An Arab Spring Economics Recipe: Add High Food Prices to Trade Barriers, Get Revolutions

Tyler Cowen, an economics professor at George Mason University, has recently published a book called An Economist Gets Lunch: New Rules for Everyday Foodies about how you can apply basic theories of economics to get the best meal for your money.

On a serious note, he tells Arabic Knowledge@Wharton, most people don’t realize there is not a shortage of food, but rather too many poor people unable to pay for it. Cowen also discusses how food prices and trade barriers in the Middle East helped drive the Arab revolutions.

An edited transcript of the conversation follows:

Arabic Knowledge@Wharton: You state that food is a result of capitalist supply and demand. It seems logical and simple, but people don’t think about food in those terms. How did you come up with that?

Cowen: I grew up as a kid reading classical economic works by Adam Smith, David Ricardo and James Mill. Those are the origins of economics, as we all know. For obvious reasons, they’re obsessed with food. That’s almost all they write about because that’s what the economy was about back then. If you have a background in classical economics, the notion that economics is about food comes very naturally. Maybe the world has forgotten that somewhat.

Arabic Knowledge@Wharton: In the Middle East, eating a more Westernized diet is a sign of worldliness but it may not be as healthy as eating traditional meals. How did the idea of local eating transform into a lower-status symbol?

Cowen: There’s a class division in a lot of those societies. You either do things that are Western to show you have money, but it’s not necessarily healthy. I think if they became a little more obsessed with, say Indian or Chinese food, they’ll do better. There are issues with diabetes and obesity in many of these wealthier Gulf nations. They also tend not to be physically active because that also has a stigma. So it’s one thing to eat if you’re physically active, you can get away with doing so much more.

Also, they have servants, and they import labor. A lot of people are just not working; they don’t have to work. That’s a lethal combination. And the idea of, "Oh, I’m going to go to the gym," like they say in America, it’s not the same there. It’s too much like work.

Arabic Knowledge@Wharton: You point out that there is no shortage of food in the world. But there is a shortage of money for poor people to buy the food. It seems almost ironic. What are the factors that affect this polar phenomenon?

Cowen: If you look at wheat and rice, there have been price spikes over the last five years and they’ve made food a lot harder for poor people to afford. The so-called "Green Revolution" has somewhat slowed down. This is an unreported story. Crop yields are stagnant. It isn’t a problem we can solve overnight but it’s really one of the biggest problems in the world. It hardly gets any publicity. But for poor people in India, the Middle East and parts of Africa, it really matters.

Some of the problems are we don’t have enough trade. It could be either legal barriers or just costly to transport or trade things. If there could be a shortage of rice in one place, it actually not that easy to ship a lot of rice in there because of bad roads and so on.

Arabic Knowledge@Wharton: So if countries worked on improving the transportation infrastructure, that would lower food prices in some parts of the world?

Cowen: Exactly, that would do a lot to feed people. Again, it sounds much more mundane but it’s more important than what people in the food world usually talk about.

Arabic Knowledge@Wharton: So when companies like Wal-Mart bring their logistics ability to Africa, it actually could be a good thing for the poor people of Africa?

Cowen: It’s exactly what we need more of. Yes.

Arabic Knowledge@Wharton: Yet there’s a fear Wal-Mart will put the smaller stores out of business.

Cowen: Yes, they do so sometimes, but they do so by charging lower prices. It makes it more accessible and more reliable. It’s not just the pricing at any one point and time. It’s what happens in the very worst periods. Companies like Wal-Mart are very, very good at keeping up supply and being regular.

Arabic Knowledge@Wharton: Are there other things that people can do to feed the poor people in the Middle East, especially in the Arab nations that have undergone revolutions?

Cowen: Well, they have very bad economic policies; it’s hard to know where to start. They tend to have bad energy and bad water policies. They overuse energy and they overuse water and protect their domestic farmers. It creates an unholy triad of subsidies with water, food and energy in a way that’s environmentally unsustainable. They should rely more on free trade. They tend not to trust it and I understand why, given their histories. But what they’re doing now isn’t really working.

Arabic Knowledge@Wharton: Do you think people recognize that when they’re forming the new governments?

Cowen: I think very often they do. There are a lot of sophisticated people in the governments. But that doesn’t mean they have the power to set things straight.

Plus, it depends on which country in the Middle East you’re talking about. So Tunisia is better run than most places. Lebanon has a saner agricultural policy than most places. Yemen is a total disaster. Algeria and Egypt have not gone so well. So there’s a lot of variety within the Middle East. If you think of a model like Turkey, which isn’t technically in the Middle East, they’ve liberalized and encouraged agribusiness. Turks are much better fed than 20 years ago. When you ask a country like Iran, what should we do? It’s hard to know even where to start.

Arabic Knowledge@Wharton: As you said, Egypt hasn’t gone well. And Egypt is in the beginnings of forming a new government, it sounds like they have a very big uphill battle.

Cowen: Yes, I think it’ll get worse before it gets better. They’re prevailing on economic policy based on mercantilism — powerful, bad, old-fashioned mercantilism in the greediest way. It doesn’t work. Mercantilism backed by military rule not a good idea.

Arabic Knowledge@Wharton: You point out that the Middle East imports about half of the wheat they use, which is needed for bread and other staples. This system of importing a food staple contributes to high food prices, which is one of the reasons for the political unrest and an impetus for the Arab revolutions. What can the Middle East do to reverse this trend?

Cowen: Well, it’s not just up to the Middle East. One reason that wheat prices and other prices have gone up is because the world as a whole has slacked off in research and development in agricultural productivity. I don’t think the Middle East can solve that problem on its own.

Arabic Knowledge@Wharton: Why has the world slacked off in such research and development?

Cowen: I don’t know. It’s a bigger public policy question. In a lot of areas, we’re spending more on short-term consumption and less on long-term investment. And I think that’s our fault. It’s a general trend and you see it in a lot of different countries.

Somehow, our time horizons are shortening. But most Middle Eastern countries do not have free trade in food. And if they did have free trade in food and didn’t protect their domestic farmers with subsidies, they would have cheaper food. So they treat their domestic farmers as a lobby that should be catered to when they should not. I wouldn’t suggest that would solve all their food problems. It wouldn’t.

Arabic Knowledge@Wharton: The domestic farmers would argue they would be put out of business.

Cowen: Sure, but should Saudi Arabia be growing bananas and paying for all that water in the desert? It’s crazy. There’s a long history in many of these countries, trying to be self-sufficient with fairly outrageous water and farm subsidies, which raises prices. It costs a lot of money in the budget. It’s not really a successful path forward but it does buy the support of some interest groups of course. That’s why they do it.

But the notion of saying something simple like "Well, Lebanon has more water than we do so we should just stop subsidizing water and buy it from them." Those countries would be much better off.

Arabic Knowledge@Wharton: So if some of these countries just traded across borders?

Cowen: Yes. I don’t mean to get into politics but Israel has the highest agricultural productivity in the Middle East. And they use technology much better. But a lot of countries are very reluctant to trade with Israel. Even share information and have any dealings at all. That’s another mistake they make and that’s part of the problem.

Arabic Knowledge@Wharton: While water is scarce in some regional countries, like Yemen, it’s actually abundant in Syria, Lebanon and Turkey. Can you explain more about the water inequality problem in the Middle East?

Cowen: Typically, the Gulf has the worst problem with water. I’m not even sure Yemen is even a viable country because there’s some chance, they will literally run out of water in the next 20 years in a lot of parts of the country. At this point, I don’t know what they can do. Saudi Arabia is a lot wealthier and they’ve returned to some sanity. Every now and then, the price of oil dips and they decide they can’t afford to be as they used to be, so they cut back on their subsidies for the better. They ought to just say their domestic farmers have to pay the market price for their water. And if they can’t produce food at that price, we’ll buy from Lebanon, Turkey, Israel or wherever else.

Arabic Knowledge@Wharton: So to buy water and food products from other nations?

Cowen: Often how you buy water is to buy it in the product. If you buy a tomato, one way to think of that transaction is you are buying water. It’s called virtual water, so yes.

Arabic Knowledge@Wharton: In India, the economy is growing at 8 to 9% but agriculture is growing at 3% because agribusiness is not allowed. Can you explain the problem and discuss some of the solutions required?

Cowen: India has slowed down since the book came out. India is now at the 6% range. They have a climate that’s very hostile to agribusiness. They don’t want to let in Wal-Mart. They don’t let in generally consolidated land holdings. Agriculturally, they’re one of the least efficient countries. Half of the children under five are malnourished. And half of the workforce is in agriculture.

Arabic Knowledge@Wharton: Why doesn’t India let agribusiness grow?

Cowen: They protect their own small farmers. The result of that is massive malnutrition, which have terrible consequences, not just for the kids, but for the whole country. People grow up and have inferior opportunities. One thing the world does know how to do, even in non-ideal countries, is to raise agricultural productivity. Turkey has done it. Most of South America has done it. But India has not been willing to take that step. It’s a huge, huge problem for them. Millions of people suffer in a very serious way.

Arabic Knowledge@Wharton: Can you explain how the European fear for GMO’s (genetically modified organisms) is affecting Africa’s agricultural economy?

Cowen: There are a few reasons African countries are reluctant to use GMOs. Some of them do, mostly South Africa. But partly they don’t have the infrastructure to do it at all. And some are afraid that if they do, they can’t export to the European Union, which is their main market and more important than the United States. So they’ve held back on investing.

African agriculture has a lot of problems. But the biggest problem is simpler than GMOs. Africa has terrible roads. In Africa, it takes four to six time times to transport a product, which is crazy. It’s such a poor place. It’s relatively dry so they really need fertilizer. And to think an African farmer has to pay four to six times more than what an African farmer has to pay for fertilizer? A lot of that is because they have bad roads.

But not doing GMOs is part of a bigger, broader set of problems and it could make their agriculture more productive. I’m not sure injecting GMOs and doing nothing else will make a huge difference. If there’s no road to bring your crop to market, it doesn’t matter what you do to your crop. But it’s part of a series of big, interrelated problems.

Arabic Knowledge@Wharton: This fear of GMOs is more of a European fear than an American fear?

Cowen: Yes, that’s right. There’s a very small minority of Americans who worry about this kind of thing. In terms of law and public policy debate, it’s pretty much taken for granted. People have been eating GMO products for 20 years and there’s really no evidence of ill effects. Why is it this way in Europe? I don’t know. To me, it’s a bit like the right wing, climate change, etc. People start obsessing over it in a bad way and they’re not willing to face up to the evidence.

Arabic Knowledge@Wharton: In your book you point out New Zealand lamb. Its two biggest consumers are the U.S. and the Arab World. If segments of the U.S. population decided to boycott New Zealand lamb due to transportation not being environmentally friendly, how would that effect prices in the Arab World?

Cowen: In that example, I just tried to point out that boycotts are often not very effective. They make people feel good. If you get a lot of people to boycott, people somewhere else will just buy more of it. There’s a system-wide effect. In general, I tend to be skeptical of boycotts as a way to change the world. Sometimes they work but more often than not, they don’t.

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