Land reform - institutional economics

Neoclassical theory may be seen as a highly idealized representation of markets. A more realistic perspective, inspired by institutional economics, departs radically from this idealization. Institutional economists treat markets as one of numerous social constructs or institutions within a historical process. “Private property”, which is taken as a given in neoclassical theory, is merely one of possible configurations of property rights observed throughout history.

The task of applying institutional economics to developing country agriculture was taken up by early development economics. One important dichotomy in this literature is between traditional and modern institutions and cultural values. The classic paper of Johnston and Mellor (1961) describes possible impediments to agricultural modernization in terms of the traditional group constraints, attitudes towards change; perceptions of personal gain from the adoption of modern technologies, availability of market exchange outlets, and so on. Tenurial reform is identified as “the most essential requirement” to modernization, as traditional tenancy is the main obstacle to the formation of market – based agriculture.

Traditional tenancy is characterized by patron – client relationships and sharecropping, which are seen as institutional impediments to commercialization. Under the patronage system, the landowner offers an output share to the tenant in exchange for cultivation rights. The landowner also provides consumption loans, with effectively a transfer during times of emergency; this effectively guarantees a minimum subsistence to the tenant. The patronage system meanwhile obligates tenants in various ways, such as in rendering miscellaneous services as well as political support. These institutions characterized the manorial or feudal system in medieval Europe as well as agriculture in Southeast Asia.

The persistence of traditional structures is a serious obstacle when more commercialized transactions are superior ways to organize production. For instance, under share tenancy labor is paid below its marginal product, hence we expect a below optimum level of effort – the “Marshall critique”. A move towards either a straight wage contract or a fixed lease contract would pay factors their marginal product and improve allocative efficiency.

Between these two - neoclassical economics and institutional economics - who has a better approximation of reality? Or is it something in between?

Impact of land reform: neoclassical perspective

To understand the impact of land reform, you have to view it from a theoretical perspective. The neoclassical perspective is one most familiar to economists. The neoclassical school treats land like any factor of production. The entrepreneur – an individual decision-maker - combines land, labor, capital, and material inputs, to produce output. The services of the factors of production must be purchased from other individuals who possess private property rights over the factors (unless the entrepreneur herself is the owner). The entrepreneur receives the proceeds from the sale of the output. The difference between revenue and cost (payments for all factors of production) is profit. The relationship between factors and outputs is represented by a production function, which expresses a particular state of technology. Entrepreneurial decisions are motivated by maximization of profit.

Markets are assumed to be perfectly competitive. Now suppose we define an "efficienct" allocation as follows: an allocation is efficient if any reallocation would inflict at least as much harm to losers as benefit to gainers. Neoclassical theory concludes that the way the market allocates resources, such as land, is efficient.

This all sounds very abstract. What are some practical predictions of the theory?

1. A government-administered reallocation of land from landowners to cultivators would likely reduce agricultural output.

2. Rent ceilings and transfer restrictions on agricultural land will reduce investments in land improvement, and encourage conversion to non-agricultural land.

The first opposes the claim that land reform would lead to a more efficient allocation of land. The second hypothesizes that agricultural land productivity and supply of agricultural land would decline under land reform.
Obviously the blokes who thought about land reform were not reasoning from a neoclassical perspective. What was the theoretical underpinning of land reform? Next week.

University of the philistines

The raging issue in my alma mater is the increase in tuition fees. Long held at 300 pesos per unit (a little over US$ 6), in real terms this is now a little less than a third of its value when it was first set years ago. The proposal therefore is to raise it to about P1,000 (in the largest campuses) and thereby recover lost value. (Please check out this page and links to learn more about this issue.)

Of course, I should not expect the buyers (students) to take this lightly. It is an opportunity to rehash tired old bromides as the following:

Mr. Alfonso, has been quoted as saying that it is wrong to use students as a “source of income” for the university. “They tell us that it’s not the government’s role to subsidize tertiary education, but we believe otherwise.” (PDI, 24 November). During the congress of student councils held in Davao, which I personally attended, Mr. Alfonso declared that the difference between the students’ position and that of the UP administration was “philosophical.” In other words, their position is that tertiary education should be entirely subsidized.

Me too! It is my position that economists be entirely subsidized. Heck, it is my position that people who blog should be subsidized, as well as people with a fondness for Booksale pocketbooks. Furthermore, I demand as my unique inborn right to be subsidized because I am, er, in my mid-thirties. Yes, I demand to be subsidized because I take the MRT and I don't have a pet! That's my philosophy. Now if I can just round up a posse to lynch opponents of my sacred subsidies, I would demonstrate the depth of the values inculcated into me by my alma mater. So let us sing our school song:

UP naming mura, pamantasang hirap.
Ang bariya namin,
Sana'y iyong tiisin.
Malayong lupain,
Hasikan man ng lagim
'Di rin magbagago ang palamunin (2x)

Luntian at pula
Sakim kami kailanman
Ipagdiwang natin
Bulwagan ng hangal.
Humayo't ipagkait
Ginto at katapatan
Mabuhay ang pagpapakasasa sa pondo ng bayan (2x)

Doctors, nurses, economists, and fools

An old story (dating back to 2004) has been picked up and updated in the major US news services (example). It's about the medical exam topnotcher, Elmer Jacinto, who is now working as a nurse in New York.

The article draws attention to a major Filipino daily, who called Elmer a "sellout," and a columnist who condemns his "deplorable ambition". (Parallel Universes excerpt from these reactions.)

Such condemnation is foolish, ignorant, and stupid. Elmer is simply exercising his right to make a living, wherever and however he sees fit, without exercising fraud or violence. To say that he is "depriving" the Philippines of his medical skills, presumes that Filipinos have the right to demand Elmer to supply his services to them. There is no such pre-determined right. The right to demand Elmer his services belongs solely to his buyers, because of his standing promise to exchange services for fees.

It does however appear odd that a very bright medical doctor is spending his time dressing wounds and sticking needles into buttocks. Elmer is very likely to be more capable than many of the doctors ordering him about. Are markets stupid? No - government intervention is. The modern professional licensing system, firmly entrenched everywhere (including the United States), is preventing Elmer from being deployed in the job where the value of his service is highest. That's all there is to it. Contrary to popular belief, the United States is not an apostle of free markets, but rather a major heretic.

I am very thankful I belong to a profession that does not have licensing requirements. On the downside, a lot of fake "economists" though are getting away with pretty idiotic public pronouncements. Still, we seem to be doing pretty well even without the market distorting props of professional licensure.

We economists like to practice what we preach.

The transformation of Negros

Last month I visited Negros island, in West-Central Philippines, the country's "sugar bowl". The west part especially (Negros Occidental) is covered with vast sugarcane areas, previously organized into haciendas, large estates under one landowner. Here enormously rich hacenderos accumulated enormous wealth, while poor resident workers lived on their vast estates. These workers grew to depend on the hacendero for their daily needs, depending on the vale (cash advance) for medical emergencies and other consumption needs. Sometimes the workers formed communities (complete with church and school) right on the hacienda. Meanwhile the hacendero class grew to wield great political power, entrenched itself at the forefront of the traditional elite of the country. It was a textbook example of modern-day feudalism, alive and kicking in the developing world.

In 1988, the Philippines embarked on its last and most extensive program of land reform, the Comprehensive Agrarian Reform Program (CARP). The CARP implements a law imposing a five hectare limit to total agricultural landholdings, with the excess to be distributed - with compensation - to tenants and other qualified beneficiaries. Unlike previous programs, the CARP would cover everything - including the hitherto untouchable haciendas.

The modern feudal lords have battled the redistribution program. Negros Occidental, which has the country's largest potential area for land reform (over 280,000 ha), has the lowest redistribution accomplishment (about 55%). Yet land reform has gone farther than most had expected in the late 1980s, forever transforming the face of the Negros countryside.

Not always for the better. First, land reform prohibits the transfer of land from beneficiaries to other parties (except by inheritance), for ten years after award of the land. In the medium term this has taken land away from enterprises with access to working capital (the haciendas) to enterprises without such access (the beneficiaries' farms). Sugarcane yields have reportedly dropped, as ideal input intensity cannot be achieved in the beneficiaries' farms. Second, the miscellaneous consumption financing offered by traditional sugarcane landlords did serve a useful function - which is completely disabled by land redistribution. Post-feudal forms of finance (i.e. the commercial banking system) has so far failed to deliver adequate financing to the new class of landowners.

But has land reform been a complete catastrophe? Far from it. Sugarcane yields do not seem to have seriously suffered owing to land reform. Check out the following graph, which shows the average yield in tons of cane per ha per year in the Philippines. Despite all the problems, somehow the sugarcane industry, post-CARP, is still doing well. That means the new landowners are probably enjoying a higher standard of living than without the program – they receive the profits from the land, rather than just wages. I am getting much of this information from my land markets study, a sub-component of a bigger study assessing the impact of agrarian reform in the Philippines. I can confirm that many of the new landowners do lease out their lands to big sugarcane planters, and end up earning wages from the leased out land. Despite the apparent irony of the situation, it is clear that they are better off than before the program, because they receive lease rental in addition to wage. Furthermore, most who practice this do not in fact lease out all their land, and seldom is this practiced on a permanent basis.

So are the sugarcane workers better off with than without the Program? I wouldn’t know the answer to that – yet. But I do know that a lot of distortions is poisoning the discussion about the future of land reform. The last thing this country needs is policymaking by hyperbole.

Update

Kindly update your bookmarks. Got a new title. Why change? Because I can.

Edmund Phelps: Bank of Sweden Winner for 2006

No honor in economics is more prestigious than the Bank of Sweden Prize, a.k.a. the "Nobel" prize in economics.

Winner for 2006 is Edmund Phelps (one of the rare single winners).

Frankly I just dimly recall Phelps from the "Friedman-Phelps" expectations-augmented Phillips curve. Then after reading the press release, I remember his name associated with the "golden rule" of growth theory. To summarize: he won for examining long-run trade-offs, between inflation and unemployment, and between consumption and investment.

For the inflation-unemployment trade-off he said: no such thing in the long run. Rather unemployment is held at the "natural rate" (later defined by Friedman as the unemployment rate "ground out by Walrasian equilibrium"P.

For the consumption-investment trade-off he said: if you don't believe in intergenerational discounting, you can adopt the "golden rule" in which equalized per capita consumption is maximized forever. Neat. This was a direct inspiration of the "sustainable development" idea of current consumption that does not sacrifice future consumption.

Just one problem: Phelps' prize is way overdue, and therefore dated. He could have won with Friedman, or Lucas, or some other monetarist-RBC type; or like Hayek and Myrdal, share it with Taylor or Modigliani (except he shared it with Miller already) or some other Keynesian-type.

The Committee should have been more forward-looking and rewarded recent work. Bhagwati, Krugman (trade), Fama (finance), Roemer (growth), Williamson, Baumol (industrial orgn.) I guess they tired of that already with the past 3 or 4 years of Bank of Sweden prizes.

Nevertheless my warmest congratulations.

Agriculture, development, and the Green Revolution

Johnston and Mellor’s vision of a broad-based yet labor-intensive technological change in Asian agriculture was to materialize in the form of the “Green Revolution”. The ex post impact of the Green Revolution have been evaluated by Evenson and Gollin (2003), in a Science paper. The Green Revolution began with the introduction of varieties of wheat and rice that could respond to greater application of fertilizer and water with much higher yields. Dissemination of improved varieties of rice, wheat, and corn became widespread in the 1960s and 1970s, while varietal improvement programs also began for other crops.

Yield of cereals, roots and tubers, and pulses jumped dramatically. From 1961 to 1980, production of these crops grew by 3.65% per year in developing Asia; only 14% of this can be attributed to area expansion – the rest is due to yield increases. Of the latter, the contribution of the improved variety was 22%, and the remainder is attributed to input intensification.

Food model simulations indicate that in the absence of a Green Revolution, crop yield and production in developing countries would have been much smaller compared to the actual figure for 2000, and agricultural area higher. Conversion of natural habitats to farm area would have had adverse environmental impacts: Lower supplies would have meant more expensive food and decreased calorie intake.

Agriculture optimism and pessimism: the perrenial debate

I dusted off a copy of the classic article by Johnston and Mellor in 1961 on The Role of Agriculture and Development (in the American Economic Review). Reading it now I realize how remarkable it was - much of the later insight on agriculture and development were presaged in its pages. The emphasis on broad-based technological change; the possibility of financing industrial investment through agricultural savings; and the compatibility of high labor use with a modernized, high-yielding agriculture (departing from the Western model of highly productive, but also highly mechanized farms).

Just to let you know: there is an ongoing debate in the literature between agriculture optimism (or agriculture fundamentalism) and agriculture pessimism (or agriculture skepticism). The former advocates an agriculture-led strategy of growth; the latter holds that in some (or perhaps many) cases agricultural development can essentially be bypassed in the process of economic development. Johnston and Mellor themselves were not so fundamentalist in their advocacy of agriculture (though later Mellor was to turn hardcore).

Updates

As I promised, I got around to updating my home page. I've uploaded some of my new papers, including my latest, coming out in Fish and Fisheries, "Projecting Future Fish Supplies Using Stock Dynamics and Demand." That's where I argue that economists' supply-demand models should be synthesized with biologists' ecological models; I sketch a prototype model with numerical simulations to show just how this might be done. Another recent paper is a "Eating for a Lifetime: A Policy Assessment of Philippine Fisheries."

Check it out and download to your heart's content, as long as it's for personal use.

The importance of a good analogy

When I was a college student (even in economics!!!) I took it for granted that industrialization is the key to development. Agriculture is backward and plays no role in development, except to give up its workers for manufacturing (and thereby shrink). What a shame if we can't produce our own hammers, screwdrivers, cars, computers, and all that marvellous stuff made in those big macho factories.

Now as a professional economist I find myself arguing otherwise: in most cases, development of agriculture is a prerequisite to industrialization. What changed my mind? A lot of research, thinking, and exposure to data. Lots of data.

And a good analogy. Some analogies have become abused and have led to catastrophic policies. Like the Big Push and the Take-off, or the analogy between national power and economic power.

One good analogy is "flying geese." Succinct and accurate. A better analogy (and perhaps the best): the "ladder" of development. What better way to encapsulate the idea of accumulating physical and human capital and know-how? How else to demonstrate the folly of getting to the top without passing through the rungs in between? So is economic development. You don't get there by making cars and buses and computers at once, and all by your lonesome (without those pesky foreign investors, who are sooooooooo demanding about your roads and bridges and power supply and sticking to your policies and...)

The first step up involves: rice, corn, coconut, chromium, and all that unsexy stuff. But then this allows a country to accumulate wealth and know-how, and climb up. At the end of the ladder: cellphones, MP3 players, medical instruments, even smart missiles, passenger jets, and sattelites. And last, but not the least, the end of poverty. One rung at a time.

Less is more

Here is a column by Federico Pascual from the Philippine Star, about fisheries in the Philippines. Since the Star is not known for permalinking, let me reproduce the column below in full (except for those pesky asterisks).

Full disclosure: I have just written a policy paper on fisheries in the Philippines, for the Economic Policy Reform and Advocacy Project of Ateneo de Manila and the USAID. Plenty of what I've written disagrees with the column. (When I have time I'll revamp my personal site and upload that paper.)

First, a few minor points: The writer blames the depletion of fish resources on "lazy Filipino fisherman." So it's possible to overfish while being lazy? That sounds fishy. The truth is a fisherman's life has usually been hard, because they are competing with other fishers to catch the limited fish. Therein lies the abuse of fish stocks, that is by no means unique, either to Filipino fishers, lazy fishers, or diligent fishers. Also: the net method is limited to small tunas. The large tunas - which is the bulk of tuna catch in the country - are caught by handline (fishing reel and rod) or longline (a long fishing line with a series of hooks).

Okay moving on to something more substantive: market-wise, isn't aquaculture obviously a threat to capture fisheries? This seems to have been completely missed by the writer. Farmed fish and wild-caught fish are substitutes. Now if fishers are able to switch to fish farming, then aquaculture would simply be a continuation (or even improvement) of their livelihoods. In practice though the skills for fishing and for fish farming are very different; one is neither a necessary not a sufficient preparation for the other.

Is fish marketing dominated by powerful traders dictating the price? A study by the ADB suggests that, contrary to this knee jerk opinion (the typical newspaper columnist sees monopoly power always and everywhere), fish trading is a competitive market.

Finally we get to the main point of the article, which has been provoked by a recent rationalization plan (which I have read) for the Department of Agriculture (DA). The plan calls for streamlining the DA bureaucracy as a whole (not specific to the fisheries bureau). That is, the principle is getting the DA out of private sector functions and local government functions. Now in the Philippines, fisheries management of inshore waters (0 - 15 km from the shore) has been delegated to local governments. Furthermore agricultural extension - including for aquaculture - has similarly been devolved. The rationalization simply calls for a structure more consistent with these realities. Moreover the DA will be renamed the Department of Agriculture and Fisheries, the more to emphasize the parity between crops/livestock and fish in the various functions of the reorganized Department.

The writer belongs to the all-too-common school of thought, that "more government" is the answer to every problem. Consider this telling quote: "The way to do it is certainly not to shrink BFAR. On the contrary, we should expand it and assign it food and industry targets commensurate to its upgraded status." Man oh man does that make me wince. Unfortunately this perspective misses the fact that government is often part of the problem. One of the best things that could happen to a society is breaking this culture of control.

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Upgrade fisheries bureau to dep't, not downgrade it

BIG JOB AHEAD: Instead of downgrading the Bureau of Fisheries and Aquatic Resources (BFAR) as planned by supposed experts at the agriculture department, the administration should upgrade it into a full-fledged department.

Humanity having despoiled the land, the future of the world’s food supply is the sea. There lie in our waters untapped resources that far exceed the food (among other) requirements of the growing population.

Surrounded by one of the world’s richest marine food banks, and with a rice-and-fish-eating population facing a coastline twice as long as that of the United States, we cannot overemphasize the need to conserve and develop our fisheries and aquatic resources.

The way to do it is certainly not to shrink BFAR. On the contrary, we should expand it and assign it food and industry targets commensurate to its upgraded status.

The Arroyo administration may want to have the distinction of having originated a two-pronged approach to the stubborn food problem -- agriculture (land-based) and aquaculture (water-based).

AQUA VERSION: In agriculture -- as in farming -- we prepare the soil, plant, tend to the crops, wait, then harvest. That takes time, and time is not always an element that we can compress.

Out there in the open sea (at least in those areas still teeming with fish), our fishermen simply go out, throw their nets and pull in the fish. No planting, no waiting.

The simplicity of the operation is probably one of the reasons why many lazy Filipino fishermen had taken the sea for granted and abused it. Now the children of these misguided fishers have to sail out farther to catch anything.

Aquaculture is akin to agriculture in at least one sense: We also prepare a fish farm or aquatic site, choose the seedlings, plant, wait and harvest the fish (or such crustaceans as crabs and shrimps or some shellfish) after caring for them over a certain period.

The fish (used here as a generic term to include crabs, shrimps, shellfish and the like) are taken care of or cultured in man-made cages, pens or ponds or some other controlled enclosure.

The fish farmer operates in a controlled environment that more or less ensures predictable results -- provided no extraneous elements such as pest, poisoning, or such weather disturbances as typhoons wreck the plans.

RIVERS OF TUNA: The case of tuna fishermen is one good argument for giving our fisheries industry the attention and assistance it deserves.

Countless tuna swim together like a giant current, like a surging river, in known paths or patterns in the open sea. Their number is so great it defies counting.

It so happens that that great river of tuna passes right through our territorial waters! Allah is good, indeed!

Our fishermen know where these rivers of tuna pass in an endless current. If properly-equipped, all that our fishermen have to do is go to the site, throw their nets across the passing tuna and haul in as much as their boats can carry.

These fishermen do not have to plant and wait -- like farmers -- before they can harvest to their satisfaction.

But this Pinoy operation is almost primitive from the point of view of modern-day deep-sea fishing. For one, while our fishermen know the sea intimately, they are handicapped by their lack of adequate vessels, gear and marketing network.

A full-time fully-empowered aquaculture department can do wonders in making our fishermen fishers for the region and beyond.

PUEDE NA?: Inland, where we have lakes, rivers and impoundments, we have scattered family-owned farms that raise hito, tilapia, crabs, shrimps and other common species sold in wet markets and served in restaurants.

On their own, they may be “puede na” with their small-scale operation, but there is a dearth of research and development and state assistance that could enable them to improve techniques, increase yield and boost their income.

These small operators do not get the assistance and protection they deserve as contributors to the national food supply. This is just talking from an inward perspective, not yet dreaming of having these producers grow into exporters.

They cannot go into research as there is no time or money for that. Many of them just ask around, attend seminars and generally play it by ear. There should be a better organized government effort to reach out to them so they could become more productive.

LAKE PENS : In Laguna de Bay, the biggest lake in the country and the closest to the national capital, a confusion of fishpens and corrals is choking it.

Small fishermen whose families have depended for generations on the lake for their livelihood have found themselves shunted away from their traditional grounds.

Efforts to remove illegal and improperly built or located fishpens have failed, because some operators are too powerful to be touched.

I do not know if this is still true, but there was a time when even presidential guards were being used by some people close to Malacanang to guard their fishpens.

Environment and Natural Resources Secretary Angelo Reyes said days ago he was serious about restoring sanity to the lake, meaning he would remove pens that should not be there. But until we see results, we should treat that as just one of those plans.

LESSONS LEARNED: As in agriculture where most farmers do not have the means to take their produce to the market, small fish farm operators have to depend on middlemen to buy their catch at prices that the merchants dictate.

This is not to say that the government should usurp the role of private middlemen, but there should be some way to enable small operators to develop a marketing network of their own.

A full-blown aquaculture department will be in a better position to devise ways to give small operators access to easy credit, better seedlings (fry), better techniques. A department can help them work out a more efficient marketing scheme.

A new aquaculture department can learn many parallel lessons from the agriculture department under which it now functions.

VILLAFUERTE OBJECTS: In Congress, Camarines Sur Rep. Luis Villafuerte, chairman of the House committee on fisheries and aquaculture, has rejected the plan to downgrade the BFAR, calling the idea “ill-considered and foolish.”

“Our sense is that diminishing BFAR would be highly counterproductive,” the Bicol congressman said. “We may in fact have to eventually upgrade the agency and establish a new, full-grown department dedicated entirely to developing fisheries.”

He added: “Being an archipelago, fishing and allied industries are of strategic importance to the national economy. By our geographical nature, thousands of coastal communities also subsist daily on our marine resources.”

“In fact, in terms of value, fisheries now account for almost 25 percent of our total agricultural output. And going forward, we are counting on the sector to further enlarge its share (of gross agricultural yield).”

Data from the Bureau of Agricultural Statistics indicate that the country’s fisheries production grew rapidly from just 2.6 million metric tons in 1998 to over four million MT in 2005.

BFAR UNITS: Villafuerte pointed out that less and less land is becoming available for farming. “Thus, we really have no choice but to increasingly rely on fisheries and aquatic resources to produce adequate food supply, fight hunger and ease poverty.”

The agriculture department earlier disclosed a plan to lower BFAR from a line to a mere staff bureau, and to transfer its regulatory services to a new, smaller office. Its field offices, now self-operating, would be put directly under DA regional directors.

The Fisheries Code, also known as RA 8850, upgraded BFAR from a staff to a line bureau in 1998.

At present, BFAR also oversees the Fisheries Technology Center, National Freshwater Fisheries Technology Center, National Inland Fisheries Technology Center, National Marine Fisheries Development Center, National Integrated Fisheries Technology and Development Center, National Seaweed Technology and Development Center, Fisheries Biological Center and the Mindanao Freshwater Technology Center.

Collapse - of economic logic

There's another collapse going on - in economic policymaking of the Philippine government. Under the watch of a Ph.D. economist, no less.

For decades the Philippines had pursued a regime of "financial repression" involving interest rate ceilings, mandatory lending for private banks, and direct lending by government. In the mid-1980s this regime went on a phase-out. One of the last nails on the coffin was Executive Order 138, which prohibited direct lending by government agencies. The main credit intervention of the government (aside from Central Bank regulation) is now relegated to government financial institutions, such as the Land Bank and the Development Bank of the Philippines.

The advantage of such institutions is that they are specialized financial intermediation companies, whose objective is the bottom line - maximizing net present value. Of course that objective is undermined by the "soft budget constraint" i.e. they have the implicit fallback on government subsidy; moreover they receive preferential treatment (for example, the Land Bank is the official government fund depository). This arrangement though remains vastly superior to having the Department of Agriculture dishing out loans to farmers. For the latter, there is essentially no mechanism for accountability should financial disaster happen. And it has happened, as this columnn discusses.

Now the President has repealed the prohibition, opening the floodgates to direct lending by government agencies. Where is the logic, nay the sanity of this?

The bang versus the whimper

There are two ways to die. One is by the gradual deterioration of bodily function in terminal illness or senescence. The other is by suffering a trauma that causes a sudden collapse in bodily functions. The neomalthusian notion of an ecological collapse of modern civilization follows the latter analogy.

The collapse is deemed to be self-induced, hence the related notion of "overshoot": a society is able to exhaust its resource base at high levels of activity and consumption; then exhaustion is reached, leading to a sudden drop in consumption and population size. The standard reference for this phenomenon is still the 1970s work The Limits to Growth , which has recently been updated.

Economic theory isn't very welcoming of the concept of overshoot-collapse. Rather, the price system would ration out a disappearing (exhaustible) resource. As it gets scarcer, it gets harder to extract, so the cost and price go up, making people skimp on it more. More than that: if conditions of scarcity become certain, such that future prices are sure to increase, owners of long-term rights to the resource would (as rational decisionmakers) hold off on extracting a lot today in anticipation of better prices next year (or decade or...)

Think of oil. It is said that the Saudi's are just extracting the oil as fast as they can, to create the illusion of big reserves. Nonsense. If peak oil has been reached then oil prices are on a long term upward trend. The owners would therefore keep their oil extraction in check. (If you held reserves to a trillion barrels of oil, wouldn't you?)

Now two things can happen: either technological change succeeds (under the whip of high resource prices) in finding abundant substitutes; or it fails, and society lives with escalating prices, converging to what would in practice mean zero extraction of the resource. (Think of petrol at US$ 1,000 per liter.) The latter scenario is the whimper version of society's demise - a long slow adjustment back to near pre-industrial levels of production, consumption, and population. (Hey, nearly two billion people in the planet are already at this standard of living!) Interestingly, the whimper version gives a lot of time for society to undertake the social and technological innovations to deal with tightening resource scarcity. The bang version obviously doesn't.

So how will our civilization end?


Between the conception
And the creation
Between the emotion
And the response
Falls the Shadow

Life is very long

Between the desire
And the spasm
Between the potency
And the existence
Between the essence
And the descent
Falls the Shadow
For Thine is the Kingdom

Rehabilitating the neomalthusian nightmare

I'm finally getting around to reading Jared Diamond's Collapse. Unlike his earlier Guns, Germs, and Steel, this one apparently has had mixed reviews from economists. I'm a big fan of the latter, and was drawn in to the former by the same enthralling and deceptively simple style. Now I'll just have to see whether the Diamond's arguments stand firm or fall over. One question: is it a Malthusian book as many decry? Just after reading the first chapter I know it's not that at all.

Back to the future in energy: biofuels

Bioenergy is obtained from materials originating from living or newly-harvested organisms. These include oils, fats, fibers, residues, wastes, and the like. The International Energy Agency (IAE) points out that two hundred years ago, virtually all energy consumption originated from bio-energy. However this was displaced by a more readily available and low cost source, namely fossil fuels (which originate from long-dead organisms, and are therefore non-renewable, except in a useless sense on a geologic time scale.)

However, recently, rising global demand for energy and all-time high nominal prices for petroleum are causing a large-scale shift towards alternative energy sources. Also driving the search for alternatives is are the numerous environmental problems linked to fossil fuel use, including global climate change.

In Asia, renewable energy accounted for as much as 24% of total energy usage in 2003, over ninety percent of which originated from combustible renewables and waste. The rural poor in developing countries are highly dependent on bioenergy. Four out of five households without electricity are found in rural areas of developing countries (FAO, 2005); such households rely on fuelwood and charcoal for most of their energy needs. Large sections of the rural poor have been bypassed by modern, centralized, energy generation and distribution systems. Bioenergy opens exciting opportunities for more accessible technologies for meeting the energy needs of the poor.

Back in college, for a group paper I and some classmates had a most enjoyable trip to Maya Farms in Rizal, Laguna. (Incidentally, my groupmates were all nice ladies, which played no small role in the recreational value of the experience - at least on my part.) Maya Farms - you may recall seeing its products in the supermarket - is a leader in integrated biogas generation. It is energy self-sufficient, with all its electricity internally produced from pig manure. Not an ounce of excrement flows out to pollute the adjacent river leading into Laguna Lake, unlike so many livestock enterprises (both large and small) dotting the perimeter of the Lake. Now that's a large scale, hi-tech operation. Perhaps small scale options, appropriate for rural communities and households, are feasible for decentralized power distribution among the energy-deficient rural poor. The future may well be in fats, fiber, detritus, and dung.

The IAAE

I did get back from Brisbane last Saturday, but spent the next few days recuperating and attending to some backlog. During the IAAE conference I had concentrated on attending the symposium on Sustainable Development in Fisheries and Aquaculture: Challenges for Economists, which ran for a couple of days in the afternoon. I had a presentation, mostly on my engagements in supply-demand modeling for fisheries for the WorldFish Center. Interestingly, that was the only conference session on fisheries and aquaculture for the IAAE.

Aside from that I was in several plenary sessions, including the opening one with the Presidential Address by Prabu ("Agricultural Development through the Globalization Lens") and the Elmhirst Lecture by Hans Binswanger (on empowerment of the rural poor). Both interesting and stimulating, but not the best. Prabu I think should have devoted some time discussing whether the conventional arguments for the priority role of agriculture in development (Johnston-Mellor-Kuznets-Chenery, et al) still hold water in an open economy setting. Hans should have focused on his main topic, but his second half got diverted into agricultural investment and the usual issues favored by economists (market-led development, getting prices right, focusing on public goods, etc.) Another interesting session was the Impact Assessment of Integrated Natural Resource Management in the CGIAR, chaired by Herman Weibell. (Yes, the soft stuff can get some increasingly "hard" treatment from the econometricians and modelers.)

So that was pretty much it for me. (Oh, I got to see sheep shearing in the field trip. Fun, in a tourist trap sort of way!)

It was my first IAAE meeting, and it was said to be the best. It may well have been. Congratulations to the organizers, especially the Program Committee led by Kei Otsuka (that enormous program must have induced much vertigo). Here's to a thought-provoking - and healthy! - conference in Beijing 2009.

Down time

Most unfortunately, I am down with a fever and a cough while attending the IAAE Conference. Have been halfheartedly attending, but today I opted to just rest in my hotel. Bummer. Just so you know why my posts have been stuck at (1) for a week!

IAAE meeting (1)

I scrolled down the economics roundtable and found no one blogging about the 26th International Association of Agricultural Economics Conference. Not even John Quiggin, who chairs a session. Perhaps I'm the only one who thinks this is interesting? I'm not even a member. (My previous memberships, aside from local associations, were with the IIFET and the Asian Fisheries Society, but alas both have lapsed.)

Today is just the preconference workshops (for which I haven't registered). So the actions starts tomorrow.

Contributions of agricultural economics

The International Agricultural Economics Association (IAAE) holds its triennial conference in Gold Coast, Brisbane, Australia. Numerous luminaries will make their appearance. Needless to say, plenty of juicy topics to bite into - just check out their site.

Unfortunately as some of you may have noticed, I've been a bit remiss with this weblog in between deadline pressures and preparing papers and presentations for conferences like this. (And this weblog - for the second time - is being prepared in Changi airport. Free internet is fabulous!) Though no question, it's a great opportunity for me to attend. Anyway, lemme see if my posting can pick up with this.