The coronavirus and its drastic effects on the economy and society have put a damper on the globalization euphoria. Terms such as security of supply are becoming more important again. Because in crisis situations, people realize that a certain degree of robustness in the economy can be essential for survival. This involves the supply of food and the preservation of an agricultural sector that can maintain a local supply of basic foodstuffs. But it also requires basic medical supplies that are at risk of suddenly becoming scarce. It is important that basic things such as food supplies, healthcare and energy supplies continue to function even in crisis situations. However, the more globalized value chains are organized, the greater the risk of failure. Only if we maintain functioning local economic sectors alongside the globalized economy can the economy be resilient and continue to exist even in crises.
However, local food production is coming under increasing pressure. Multilateral free trade negotiations within the WTO have come to a standstill, which is why countries and the EU are trying to conclude more and more bilateral free trade agreements with individual countries or economic zones. And agriculture, with its vital border protection, is coming under increasing pressure as a result. You don't want to miss out on opening up new export opportunities just because of a few farmers.
This completely fails to recognize what increased market orientation actually means for farmers in countries such as Germany, Austria or Switzerland: they immediately give up their profession and look for a new job! This becomes clear when we look at the value added per full-time employee per year in agriculture and compare it with other sectors. In Switzerland, this added value amounts to around 30,000 Swiss francs for farmers. In sectors such as the pharmaceutical industry or financial services, this figure is more than ten times higher, i.e. over 300,000 Swiss francs. Agriculture has by far the lowest value added of all sectors!
In purely economic terms, we should specialize in the production of goods and services where we can achieve high added value. We then use the export earnings from these products to import food at low prices from countries that can produce it cheaply. And the rest of the export earnings are then available to us for further consumption. This is precisely the economic argument in favor of free trade. You specialize in the production of goods where you have a comparative advantage (e.g. pharmaceutical products) and forgo the production of goods where you have a comparative disadvantage (agricultural products).
Looking at agricultural goods from more than just an economic perspective
But farmers are not just suppliers of certain goods that could be bought more cheaply abroad. By producing food, they fulfill functions that are of considerable long-term importance. They guarantee the security of supply of healthy food, the importance of which becomes apparent again in crisis situations such as the current coronavirus crisis. Farmers also ensure the preservation of cultural landscapes and biodiversity and produce food under conditions that we can determine ourselves through agricultural policy. However, this additional benefit of agricultural activity is ignored in a purely economic view. Forgoing our own agricultural production and relocating it abroad therefore results in a loss of benefits and costs that go far beyond the loss of our own food supply. The contribution of farmers to a country's quality of life and sustainability is therefore systematically underestimated. Of course, there is still a lot of potential for improvement in agriculture. But any credible concept of sustainability is ultimately based on a local food supply.
Published in March 2020: MORE PROSPERITY THROUGH LESS AGRICULTURAL FREE TRADE
The economist Mathias Binswanger dispels one of the myths of trade theory - namely that free trade always increases prosperity. In fact, free trade in agricultural products creates many losers and only a few winners. The losers are many farmers in both industrialized and developing countries, while a few large farmers and a few international corporations can count themselves among the winners. In the poorest developing countries, small farmers make up the majority of the population. This is why these countries are often the hardest hit by the negative consequences of agricultural free trade, even though, according to theory, they should benefit the most.
For Binswanger, the political conclusions are obvious: tariffs and trade restrictions on agricultural products are fundamentally justified and sensible. They contribute to quality of life and prosperity.
About the author Prof. Dr. Binswanger
Mathias Binswanger is Professor of Economics at the University of Applied Sciences Northwestern Switzerland in Olten and a private lecturer at the University of St. Gallen. He has also been a visiting professor at the Technical University of Freiberg in Germany, at Qingdao Technological University and Lanzhou University in China and at the Banking University in Saigon (Vietnam). Mathias Binswanger is the author of numerous books and articles in specialist journals and the press. His research focuses on macroeconomics, financial market theory, environmental economics and the relationship between happiness and income. Mathias Binswanger is also the author of the 2006 book Die Tretmühlen des Glücks (The Treadmills of Happiness), which became a bestseller in Switzerland. Other well-known books include: Sinnlose Wettbewerbe - Warum wir immer mehr Unsinn produzieren (2010), Geld aus dem Nichts - Wie Banken Wachstum ermöglichen und Krisen verursachen (2015), and brand new: Der Wachstumszwang - Warum die Volkswirtschaft immer weiterwachsen muss, selbst wenn wir genug haben (2019). According to the NZZ's ranking of economists in 2019, Mathias Binswanger is one of the five most influential economists in Switzerland.
