Common Agricultural Policy and Adam Smith
The Common Agriculture Policy and Adam SmithIn the wake of an increasingly globalized economy, one that has seen the emergence of large trade blocs and common markets, the nations of the world have been competitively forced into becoming more economically integrated year after year. In light of hundreds of years of consumer theory, this would almost certainly lead one to a conclusion of necessarily lower prices and more efficient production on almost all products. However, as is the case in many nations, the European Union (EU) has succeeded in creating an artificial market for agricultural products through the use of a Common Agricultural Policy (CAP). It is the focus of this analysis to outline the framework of the Common Agricultural Policy of the European Union, analyze strictly the negative effects it creates on welfare, and exhibit such effects through the examination of one nation's (United Kingdom) struggle with the Common Agricultural Policy. In light of the CAP, the controversy of government intervention has also have been a major issue. Should the governments of the EU interfere with the agricultural market to help it's own economy, and what would Adam Smith think of this? With disregard for the invisible hand,
The movement of capital and labor has led to inefficient production methods. The taxpayers in Britain have been burdened by taxes the European Union imposes to finance subsidies to farmers. The key focuses of this new agenda are the reinforcement of the competitiveness of agricultural commodities in domestic and world markets, the promotion of a fair standard of living, the creation of extra sources of income for farmers, a new rural development policy, revamped environmental considerations, better food quality and safety, and the simplification of CAP legislation. The British were not allowed to export tainted beef to member countries and many member countries feared to import any British beef (Barclay 22). This type of policy is, to Smith, in just about every case useless or hurtful to economic flow of capital and labor. The invisible hand would guide farmers to produce better quality of foods since it would be in their self interest if they wanted to sell more of their good. The European Union's common agricultural policy protects and subsidizes agriculture so heavily as to bring serious social losses to the Economic Union. Under the Common Agricultural Policy, farmers tend to harvest more profitable crops on land that is not as suitable for their growth. Smith would point out the overproduction is not a benefit to the trade bloc and creates a loss. The Treaty of Rome, in July 1958, formed the foundation for a unified Europe via the implementation of the general objectives for the CAP. However, the British would be able to develop a unilateral policy in which they would be free from the strict requirements of the European Union. The CAP is doing exactly what Smith believes it would do, hurt the economy; since Europe cannot produce agricultural products cheaply, it subsidizes them and in turn deteriorates the economy. The consumer would be better off without the CAP since competition would result in a more competitive environment in which European farmers would have to participate. This fund is divided into two distinct sections, the Guidance section and the Guarantee section.
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