharan Africa

in a total of 42 countries, experienced fall

in income per head; taking all 46 countriesof the SSA region as a whole per head GDP

fel l by 1.1 per cent annually over the decade.

Since the elites in Afri can countr ies protectedtheir incomes, the decline for the rest must

have been larger. As a part of Fund-guided

wage-restraint policy, real average and

minimum wages were cut by a quarter overjust five years, 1980-85 in two-thirds of the

countries for which wage data are available(IMFreport s, summarised in van der Hoeven1994).

Such sharp mass income deflation over

such large populations, is unprecedented in

the post-independence history of developing

countries; nor is it a matter of 'a few yearsof adjustment' after which the economy

starts growing again: on the contrary, since

the basic problems of external imbalanceand increasing indebtedness are not solved

but aggravated by SAP policies, the indebted

economy enters on a permanent merry-go-

round of more income deflation, moredevaluation, more raising of interest rates

for fear of hot money flight, more poverty

for the masses combin ed wi th a more impor t-dependent consumption for a minority

towards whom the income distribution shifts.

In Latin America and SSA this has beengoing on now for a decade and half.

Both regions, the Latin American countries

as well as sub-Saharan Africa have seen a

highly 'successful' export drive in primary

products which has served to push outincreasing volumes of exports to the advanced

countries. 'Successful' from the point of

view of the latter, but not from that of theformer, since sharply declini ng international

terms of trade for primary products relative

to manufactures (a minimum of 50 per centdecline in the 1980s contnuing into the 1990s)

have meant that any African developing

country which 'on ly ' doubled export volume

over the decade, was left with no increasein exchange earnings at all. The 'successful'

export thrust was therefore accompanied by

worsening trade balances, since imports weresimultaneous liberalised whi le terms of trade

moved adversely.

These trends should cause no surprise.

When the same policies of devaluation andprimary exports thrust are strenuously pushed

under Fund-Bank tutelage in over 80

developing countries which are thus made

to compete against each other to augmentworld supplies, it is hardly surprising if

international prices decline; particularly since

there is no sharp expansion of demand inimporting countries. On the contrary the

advanced countries' economies continue to

register stagnation or low growth under the

regime of the high interest rates demandedby finance capital. For the African countries

during the last 15 years, the decline in external

terms of trade has amounted to a collapsewhich continues into the 1990s. We will

have more to say on terms of trade in relat ion

to India later. For the importing developedworld on the other hand these price trends

combined with successive rounds of Fund-

pressured devaluation in the exporting

countries, have meant continuously loweringdollar prices for a range of necessities these

countries cannot produce, and has helped

them to maintain and even raise their real

standard of life despite their own very lowrates of income growth. lt is hardly surprising

that there is a veritablecacophany of theories

emanating from northern universities whic hcastigate the poorer countr ics' alleged 'export

pessimism' , urge them to open up and export ;

usually the examples of 'export success' aredrawn from the stale-interventionist, neo-

mcrcantilisl countries like Taiwan, South

Korea or Singapore, none of which arc debt-

constrained SAP implemented, and aretherefore totally irrelevant to the case of

those developing indebted countries of which

India is a prime example.

Fund-Bank income-deflating policies inpoor indebted countries, despite being

widely criticised for a decade on the basisof their own data for reducing investment

and gro wth, increasing poverty and leading

to regression in health and education

indicators, continue today to be geared toimposing the same punishing regime of

income and demand contracting measures.

India as a recent entrant into the group ofadjusters, has been implementing exactly

the same set of policies. All the talk of

'adjustment with a human face' has not

changed by an iota the basic agenda. Thepackage India has been implementing from

mid-1991 is no different in substance from

the packages implemented from a decadeearlier by countries in sub-Saharan Africa

and in Latin America, with very adverse

results, as we have seen.

DOWNWARD SHIFT IN TREND INVRSTMENT AND

GROWTH RATE- UNDER SAP

The first act of the governing regime inmid-1991 was to devalue the rupee by 25per cent and after al lo wing the exchange rate

to slide further one of its last acts in thecourse of 1995 has been to carry out a further

devaluation by another 16 per cent despite

the existence by then of large reserves; in

total the rupee has depreciated against thedollar in nominal terms by over 50 per cent

since 1991. In between it has imposed de

flationary income contraction on the economy,

engineered inflation in necessities prices,and slashed social subsidies which taken

together have increased unemployment,

reduced investment and gro wth , cut the realincomes of the masses and raised poverty.

As in dozens of other countries earlier, in

India too both public and private product ive

investment and the social wage have seensevere cuts since 1991, resulting in a down

ward shift in the growth rate of the economy

and a rise in poverty. The most severeincome deflation was applied in 1991-92

and 1992-93, wi th the reduction in the ratio

of the fiscal defici t to G DP f rom 8.4 per cent

to 5.9 per cent and large administrative pricehikes especially in issue prices of foodgrains

under the PDS. The total capital expenditure

of the central government declined by 16 percent to 20 per cent in real terms (depending

on the price deilator used) over these two

years alone. The economy stagnated in thefirst year; it grew by 5 per cent in the next

year, but this was mainly because of good

agricultural performance. The rise in

administered food prices led to a phenomenalincrease in poverty by 1992, especially in

rural areas to 48.1 per cent compared to 36.6

per cent In 1990-91 according to theTendulkar-Jain (1995) estimate.

In 1993-94 and 1994-95 however the

budget deficit to GDP ratio rose above the

'desired' SAP-compatible levels, attractingwarnings from the Fund-Bank, but the

expansionary effects were limi ted by the fact

that it was the revenue deficit which grewfast at the expense of continuing stagnation

in productive investment. However, some

expansionary effect was present nonetheless

and the growth rate improved though itremained at less than half of the annual rate

for every one of the eight years before SAP.

Also this growth as the mere partialrecapturing of the development loss of the

preceding two years did not represent a net

TABLE 2: ANNUAL AVERAGE OF GROWTH RATES IN

GNP, NNP AND NNP PER HEAD

(At Factor Cost in 1980-81 Prices)

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gain. Indeed the Net National Product perhead rose by an annual average of a mere

0.9 per cent over the three years starting wi th1991-92, compared to 5.7 per cent the three

years peceding the reforms (Table 2)according to the data in the official 1994-95

Economic Survey. Poverty incidence camedown by 1994 as the infl ation rate moderated

but it was still noticeably higher than in

1989-90, as confirmed by the Sen-

Chandrasekhar estimate. With the generalelections approaching fast the deviationtowards SAP-incompatible higher budget

deficit ratios has necessarily continued into1995-96.

Manufacturing growth in particular has

decelerated severely. A simple average ofannual growth rates gives 1.9 per cent for

the first three years of the reforms, 1991 -92to 1993-94, compared to an average of 7.4

per cent during the preceding six years

1985-86 to 1990-91 calculated on a similarbasis (Table 3). Wi th the SAP- incompatib le

rise in the budget deficit ratio, the growthduring 1994-95 was much higher at 8.5 per

cent (and for 1995-96 it is claimed to be evenhigher); even so however the four-year

average starting 1991-92, is less than halfof the average for the years preceding the

reforms.

The trade deficit is expected to be backto about $5 billion in 1995-96, which is

short, but not much short, of the $ 5.9 billion

of 1990-91, despite significant ex port growth

in the interim. The reason lies in a surge in

imports in the last couple of years, partlyowing to the industrial expansion but partly

also owing to the import liberalisation thathas been a feature of structural adjustment.

It is noteworthy that the composition ofimports is changing towards the particular

types of 'capital goods' required for the newdurable consumption goods. This again

replicates the experience of other developing

countries under liberalisation: however muchexport growth is hiked, freeing of imports

particularly of the non-developmental kindleads to a private spending spree by the wel l

to do, so that in a few years the paymentsproblem is usually back to square one, while

in the meantime a high and qui te unnecessaryprice has been paid by way of more poverty

for the rest of the population. The declinein the savings rate in the Indian economy

is consistent with this spending spree by the

well-to-do.

Inflation, stimulated by the 25 per cent

devaluation of the rupee in 1991, was addedto by the cut in fertiliser subsidy in August

1991 which raised fert iliser prices by 30 per

cent, and by effective cuts in food subsidysix months later when issue prices for

foodgrains from ration shops were raised

sharply, A record rate of inf lati on, of 22 percent (last month basis) for agriculturallabourers, resulted. In the face of criticism

Economic and Polit ical Weekly Special Number September 1996

about the impact on grain output, the fertiliserprice hike was partially reversed; but the

damage is beginning to show up in stagnatingfood output. Research yieldi ng some regional

field data shows a sharp decline in 1992-93in value added per hectare and per worker

owing to input cost rise.

The total rise in the official index of

wholesale prices over the four years of thenew policies has been over 50 per cent,

which is very high by previous Indianstandards. For the wage-earners in the

informal sector and labourers in agriculturethe rise has been much higher: the consumer

price index for agricultural labourers has

risen by 70 per cent over the four years.Since the major part of the wage-paid

workforce has no indexation of earnings toinflation, its real earnings decline has been

substantial; perhaps this is one reason theCentral Statistical Organisation appears to

have stopped giving the break-up of GDPby factor incomes.

The Indian experience so far has replicatedthe familiar contours of the experience of

adjusting countries in the 1980s: reductionin the growth rate, especially of industry;

very substantia] real income decline throughthe route of necessities prices inflation

affecting the wage earners and the poor whoare net purchasers of food, pushing more

people below the poverty line. The exportgrowth rate has shifted upwards but so has

the import growth rate. We will argue laterthat rapid export growth especially of

agricultural products far from being a positive

indicator, under conditions of stagnatingoverall investment can only be at the expense

of decline in mass domestic consumption ofbasic foodgrains. The only concession to

criticism has been talk of 'safety-nets' forthe poor as part of 'adjustment wit h a human

face', but there has been no change at allin the basic agenda of reducing g rowth . (The

analogy might be of a person with a limpwho is advised to cut off a portion of her

good leg in order to ensure stabilisation of

gait and is then generously offered a set ofcrutches).

The implacable, relentless insistence onthe growth- reducing and poverty-increasing

agenda, in itself suggests that however well-documented their adverse effects on the

general population in developing countries,

these policies wil l continue to be mandatory

because they have been highly successful inimplementing the real, as opposed to the

putative Fund-Bank agenda, where the real

agenda is viewed as expressing pri mar ily the

economic interests of the developed nations.We argue that reduction in the rate of growthof income and hence of demand in the deve

loping countries serves a definite positivefunction favourable for the capitalist deve

loped countries in the present conjuncture,for the economic disenfranchisement of the

majority of the third world population

benefits them. This strong proposition is

advanced not hastily but advisedly, afterlooking al the evidence. Why and how

restricting growth in third world countries

benefits advanced countries, is a question

we explore for the agrarian sector. Beforethat, let us briefly recapitulate the existingestimates of poverty in India.

INCREASE IN POVERTY AND IN IMR

Given the marked downward shift in thetrend growth rate of the economy over the

last four years of the new policies, and therise in the rate of inflation which erodes the

real incomes of the unorganised labour force,not surpris ingly the incidence of poverty has

risen quite sharply. The findings of Gupta

(1995) and Tendulkar and Jain (1995)confirmed this for a comparison of 1990 and

1992. Both showed substantial risein poverty

TABU: 4: ESTIMATES OF RURAL POVERTY

Year Number (mn) Poverty Ratio

1987-88 229.83 39.281989-90 208.79 34.411990-91 216.50 35.041992 279.07 43.961993-94 244.87 37.53

Source: Chandrashckhar and Sen (1996)

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incidence. Data from the new quinquennial

survey for 1993-94 have been since processedby the Planning Commission to show that

between the two quinquennial surveys,

1987-88 and 1993-94 poverty has declinedand this finding has been used by proponents

of structural adjustment as proof of the

beneficial impact of the new policies onpoverty.

However 1987-88 is the wrong base for

comparison, being both an exceptionallypoor agricultural year and also too far back

from the date of initiat ion of the ' reforms' .

Also, the Planning Commission used atraditional, questionable methodology which

had been criticised by an Expert Commission,

namely, it took the difference between theCSO aggregate consumption estimate and

the lower NSS estimate and distributed this

difference over each NSS expenditure groupin the same proportion as that group's share

in unadjusted consumption. There are reasonsto believe however that the extra consumption

not captured by the NSS is likely to beskewed towards the higher expenditure

groups. Upon rectifying these defects,Chandrasekhar and Sen (1996) find that

rural poverty (similar estimates for urban

poverty have not been made) which was ona downward trend has started rising again

and in each of the post-reform years has been

higher than either in 1989-90 or 1990-91

(Table 4).

The Indian experience during the last fouryears thus substantially replicates the

experience of dozens of other countries:

reduction in investment and growth, and risein poverty. The infant mortality rate which

is a telling indicator of the level of mass

well-being, registered a slow but steady

decline all through the late 1980s, but dur ingthe reform period, 1991 to 1994 the rale of

decline has slowed down and in a number

of states the urban lMR has actually risen(Shiva Kumar, A K, 'Urban IMR and

Economic Reforms' in Frontline, 1996).

States in which urban IMR has been stagnantor has risen include Rajasthan, Haryana,

Uttar Pradesh, Bihar, Karnataka and Tamil

Nadu; many had higher than average IMR

before the rise.At the same time, there have been large:

inflows of foreign capital, about three-

quarters of it in the form of mobile 'hotmoney' attracted by high interest rates, and

a large accretion to reserves - not arising,

it may be noted, from any export surplus,but arising substantially from borrowin g. To

this extent the very source of larger reserves

carry a hefty interest burden.

Large reserves arc a cause for satisfaction

if they permit a bolder programme of state

investment for development than would

otherwise be possible, as was the case forexample with sterling reserves accumulated

by India during the the second world war

which permitted the bold Second Plan ofmuch higher state productive investment,

since these sterling reserves provided a

buffer against the inevitable external

payments imbalance accompaying growth.Accumulating large reserves makes very

little economic sense however if a state-led

investment thrust is anathema under SAP asat present; on the contrary the Indian state

is required, and it has already obliged, to

deliberately emasculate itself by cutting itsown productive investment, privatise PSUs

and to start scouting for foreign finance

capital. Rise in external debt - a significantpart of which falls in the category of 'hot

money' - and increased vulnerability to

speculative capital outf low are the result. Byearly 1996 Ind ia's external debt has reached

the third largest size in the world at nearly

a hundred billion US dollars (exceeded onlyby Brazil and Mexico) and servicing this

debt is expected to absorb an increasing

share of export earnings. From the third

quarter of 1996 as the phased principalrepayment of structural adjustment loan taken

in 1991-92 falls due, the pressure on the

balance of payments wil l increase sharply.We may expect a scenario of further pressure

by the lending agencies for more devaluation,

more liberal imports and further ex port-volume increases in the coming months,

which will be quite compatible with further

worsening of current account deficits andfurther rise in indebtedness.

These policies are hardly rational from the

viewpoint of the mass of third world

populations; they continue however to bepushed strenuously by the Fund-Bank and

continue to be implemented by indebted

third worl d governments. The only rationalexplanation seems to lie in the undeclared

but transparent agenda, namely, their

usefulness in accessing and cheapening thirdworld exports for consumers abroad, and

opening up hitherto protected third world

markets.

There arc strong incentives which are

offered by the new policy regime to the

minority constituting the domestic well-to-do, to support these policies because the

distribution of incomes shifts noticeably intheir favour: direct taxation rales onindividuals and companies are reduced,

subsidy cuts on food and the health and

education sectors reduce workers' bargainingstrength through a drastic reduction in the

social wage, a profit inflation for business

is ensured as necessities prices rise and real

wages are restrained, and access to

international consumption standards assured

for the minority with the means as scarceforeign exchange is freed for consumer

imports which were restricted earlier.

The domestic state, increasinglyrepresenting openly the interests of the we ll -

to-do minority of its own population,

implements these policies because it finds

it easier to borrow abroad than to tax therich, and more expedient to pass the burden

of deflation onto the poor than to impose

discipline on its own profligate consumption,(It is noteworthy that budgetary deflation

does not even impose any real discipline on

the budget since, as has been repeatedly

pointed out by analysts, the government'srevenue deficit continues to widen and the

overall cut is achieved by slashing productiveexpenditures). The vision of 'nationaldevelopment' has been replaced by the

economics of class expediency.

Some of the key influcncers of decision

making in third world governments

undergoing structural adjustment (and Indiais no exception in this respect) are themselves

ex-employees of the IMF or IBRD , and can

revert to these institutions, whose agendathey are implementing so faithfully, almost

at any time they wish. They are as a faction

of a class already 'globalised', and care lit tle

if the costs of imposing ' reforms' are borneby the mass of their countrymen who, unlike

them, have access neither to dollar incomesnor to migration opportunities: their own

'safety nets' are already well in place, so that

in the event of a collapse of the system theyare administering, they can easily migrate

to their met ropolitan havens. This represents

an entirely new phenomenon, when

'nationalism' and 'patriotism' for this classmean litt le and indeed are treated as laughably

outmoded ideas.

Al l this is not an individuals-specific matter

but reflects larger forces, indeed a new phase

of world capitalism itself with the re-

emergence of the dominance of highly mobile

international finance capital. These decisionmakers enjoy not merely the support but the

virtual adulation of a section of the urban

well-to-do in India, who similarly todayhave personal access to international travel

and consumption standards through their

own jobs, and through children and relatives

settled abroad. Though a tiny fraction of thetotal population, perhaps less than half per

cent or so, in absolute terms their number

is large and their influence is much larger

than their numbers; they are supporters andbeneficiaries of the new policies, which are

entrenching their interests further at theexpense of their ordinary countrymen. They

can now insulate themselves from their

fellow-countrymen in oases of high lifestylecomparable wit h or even better than any thing

abroad (since local labour remains cheap).

On present indications they have beenprepared to support the imposition of mass

income deflation (via food price inflation

and cutting state investment;, the maintenance through repeated devaluations of

a low effective exchange rate beneficial

for the advanced country importers, thedismantling of domestic food security, the

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carte blanche to MN C ' s to displace domesticproducers and take the country towards an

overall scenario of rising debt, low growth

and increasingly more skewed incomedistribution.

No advanced capitalist country today w il l

countenance being caught in a seenario whereall of them are simultaneously carrying out

devaluations as well as deflations. The last

time this happened in the developed world

was 65 years ago in the slide to the greatinter-war depression. Country after country

undertook deflation to remain on the GoldStandard; later, as the Gold Standard

collapsed they undertook competitive

devaluations in an attempt to capture a largershare of by then declining world trade. The

end result of combining simultaneous (viz,

across countries) deflations combined withsimilarly simultaneous devaluations was, to

say the least, distressing, and is now the stuff

of economic history [see for example

Kindelberger, The World in Depression

1929-1939].Third world countries today are being

asked to do precisely this: to competitively

deflate and competitively devalue. There isin fact a remarkable similarity between the

pre-Keyncsian, quite disastrous economic

policies that finance ministers the worldover followed in the late 1920s, and the

Fund-guided programmes that the indebted

third world countries arc obliged to followtoday. The main difference is that today

these policies are advised for the devel oping

countries alone.

Devaluation squeezes real wages while

deflation accentuates unemployment. Acombination of the two - which when

undertaken competitively by many countries

does not even achieve its putative aim hasa severe impact upon the working masses.

And yet indebted developing countries, wit h

2 per cent of the per head income of the

developed world, are expected under theFund-Bank package to cope with the burden

of simultaneous deflation and simultaneous

devaluation (Table 1 covering 78 countriesin the 1980s shows that the intersection set

of countries implementing both, was at least

half the total number). There is a ruthlessimplacability about the agenda, which, we

would argue, is owing to the need for

releasing exports, especially from the primarysector at cheapening rales from developing

countries, by reducing domestic demand

and absorption of their own products by themass of the population.

It might be argued that reducing growth

rates in the developing world adverselyaffects markets in them for advanced

countries' exports and is therefore against

their interest in this respect. However it has

to be remembered that rise in their per headincome is not the only way that developing

countries can absorb more imports; after

liberalisation and dismantling of tariff

barriers, the eroding of the developing

countries' domestic industrial sector by dis

placing its product ion, or deindustrialisation,

performs the same function equally well

from the viewpoin t of international capital.That is the basic reason for the insistence

of the advanced world on clauses of

mandatory market access in the GA TT 1994.Studies of a number of African economies

undertaking adjustment in the 1980s, havereached the conclusion that significantdeindustrialisation has occurred already.

Why should the reduction of demand andabsorption of their own products by third

world populations, be necessary at all, and

of benefit to advanced countries? This is thequestion to which we try to put forward the

answer in the next section with reference to

the agricultural sector. The answer involvesa rejection of the entire body of previous

theorising, based on 'comparative

advantage', involving today's tropical

developing countries.

INTERNATIONAL DIVISION OF LABOUR AND

LOGICAL FALLACY IN COMPARATIVE

COST THEORY

There is a fallacy of logic in using thetheory of comparative costs to explain that

pattern of international division of labour

which involves the export of agriculturalproducts by the tropical and sub-tropical

countries and the import of manufactured

goods from more advanced northerncountries. The fallacy lies in the fact that

relative costs cannot be defined at all. This

argument is explained further below.

There is a fundamental if obvious

difference between agriculture and

manufacturing, the economic consequencesof which art usually not taken into account.

Manufactured goods whether cement, textilesor steel, can be produced anywhere in theworl d, on the basis of imported raw materials

if these are not locally available; but crops

are ineluctably specific to particular climate-soil complexes. The overwhelming bulk of

the earth's bio-diversity in general and

botanic diversity in particular, is concentratedin the earth's tropical and sub-tropical areas

which include India, where high ambient

tempertures ensure year round plant growth.In northern countries there is only one single

natural growing season, the range of crops

is relatively limited,and artificially extendingthe growing season is a highly energy-

intensive and prohibitively expensive

proposition.

No amount of capitalist innovations canalter the fact that under field conditions

Yorkshire can never grow bananas, Bavaria

can never grow sugarcane and New Englandcan never grow coffee. With a vastexpenditure of energy derived from the fossil

fuels, prohibitively expensive hot-housecultiv ation may enable growin g them in tiny

quantities as in a botanical garden, but

commercial cultivation on any scale is outof the question and imports are mandatory,

for these products arc by now essential

elements in northern consumption baskets.Large countries like India cannot only

grow all the typically tropical crops, but

potentially if not actually every crop thatgrows in Yorkshire, Bavaria, or New

England, In addition to the specifically

tropical crops, the temperate-land summercrops, fruits and vegetables are also easily

grown in winter in sub-tropical climates.

Where topography is such as to provide land

at varying elevations, a highly diversifiedproduct-mix is possible.

Tropical lands with their unique capacity

to produce a large variety of crops, are notin unlimited supply. We might not

conceptualise tropical cultivable land as a

completely non-renewable resource as we

do the fossil fuels; but it is definitely aresource whose 'supply' can only be

augmented with the greatest difficulty.Lateral expansion of cultivable area is no

longer easily possible as it was in the last

century and can only take place by furtherforest destruction carrying long-te rm adverse

effects on rainfall and survival of species.

(In some Asian countries cultivable area isactually falling as commercial, industrial

and residential construction grows). M aki ng

an existing acre do the work of two or threeby raising output per unit area, is thus the

only rational alternative. Heavy investment

in research and in irrigation is required

however to raise the yields from existingcultivable area, and after the "green

revolution' of the 1960s in the cereals no

new really big breakthrough is as yet insight. It is still potentially toxic heavy

chemical fertiliser application on irrigated

land to non-lodging varieties which is thesource of yield rise,

Further, the present logic of Fund-guided

contractionary programmes has led ifanything not to increase, but to prolonged

deceleration in investment in irrigation and

in agriculture in most tropical developingcountries. Certainly we know that in India

investment in agriculture has been declining

from the partial liberalisation of the 1980s

and the present phase of SAP has seen a

continuation of the decline. In the absence

of adequate investment tropical land becomes

a resource in virtually fixed supply, implying

that growth in one component like agri-

exports can only be at the cost of decline

in domestically consumed output. We willreturn to the emerging inverse relation

between agri-exports and domestic food

supply below. This emerging inverse relationis indeed the single most important outcome

of the liberalisation of agriculture, carrying

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very serious implications for food security

for the poor.

The basic of obvious fact of the con

centration of botanic diversity in tropical

regions has determined the world division

of labour in agricultural production. Its

historical origins lay, not in Ricardo's

'comparative advantage' (which is probably

the cleverest rationalisation of national self-

interest ever put forward by an economist),

but in the use of mercantile arms backed bystate power to secure for Europeanpopulations, access at the cheapest possiblerates to tropical products. The fact that Bri tain

could grow no cotton, did not prevent the

cotton textile industry emerging as the leading

sector of the Industrial Revolution; but this

improbable development was only made

possible by securing an elastic supply of

colonial raw cotton under the mercantilist

system of prohibiting textile manufactures

in the colonies while pushing the cultiv atio n

of the raw material. The fact that Japan, that

other island-nation on the edge of a continent ,could grow little sugarcane itself, did not

prevent the emergence of a large Japanesesugar refining industry; but this in turn was

only possible by seizing and colonising sub

tropical Taiwan and developing sugarcane

production.

The specialisation of Britain or Japan in

manufacturing and their colonies in primary

products, and the ensuing trade pattern, had

nothing whatever to do with any Ricardian

'comparative cost advantage' or indeed

'absolute cost advantage'. There is a

fundamental logical fallacy in trying to

explain such specialisation using Ricardian

theory. This theory (the standard two-

country, two-commodity model) is only

applicable where both countries can produce

both commodities; this is a necessary

condition for calculating and comparing

production costs. Tropical p rimary products

are by definition not producible at all in

temperate regions, so production cost simply

cannot be defined for these commodities for

these regions; hence neither absolute norrelative costs are definable.

To say for example that Britain had a

comparative advantage in textiles relative toIndia whose advantage lay in sugarcane (or

ju te , or tea), i s a nonsensical proposition ; for

while the cost of both goods can be defined

for India, sugarcane, jute or tea cannot be

produced in Britain, hence its cost cannot

be defined. If cost cannot be defined, cost

ratios are undefmable. We can attempt a

mathematical solution to the problem perhaps

by assuming a fictional output of sugarcane

(or jute or tea) in Britain and imputing an

infinitely high cost of production to it. But

this is not Ricardo's theory which assumes

that both commodities are producible, and

are actually produced in the pre-trade

situation, in both countries: only on this

basis can Ricardo show that the availability

of both goods improves for each country

through trade (in the sense of more of onegood and no less of the other good, i e,

vectorwise improvement). Fictional out

puts have no place in Ricardo's theory be

cause the vectorwise improvement in the

availability of both commodities in both

countries through trade is the explanation

as well as the justification of trade in the

comparative cost theory [see Samuelson1965, pp 426-38 for a formal exposition of

Ricardo which is based precisely on the

production of both goods in both countries

in the pre-trade situation].

On the other hand one might try to rescue

the theory by interpreting the 'vectorwise

improvement' to mean a Pareto improvementin utilities in each country rather than an

improvement in the physical commodity

bundles available in each, in the post-trade

situation as compared to the pre-trade one.

This is trying to arrive at a weaker version

of Ricardo's conclusion about mutual benefitfrom trade, without making Ricardo's

assumption (making use instead in the

process, of fictional outputs with infinitely

high costs of production); but this device too

will not work. The conclusion about

beneficial effects of trade even in this sense

does not necessarily follow. Indeed for the

tropical country trade becomes positively

harmful: because of the inelastic supply of

tropical land - in the absence of adequate

investment which the market itself does not

call forth - the export of tropical products

would necessarily reduce domestic

avai labi lity of such products or of foodgrains,

and leave the mass of the population worse

off, for which manufactured imports from

the north, no matter how cheap, cannot

compensate.

The comparative cost theory thus breaks

down for all trade invol ving tropical products

vis-a-vis northern countries. Relative cost

cannot be defined at all where some goods

cannot be produced, and rescue efforts

through various logical stratagems like

assuming fictional outputs and weakening

the mututal benefit condition, do not work.

This simple point which neverthelessconstitutes a powerful logical critique of the

common fallacy of in voking Ricardian theory

to explain international specialisation, has

not been made before to our knowledge.

As a matter of fact, the criticism is

applicable not only to the present use of

Ricardo's theory; it is equally applicable to

Ricardo's or iginal example of specialisation

in wine production by Portugal and in cloth

production by England, which would occur

if the relative cost of wine production was

lower in the former. This is an example

which finds a place in every economicstextbook to this day and is uncritica lly taught

the world over to students. This particular

example by Ricardo is logically untenable

as well since commercial large-scale grape

production was not possible in England,

located as it was in the northern part of

Europe, owin g to its cooler and more variable

summers compared to the central and

southern continental countries. The cool

temperate lands generally cannot cultivate

grapes. Since grapewine could not be

produced its relative cost could not be

defined. (The natural, genetically untamperedgrapevine or vitis could indeed perhaps be

grown with great care though giving low

yield, in England in a few very limited

south-facing and wind-sheltered locations

in Cornwall or in heated conservatories; but

not on any scale under field conditions.

Incidentally it is amusing to note that

Samuelson 1965, ibidem while providing a

modern exposition of Ricardo's theory,

quietly substitutes 'food' for 'wine' in the

original two-commodity two-country model

of Ricardo witho ut ment ioning why he does

so. Food is of course producible in bothcountries while wine is not. It is possible

that he smelt a rat in the original example

but thought it best not to explore the issue,

with its subversive implications for the

'mutual benefit' conclusion, any further).

Britain wanted a large supply of in

expensive grapewine to consume but could

not produce il . The real reason for warmer

Portugal obligingly exporting its low-value

wine and giving access to its own markets

for higher value cloth to Britain - resulting

in the relative decline of its local cloth

production, or deindustralisation - lay in its

relationship of naval and diplomatic

dependence, indeed near subjugation, to

Britain both when Portugal was fighting

Spanish rule over its population as well as

later in the course of the war of the Spanish

Succession. Britain's naval ascendancy left

Portugal with little choice in the matter of

trade. Britain had even succeeded through

a combination of naval bullying and

diplomacy, in wresting from Portugal the

coveted, highly lucrative Asiento or

monopoly of supplying slaves to the Spanish

empire in South America from Portuguese

West Africa; and later obtained more tradeconcessions for its merchants located in

Lisbon including the agreement on the

exchange of cloth for wine [see Boxer 1969

and Hill 1966].

The central role of military violence,

interestingly, drops out of the picture entirely

once we come to the subsequent theorisation

of the trade pattern by English political

economists: Ricardo's illustration and

explanation is entirely in terms of neutral,

technological ly giv en cost factors. The very

fact of the emphasis on cost ratios serves to

divert attention from the basic point ofwhether cost is at all definable; it acts as an

intellectual sleight-of-hand. Without entering

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into the vexed and perhaps unanswerable

question of to what extent Ricardo was aware

of what he was doing, as far as his theory

is concerned it clearly played the role ofrationalising - as being mutually beneficial

and therefore voluntarily entered into by

both sides-and thus intellectually justify inga trade pattern whic h in reality was to Britain's

benefit and to the trading partner's detr iment.

The rationalisation was powerful because it

was stated in terms of what looked likeobjective economic law, even though the

real historical mechanism leading to thattrade pattern as well as its welfare outcome

were quite the contrary of that postulated.

The obfuscating power of the intellectual

construct should be clear from the fact that

every economics textbook uncriti cally carries

to this day this logica lly incorrect illust ration

of Ricardian comparative advantage. Further,

the theory is used systematically to suggestthat the trade pattern historically imposed

by armed force and economic coercion upon

subjugated or colonised peoples by the westEuropeans, resulted in a mutual advantageous

specialisation. So successfully has the

hegemonic theory suborned the capacity for

independent logical thought that we findthird world historians and economists

themselves putting forward this fallacious

argument, vide the invocation by K NChaudhuri in the Cambridge Economic

History of India 1985, of Ricardian

comparative advantage as the explanation ofIndia being reduced to impor ting Lancashire

cloth and exporting primary sector products

in the early 19th century.

During the last three centuries, the

consumption basket of Europeans including

those who Emigrated and populated the

temperate areas of the Americas, has beentransformed: but only partly owing to

improvements in their domestic agriculture,and very largely owing to increasing

dependence on imported tropical and sub

tropical products which provided the physicalbasis for rising standards of living. Reliance

on the products of their own agriculture had

historically meant a very limited consumption

basket for the Europeans. Late medieval

temperate agriculture had a remarkably lowproductivity owing to a short growi ng season

confined to a few summer months over muchof Europe, a seed to yi eld percentage as high

as 25 to 40, and the fact that only one-third

to half of cultivable land at any given timecould actually grow anything because

fal lowi ng to keep up soil fe rtil ity was neces

sary in the absence of adequate manuring[van Bath 1963]. The inability to grow enough

foodgrains for humans as well as fodder for

animals entailed mandatory livestock cullingat the onset of winter and lowered the

availabilty of manures which in turn keptyields low and perpetuated the vicious circle.Latin Europeans however were somewhat

better off and enjoyed the saving grace of

the vine, the olive and some citrus fruit.

Ana lys ing the data on the diet of serfs and

lords on the feudal estates of Germany and

Sweden in the 16th century, van Bath (1963)finds that the average diet provided more

than adequate calories at about 3,500 to

4,000 per head but was grossly ill-balancedand monotonous, consisting of large

quantities of bread, rancid salt butter, a litt le

cheese, and meat of which only 10 per cent

was fresh and 90 per cent preserved andheavily salted. Vegetables and fruit were

limited to the few summer months; the highly

saline diet generated an 'oceanic thirst' sothat beer consumption per head was some

40 times higher than in present times.

Herrings supplemented this diet for coastalpeoples. Vitamin and other micronutrient

deficiency diseases ( rickets, night blindness,

scurvy,etc), hypertension and cardiac diseasemust have been much more common than

today.

By contrast, in the Ain-i-Akbari, part ofthe Akbarnama written by Abu 'l Fazl All ami

during emperor Akbar's r eign in India in the

late 16th century, we find a list, slated to

be not exhaustive, of the market prices of35 kinds of fruit and 26 kinds of vegetables

(scc A in 27 and Ain 28, Akbarrnamatranslated

Blochmann 1887]. Consumption may have

been limited by income, but not by theinability to produce. Net yields of cereals

per unit of arable land were substantially

higher than in Europe owing to low fallowing,at least two growing seasons in the year, a

low seed to yield percentage of around 10,

and the ability to multiple-crop underirrigated conditions.

The improvements in European agriculturestarting in England from the 18th century,

involved root and leguminous fodder crops

which permitted livestock to be led throughwinter; convertible husbandry increased the

supply of fresh meat and manures, breaking

the late medieval vicious circle of very lowproductivity. The 'agricultural revolution '

in Britain, the country with the most

improvements, seems all the same ratherunimpressive: Mingay tells us that grain

output rose by 50 per cent at most during1700 to 1850, which gives us an annual

compound growth rate of only 0.27 percent

[Mingay 1967], which fell behind the

estimated population growth rate by the

mid 18th century . Never theless theconsumption basket of the British and other

west Europeans through the 18th century

was being transformed, and this was owing

to the institution of mercantilist trade patterns

follo wing their seizure of the Americas, parts

of Africa and the colonisation of Asia andthe Caribbean. The greatest land and resource

grab ever in the history of human societiesby the Europeans, predates the rise ofindustrial capital.

With the seizure of tropical colonies, we

know that Europeans proceeded with greatenergy to exploit for themselves the benefits

of tropical botanic diversity, by dispersing

a range of commercially valuable crops(sugarcane, rubber, cotton, tea, coffee and

so on) from their countries of origin to

colonies with similar climatic conditions,for plantation production for export to

metropolitan markets. For this purpose

they sim ila rly trasported West Afr icans,kidnapped and enslaved, and later Asian

indentured workers, thousands of miles to

serve through their labour the interests ofthe new globalised capita l. W A Lewis (1978)

estimates that from the second half of the

19th century alone about 50 million

Europeans migrated to settle and developthe resources of the temperate lands they

seized, while a similar number of Africans

and Asians, about 50 million, weretransported by them as cheap slave and coolie

labour to work the mines and plantations

feeding metropolitan industry andconsumption.

As the leading colonial power, Bri tain by

1830 already had tropical imports amounting

to as hi gh as 40 per cent of its ow n domesticproduction by value if we consider primary

goods and by 1860 this had increased to a

staggering 60 per cent [calculated from datain Mitchell and Deane's Abstract of British

Historical Statisics 1966]. These are

underestimates given the method of valuationused in the statistics. A developing country

today with even half this degree of import

dependence would at once plunge intobalance of payments crisis. External

payments problems seldom troubled the

European colonisers however, because withpoliti cal contro l the tropical import surplus

for them, became costless. It was financed

by using a large part of the tax revenues

obtained from the colonised peoplethemselves to purchase the importables; the

metropolitan import surplus of goods from

the colonies thus represented a differenteconomic category from an import surplus

under normal trade. It was nothing but the

transfer of the commodity equivalent of a

part of the colonial tax revenues. As far asBritain was concerned on average over half

its huge tropical import was re-exported totemperate countries (mainly Continental

Europe) to pay for its imports from them,

thus solving potentially serious paymentsproblems given inelastic demand for British

exportables.

INVERSE RELATION OF FOOD AVAILABILITY

AND AGRI-EXPORTS

In the modern world the mechanism of

taxation is replaced by that of the externaldebt of third world countries, whose servicing

requires an export thrust and absorbs a

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substantial part of their export earnings. The

heaviness of debt in third world countries

is partly the result of their attempt to developtoday in a much more hostile world

dominated by the early industrialisers and

with no access to large transfers such asthose advanced nations historically enjoyed

from today's developing countries. The

heaviness of debt is also the outcome of thedeveloping countries not being paid enough

for their exports compared to their imports,and continuous pressure on them to cheapentheir exports further.

The reason for dwe lli ngon the mechanism

of tax-financed exports in colonial times, isto stress the fact that it necessarily operated

via a domestic deflat ion. If a part of budgetary

revenues is set aside every year in the colonyfor paying local exportable producers and

the foreign exchange earned by the export

surplus does not accrue to the producers butis diverted to metropolitan use, then this is

equivalent to the follo win g scenario; a surplus

budget is being operated (the surplus beingequal to the magnitude of the transfer abroad)to reduce domestic demand, and the

commodities so released are then bought up

using the unspent revenue and taken out asunrequited exports (for the modus operandi

of colonial fiscal policy see S Sen, Colonies

and Empire, 1992). Income deflation wasa necessary economic mechanism from the

rulers' viewpoint because the rate of growth

of Indians' income had to be limit ed in orderto keep in check their market demand for

domestically consumed goods, and thus

divert a larger part of available limitedresources especially irrigated land, away

from these domestically consumed goods to

the product ion of the tropical primary exports

needed by the industrialising powers.

The most important domestically

consumed necessity was foodgrains, and itsgrowth necesarily declined to accommodate

the growth of exported crops. 'Necessarily'

is used here in a contingent sense; had thecolonial government pumped large enough

investment into irrigation, improved seeds

and fertilisers in order to raise grainproduc tivi ty, then food output could perhaps

have been maintained even with increasingagri-exports. Bui no colonial government'spriority was to see that the average local

producer continued to eat al least the same

amount of food as before commercialisation.Its priority was to secure a cheap and elastic

supply of the commercial tropical raw

materials which fed its home industry and

the tropical consumption goods which hadbecome a part of the the essential

consumption basket of the home population

or which could be exchanged for importsfrom other temperate land countries.

We extend the argument to present times;as in the past, there is a basic asymmetry

which continues to exist with respect to

global agr iculture. Every developed northerncountry continues to make systematic and

ever larger demands on the limited productivecapacity of tropical and sub-tropical lands,

while the converse is not true: the populations

of developing countries have neitherhistorically made demands on temperate

lands, nor do they wish today to become

wheat importers from them. They areperfectly capable of meeting their own food

requirements if they were left alone to doso and were not called upon to meet thedemands of northern countries which are

habituated by now to consume a huge range

of products only producible in Southernlands. With no access to tropical colonies

other than the Philippines for any length of

time, the US too has developed a highlyimport-dependent consumption pattern

ensured by the contractual control exercised

by its transnational food companies on thirdworld producers.

In this context it will be worth bearing in

mind that strawberries in July andstrawberries in January are analytically two

'different' crops: most of Europe or northAmerica can produce the former but not the

latter; so northern demand is by no means

confined to typically tropical crops likesugarcane or coffee, but includes all crops

which are seasonally limited in temperate

lands but are easily producible in winter incountries like ours. Hence the thrust by the

TNCs in the global food business is to

displace third world land already underfoodcrops, to those vegetables and fruits

which wil l iron out seasonal imbalance of

supply for northern populations. Fresh,frozen and canned vegetables and fruits are

cheaply available all the year round to

consumers in western Europe and northAmerica, whereas consumption patterns to

this day in east Europe or Russia which

never colonised or exploited the third wor ld,

are much less divers ified, more pr imi tiv e' ,seasonally constrained and local products-

dependent.

It is not the priority of any advanced

country today, to ensure that the demandsit makes on tropical agr iculture are consistent

with local populations retaining enough toeat themselves. True, the advanced countriesstrenuously push wheat exports to them; but

since the price of tropical exportables are

under continuous downward pressure, termsof trade tend to turn against the developing

world reducing its ability to import food and

forcing consumption decline. In fact we

already find, in the countries with the mostsuccessful agri-exports drive, severe decline

in per head food production and since food

imports usually cannot be increased enoughto compensate owing to declining

international terms of trade, there is also adecline in availability and a rise in thenumbers of the famine-vulnerable. Some

data from sub-Saharan Africa are examined

later. It is evident from a study of historythat the cost of ensuring a cheap stream of

agri-exports to the metropoles was very high

for the colonised populations: no less thana substantial decline in their own absorption

of basic foodgrains, a decline in their level

of nutrition. In India for example, exportable

commercial crops grew more than 10 times

faster at 1.31 per cent annually compared

to only 0.11 per cent per annum for thefoodgrains over the period 1894 to 1947

according to G Blyn's estimate for British

India. The per head exportables productionrose, but the production and availab ility per

head of foodgrains declined by 25 per cent

overall for British India in the inter-warperiod. The decline was highest in Bengal,

Bihar and Orissa at 38 per cent while even

the most dynamic region, Punjab saw an 18per cent decline [see Blyn 1966]. We have

elsewhere argued [see Patnaik 1991] that

this secular fall in food availability, com

bined with the adverse movement in theinternational terms of trade for primary

products, created the preconditions for

famine. Traditional systems of food securitywere continuously undermined by exports

and the inter-war decline in terms of trade

in a completely open, liberalised economy,sharply increased the numbers of famine-

vulnerable. Any shock to the system could

then set off actual famine, as indeed happenedin Bengal in 1943-44.

The scenario of falling nutrition levels forthe colonised as a direct result of exports

to the metropole, was a general one. Japan,

during the relatively short periods that itcolonised Korea and Taiwan (1910 to 1945

and 1895 to 1945) developed these areas

vigorously as suppliers of rice and sugarcane.Despite the fact that it pumped in a good

deal more of investment to ensure high

growth than Britain had done in India, inKorea so large was the increase in exports

of rice (rising from less than 1 per cent to

65 per cent of increasing rice imports intoJapan during 1897 to 1937) that consumption

of foodgrains by the Koreans fell (see

Grabowski 1986]. Inferior millet from

Manchuria substituted for rice in thecolonised Koreans' diet, but the calorie

content of the average diet is estimated tohave declined by 18 per cent over the two

decades before the second war. The poorer

peasants were reduced to eating wild grasses

and tubers for two to three months in theyear [see Hayami and Ruttan 1970].

We put forward the proposition here thatthe real as opposed to the putative rationale

of imposing income deflation on all indebted

third world countries today by the Fund-Bank, is no different from the rationale in

colonial times. Given inadequate growth ofproduction the only way that more exportscan be squeezed out at low prices is through

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limit ing the absorption of their own products

by the third wo rld populations. Mass income

deflation does not correct long-run payments

imbalance when accompanied by tradeliberal isation and more skewed incomes over

social classes, as the experience of dozens

of adjusting countries amply demonstrates;but it does serve as a very effective economic

mechanism for reducing the growth rate of

third world consumption and releasing

exports (which are either only producible inthese countries or are producible at much

lower cost than elsewhere). N ow as then, themaintenance of the developed wor ld' s high

living standards is crucially dependent on

a cheap and elastic supply of imports from

developing countries; we would argue alsobelow, that there are recent shifts in

consumption patterns which are resulting in

fresh demands on the limited productivecapacity of fragile tropical and sub-tropical

lands.

The structural characteristics of the colonial

syndrome in the agrarian sphere - the growthof exports and decline in the absorption of

basic food staples by the poorer majority of

local populations - is being replicated todayall over the developing world as a general

trend which is sharply accelerated in the

countries fol lowing trade liberalisation and

SAP. It is important to remember, and it will

bear repeating, that the regime of primary

sector export drive in every third world

country undertaking liberalisation and SAPtoday, is also the regime of mandatory

macroeconomic contraction, and hence of

decline in rates of productive investmentand growth including in agriculture. There

is thus not the remotest possibility of

combining high agri-exportables growth with

high growth of domestical ly consumed crops.

Where investment rates are falling,

increasing exports can only take place byreducing domestic absorption. Income

deflating policies thus are the 'necessary'

mechanism to lower domestic absorption ofbasic foodgrains and other necessities, divert

scarce tropical land and investment to agri-

exports which are pushed strenuously by

state policies. Rising export volumes are

squeezed out at falling prices as more andmore developing countries are required to

fol low the same policies and compete againsteach other to export similar products. What

we are witnessing today is the economic

recolonisation of third world agriculture,but under less transparent and hence more

effective forms of subversion of their national

food security. It is a subversion which isaided and abetted by a section of the

governing elites in these countries which

have been intellectually suborned bypowerful ideological constructs (including

modern use of the logi cally incorrect theoryof comparative advantage) and materiallysuborned by being given access to

Economic and Pol iti cal Weekly Special Number September 1996

international li vi ng standard provided they

help to immiserise their countrymen.

Contraction in economic activity continues

to be the unchanged Fund-Rank putativerecipe for 'adjustment' although it is not a

necessary condition for achieving the

declared aim of external and internal balance,and it is zealously implemented in every

case. Because in fact it has been highly

successful in squeezing out third world

exports at declining prices, to the great benefitof the developed world, and also highly

successful in tilting income distribution

further in favour of the third world rich, we

believe it is going to continue to be imple

mented regardless of how much evidence is

compiled (including by individuals employed

by these organisations) of the extremely

adverse effects on poverty, food security,

health and education levels in the exportingcountries. No change in the highly successful

basic agenda can be expected. We can expect,rather, more programmes to limit the most

distressing manifestations of income-reducing policies.

The reasons for the international lendingagencies, talking a great deal about the need

for poverty reduction and of 'safety-nets' -

even though it is the deflationary, massincome contracting policies administered

under the close guidance of these agencies

which in fact increase poverty - lie in theirfear of the outcomes of possible passive

revolt through migration of a section of third

world producers and of widespread sociopolitical upheaval. To consider the colonial

analogy, it was certainly not in the long-term

interests of the British in India that peasantsshould be over-exploited to the extent that

they died of f in such vast numbers in famines

induced by colonial policies themselves, as

to adversely affect total taxable incomes; forthat would amount to killing the goose that

laid the golden eggs. What might be called

a 'sustainable rate of exploitation' was thusa rational desideratum, and famines had to

be contained and limited at the same time

as the basic policies leading to famines,continued to be followed.

It is similarly certainly not in the interests

of the advanced world today that theexploitation of the third world should be so

excessive as to affect the political stabilityof the existing international order (although

in fact we see this outcome in some indivi dual

cases, where amongst other factors, Fund-Bank induced economic crisis has helped to

catalyse social disintegration via ethnic and

communal strife: Sri Lanka is an example)

An important consideration underlying

the anxiety to contain poverty, is the presentcontradiction between the complete

international mobilit y of goods and capital

which is demanded and substantiallyobtained by the advanced countries, and

their insistent sabotaging of the complete

international mobi lity of labour, through the

imposition of restrictions on immigration ofunskilled labour from developing countries.The advocates of liberalisation, are bothinconsistent and hypocritical in that theywant the full liberalisation of goods andspeculative capital movement from their ow ncountries to the developing wo rld (and indeedthis is part of loan-conditionalities) , but theywish to regulate strictly the inflow int o their

own countries, of third world labour displacedfrom their occupations owing precisely tothe de-industrialisation induced by theunregulated inflow of goods into thesecountries and the wind ing up of their publicenterprises.

However, there are limits to control: asmore third wor ld producers are displaced ormarginalised they will take higher risks tomigrate illegally to advanced high-wagecountries whic h in turn wi ll have to devotemore resources to keep them out, or face therise of domestic fascist organisations, whi ch

are indeed already gaining strength on theEuropean continent largely on anunemployment and anti-immigrantplatfo rm.Given such a scenario it becomes importantto advanced countries to ensure that at thesame time that the exploitation of the thirdworld continues, poverty there is sufficientlycontained through various schemes as toinduce the bulk of the unemployed anddestitute to stay put in their own countries,even as the movement of capital and goods

is fully internationalised.

CHANGING PATTERN OF ADVANCED

COUNTRIES' DEM AND ON FRAGILE TROPICAL

AGRICULTURAL PRODUCTIVE CAPACITY

The high living standards of western

European and north American populations

today depend crucially on the availability

of an uninterrupted, elastic supply of cheap

energy on the one hand, and of a large range

of imported goods from tropical and sub

tropical countries on the other hand Ensuring

the continuin g cheapness of these two crucia l

factors underpinning living standards, has

been probably more important than ever

before as the recession which started in the1980s continues in most advanced countries

and so do fairly high unemployment rates.

This in turn, it has been argued, has to do

with the new phase of dominance of finance

capital which ensures its international

mob ilit y in search of speculative profits, to

the detriment of productive investment and

growth in real sectors [P Patnaik 1993]. The

advanced countries have had some of the

lowest per capita annual growth rates in the

worl d in the last 15 years, falli ng to negative

rates in many years and seldom exceeding

1 per cent when posit ive; this peri od has alsoseen a dramatic increase in the rates of

surplus value in these countr ies, and yet real

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living standards have not only been

maintained, but have risen for substantial

sections owing to the remarkable pricestability they have ensured, to which the

sieady fall in imported primary products

prices have contributed substantially.

We know that each north American uses

up over 8,000 units of oil-equivalent of

commercial energy every year compared toover 5,500 units in western Europe and

3,600 units in Japan, while India's per head

energy consumption is only around 220 units

and China's is less than 600 units (theseorders of magnitude were quoted during the

Earth Summit in 1992). These are very

roughly proportional to the respective perhead incomes. Thus, Indi a's per capita energy

use is only one-fortieth and one-twentyfifth

of the north American and European levels,China's being one-fourteenth and one-ninth

respectively. This implies a very high degree

of skewness in global energy consumption,most of which is derived from the fossil

fuels. With barely 5 per cent of worldpopulation, north America alone accountsfor a third of world energy consumption,

while at the other extreme with nearly 38

per cent of world population, India andChina account for only 12 per cent of global

energy consumption.

There is a great deal of talk about thedeveloping countries especially India and

China being overpopulated. The relevant

concept here however is not the nominalpopulation but the standardised or real

population, where the basis of standardisation

is an index derived f rom the per head demand

on non-renewable resources, for which theenergy demand can serve as a proxy. Taking

the Chinese per head energy use as the base

of such a simple index, China's nominal andreal population would be identical at 1200

mil lion, or 1.2 bill ion . India's real population

works out to 0.33 bi lli on, while north America

has a real population of as much as 4.1

billion; western Europe and Japan to