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  • The Invisible Hand

The Modern Day Corn Laws

Updated: Feb 26, 2019

Is the CAP as dangerous as the Corn Laws?

The EU budget today is dominated by one thing: the Common Agricultural Policy. It consists of 39% of the EU’s budget costing just under €60bn, down from 71% of the budget in 1984. Meanwhile the Corn Laws were a series of trade restrictions in place in Britain from 1815 to 1846 and, like Brexit, they were the hot topic of the day. However, while the CAP is a series of subsidies to farmers to encourage production and keep them in business, the Corn Laws were direct trade barriers such as tariffs. The CAP still has the same protectionist effect because it gives EU farmers an unfair, artificial advantage over other countries which distorts the market mechanism and often leads to great overproduction. The countries often hit the hardest by this protectionism are developing countries who we could benefit greatly from if we bought their naturally cheaper produce. Adam Smith would have said that there is no point in Britain producing something if another country can produce the same product at a lower cost.

However, there are other reasons for the CAP rather than just to encourage food production. By giving farmers a stable income they have the security to experiment and employ new technology even if it means a fall in profits in the short term. It also differs from the Corn Laws in its aims. While the Corn Laws were purely the product of intensive lobbying, the CAP also tries to protect the employment of farmers and ensure that there is food security because if there are international trade difficulties, it could be disastrous if Britain can’t get enough food.

When examining these two policies together we should also consider the context. In 1815, Britain was one of the great international traders. Now trade is dominated by China, the US and Germany; the UK is the 9th biggest exporter, just after Hong Kong. Therefore, the effects of liberalising trade on the agricultural sector would be very different. While in 1815 farmers could have competed with other countries and survived, now, the UK’s agricultural sector would probably collapse which would endanger our food security.

Both policies also share the unfortunate side effect of bolstering the wealth of already wealthy landowners. David Ricardo saw the Corn Laws as purely a policy which benefitted these landed gentry and which disadvantaged everybody else. Meanwhile the idea of the CAP supporting small farms is an oversimplification. Actually 80% of the CAP goes to only 20% of the farms and even the Queen derives €500,000 a year from her idle landownership.

The biggest complaint about the Corn Laws was that they inflated food prices by creating an artificial monopoly. It is exactly those same accusations which are levelled at the CAP today. The system of subsidies reduces competition for farmers because they have an artificial advantage above non-EU countries giving them free reign to increase prices without the fear of being undercut. Perhaps abandoning this system could be the key to universally low food prices and a long awaited surge in purchasing power. Or, it could bring mass famine…