Saturday, November 29, 2003

Corporate Parasitism

I can't praise this New York Times editorial highly enough, so good is the job it does of laying out the manner in which small groups of self-interested parties can use lobbying to engage in aggressive rent-seeking at the cost of the larger society.

Sugar growers in this country, long protected from global competition, have had a great run at the expense of just about everyone else — refineries, candy manufacturers, other food companies, individual consumers and farmers in the developing world. But now the nation's sugar program, which guarantees a domestic price for raw sugar that can be as much as three times the world price, needs to be terminated. It has become far too costly to America's global economic and strategic interests.

The less defensible a federal policy is on its merits, the greater the likelihood that it generates (or originates from) a great deal of cash in Washington, in the form of campaign contributions. Sugar is a sweet case in point. The Fanjul brothers, Florida's Cuban-American reigning sugar barons who preside over Palm Beach's yacht-owning society, were alone responsible for generating nearly $1 million in soft-money donations during the 2000 election cycle. Alfonso Fanjul, the chief executive of the family-controlled Flo-Sun company, served as Bill Clinton's Florida co-chairman in 1992 — and even merited a mention in the impeachment-scandal Starr report, when Monica Lewinsky testified that the president received a call from him during one of their trysts. Meanwhile, brother Pepe is equally energetic in backing Republicans, so all bases are covered.

The Fanjuls harvest 180,000 acres in South Florida that send polluted water into the Everglades. (A crucial part of their business over the years has been to lobby not just against liberalization of the sugar trade, but against plans to have the sugar industry pay its fair share of the ambitious $8 billion Everglades restoration project.) The Fanjuls had been Cuba's leading sugar family for decades before Fidel Castro's takeover. Crossing the Straits of Florida, they bought land in the vicinity of Lake Okeechobee, which feeds the Everglades, and imported platoons of poorly paid Caribbean migrant workers. Their business was aided by the embargo on Cuban sugar. The crop is protected from other competition by an intricate system of import quotas that dates back to 1981.

The government does not pay sugar producers income supports as it does many other kinds of farmers. Instead, it guarantees growers like the Fanjuls an inflated price by restricting supply. Only about 15 percent of American sugar is imported under the quota rules, and while the world price is about 7 cents a pound, American businesses that need sugar to make their products must pay close to 21 cents. Preserving this spread between domestic and world sugar prices costs consumers an estimated $2 billion a year, and nets the Fanjuls — who have been called the first family of corporate welfare — tens of millions annually. The sugar exporters who are able to sell to the United States also benefit from those astronomical prices. The Dominican Republic is the largest quota holder, and one of the big plantation owners there is — surprise — the Fanjul family.

The sugar situation hurts American businesses and consumers, but its worst impact is on the poor countries that try to compete in the global agricultural markets. Their farmers might never be able to compete with corn or wheat farmers in the United States, even if the playing field were leveled. But they can grow cotton and sugar at lower prices than we can, no matter how advanced our technology. Our poorer trading partners bitterly resent the way this country feels entitled to suspend market-driven rules whenever it appears they will place American producers at a disadvantage.

Trade policy is one area in which I am completely in agreement with Paul Krugman1 and the New York Times editorial staff. The Bush administration has been much worse for the cause of free trade than the one that preceded it, though in fairness the sugar racket began quite a long time ago - and was aided and abetted by yet other self-professed Republican champion of free trade, Ronald Reagan.

(1) This isn't all that surprising - international trade is Krugman's area of core competence, and when he sticks to what he knows best he can be a paragon of clear-thinking and sobriety. What a shame, then, that he so rarely sticks to his knitting nowadays.