Malawi cuts trade-and-aid to free self from disaster

In the bitter winter of 1788-1789, the government of Louis XVI exported almost the entire French grain crop, lining the pockets of aristocrats and landed elites while leaving peasants to starve. The result was the French Revolution, during which the monarchy and aristocracy lost their governing privileges and Louis lost his head.

In the catastrophic harvests from 2001 to 2005, the government of Malawi -- under pressure from the World Bank and donors such as the United States and Britain -- eliminated nearly all its subsidies for fertilizer. The African nation then exported its diminished cash crops for foreign currency with which it was supposed to buy food (from subsidized French and U.S. farmers, as things turned out) for its starving peasants.

The result was the Malawi Revolution, a revolt against the supposedly "free trade" conditions set by foreign-aid donors. Malawi's president defied the World Bank and subsidized fertilizer and seed -- a course of action that has lifted farmers from poverty, nearly tripling crop outputs in two years.

Malawi was not rejecting free trade per se. But like other Third World agricultural nations, Malawi has found that free-trade policies that are supposed to help economies develop in fact seem to make subsidized cash crops from developed countries more competitive.

The World Bank says subsidies impede trade; underwriting seed and fertilizer would give Malawian farmers an unfair advantage. And yet American and French farmers, who are regularly subsidized by their governments, sell grain to Malawi. Is that fair competition? Or just plain hypocrisy? Who can blame the cynical for thinking that the International Monetary Fund and the World Bank -- international institutions dedicated to promoting economic growth and eradicating poverty -- manipulate the rules to the benefit of rich nations? The Third World goose marches to the tune of Milton Friedman, while the First World gander plugs its ears and lets the subsidies flow.

In the end, even U.S. foreign aid gets distorted. According to a report in The New York Times last month, the United States has given Malawi US$147 million in food relief since 2002 -- in essence, an undeclared subsidy to American farmers. But it has given only US$53 million to help farmers in Malawi grow their own food. And not a nickel for the fertilizer subsidy program.

There are countless examples of the pernicious effect of donor hypocrisy. Argentina played by the IMF's rules earlier this decade, dismantling much of its social agenda as instructed, yet reaped not prosperity but the whirlwind. Not so long ago, ore-rich regions of Africa allowed the World Bank to pump money into mining and other extraction industries, and watched investors walk away with all the profits. The World Bank has since changed its tune, but the damage has been done.