Hunger and poverty: Consequences of deregulating food markets

by Josephson Institute on October 6, 2011

 

Millions of poor people are starving in famines right now because the U.S. has relaxed regulations on commodities trading over the past 10 years. Into the breach have rushed financial companies like Goldman Sachs that poured millions of dollars into food commodities trading, in pursuit of short-term profits. In the process, they’ve created artificially soaring food prices that affect the whole world.

As went tech stocks in the 90s, and housing prices in the 00s, the price of food is now set on a financial bubble.  And human agony and death is the result.

That’s the conclusion of the United Nations, major economic think tanks, and the Pope.

Other factors are playing a role in rising food prices – such as the use of grains for ethanol, climate instability, and growing demand from economically strong developing countries like China – but many economists feel that these factors are not responsible for such sharp and extreme price hikes in the short term. Rather, they say, changes in the regulation of commodities trading are to blame.

For some explanatory reporting on how deregulation led to financial speculation and market mayhem, check out these stories in the business and international press (listed in reverse chronological order of publication):

Fast Company : Let them eat ethanol and cash

Der Spiegel Online: How global investors make money  out of hunger

Foreign Policy: How Goldman Sachs created the food crisis

What does this issue have to do with business ethics? The usual principles: Just because something is legal doesn’t make it right. Some values are more important that profit. And, importantly, the actions of a few can have wide-reaching effects.

However, some experts disagree with this analysis of what’s happening to world food prices, including noted liberal economist Paul Krugman, and a number of columnists who write from a conservative or anti-regulation perspective. They say that the current high food prices, and the big spike in 2008-09, are due to other economic factors, and the involvement of financial-index players is irrelevant.

So what’s a politically concerned non-economist to think? Should we support re-regulation of commodities, or not? If it’s a matter of ethics, we should examine the consequences of either position.

What’s the worst consequence if commodities trading returns to a highly regulated system with a limit on who may participate? Big investors and international finance companies will lose one of the tools they use to make large short-term profits.

What’s the worst consequence if it’s true that financial speculation is putting world food prices on an artificially high bubble, and the status quo continues? More starvation, more food insecurity, more social instability.

Image: Wheat field by Flickr user jimmedia. Used with permission from a Creative Commons license. Some rights reserved.

{ 2 comments… read them below or add one }

Christina October 7, 2011 at 4:13 pm

The ethical issue of rising food prices is serious. If it is investors, multinational companies, suppliers… gaining huge profits I would never agree on increasing food prices. However, on the contrary do you think it is ethical that prices are in parts of the world lower than production costs e.g. the production of milk in Europe? And wouldn´t it be more ethical to accept higher prices to ensure fair trade?

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Flodaking October 11, 2011 at 10:13 am

How do you think can governments or other institutions counteract these developments? Should they ensure a supply of food in the home country which isn’t open for trading?

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