Britain's Rural Crisis; lessons for the First World

Keith Rankin, 8 March 1998

Early on the morning of 7 March, TV1 screened the BBC Panorama documentary "Rural Revolt". The programme reveals that the British economy since the advent in 1997 of Tony Blair's Labour Government is going through a rerun of our own in 1984-86. High interest rates and a high and rising currency, combined with losses of subsidies, is creating real economic stress among Britain's farmers.

This is by no means the first crisis in British farming. The most spectacular such crisis in modern British history took place from the 1870s to the 1890s, as a consequence of the globalisation of the world's food supplies. Britain then looked to free trade and cheap imported food as the crucial means to maintain the competitiveness of its globally dominant manufacturing sector. The policy failed, and British opinion was increasingly concerned that a Malthusian catastrophe was going to happen in the 20th century. The fear was that Britons would starve as colonies such as New Zealand industrialised. British economists and politicians sensed that Britain was becoming more dependent than most in an increasingly interdependent world.

With food prices rising faster than general inflation in the 1900s and 1910s, farmers' incomes improved and increases in the productivity of British land soon followed. For most of the century, a basic economic truth was understood; that food supplies increase when farmers are able to share in the economic growth of their nations. Britain adopted policies of social protection from the 1920s.

The Malthusian spectre has not gone away in the 20th century, despite dwindling food prices. The world's population continues to grow, and it makes no sense whatsoever to withdraw British (and other First World) land from food production because of apparently high labour costs. (There may be a case for British farmers producing more crops and less meat, but so long as meat remains a foodstuff that people want to eat, Britain's hill country has a comparative advantage in meat production.)

The new Malthusian fear results from general worldwide falls in farmers' incomes, and the consequent inference that world food supplies will grow more slowly than in the past. The worst thing that can happen is for the affluent nations of the world to increasingly rely on food from places where farmers' incomes are low or falling. Food is so important that, like electricity, market mechanisms in themselves cannot be relied upon to ensure security of supply.

In mid-18th century France, a school of economists (the Physiocrats) was formed to promote this very issue. They claimed that all wealth ultimately derives from the land, and that therefore the first priority of public policy was to ensure that rural incomes were high enough to ensure that landlords and peasant cultivators could afford to invest in ongoing improvements in food production. While they exaggerated their case, as it is often necessary to do to make one's point heard, there was a core truth in their argument. Physiocracy became orthodoxy in New Zealand too, especially in the 1920s when the call was to support farmers so that they could produce two blades of grass where formerly there was one.

The Physiocrats, despite their giving us the term laissez-faire, were more sure about one thing than any other: that the sovereign should intervene to ensure growth in the production of essential commodities, particularly food. (The means to intervention in food production, which is not a natural monopoly, would of course be quite different to the means of intervention in something like electricity.) The point is that they favoured strategic interventions as essential to a healthy national economy, and, in the case of farmers, that meant manipulating prices to ensure that farmers received the social dividends that made it possible for them to invest in future production.

The modern problem is that we regard all private incomes as costs, whereas in fact much of our incomes are social dividends (broadly defined, as Polanyi does1) which represent the distribution of an economic surplus. First World nations have much bigger economic surpluses as a proportion of their national incomes than do Third World nations, by definition. (They have more developed national public domains.) Thus average per capita incomes are much higher in the First World. But that does not mean that costs are higher in the First World; rather, productivity is higher.

We have many different ways of paying social dividends in modern First World societies. One - that sanctioned by neoclassical economic theory - is through "consumer sovereignty". We get social dividends (consumer surpluses) by paying low prices. The people who consume the most get the biggest shares of societies' consumer surpluses. We also pay social dividends as producer surpluses, which augment wages and profits. Producer surpluses augment the private incomes of those who have some power to set their output prices.

We also pay social dividends through the tax system, paying them as subsidies and benefits. These forms of social dividend are no less valid than consumer surpluses and producer surpluses. The tax system is a means of getting social dividends to people who do not get a share of the producer surplus, either because they are price-takers in the labour market or in the world trading system. Subsidies to "peasant" farmers and to those in the wage labour force without any market power are not handouts; they are social dividends. The British farmers featured in "Rural Revolt" are among the poorest people in Great Britain. The subsidies that they are being denied constitute income to which they are entitled.

The class war that Marx forcefully brought to our attention is the struggle for the producers surplus between workers with market power and capitalists with market power. While this has been a very real struggle in history, it is a form of analysis that largely leaves out the owner-operator "peasants" - the petit-bourgeois class which includes farmers. It is no surprise that farmers have been attracted to visions such as those of Douglas Credit which offer a national dividend and guaranteed minimum prices.

The "Reforms" that began in New Zealand in 1984 and which are being pursued with much vigour today in Great Britain represent the struggle of organised business for the entire economic surplus. Indeed, organised business has largely won the struggle over organised labour for the producer surplus. Marx's class war was won by Capital, meaning organised business.

The present phase of the reforms is for the acquisition of that part of the economic surplus represented by taxation. Thus the attacks on subsidies to farmers and on benefits are part of this reform schema. If Capital wins this war - Class War II - they will be winners twice over. Not only will they keep the producer surplus already won, and not only will they grab for themselves the social income that had been cycled through the tax system, but, as the only consumers of note, they will also grab the lions share of the consumers surplus. Economics, as a social science does us a disservice because, in its underlying utopia, it is as a consumer surplus that all social dividends should be paid. In the reality of capitalism, however, the winning of the game is that the consumer surplus goes to those who first grab the other parts of the social surplus.

The problem for organised business is that such victories are ultimately Pyrrhic. All past civilisations have declined rapidly in the years following their peak. The basic problem is that the ordinary farmers in rich societies were not given access to the historically large surpluses being generated by those societies' economies.

Today we have a global capitalist civilisation. The sine qua non of the survival of that civilisation is to ensure that those who produce the food get an adequate share of the economic surplus. The best way to ensure that is through the payment of a universal tax-funded social dividend.


1. "... the social dividend out of which, ultimately, wages must come"; The Great Transformation, p.230. [return]


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