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- In New Ag Economy, Cooperation Upstages Competition
- By Richard Levins
University of Minnesota
- In my beginning economics classes, we spend the first half of the semester studying perfect competition and free market economies. Then our text introduces the subject of “imperfect markets” by listing virtually every industry, from aluminum to software to chewing gum. A remarkable statement follows: only wheat farming “falls within our strict definition of perfect competition;” all others “fail the competitive test.”
Inquisitive undergraduates often ask why do we spend so much time studying a world that the text cannot find? What about the world that they will inherit? It’s a good question, especially in light of the outrage over Enron, WorldCom and their kin. Employees sent packing by the thousands, billions of dollars tucked away in places not frequented by auditors, and pension plans up in smoke could not have been imagined by Adam Smith as he put his trust in an invisible hand 200 years ago.
The question my students ask is also a good one for farmers to think about. Are our traditional approaches to risk management and staying profitable still relevant? I think so. But I also think that the years ahead will challenge us to consider market power more than we have in the past. We must think not only of how profits are made, but also of how they are distributed in the modern agricultural economy.
Today’s farmer faces new challenges. One is globalization, and the other is a power shift away from farmers and owners to those who manage the global economy. Both can work to keep farm product prices low.
Almost 200 years ago economist David Ricardo provided an enduring story of how everyone can benefit from international trade. But today we have moved beyond international trade and into an age of pure globalization. Transnational corporations move capital across borders with ease, deciding today to make shirts in southeast Asia and tomorrow to make automobiles in Mexico.
This is no longer a story about countries acting in their mutual interests. Rather, it is one of multinational corporations searching the globe for cheap labor, for cheap farm products and for the least restrictive environmental and social regulations.
In the world of most economics texts, power is shared by a competitive market and a powerful government that regulates that market. But to be truly global, a corporation must be very large. That size gives the multinational corporation the power to compromise the authority of both government and competition.
Managers of very large corporations can bring far more cash to bear on the political process than any single farmer could imagine spending. As corporations become global, we also see threats to competition. It is often said that a free market economy is driven by personal self-interest, but regulated by competition. But as corporations approach the size of countries, there are so few players in the economic system that competition cannot exercise the control it once did.
In the new economic order, farmers have increasingly depended on public subsidies. We are beginning to see that full participation in a global economy is at odds with a goal of maintaining wealth in the hands of farmers and landowners. The question is, “what do we do about it?”
Traditional farm management practices and government programs don’t adequately address either globalization or the loss of economic power to global corporations. Rather, we try to make the best of bad situations and to seek the highest of relatively low prices. The present structure of the ag economy challenges us to do more.
Farmers on one hand must deal with multinational firms to sell their products and buy many of their inputs. But farmers continue to identify themselves with one country or another, and to see salvation either in competition with their domestic farm neighbors or with farmers from other countries. This may have worked in the past, but it will not work in the future.
We must all work together to think of strategies that rely on global cooperation, not competition, to be successful in the global economy. Farmers must act together, not against each other, to build economic power to make the rules of the economic game more favorable.
Is it only a dream to imagine a global farmer network that builds economic power, rather than global competition that reduces that power? Perhaps so, but I am encouraged that my recent articles on collective action, and particularly collective bargaining, have found a wide audience among farmers.
Our current strategies for dealing with a 20th century farm economy took many years and many creative minds to forge. The search for effective strategies for the new century will likewise challenge us for years to come. I am confident that as we develop those strategies, we will not hear the words efficiency and competition as often. In their place, we will hear of cooperation, collective bargaining and of farmers reclaiming their market power.
Richard A. Levins is an agricultural economist with the University of Minnesota Extension Service. He can be reached at dlevins@apec.umn.edu or (612)625-5238.
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