Download Globalization the end of the social contract

31/03/2004
6th IFSA European Symposium
Farming and Rural Systems Research and Extension
European Farming and Society in Search of a New Social Contract:
Learning to Manage Change
Vila Real, Portugal, April 4 - 7, 2004
Globalization: the end of the social contract in agriculture?
By
Manuel Belo Moreira
Professor, Instituto Superior de Agronomia, Lisbon
1. Introduction
It is widely consensual that the three decades of continuous economic growth after the
second World War benefited largely from the social contract that prevailed in that period1.
In this paper I am proposing a reflection about the impact of globalization on this social
contract, particularly regarding agricultural production and the rural life.
The central argument of this article is that changes in the various dimensions of life in
society brought about by globalization make a lot of pressure on the social contract that
prevailed since its inception. It is undeniable that this problematic became central to the
debate about the future of agriculture and the rural world, in spite of the relevant exceptions
introduced by protectionist policies that have been contributing to reduce the impact of
globalization.
Focusing only on the economic sphere, globalization can be seen as the beginning of
a new phase of capitalist development, initiated on the last three decades of the XXth
century. A rupture with past economic paradigms and their political expressions
characterizes this new phase, namely in what concerns the role of the State on the economy.
That is, after an era of clear Keynesian hegemony, during the 30 post-war years of
1
The idea of social contract used in this text refers to the written and non-written rules that regulate the
relationships between the State and the citizens, and provide legitimacy to assure a better articulation between
economic agents and State policies. This vision follows the contemporary use of the concept concerning
income policies that “…addresses the question of how many services the government has to provide in return
for its right to reduce citizen’s income, be that through high taxes, high prices, or other means” (Schaede
2003). This implies that the social contract differs from country to country reflecting the way in which it was
crafted over the course of their histories, and also implies that it could be interpreted narrowly, aimed at a
particular fraction of economic agents, such as the ones involved in the agri-food sector.
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continuous growth known as the “glorious thirty”, it followed the emergence of the neoliberal hegemony that paved the way to the globalization age.
My approach will follow essentially a political economy perspective even if in certain
moments an appeal is made to other theoretical approaches in order to give relevance to the
agencies and contingencies needed to fully understand such a highly complex process.
To address this problematic I will start, in section 2, with a brief description of the
post second World War social contract that existed in the industrialized countries, namely
regarding agriculture and the rural life. In section 3, a short characterization of the main
features of globalization will be enough to highlight fracturing lines in relation to the past.
This will allow me to illustrate, in section 4, how these fracturing lines provoked a rupture
with the past and how the social contract that was suitable to a period of uninterrupted
growth started be questioned and slowly abandoned, being the agriculture and food sector a
relative exception. In section 5 other consequences of globalization of agriculture and food
will be highlighted and, in section 6, I will make the case of the need to a renewed social
contract. In section 7 some conclusive remarks will be put forward.
2. The post second World War social contract
After the second World War the industrialized countries put in practice Keynesian
social contracts that, while maintaining the essential features of the market economy, did
also heavily rely on State intervention, namely through policies of price support and/or
subsidies. Underneath this type of social contracts was the recognition that welfare policies
capable of giving minimum levels of safety nets to the population were needed 2. That is, in
that context the Keynesian social contract became considered as the “natural” way to
overcome moments of more vulnerability, giving assurance to the people that they could
count on State-led safety nets able to provide socially acceptable living conditions. In brief,
social contracts implying some level of economic redistribution as a result of the NationState action3.
2
This happened in the particular geopolitical context of post war, when two politically antagonistic blocks
were disputing the hearts and minds of people, which certainly explains the generalised acceptance of the
Keynesian consensus.
3
Of course that the level of support was very different between the most social-democratic countries with
high taxation levels and wider cover of free health, educational and other State expenditures, and the most
liberal countries where the support granted by the State was much lower and more narrowly accorded?.
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Concerning agriculture, the typical social contract involved the following features that
will be only shortly enunciated:


It provided incentives to promote agricultural modernization in order to increase
food and fiber production (either final or intermediate goods) with less or
workforce.
It gave assurance that farmers could count with specific safety nets. The rationale
underneath this agricultural specificity relied on the consideration that agricultural
production is more vulnerable than other sectors due to climatic and commercial
risks (high price volatility namely derived from a short term inelastic supply and
demand for most of the main agricultural products).
In other words, increasing production and productivity would not only compensate
supply shortages in a context where this was a major problem, but it would also help
industrial development, either through the acquisition of inputs and machinery or through
the liberation of work force necessary to industry and services, but also by allowing savings
of foreign currency4.
To make the social contract operational the State intervention could be synthetically
described as the result of general and specific agricultural policies from which I will refer
the most elucidating:
General policies:
 Welfare.
 Health.
 Transportation and energy-supply infrastructures.
 General education.
Agricultural policies:
 Market creation and market regulation for agricultural products.
 Regulating agricultural inputs market.
 Agricultural and agri-food research and development.
 Agricultural extension to promote productivity growth and innovation.
 Incentives to the use of credit facilities.
In short, a complex mix of policies, varying from country to country, were designed
to create conditions to make the tandem innovation/credit more attractive, implying also
policies particularly aimed at protecting farmers from price volatility through5:
4
One of the contributions of agriculture to the development according with Kuznets theorization.
The concept of technological treadmill (Cochrane 1979) is be very helpful to understand the logic
underneath the tandem innovation/structural change. The technological treadmill illustrates the process that
forces farmers to adopt innovations capable of providing advantages on a competitive market environment,
pointing to a continuous quest for higher and higher levels of productivity. The very idea of treadmill shows
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



A large panoply of measures of price support.
Tariffs and other barriers against international competition.
Measures to attenuate the problems of the creation of agricultural surpluses such as:
quotas, set-aside, export policies, aid to developing countries.
Subsidies to compensate for the productivity differential, in order to maintain
economic life on mountain or marginalized areas.
Under this type of social contract the agricultural and agri-food sectors were
protected from full international competition. However, the national markets needed to be
competitive enough to force farmers to enter the agricultural technological treadmill6 that
was the leading cause of structural changes, namely involving:
 The race to adopt innovation, and
 The quest to higher and higher productivity levels, meaning less labor needs, and
 The structural changes that mark the trend toward less and bigger farms.
These changes were strongly stimulated by the generalized use of the agricultural
credit and, on the other hand, they contributed to the reinforcement of the importance of the
agro-industrial complex at the upstream and the downstream of agricultural production.
3. The globalization process
The scheme of the next page shows the relationships between different and relevant
features of the globalization process, helping to understand the significant changes it
provoked on both the economic and social life.
I will further highlight the role of the State on the process of de-regulation,
privatization and liberalization that characterizes what has been termed as the Washington
consensus. Role of the State that can only can be fully understood if the geopolitical context
and the changes on the ideological hegemony are taken into consideration.
The outcome of this process, namely the de-regulation and liberalization of the
financial markets, paved the way to the financial tyranny (as Fitoussi 1997 puts it) that
granted an overwhelming power to the financial markets.
how this process of continuous race will automatically provoke the “natural” abandonment of the less capable
to compete.
6
Even if in certain cases the policy mix could prevent that the technological treadmill would exercise all its
effects. Dairy policies in Portugal, until the integration on the European Common Market and for more than
50 years, provide a good example that the adoption of innovations non scale-neutral, such as milking parlours
and refrigerated bulk tanks, did not cause the usual effect that happens when price determination relies on
market competition (Moreira 1984).
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Putting things shortly, this means that many State prerogatives and usual State
intervention started to be challenged by the so-called market judgment7. This market
judgment emanates from financial analysts, as well as audit and rating corporations, which
include people and institutions that are irresponsible from a democratic point of view and
whose criteria rely only on a financial logic.
GLOBALIZATION PROCESS
Capital goals

Geographic expansion (Trade;
FDI)

Sector expansion (Privatization)

Less State regulation
Necessary
conditions
Technological revolution

Transport and logistics

Information
technologies
Ideological change


From Keynesian paradigm hegemony
to the
Neoclassical paradigm hegemony
Governmen
t’s
Role and
Geopolitical
considerations

Mainstream
economics

Opinion makers

Media
Change on the role of the State


Washington
Consensus



Liberalization
Deregulation
Privatization
Global Capital Changes
From more regulator to
More facilitator
Growing power of commercial and
financial TNCs.
New forms of spatial management,
and the emergence of the Web
enterprise.
Change on the TNCs
behaviour


From adapting to state
regulation to
More imposing. Asking for
state benefits
7
The balance of power between nation-states and Transnational Corporations (TNCs) changed: the State from
predominantly regulator to predominantly facilitator of the global capital requirements (McMichael & Myhre
1991), and the TNCs changed from more adapting to more imposing (Moreira 1994).
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The obvious problem with this shift is that the financial logic tends to contradict or
by-pass the written and non-written rules underlying the Keynesian social contract. That is,
with globalization we can see a clash between the financial logic, which nowadays is
essentially a global logic, and the Keynesian social contract that still maintains a national
character, in spite of all its variants 8.
4. The social contract in agriculture under threat
States under the pressure of the market judgment have been forced to break many of
the features of the prevailing social contract. That is, nation-states are being forced to
follow a way that, among other things:



Shows a progressive reduction (when not abandonment) of welfare provisions.
Leads to the vanishing of State-led research and development. This is particularly
felt in agriculture and on agricultural extension as well.
Relies more on financial markets (insurances, stock markets and derivatives) to
guarantee a substitute of the previous State-led safety nets based on public
institutions, following the Washington Consensus privatization recipe.
Globalization also brought increasing competition at a global level, induced by the
technological revolution (more rapid and cheaper transportation, new logistics
management, and information technologies). This was achieved trough:


A substantial reduction of tariffs at a world-wide scale (under the General
Agreement on Tariffs and Trade - GATT and the World Trade Organization WTO).
An increasing pressure on States to put an end to agricultural subsidies, and a large
number of international agreements and rules enforced on GATT and WTO. Rules
considered necessary to create more favorable conditions to international trade.
As a result of globalization, economic agents and the people in general have been
forced to rely more on market relations and less on State intervention.
On the other hand, the context of scarce supply of food and fiber was substituted by a
context where demand tends to be inferior to global supply9, therefore pushing agricultural
prices down, and turning obsolete the economic rationale that supported the old social
contract.
8
Or supranational if we consider that at the European Union level a Keynesian contract coexisted with the
creation of this economically integrated space.
9
Even if at the same time the number of malnourished does not seem to diminish.
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The results of the increasing competition at the global level illustrate a trend to
increase price volatility, which together with the reduction of the safety nets means more
labor and farmer instability. However, it must be strongly underlined that the impact of
these outcomes shows a significant variation according to the different countries. This
happens because the logic and dynamic of globalization have been tempered by State-led
policies that grant high levels of protection to the farmers of the richer countries that persist
not only on the EU with the Common Agricultural Policy (CAP) but in Japan and the US as
well.
This allows a conclusion that globalization of agriculture and food does not have the
same impact that it has on other activities and also that there are large differences among
farmers. It has full impact on the most vulnerable farmers from the countries that are
applying the rules of the Washington Consensus, while large parts of the agri-food sectors
of the richest countries have escaped from its effects. Furthermore, this reveals the
hypocrite double standards of governments that in spite of supporting and promoting the
neo-liberal globalization to developing countries keep high levels of protectionism at home
(Berthelot 2001, Stiglitz 2002).
Anyway, even if globalization of agriculture and food is very far from being a
complete and generalized feature on the most important economic areas, one should keep in
mind that the pressure to liberalize and to deepen the current globalization process will
increase if the so-called market judgment and the financial tyranny will intensify their
influence.
5. Other consequences from globalization
Increasing competition and price volatility contributes to unleash the technological
treadmill, that is, gives a big push to the historical trend to have less farms and bigger
farms, fully capitalized. This trend will be particularly felt on the countries that still have
important numbers of small family farms, where changes in the agrarian structure will be
more important that on the countries already under the influence of the technological
treadmill for longer periods. Shortly, with globalization the race to productivism induced by
market relations will tend to intensify.
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It must also be stressed that the impact of the technological treadmill depends greatly
upon the abundance and quality (reliability) of the services needed to put into practice the
production and management innovations, namely R&D, extension and commercial circuits.
It is also implicit that changes on agriculture and agrarian structures greatly depend upon
the development of upstream and downstream industries, and on the way that productive
activities can be included on national or global commodity chains (either on mass markets
or in niche markets). All these features make the difference between industrialized and rich
countries and agricultural and poor countries, particularly explaining why the technological
treadmill can be very disrupting in areas where its full application is not accompanied by all
the panoply of involving features that are present in industrialized countries, but usually
lack on developing countries.
Finally, a crucial aspect needs to be underlined. Since the overall logic and dynamic
underneath globalization is based on market signals, all productive choices, including the
technological, result from the balance that farmers are able to make between market prices
(and subsidies, when they exist) and the costs involved in production. This leads to the
logical conclusion that externalities will not be considered when farmers and the other
economic agents on the commodity chain make their choices. And, therefore, market
failures such as externalities will not be subject to any corrective measure if they are
negative or compensation if positive, with all the inconveniences that this could bring to the
society10.
Therefore, the outcomes of these trends could have a strong impact both from a
socioeconomic and from an environmental point of view.
From the socioeconomic side, unleashing the treadmill points to agricultural and rural
restructuring based on fewer active people on rural areas. This means increasing the
pressure towards agricultural exodus, which usually is not the subject of any appraisal of a
cost-benefit analysis.
From an environmental perspective, because there are no particular incentives for
farmers to assure that they will follow the needed prescriptions to guarantee environmental
sustainability.
10
These considerations fuel the debate about the concept of multifunctionality of agriculture and the chances
that this concept would be acceptable under the WTO rules (Petit 2002).
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In fact, since the costs and benefits of unleashing the technological treadmill are only
the ones valued on the market place, farmers’ behavior tends to follow a logic exclusively
driven by market signals. Therefore, market pressure and short-term considerations will
tend to prevail, and any other consideration that could not be translated in prices will tend
to be forgotten. This makes the case for new or renewed social contracts.
6. The case for a new social contract
Adopting a prospective view, the range of possible future trends concerning
globalization is limited by two extreme situations: on the one hand an utopian globalization
and, on the other, a return to complete protectionist practices fueled by increasing
nationalist tendencies.
The utopian globalization means that a complete economic integration at the global
level will be observed. Rodrik (2002), referring to this, points to what he calls the
globalization trilema:
“…the nation-state system, deep economic integration, and democracy are
mutually incompatible. We can have at most two out of these three. If we want
to push global economic integration much further, we have to give up either the
nation state or mass politics. If we want to maintain and deepen democracy, we
have to choose between the nation state and international economic integration.
And if we want to keep the nation state, we have to choose between democracy
and international economic integration”.
This means that a full globalization has too many utopian features to be considered as
a feasible outcome on short and medium run11.
The other hypothesis of a complete return to protectionism or autarchy also seems too
radical, even if a certain slowdown of globalization could be a more feasible if not a
probable outcome.
Under these circumstances it seems wise to consider only two alternatives: the
backlash of globalization on one hand, and a different globalization, on the other hand.
The point is that these two alternatives will need a new or at least a renewed social
contract, as it will be explained below.
11
Paraphrasing Keynes, at the long run we will be all dead.
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The backlash of globalization or globalization slowdown means a trend that relies on
the enforcement of national policies to respond to the global economic challenges. This
higher level of nationalist protectionism will certainly have the support of the loosers of the
current globalization process. That is, the workers and civil servants that lost their jobs due
to de-localizations or from failures due to global competition, or the ones that have seen
their wages highly compressed due to the global outsourcing. It could also count on some
fractions of capitalists, namely the ones involved on production of commodities aimed
primarily at internal markets, and of most of farmers that miss the good old days of
protected internal markets.
On the other pole of the range we can find the trend to a different globalization or
alter-globalization, as it is termed by many of the so-called anti-globalization social
movements. Movements that support an alternative globalization that is called to provide
global answers to global problems. Or, being more explicit, an alternative that could
provide responses: 1) to the environmental problems, namely global climatic change; 2) to
the increasing risks of global health and sanitary problems; 3) to face global criminality,
and 4) that could be capable to make externalities accountable in order to build up new
forms of market regulation.
The scenario of return to protectionism will probably need renewing national social
contracts adapted to the new conditions. And an alternative globalization certainly depends
upon a wider social contract that cannot be restrained to the current boundaries of the
nation-sates. In a certain sense it parallels what is happening in the EU with the
enlargement of the Union and the inclusion of the eastern countries. The success of the
enlargement will certainly depend upon the type of social contract that could be accepted
by the different societies involved in this experience.
The scenario of the utopian globalization will be more complex and certainly much
more demanding that the others. It will need a global social contract that under the present
circumstances does not seem feasible.
Shortly, whatever the scenario a renewal or a new social contract seems a necessity. I
will focus only on the need to renewing the social contract to face the current shortcomings
of globalization.
The rationale for a new social contract is based on the following arguments:
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

markets, left alone, are not able to face global problems (namely: environmental,
health and criminality), and cannot provide answers to the externalities that are
associated to its functioning.
This points to the need of either national or wider social contracts, which involve
new forms of regulating economic activity, namely breaking the current financial
tyranny based on the so-called market judgment.
However, one has to be completely aware that renewing the social contract or
building a new one does not mean a complete return to past situations. What happened to
agricultural and rural policies will help me to explain this point. The post second World
War social contract on agriculture was build up on a context of food scarcity on the one
hand, and on labor shortages, on the other, which is the opposite of the current context.
This means that renewing the social contract based on the same rationale is not
possible any more, unless under the scenario of a return to autarchy. Therefore, when
referring to a renewed or a new social contract concerning agriculture and rural issues, one
has to take into consideration that the context has changed and that a new social contract on
agriculture needs to consider other aspects besides the ones that established the rationale for
the past social contract. It is under this perspective that the issue of the multifunctionality of
agriculture must be considered. That is, at least on the richest countries where the States
still have financial room for manoeuvre a new social contract does not need to address
agricultural production scarcity, but essentially needs to address the externalities in order to
penalize the negative and to compensate the positive ones, and to address space related
issues, namely the conflicting uses of the rural space.
Accepting that the case for a new social contract does not need more explanation, the
following step will establish the necessary guidelines to achieve this propose. Not being
able to provide a full approach to this problematic that goes beyond the scope of this text I
will only refer shortly to a crucial element that seems necessary for a wider social contract.
And this element is solidarity, either at the national, international or intergenerational level.
National solidarity is essential to overcome the current shortcomings of globalization,
as well as to correct the socioeconomic differentiation and social exclusion exacerbated by
the increasing competition and the decrease of the welfare safety nets.
International solidarity is indispensable to assure that the theoretical benefits of free
trade are fairly appropriated by all countries, meaning that the hypocrite double standard
referred above will come to an end. This means assuring a hierarchy of priorities that puts
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in first place the well being of the people and not the profits of transnational corporations
and global speculators, not to mention the global criminality that has been gaining with the
de-regulation of financial markets12.
Finally, intergenerational solidarity is necessary to assure sustainability, namely
environmental sustainability, since most of the forecasted environmental shortcomings will
only affect humanity some years, decades or centuries from now.
Further considerations on this subject, regardless its relevance will exceed largely the
scope of this text and will not be considered, except for a final and relevant question about
the conditions required to the establishment of a new social contract on agriculture.
To address this issue one has to identify the actors involved on the process, that is:
governments, farmers, the scientific and technical environment as well as other actors or
stakeholders concerned with the competitive and sometimes alternative uses of the rural
space, and concerned about the ways agricultural and food are produced.
During the first social contract on agriculture, farmers could easily agree on the goals
established by the governments, namely the productivist path on agricultural production
and on R&D and extension, which was provided essentially by the State. Agriculture had
the priority concerning the uses of rural space, excepting circumscribed urban expansion
areas, industrial parks and military premises. And last but not the least, urbanites did not
dare to dispute the well founded of the social contract, neither had particular doubts about
the quality of the agricultural and food productions, having confidence on State regulation.
Things have changed completely in all of these aspects. Farmers are under economic
pressure, receiving market messages forcing them to be more productive in order to
maintain their competitive advantage or only to survive. Simultaneously, the productivist
path of agricultural production is under siege by the environmental activists. R&D and
extension are being privatized and changing to profit goal activities. And the urbanites of
the developed countries show deep concerns as consumers about the quality and safety of
agricultural production and dispute the use of many rural areas to develop urban activities,
such as secondary houses, tourism and leisure.
12
Money laundry schemes have proliferated, and corruption at the global level can have a friendly
environment on the current situation.
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These changing conditions brought about conflicting issues which make much more
difficult to build up a new social contract. Conflicting issues that farmers feel like a menace
to their traditional way of life. And, therefore, tend to reject many of the changes that could
establish a new base for the necessary agreements previous to any new social contract.
In short, farmers and extensionists need to understand that if this kind of prisoner
dilemma is to be overcome, they need to adapt to the new age, meaning to try to understand
the feelings of the urbanites, and work to reach new levels of agreement on the most
disputed issues. And, furthermore, they cannot forget that, in the last resort, it is from the
urbanites contribution that they could get the financial means to transform their current
procedures and to build up new ones. Finally, R&D, also has a difficult but stimulating
challenge to face, that is, the need to improve the dialogue between isolated fields. Not
only among R&D actors themselves but also between them and field extensionists and
farmers.
7. Conclusive remarks
Some relevant consequences of globalization, namely the trend that points to the
rupture of the social contract that prevailed during the “glorious thirty” years of continuous
economic growth, have been highlighted on the text.
Globalization features such as increasing competition, the trend to rely primarily on
market mechanisms, the State withdrawal from activities that, not so long ago, were
considered as designed for State activity, provoke relevant changes on economic and social
life. It was argued that in the particular case of agriculture, these changes would unleash the
technological treadmill provoking an acceleration of structural change with differentiated
economic and social effects, according with the division between rich and poor countries.
In brief, globalization equates market extension to new spaces and to new forms of
production. And furthermore, this market extension does not sufficiently address the
shortcomings provoked by market failures, mainly because a full accountability of the
externalities resulting from the free market still do not exist. These insufficiencies provide
powerful arguments to justify State intervention, and support the case for a new social
contract. However, one must be aware that the building up of a new social contract depends
largely on the economic and social context as well as on power relations between
competing ideologies: the neoliberal that relies exclusively on the market, and the
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competitors that with more or less vigor sustain the need to new forms of State intervention
and of global arrangements to address global problems that by-pass national boundaries.
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