Corny Politics By Alvaro Vargas Llosa

July 23, 2007

WASHINGTON—The historical significance of corn in the Americas is comparable to that of rice in China or wheat in the Middle East. Corn is more than a staple, it is part of the region’s DNA—which explains the hysteria in many Latin American countries over rising prices.

In just four years, leaders and organizations that style themselves as progressive have gone from denouncing the precipitous fall in the price of corn to denouncing its sharp climb—with many of the same arguments! Hardly a week goes by in which Cuba’s Fidel Castro or Venezuela’s Hugo Chavez is not accusing rich imperialists of deliberately pumping up the price of corn in order to impoverish Latin Americans. But in 2003, when corn prices were dropping dramatically, Phil Twyford of Oxfam, a left-oriented humanitarian organization, pontificated, “The Mexican corn crisis is another example of world trade rules that are rigged to help the rich and powerful, while destroying the livelihoods of millions of poor people.”

The rise in corn prices since 2006 has much to do with the synthetic fuel ethanol, which is made from a corn base or from sugar cane and is heavily subsidized by the U.S. and Europe. But there are other elements in play. Protectionism, such as Guatemala’s 20 percent tariff on corn imports, is one other reason why Latin Americans find it harder to buy tortillas. In Mexico, indirect price controls have caused shortages of white corn.

Unquestionably, the ethanol craze will continue to have an impact on Latin America’s children of corn. The push for clean energy in the developed world has turned the public’s attention to biofuels, signaling to politicians and investors, including conservatives, that ethanol and other such products are the fuels of the future. If anyone is to blame for the doubling of the price of corn that took place in 2006, it is “green” activists—many of whom admire those Latin American leaders who are now denouncing the imperialist conspiracy against tortillas.

Latin America is discovering a contradiction between promoting alternative energy and keeping food cheap. Some countries such as Brazil have a vested interest in producing ethanol because they grow lots of sugar cane. Mexicans for their part have a vested interest in keeping things as they used to be because they eat tortillas and their country is a major oil producer. And there are those, such as the Central American nations, that have contradictory interests—they would like to replace carbon fuels with ethanol because they currently depend on crude oil imports, but they want the price of corn to remain low because, as Rigoberta Menchu, the Guatemalan Nobel Prize laureate, is fond of saying, corn “is part of our dignity.”

A note of caution: The world has a long way to go before it can replace oil with ethanol. Former Brazilian President Fernando Henrique Cardoso recently told me that ethanol will remain “very limited because it is not traded like a fully fledged commodity due to the obstacles that interfere with the development of a real world market for it.”

Not to mention that ethanol production involves the use of so much fossil fuel that only one-fifth of each gallon is actually what could be called clean energy. In order to replace oil with ethanol, the amount of corn cultivation would need to grow exponentially in the United States—an environmental nightmare given how much land would be needed. Even with ethanol in its infancy, it is already clear that it will come at a price. And not just in the price of corn.

We have already seen the environmental impact that the rising demand for ethanol has had in Brazil, where hundreds of thousands of acres of the Amazon-basin rain forest have been cleared in recent years. When we hear environmentalists complain about the loss of the rain forest, we should bear in mind that much of it has to do with a business interest paradoxically generated by “green” activism in rich countries.

The overall lesson is obvious: Be careful what you wish for (ethanol), because there may be unintended consequences. And when these consequences manifest themselves, it makes more sense to deal with them than to conjure up conspiracy theories or pressure the authorities to intervene (price controls) because, given the competing interests (clean energy versus food), you’ll likely end up making someone very mad if you do.

Charles V. Peña is Senior Fellow at the Independent Institute as well as a senior fellow with the Coalition for a Realistic Foreign Policy, senior fellow with the George Washington University Homeland Security Policy Institute, and an adviser on the Straus Military Reform Project.

William Ratliff is Adjunct Fellow at the Independent Institute, Research Fellow at Stanford University's Hoover Institution, and a frequent writer on Chinese and Cuban foreign policies.

Ivan Eland is Director of the Center on Peace & Liberty at The Independent Institute and Assistant Editor of The Independent Review. Dr. Eland is a graduate of Iowa State University and received an M.B.A. in applied economics and Ph.D. in national security policy from George Washington University. He has been Director of Defense Policy Studies at the Cato Institute, Principal Defense Analyst at the Congressional Budget Office, Evaluator-in-Charge (national security and intelligence) for the U.S. General Accounting Office, and Investigator for the House Foreign Affairs Committee. Full Biography and Recent Publications

Jonathan J. Bean is Research Fellow at the Independent Institute, Professor of History at Southern Illinois University, and editor of the forthcoming book, Race and Liberty: The Classical Liberal Tradition of Civil Rights.

Anthony Gregory is a Research Analyst at The Independent Institute. He earned his bachelor's degree in American history from the University of California at Berkeley and gave the undergraduate history commencement speech in 2003. In addition to his work with the Independent Institute, he regularly writes for numerous news and commentary web sites, including LewRockwell.com, Future of Freedom Foundation, and the Rational Review.
Full Biography and Recent Publications

Dominick T. Armentano is professor emeritus in economics at the University of Hartford (Connecticut) and a research fellow at The Independent Institute in Oakland, Calif. He is author of Antitrust & Monopoly (Independent Institute, 1998).

Alvaro Vargas Llosa is director of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. He is widely published and has lectured on world economic and political issues including at the Mont Pelerin Society, Naumann Foundation (Germany), FAES Foundation (Spain), Brazilian Institute of Business Studies, Fundación Libertad (Argentina), CEDICE Foundation (Venezuela), Florida International University, and the Ecuadorian Chamber of Commerce. He is the author of the Independent Institute books The Che Guevara Myth and Liberty for Latin America. Full biography and recent publications.

Pierre Lemieux is an economist and co-director of the Economics and Liberty Research Group at the Université du Québec en Outaouais and a Research Fellow at The Independent Institute in Oakland, California.

Alexander Tabarrok is research director at The Independent Institute, associate professor of economics at George Mason University, editor of the Independent Institute books, Entrepreneurial Economics, The Voluntary City (with D. Beito and P. Gordon), and Changing the Guard: Private Prisons and the Control of Crime.

Robert Higgs is Senior Fellow in Political Economy at The Independent Institute, author of Against Leviathan and Crisis and Leviathan, and editor of the scholarly quarterly journal, The Independent Review. Click here for a bio on Dr. Higgs, the noted economist and historian.

William Marina is Research Fellow at the Independent Institute in Oakland, Calif., and Professor Emeritus of History at Florida Atlantic University.

David T. Beito is a Research Fellow at The Independent Institute, Associate Professor of History at the University of Alabama, and co-editor of the book, The Voluntary City: Choice, Community and Civil Society.

William Marina and David T. Beito belong to "Liberty and Power," a group blog at the History News Network.

For further articles and studies, see the Center on Peace & Liberty and OnPower.org.

Nicolas Heidorn is a public policy intern at The Independent Institute in Oakland, California.

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