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The invisible helping hand

Adam Smith coined the phrase ‘the invisible hand’ in the late 18th Century to describe the working of the competitive free market. By and large, the sort of capitalist market economy which Smith would have recognised has served humanity pretty well. Not that it is without its problems but, in the same way as democracy can be considered ‘the worst form of government, apart from all the others’, regulated free markets do seem to be the least bad way to run economies at present.

Thomas Piketty has become feted for pointing out the seeming inevitability of rising inequality in capitalist economies, where returns to investment will – according to him – always trump wage increases. But this is one currently fashionable view, which may prove to be an oversimplification or even quite untrue. Marx’s ‘proof’ of capitalism’s inevitable demise turned out to be very far from the truth, despite the attractiveness of his message to generations of intellectuals. In the meantime, private enterprise is a tremendous generator or wealth, even if how to share the proceeds equitably remains a contentious issue.

Nevertheless, free markets and the profit motive often get a bad press, and when it comes to the environment or food security the private sector is often cast as the villain of the piece. It was interesting, then, to read this headline from the impeccably liberal Huffington Post: Global Food Industry Reluctant Leaders of Smallholder Farming Revolution. As the introductory paragraph says In recent years the global food and beverage industry has surpassed development agencies and donor governments when it comes to improving the productivity and income of smallholder farmers in developing countries.”

The problem, as the post points out, is that major food companies do not deal directly with thousands of smallholders, but via intermediaries such as NGOs or local agents and it is these organisations the companies see as their suppliers. However, they have now become aware of how the farmers themselves depend on them and how any changes in the supply chain which might be normal in most markets could be devastating for people farming a few acres in a developing country.

There is no easy answer to this dilemma, but the fact is that the profit-driven invisible hand of the market has done a great deal of good for probably hundreds of thousands of small-scale farmers who now have a profitable outlet for their produce. The problem some of them might face if food companies move on without there being the prospect of alternative buyers is a consequence of their current success.

The role the state or charities have to play is to cushion vulnerable people from these shocks and facilitate their access to alternative markets. International food companies are aware of the responsibility they bear and certainly don’t want to be blamed for the loss of livelihoods in low-income countries. Today’s international businesses do have a human face, but diverting them from their primary role of making a profit by providing for consumer needs will do no-one any good.

But there are alternative views of the food chain. Take, for example, the thoughts of Jeremy Rifkin given at a fringe event at the recent Forum for the Future of Agriculture in Brussels (High tech farming and green food chain). Rifkin is concerned about the inefficiencies of the food chain and, while promoting the use of sensor technology to drive what he calls connected agriculture, has two primary messages: that agriculture should become both more local and greener.

Two quotes encapsulate this: “It’s absurd to take a grape from one continent and ship it to another continent so that we can have grapes in the middle of the winter,” and “We want to be able to move off of chemical farming and into organic and ecological farming.” While these slogans may chime well with many people, the reality is that globalisation has made the food supply chain more efficient while providing income to businesses in low- and middle-income countries. Modern farming has also enabled us to feed billions more people from the same area of land, and a move to organic farming would only be remotely possible if vegetarian diets were imposed.

These messages appeal to the heart rather than the head. But Rifkin has influence: he is a ‘social theorist’ who advises the European Commission and Parliament as well as the UN and governments and companies round the world. His advice is listened to by people who make policy on these issues, and his proposals for the Third Industrial Revolution have been influential both in Europe and elsewhere. This essentially foresees societies where renewable energy is generated by micro power plants, stored as necessary via hydrogen generation, shared using Internet technology and integrated with the use of electric and fuel-cell cars.

It is conceivable that the invisible hand of capitalism could bring forth a future not unlike this, given the right technology and favourable economics. But implicit in the proposals of Rifkin and others is the belief that they are right and that the transformation should be brought about by government or supra-government policy. This is the philosophy behind the tangled web of incentives and subsidies for renewable energy, using unnecessarily complex policies to meet arbitrary targets rather than providing the framework for the market to deliver in the most efficient way.

There are things governments need to do for societies to be secure and operate smoothly and fairly. But top-down planning of how to achieve supposedly desirable outcomes has never worked well. Letting the private sector flourish within an appropriate regulatory framework is the best way to provide prosperity for everyone. The Utopian visions of a Jeremy Rifkin should help us to think about possibilities, but they should not be given undue weight in policymaking. 

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