Finance Capitalism is Causing Starvation

We all know Soviet-style communism causes starvation.  Looks like American-style capitalism does the same thing in a different way.  Johann Hari in the Independent, from this past July:

It starts with an apparent mystery. At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people — mostly children — couldn’t afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it “a silent mass murder”, entirely due to “man-made actions.”

Earlier this year I was in Ethiopia, one of the worst-hit countries, and people there remember the food crisis as if they had been struck by a tsunami. “My children stopped growing,” a woman my age called Abiba Getaneh, told me. “I felt like battery acid had been poured into my stomach as I starved. I took my two daughters out of school and got into debt. If it had gone on much longer, I think my baby would have died.”

Most of the explanations we were given at the time have turned out to be false. It didn’t happen because supply fell: the International Grain Council says global production of wheat actually increased during that period, for example. It isn’t because demand grew either: as Professor Jayati Ghosh of the Centre for Economic Studies in New Delhi has shown, demand actually fell by 3 per cent. Other factors — like the rise of biofuels, and the spike in the oil price — made a contribution, but they aren’t enough on their own to explain such a violent shift.

To understand the biggest cause, you have to plough through some concepts that will make your head ache — but not half as much as they made the poor world’s stomachs ache.

Read more here.

It starts with an apparent mystery. At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people–mostly children–couldn’t afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it “a silent mass murder”, entirely due to “man-made actions.”

Earlier this year I was in Ethiopia, one of the worst-hit countries, and people there remember the food crisis as if they had been struck by a tsunami. “My children stopped growing,” a woman my age called Abiba Getaneh, told me. “I felt like battery acid had been poured into my stomach as I starved. I took my two daughters out of school and got into debt. If it had gone on much longer, I think my baby would have died.”

Most of the explanations we were given at the time have turned out to be false. It didn’t happen because supply fell: the International Grain Council says global production of wheat actually increased during that period, for example. It isn’t because demand grew either: as Professor Jayati Ghosh of the Centre for Economic Studies in New Delhi has shown, demand actually fell by 3 per cent. Other factors – like the rise of biofuels, and the spike in the oil price – made a contribution, but they aren’t enough on their own to explain such a violent shift.

To understand the biggest cause, you have to plough through some concepts that will make your head ache – but not half as much as they made the poor world’s stomachs ache.

For over a century, farmers in wealthy countries have been able to engage in a process where they protect themselves against risk. Farmer Giles can agree in January to sell his crop to a trader in August at a fixed price. If he has a great summer, he’ll lose some cash, but if there’s a lousy summer or the global price collapses, he’ll do well from the deal. When this process was tightly regulated and only companies with a direct interest in the field could get involved, it worked.

Then, through the 1990s, Goldman Sachs and others lobbied hard and the regulations were abolished. Suddenly, these contracts were turned into “derivatives” that could be bought and sold among traders who had nothing to do with agriculture. A market in “food speculation” was born.

So Farmer Giles still agrees to sell his crop in advance to a trader for £10,000. But now, that contract can be sold on to speculators, who treat the contract itself as an object of potential wealth. Goldman Sachs can buy it and sell it on for £20,000 to Deutsche Bank, who sell it on for £30,000 to Merrill Lynch – and on and on until it seems to bear almost no relationship to Farmer Giles’s crop at all.

If this seems mystifying, it is. John Lanchester, in his superb guide to the world of finance, Whoops! Why Everybody Owes Everyone and No One Can Pay, explains: “Finance, like other forms of human behaviour, underwent a change in the 20th century, a shift equivalent to the emergence of modernism in the arts – a break with common sense, a turn towards self-referentiality and abstraction and notions that couldn’t be explained in workaday English.” Poetry found its break with realism when T S Eliot wrote “The Wasteland”. Finance found its Wasteland moment in the 1970s, when it began to be dominated by complex financial instruments that even the people selling them didn’t fully understand.

So what has this got to do with the bread on Abiba’s plate? Until deregulation, the price for food was set by the forces of supply and demand for food itself. (This was already deeply imperfect: it left a billion people hungry.) But after deregulation, it was no longer just a market in food. It became, at the same time, a market in food contracts based on theoretical future crops–and the speculators drove the price through the roof.

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  • Hadrian999

    capitalism and communism are both systems in which a privileged few control a vast majority of goods, services and resources and use that control to control the rest of the population, does it matter if it is a corporation or a politburo that does the controlling, life is essentially the same for those outside the ruling class, do as you are told or get crushed.

    • rtb61

      Some of the richest people in the world were starving children to death to inflate their profits, murder is murder. Whether you shoot them and rob their dead bodies or whether you price food out of their reach to leave them to starve to death,
      Murderers of children are the worst examples of humanity and in western worlds if they are rich enough, they are celebrated instead of being reviled and imprisoned.

  • Hadrian999

    capitalism and communism are both systems in which a privileged few control a vast majority of goods, services and resources and use that control to control the rest of the population, does it matter if it is a corporation or a politburo that does the controlling, life is essentially the same for those outside the ruling class, do as you are told or get crushed.

  • Anonymous

    Some of the richest people in the world were starving children to death to inflate their profits, murder is murder. Whether you shoot them and rob their dead bodies or whether you price food out of their reach to leave them to starve to death,
    Murderers of children are the worst examples of humanity and in western worlds if they are rich enough, they are celebrated instead of being reviled and imprisoned.

  • WhiteRose

    Capitalism is a good thing because it gives people hope to work hard to achieve a goal. Now when you get a bunch of demented politicians that skew things and a lazy bunch of followers well that equals disaster. Basic food needs should not be part of the capitalism system that is why there is commodities market. There is actually a ton of food but the governments paid the farmers off to either not make it or destroy it… The problem is distribution, organization etc. Does it make any sense that the government gives money to farmers to not make crops but then charities buy food to help the Africans… Ass backwards as always… I don’t blame the rich I blame STUPIDITY!

  • WhiteRose

    Capitalism is a good thing because it gives people hope to work hard to achieve a goal. Now when you get a bunch of demented politicians that skew things and a lazy bunch of followers well that equals disaster. Basic food needs should not be part of the capitalism system that is why there is commodities market. There is actually a ton of food but the governments paid the farmers off to either not make it or destroy it… The problem is distribution, organization etc. Does it make any sense that the government gives money to farmers to not make crops but then charities buy food to help the Africans… Ass backwards as always… I don’t blame the rich I blame STUPIDITY!

    • Andrew

      If you read the entire article you’ll see that it was investors, not governments, who caused food prices to skyrocket.

  • Guest

    Your comment is about 100% wrong.

    >…systems in which a privileged few control a vast majority of goods, services and resources

    True about communism; false about capitalism. In capitalism, the consumers exert the control. 10 years ago, who ‘controlled’ the home video rental market? Hollywood Video, Blockbuster, et al … but today, one of ‘em is out of business, and the other’s on the verge of collapse. Why? Because _the consumers_ were actually in control, and the _consumers_ prefer Netflix, Hule, etc.

    In communism, a central power controls the economy. In capitalism, control is decentralized, in the hands of innumerable consumers and merchants.

  • Borgar

    Hey Vox Penii, Your Mom, Cerebral Caustic etc, where’s the Thomas Sowell quote?

  • Andrew

    If you read the entire article you’ll see it disproves, with facts, your theory about the element of control in capitalism.

  • Andrew

    If you read the entire article you’ll see that it was investors, not governments, who caused food prices to skyrocket.

  • Hadrian999

    all you have to do to see through that line of bull is look at statistics on ownership and wealth concentration

  • Andrew

    But the numbers of people communism killed proves none of the people capitalism killed really died.

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  • Borgar

    Hey Vox Penii, Your Mom, Cerebral Caustic etc, where’s the Thomas Sowell quote?

  • Andrew

    If you read the entire article you’ll see it disproves, with facts, your theory about the element of control in capitalism.

  • Hadrian999

    all you have to do to see through that line of bull is look at statistics on ownership and wealth concentration

  • Andrew

    But the numbers of people communism killed proves none of the people capitalism killed really died.

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