The Developmental Paradox

I have been working on a paper on the political economy of agricultural protection in the United States with my colleague Nick Carnes. For his dissertation (and forthcoming book White-Collar Government, which you should go pre-order now if you haven’t already done so), Nick has assembled a nice data set on the legislators of the 106th to the 110th US Congresses (i.e., for the period 1999 to 2009) which, with a little bit of research assistance, allows us to look at the roll-call votes of US legislators on the 2002 and 2008 farm bills, among other outcomes.

I will dedicate a post to that paper when we have a manuscript that is presentable, but I wanted to talk about the “developmental paradox,” since this is something that has been coming up frequently in my research and teaching, and because most readers of this blog are probably unaware of the paradox.

In Food Politics, Paarlberg (2011) writes:

The governments of nearly all rich countries provide subsidies to support the income of farmers. In 2006, according to calculations by the Organization for Economic Co-operation and Development (OECD), government policies in these rich countries transferred $283 billion worth of income to farmers … Roughly 29 percent of all farm earnings in these countries depended on such government programs. …

Governments in poor developing countries provide much less subsidy support to agriculture despite being far more “agricultural.” In fact, poor countries often make a practice of taxing their farmers to help finance subsidies for urban food consumers. They rig their internal markets to oblige farmers to sell food at an artificially low price, thus creating an income transfer away from farmers and toward food consumers. So while policies in rich countries tend to be rural biased, policies in poor countries tend to be urban biased.

That is the essence of the developmental paradox: the fact that as countries develop, agricultural protection increases even though the share of agriculture usually declines along the path to development.

The relationship holds both in time series and in cross-sectional data, and it was first identified by Lindert (1991), but Chris Barrett has a very nice 1999 article looking at the microeconomics of the developmental paradox.

There are many explanations for the developmental paradox, all of them have probably been true at some point. In developing countries, governments tax producers and subsidize consumers to reward urban elites and prevent social unrest. Indeed, the Arab Spring began with food riots in Algeria, in response to which the Algerian government announced more food subsidies. At the first few demonstrations in Tunisia, people were brandishing loaves of bread. And many believe that the Mubarak regime fell when the Egyptian government could no longer subsidize bread.

In developed countries, it gets a bit more complicated. The geography of political representation in some countries gives rural districts too much power relative to their size (think of how Iowa and Nebraska both have two senators, just like California and New York), and thus leads to farmers’ interests being over-represented. Or the smaller the size of the agricultural sector, the easier it is for farmers to organize into farmer organizations and lobby the government. Paarlberg cites evidence that the smaller commodity groups (e.g., sugar producers) are the ones getting the most out of agricultural protection.