↑ comment by fraidykluofficer.com ·
2020-09-25T12:57:01.965Z · LW(p) · GW(p)
Destroying your production capacity is a strategic mistake, and exposes you to blackmail in the future. A smart owner (or a smart centralized government) would not let that happen. If you want to give me free bananas, okay, I will take them; but I will still keep my banana plantation ready.
The article clearly suggests that the inefficient farmer should stop working on coconuts and work full-time (8.5 hours a day) on bananas; so he wouldn't have time to keep the secondary plantation ready.
That's the recipe to become dependent from a stronger partner, something that the article suggests is a good strategy for both parties. But is it?
Let's not assume bad intentions from any side.
Everything goes well for a couple of years... but the efficient farmer realizes he is working only 2 hours a day, and decides to increase his production, working 4 hours per day. (Again -- let's not assume bad intentions; he just wants to expand his production)
Boom! He no longer needs to buy bananas.
What should the inefficient farmer do? Ideally he would reduce the banana production, but he can't produce coconuts overnight. He must sell bananas cheap to buy coconuts.
The bananas:coconut exchange rate jumps from 2:1 to 4:1. That means he must double his production, working 20+ hours per day, while the other farmer comfortably works 4 hours per day.
Of course, he can't do that for long and goes bankrupt before his coconut plantation is ready.
Please note that this doesn't even assume bad intentions from the efficient farmer; it's just a natural result from the free trade between unequal partners.
That's why, in the real world, countries must impose tariffs, quotas and other types of regulation.
And the other side of the same coin is that a smart owner -- or centralized government -- will try to expand their future production capacities
I agree with you -- and that's exactly what the efficient farmer did, in the present.
And because the inefficient farmer decided to focus solely on one industry, he couldn't keep the other.
(Something that the article suggests would be beneficial for both parties.)
That said, another question is whether subsidies are the best way to keep your production capacity, and what amount of subsidies is optimal.
It's a sane strategy if you don't want to become dependent.
People can live without iPhones; but they can't live without food.
I would even challenge which types of products should we subsidize: if the goal is to prevent starving, we probably do not need to protect our meat production -- if the other countries keep giving us cheap meat, let them; and if they suddenly stop doing that (in the unlikely case that all meat-subsidizing countries would coordinate to do this in the same year), we may have a year or two of mostly vegetarian diet, but no one is going to die.
You are underestimating the time and effort to re-create an entire industry, once it is destroyed...
We are talking about decades!
In other words, although some protection of production capacity is strategically important, it doesn't necessarily follow that the farming subsidies, as we know them now, are anywhere near the optimal solution.
Do you think it would be a smart strategy, for the developed countries, to become dependent?
I don't think so.
Subsidies may not be the "optimal" solution -- but is good enough to protect their interests.
(And, of course, it is not very good for the developing countries.)