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#1976: Smith replies to Laleau & Blanchet (fwd)

From: Merrill Smith <advocacy@bellatlantic.net>

Well, Nancy, you caught me red handed -- trying to provoke discussion!
Actually trying to refocus discussion away from the usual demonization
of those who don't invest in Haiti (and/or those who do), begging,
threatening, etc., and towards the underlying problems such as
infrastructure, kleptocracy, dechoukaj and, my favorite (if only because
there's something clear that we in the U.S. can do about it),
protectionist U.S. trade policy.

Max says "According to the logic of Merrill's arguments the American
sugar industry should have been closed a long time ago because its is
notoriously uncompetitive." Although he refers to my "logic," I assume
he is using "should have been" in the normative rather than the
descriptive sense because, in the next sentence he acknowledges the very
protectionist policies I mentioned in my post which, as a matter of
_fact_ do keep it artificially afloat. 

I don't really have any big normative beef with the existence of a sugar
industry in the US (though some environmentalists might, considering its
alleged impact on the everglades). But I do object to their mugging of
American consumers with protectionist policies that extract about $2
billion annually in higher prices. That's stealing and it's wrong. Would
the US sugar industry collapse with out it? The least efficient sectors
of it probably would and so be it. The US economy would be better off
without them. Unfortunately, this wouldn't do much for Haiti. It's sugar
producers are even less efficient than the American ones!

US textile and apparel protectionism is another story. Ending that could
benefit Haiti _and_ it is highly regressive in its cost to the American

Max is certainly right that protectionism has been and continues to be
practiced by the powerful. But that doesn't make it right. Nor does it
follow that gratifying elites who, quite understandably, seek to avoid
competition and extract monopoly rents is conducive to economic growth.
(The "propter hoc ergo prompter hoc" fallacy, if my Latin serves.) There
is some limited support for the idea of protecting 'infant industries'
that can benefit from enormous economies of scale and learning-by-doing
innovation (e.g., aerospace, shipbuilding, etc.; sugar is not among
them) but this requires some pretty fine tuning, political discipline
and a market bigger than Haiti's to make it work. The weight of the
evidence is that even the best governments rarely 'get it right.'
Generally, they can be expected to slop the troughs of the more powerful
constituencies rather than serve the relatively abstract and diffused
interest in overall economic development. Should this be surprising?

It would certainly be helpful to enhance Haiti's agricultural sector.
Land reform would be a good place to start (granting _title_ to the
farmers, not just leases; i.e., collateral for credit, direct interest
in conservation and longterm improvement, etc.). And, of course, rule of
law, infrastructure, education, health care, etc. These would be good
for _all_ sectors of the economy. Why trust the state to play favorites?
Develop the general infrastructure and human capital endowments and then
let people make the best use of them they can. There's no reason to
fetishize any one sector over the others.

There is no reason to suppose, no matter how often it is repeated, that
development of the agricultural sector is in any sense a necessary
_precondition_ for development in the other sectors. If it were, Hong
Kong and Singapore would have starved to death long ago. As I've said
before, if you have a program that can double the income of some rural
families, more power to you. Still other families can _triple_ their
incomes by getting just one of their members into a job in the export
assembly sector. Not to worry, there are tragically plenty of poor
families to go around so the ideas are far from being in competition
with each other.

Max worries about population growth in Port-au-Prince and the sprawl
certainly is ugly. But we shouldn't forget that people come to PauP
because conditions are much _worse_ in the countryside. Ever since the
industrial revolution, urban elites have been revolted by the sight of
the rural poor migrating to the cities for jobs. They just could not
accept that these people were actually _much_ poorer before the
industrial jobs. (Out of sight, out of mind.) 

If you can make things better in the countryside, do so. But I would
caution against normative assumptions about where Haitians _ought_ to
live or what kind of work they _ought_ to be doing. They ought to be
given maximum opportunity and the widest options to do what _they_ find
to be in their best interests.

The developing countries made a strong stand at the WTO ministerial in
Seattle last year, but they weren't wearing animal costumes so few
people heard about it. They are sick and tired of the rich countries
dragging their feet on prior commitments to phase out apparel and
textile quotas while they shove monopolistic intellectual property
requirements down their throats along with protectionist trade sanctions
and conditionalities. They are calling for "Zero Tariffs for Least
Developed Countries." They are not calling for autarky and shutting them
out of markets. We should support them.

If you want Haiti to erect trade barriers to keep out foreign sugar,
bear in mind just how much you are going to have to gouge the Haitian
poor to make it work. Remember, Haiti cannot profitably produce even at
the US quota price which, at $.23/lb., last I checked, was already
several times the world price. You would have to jack it up even higher
than that, probably much higher! $2 billion is not really much off the
$7-8 trillion dollar US economy (though the principle of the thing still
bugs me) but I would suspect it would be a more sizable proportion of
the Haitian economy which can much less afford it. 

My concern is with US trade policy, not Haitian. I would just again
suggest that people focus on the problems so well identified elsewhere
and try to make Haitian sugar cheaper to produce rather than prey upon a
captive Haitian market that is impoverished enough as it is.

(1) "It reduces the income of the lowest 20 percent of households by 3.6
percent, cuts income by about 1 percent for the next three quintiles,
and increases income by one-third of 1 percent for the richest 20
percent (who own the shares of textile and apparel firms). Textile and
apparel workers generally fall in the second and third quintiles, and
these income classes might be expected to gain; but because of the
inefficiency of protection, even these income groups suffer on balance
because the gains for textile and apparel workers are smaller than the
losses of others in the same income classes." William R. Cline, The
Future of World Trade in Textiles and Apparel (revised edition),
Institute for International Economics 1990, p. 16. "The consumer cost
per job saved is approximately $82,000 in apparel and $135,000 in
textiles." Id. p. 15.

Merrill Smith
Haiti Advocacy, Inc.
1309 Independence Avenue SE
Washington DC 20003-2302
(202) 544-9084
(202) 547-2952 fax