Subsidizing Stupidity: A Baguette and a Tank Full of Bordeaux

In his lecture entitled, The Human Face of Globalization, The Indian-American economic guru Jagdish Bhagwati stated that international trade in this current epoch of globalization is always beneficial for the macro-economy. Bhagwati’s argument is formidable, yet it cannot explain one striking phenomenon occurring in the global economy; the global decrease in economic growth rates. If the overall growth rate is down then how can one rightfully say that international trade is always good? One major factor in the decrease is the inflationary fear minded central banks of some OPP countries. Inflationary fear always pushes the interest rate higher. Higher interest rates nearly always equate to lower investment. As Western firms decrease investment, the economies of these developed nations are critically affected. This decrease in investment greatly reduces the use of existing capital; education, ingenuity, resources and technology, to advance the comparative advantage of the firms and, consequently, the developed nation they operate from. Research and development are crucial to keeping pace with the momentum of the current era of globalization that is occurring. Foregoing research and development and, therefore, leading the economy onto a new and innovative superhighway promotes laziness on the part of the government. The degenerative governments of these nations then spend huge sums of money on subsidies and maintain other protectionist measures to arbitrarily maintain production/employment in certain sectors (counterintuitive to the actions of the independent federal banks whose proclivity for interest rate pushing effectively leads to lower production/ higher unemployment) due to crony based lobbying and political concerns. As well as constipating the national economy, protectionist measures negatively affect expansion and innovation in the macro economy, especially in developing nations. France is a nation who invokes a desire reminiscent of their revolutionary tradition when they so often speak about the obligation to help the world’s poor countries develop. However, they are just as complicit, if not more so, than the Anglo-Saxon capitalist style upholding nations whom they seek to indict through constant discourse upon social responsibility. Their collusion with the protectionist measure is strong. Illustrating the French economic backwardness is a recent subsidizing movement towards one key aspect of la vie francaise, wine production. Both domestic and foreign demand for French wine has fallen markedly in the past few years. Domestically, currently passed stricter measures on drunk driving have lead to a great decline in consumption. The international demand has decreased because of the strength of the euro that still cannot compensate for the ongoing drop in prices for le vin francais. The drop in price stems from the growing competition of an increase in worldwide supply from such burgeoning producers as Chile and Australia. America’s unofficial boycott of French products has hit the French hard, particularly due to the fact that Texas was the single largest foreign market for French wine. Some wine producers have lost 90% of their U.S. demand. All of this has led to the buildup of immense surpluses. The French, at the behest of wine producers protesting in the streets over the drop in prices and (however counterintuitive) growing surplus, have taken another degenerative step towards inefficiency by offering to buy the excess wine. This action will only further excess by its inherent incentive. Yet, this is not where the constipation of both the French and the macro economic ability to restructure, and the harm to the potential of the developing world ends. Yes, instead of dumping the wine on the British, a move that would effectively gain advantage over foreign competition, the French have decided to convert the wine into ethanol, which is used as an additive in gasoline in a European movement to increase usage of renewable resources. Currently, ethanol makes up only one percent of French gasoline. However, to meet 2010 European Union standards, that percentage is proposed to increase to nearly six percent in coming years. This essentially means furthering the practice of subsidizing wine production as part of energy policy. The trouble with this is the fact that converting wine to ethanol is an incredibly expensive practice. This year alone, the French government has planned on buying forty million gallons of the distinguished Appellation d’Origine Controlee, this will yield approximately twenty-seven million gallons of ethanol. However, to make these twenty-seven million gallons will require the energy equivalent of millions of gallons of gasoline. This method is no exception to the rule when it comes to producing ethanol, it costs more to produce than it is worth. It is economically irrational. However, it would be much less costly for the French to buy sugarcane from Brazil, a relatively cheap conversion method, particularly because the high cost of buying AOC wine is foregone. Therefore, in hindsight one must give the French credit for opposing U.S. unilateralism in Iraq because, if Mr. Hussein was still in power, the French, along with the dissenting Germans, would be reaping the benefits of the extensive fuel trading contracts which existed under Saddam and the opportunity cost of subsidizing would be high enough for even the French to realize its inefficiency. Basically, in their usage of protection, the humanitarian, socially conscious French (as well as the rest of the farm subsidy voracious EU) are losing great sums of money to support a way of life that is inefficient and anachronistic in the face of the rapid change that is occurring throughout the world while effectively prohibiting the very people they champion when condemning the U.S. of reaching potential and earning a higher standard of living. When the developed world stops focusing on a fear of inflation, investment will grow and the resulting ingenuity will decrease protectionism and the twisted attraction of the governments of the developed nations to the irrational perception that protection is actually beneficial in inefficient markets. As the Doha Round concludes, the prospects for the future look bright. If the French stop protesting then the United States and the European Union will genuinely begin excreting the parasitic practice of protection from the bowels of the macro economy so as to lighten the load as they begin taking giant steps towards seeing Bhagwati’s “kaleidoscope of comparative advantage.”