Tanim Ahmed

The potential of biofuels as a foreign currency earning sector featured rather strongly at a conference of the non-resident Bangladeshis earlier this year too. According to insiders, the military-controlled interim government has also approved applications and permits for biofuel production. Industry insiders also state that several thousand tonnes of maize have been exported from Bangladesh for biofuel production abroad despite the raging food crisis within the country

THE recent Wall Street meltdown is being termed as the greatest financial disaster since the Great Depression. Given the economic turmoil of the developed countries, especially the United States, and the consequent depression that the world is likely to face, the financial crisis appears to have crowded out food crisis. Discussions marking World Food Day on October 16 would perhaps strive to bring back the prevailing food crisis into focus. Similar issues would surely resurface to mark International Day for the Eradication of Poverty which falls on the following day.
   There are generally three reasons ascribed to the food crisis —affluence of the vast Chinese and Indian middle class, climate change and biofuels. Although different international quarters have pointed at biofuel production as a leading cause behind the rising food prices the American government has consistently denied it and maintained that its contribution to the price rise was negligible — about three per cent. Both the United States and the European Union have geared up their biofuel industries to meet their target of producing 10 per cent of automobile fuel from biofuel by 2015 in the US and from biodiesel by 2020 in the EU.
   The US economy, in order that it meets the target, which would gradually, as they believe, lessen their dependence on fossil fuel from West Asia and strengthen their energy security, has some 200 mechanisms to protect and subsidise corn-based ethanol production, which is why the US establishment is most defensive about it and the pro-establishment propaganda machine more or less silent on the issue.
   On July 4 this year, a report of the UK-based Guardian read ‘Secret report: biofuel caused food crisis.’ This report was based on a study by the World Bank completed in April this year. The lending agency had till then refrained from making this paper public quite understandably to save the face of the American establishment. Apparently, according senior development experts quoted in the Guardian report, the damning paper would substantially embarrass the US president, which would be undesirable.
   This World Bank paper found that ‘biofuels and the related consequences of low grain stocks, large land use shifts, speculative activity and export bans’ were responsible for up to 75 per cent of food price increase across the world.
   Although this paper was ‘quietly’ released by the World Bank on July 28, if only to save its own embarrassment and disprove the Guardian’s allegations, the first footnote states, ‘The views expressed in this paper are those of the author and should not be attributed to the World Bank or its Executive Directors.’
   Authored by Donald Mitchell, a lead economist for the Development Prospects Group of the World Bank and responsible for agricultural commodity price forecasts and analysis of issues and policies related to commodities, and having been through a peer review, which was apparently why it took almost three months for the World Bank to finally release the paper, one would then be compelled to doubt the quality of World Bank staff. Otherwise the disclaimer must be considered a matter of political convenience.
   Noting that World Bank’s food price index increased by 140 per cent from January 2002 to February 2008, Mitchell states, ‘The increase in internationally traded food prices from January 2002 to June 2008 was caused by a confluence of factors, but the most important was the large increase in biofuels production from grains and oilseeds in the U.S. and EU. Without these increases, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate.’
   The summary of this paper titled ‘A Note on Rising Food Prices’, Policy Research Working Paper 4682, also states that the land use changes triggered by biofuel production expansion had actually prevented the expansion of acreage of wheat that could potentially prevent large declines in global wheat stocks. ‘The rapid rise in oilseed prices was caused mostly by demand for biodiesel production in response to incentives provided by policy changes in the EU beginning in 2001 and in the US beginning in 2004.’
   Mitchell’s paper marks the dramatic increases of rice price as largely a response to the rising wheat prices ‘rather than to changes in rice production or stocks, and was thus indirectly related to the increase in biofuels’.
   The paper considers the matter of export bans, such as the one by India on rice, and concludes that export bans together with speculative activity ‘would probably not have occurred without the large price increases due to biofuels production because they were largely responses to rising prices.’ Mitchell finds that although increasing prices of fuel and fertiliser, back-to-back droughts in Australia and the weakening dollar would have contributed to the food price hike, they would only increase prices by about 25-30 per cent.
   In the concluding paragraph, he writes: ‘The large increases in biofuels production in the US and EU were supported by subsidies, mandates, and tariffs on imports. Without these policies, biofuels production would have been lower and food commodity price increases would have been smaller.’ Mitchell cites the case of biofuel production in Brazil from sugar-cane, which is more efficient and cost less and have not raised sugar prices significantly ‘because sugar cane production has grown fast enough to meet both the demand for sugar and ethanol’.
   The potential of biofuels as a foreign currency earning sector featured rather strongly at a conference of the non-resident Bangladeshis earlier this year too. According to insiders, the military-controlled interim government has also approved applications and permits for biofuel production. Industry insiders also state that several thousand tonnes of maize have been exported from Bangladesh for biofuel production abroad despite the raging food crisis within the country.
   In an open market it is only understandable that the highest bidder should eventually win out. But that open market system has pitted food in an uneven competition against fuel. The competition is being increasingly rigged in favour of fuel through incentives and subsidies as Mitchell notes in his paper and as is quite openly admitted by the governments of the North.
   Thus, Mitchell in his last paragraph calls for removing tariffs and subsidies so that the more efficient ethanol producers may benefit, in keeping with the dictum of the free market. ‘Removing tariffs on ethanol imports in the US and EU would allow more efficient producers such as Brazil and other developing countries, including many African countries, to produce ethanol profitably for export to meet the mandates in the US and EU. Biofuels policies which subsidize production need to be reconsidered in light of their impact on food prices.’
   But that still means that whether a kernel of maize will turn into flour or whether a stalk sugar cane will turn into sugar will depend on whether the distillery is offering higher prices than the sugar mills and flour mills. In such a case, if the biofuel producers do offer higher prices, even without the hefty subsidies and incentive packages they now enjoy, the world would see similar trends in food prices. And biofuel production would rage on regardless of the number of hungry or the extent of hunger across the world. But that would be unfair and downright unacceptable.

S Nihal Singh

What is becoming apparent to growing numbers of Americans is that the Bush presidency has been practising a form of capitalism tilted towards corporations and the very rich, as opposed to the wider society, through tax breaks and a largely unregulated economy based on self-correcting market forces. Previous frauds and failures failed to convince President Bush to act – until hallowed institutions proved foolish and wayward. They were so big that even a neoconservative government could not afford to see them fail

THE chips are falling. How they will ultimately fall is still unclear. But the scale of the economic and financial crisis of laissez-faire capitalism, triggered by the US subprime crisis that has brought America’s mighty institutions to grief and singed one European country after another, grazing Asian markets, is breathtaking. The irony is that communism as a system of governance had earlier failed spectacularly before it could gloat over the demise of unfettered capitalism.
   Nor did the West European model of capitalism with a human face in the shape of tempering the evils of capitalism with a generous social security net and greater supervision of financial institutions prove hardy enough to withstand American competition. Social security in Europe has been pared down to meet the demands of free market capitalism and the kind of exposure hallowed European institutions had to US vulnerabilities was eye-opening in its folly.
   The truth is that after the fall of communism as a viable system of governance in the Soviet Union, the fountainhead of communism, Europeans decided that there was only one kind of capitalism left, i.e. of the American variety. Free market democracy became the official creed not only for Europeans but also for the rest of the world and although France, Germany and Scandinavian countries retained mixed economies in varying degrees, they were often viewed as impediments to reaching the economic nirvana. After the disaster induced by neo-liberal policies many Latin American states have been attempting to go their way.
   There were Doubting Thomases in Europe, of course. Germany sought to curb the independence of financial institutions through a regulatory framework at the summit of the Group of Seven industrialised countries it hosted last year, with Russia as an add-on later. Nothing came of it because it fell foul of the American creed of unfettered capitalism. The George W Bush presidency was, of course, under the spell of the neoconservatives and the US model seemed to be more for the corporations than it was for the people.
   America has had to pay for its follies by rescuing some financial institutions while letting others go under and finally succeeding in obtaining a whopping $700 billion bailout from Congress, with caveats attached.
   How far these fire-fighting measures will succeed is anybody’s guess. Everyone’s hope is that the bailout plan will bring a measure of stability into the world’s markets because America’s economic influence has been so pervasive that European states have had to prop up their major banks and financial institutions.
   Asia has been left less bruised because Japan has been sitting on healthy reserves, China is relatively unscathed, apart from the dangers the American downturn holds for its export-led prosperity, and India has been lucky in warding off the worst because of its central bank’s fiscal prudence. The Gulf countries, awash with mountains of reserves flowing from the astronomically high energy prices, are sitting pretty although beset with worries over the consequences of a worldwide recession on their ability to notch up reserves for oil and gas. In fact, Japan, China to a lesser extent, the Gulf states and Singapore, with its kitty of sovereign wealth funds, have been busy in snapping up parts of legendary US institutions in the hope of acquiring more wealth and influence.
   What of the larger questions posed by the spectacular failure of the American model of unfettered capitalism? The very nature and scale of the crisis implies that emergency measures being devised in the US and Europe are tactical, rather than strategic. The very anguish of some Republicans in approving a massive bailout of falling institutions — a measure they equate with socialism, an evil incarnate for them — tells its story.
   What is becoming apparent to growing numbers of Americans is that the Bush presidency has been practising a form of capitalism tilted towards corporations and the very rich, as opposed to the wider society, through tax breaks and a largely unregulated economy based on self-correcting market forces. Previous frauds and failures failed to convince President Bush to act — until hallowed institutions proved foolish and wayward. They were so big that even a neoconservative government could not afford to see them fail.
   The economic meltdown will have two consequences. It will trigger a debate on the merits of unfettered capitalism. Continental Europeans have always had a more nuanced view of the state’s guiding role in steering a capitalist economy. It speaks volumes for the attraction of the American model that many in Europe have been abandoning their own model of a compassionate capitalism to compete with the United States on its terms. It is one thing for American institutions to fall because they gambled so heavily on freewheeling capitalism but to see hallowed solid European banks tremble, needing crutches not to fall, is psychologically a cataclysmic development.
   Traditionally, in the post-World War II era, European societies have been less violent than their American counterparts because they have believed in trading off the prospect of accumulating more and more money with the pursuit of happiness. More egalitarian societies are less dysfunctional and hence less violence-prone than those consumed by making money, with the less fortunate allowed to fall by the wayside.
   Nor does the failure of communist states provide a beacon. For all the idealism implied in the essential communist creed, it has not worked in any state because the once disenfranchised form a new class, so brilliantly illustrated by the late Yugoslav dissident Milovan Djilas, the standard of free public services plummets and people’s freedoms are circumscribed under an arbitrary and dictatorial individual or cabal.
   Democracy’s dilemma is that it is impossible to ensure the calibre of a country’s rulers. Modern means of communication have exacerbated this dilemma because style, rather than substance, often holds sway and populism becomes the currency of power. Combining freedom in economic activity with a one-party structure and its consequent limitations of political freedom and lack of representative government, successful, as it has proved to be in China in the short term, is no answer.
   The merit of the present economic crisis is that it has reopened the debate on the best form of governance to fulfil human needs.
   If communism failed in the past, the American variety of capitalism has failed to measure up. Will West Europeans now revert to their own kinder version of capitalism they were hastening to dismantle in keeping up with the American Joneses?