Covid-19 economics: beyond austerity and debt-finance

Talk has already turned to how we’ll deal with the almighty economic blowback impending from the Covid-19 pandemic. The nearest parallel is the financial crisis of 2008 – a story of unregulated market failure that here in the UK the Conservative government somehow succeeded in turning into a story of state failure in the form of the allegedly spendthrift Labour government preceding them. This enabled it to follow low-spending, deficit-cutting austerity policies that, it’s widely acknowledged, only prolonged the economic pain – though it did have the desired effect from the government’s perspective of most hurting the people it cared least about, and generally weakening public institutions to which it was ideologically opposed.

Justifications for austerity are often informed by the so-called ‘household analogy’ that a country’s finances are just like those of an individual, debt-averse household – the idea that ex-Prime Minister Theresa May had in mind when she said “there is no magic money tree” to increase frozen public sector wages. This time around, plenty of commentators are warning against the siren song of austerity and the ‘economically illiterate’ household analogy as a response to the forthcoming economic crisis. But there are plenty on the right still trying to sing it. If they succeed once again in pinning the economic storms to come on lazy employees and install another round of austerity, I think I’ll give up whatever vestigial faith I still have in electoral politics.

But the anti-austerity view is interesting, no? If it’s right, then it seems that maybe there is a magic money tree after all, which will surely solve a lot of our problems. In this view, debt is nothing to be feared, but is merely another tool sovereign nations can use to oil the wheels of economic action. Economic historian Adam Tooze, whose magnum opus on the 2008 crash was reviewed on this site a while back by Michelle Galimba, unpicks the threads of this argument in this short and interesting essay. Tooze argues that, beyond the household analogy, the circular logic of a sovereign national citizenry as both its own creditor and its own debtor is “an illusion achieved by removing the real politics of debt – which are about class, not nationality”. So part of the tussle over debt is about who proportionately bears the brunt of government income-raising efforts. Generally, policies over the past forty years in the rich countries have benefitted (wealthy) rentiers such as property-owners, investors and shareholders over (low paid) employees and unemployees. They’ve also benefitted the financial sector over productive economic sectors – currently in the UK only about £1 in every £10 lent by the banks goes to non-financial firms, according to Josh Ryan-Collins (co-author of the must-read Rethinking the Economics of Land and Housing).

Another part of Tooze’s argument bears on central banks like the US Federal Reserve, which defang debt by creating money, lowering interest rates and managing inflation. By thus removing government IOUs from private portfolios and putting them on the central bank’s balance sheet debts become “literally claims by the public on itself”.

A national economy that works in this way indeed seems very different to the economics of an indebted individual household beleaguered by hungry creditors. But Tooze mentions in passing national economies that are like this – namely those of “impoverished and desperate” countries dependent on foreign creditors who will lend only in strong international currencies like US$. The idea that a country like Burundi, for example, could pay its way out of an economic downturn by increasing its debt and repackaging it as an asset doesn’t really work.

This has several significant implications. For one thing, we tend to think of the vast sums accrued in the financial sectors of the rich countries as somehow sui generis, unconnected to poverty elsewhere. But, as argued by people like Cédric Durand in his book Fictitious Capital (or Intan Suwandi in her Value Chains), there’s a causal chain in this money-grubbing that can be traced back to the real, productive economy in the form of poorly-paid industrial labour in the Global South, particularly in ‘workshop of the world’ Asian countries like China, India, Indonesia and Vietnam. In yet poorer countries – many in sub-Saharan Africa, like Burundi – there’s little chance of creating even such subordinate industrial infrastructures, resulting in extreme rural and slum precarity.

So maybe we can resurrect the household analogy for national economies after all, simply by adding a little extra nuance. Poor-country economies are like poor households, subject to endless economic disciplining, scrutiny and moralising the moment they make economic claims upon richer creditors beyond their present means, and yet providing the foundation for the wealth of those richer creditors. Rich-country economies are like richer, middle-class households, mortgaged up to their eyeballs and buying easy credit from all takers without a whiff of moral censure.

This indebtedness of the rich works very well so long as there’s confidence in the wider economy that they’ll stay rich, and therefore that their debt will remain a useable asset – so long, in other words, that enough people believe in the magic of the money tree. It’s easy to believe the magic if the economy is growing and property prices are rising, or if the household earners are still pulling big salaries. It gets harder if those things are no longer true – and one thing we learned during the last financial crisis with its sub-prime mortgages and credit default swaps is that it’s all too easy for our human credulity to get away from us, allowing us to believe we can financialize our way out of bad debt. But once enough people stop believing in the magic of the money tree, things start falling apart.

Under my last post, Joe Clarkson wrote “How long will others accept money that the fed creates out of thin air? I think the answer is a long, long time.” I agree. The USA isn’t going to turn into Burundi tomorrow. Or the day after. But if you take a long historical perspective, I think that long, long time might turn out to be shorter than a lot of people expect. The extreme financialization of the rich countries isn’t economically sustainable. You can convince people that you’re wealthy by saying that you’re wealthy and behaving like you’re wealthy for a while – even more so if you have the institutional power to keep leveraging wealth created by others – but in our present world of stagnant incomes and sluggish growth ultimately reality catches up with you. The magic money tree turns out to be just another tree.

Likewise, inasmuch as the genuine wealth of the rich countries accrues by extracting much of it from the industrializing poorer ones, there’s a limited historical window before the latter find ways of keeping the wealth at home. One way of extending that window is by affecting lofty civilizational aspirations and a kind of noblesse oblige that makes economic power seem culturally attractive. This is something that the USA achieved historically with its democratic, anti-colonial revolution and its ‘American dream’, a veneer that still renders centrist commentators nostalgic about the “democratic and rights-based push” of US power in the face of today’s “authoritarian pull exerted by China”. As I see it, any such veneer started cracking with the Vietnam war and pretty much expired with the presidency of George W. Bush, rallying only half-heartedly under Barack Obama, and has now been buried for good with Donald Trump.

Wang Xiuying writes,

Liberal sentiment in China is at a low ebb. The pro-democracy cause has been weakened drastically since Trump took office. How do you defend a system that gives power to a celebrity with no knowledge of international relations who filed for corporate bankruptcy half a dozen times? Trump’s early attempts to wave away the threat of the virus looked dangerously short-sighted to people here; his bid for an America-only vaccine grotesque. As racist attacks against Chinese-Americans have surged in the US, along with the virus, it has become impossible to argue for a Western model of freedom and democracy.

Beyond the charmed precincts of western self-regard, I suspect people in many countries now fear China’s ‘authoritarian pull’ less than they fear the ‘democratic push’ of the USA.

All in all, it seems likely that turbulent times lie ahead – not only for the poor households of the world (real and metaphorical) but also for the (real and metaphorical) rich ones that are trying to keep up appearances in the straitened circumstances of the present. The USA (and its pint-sized outrider, Britain) are still thundering their importance in the world and the virtues of their economic models. But fewer people are listening.

Meanwhile, something interesting seems to be afoot in China. Its post-1978 modernization was built on the back of rural entrepreneurialism, but state policy since the 1990s has largely favoured urbanization and urban industrial development at the expense of the countryside – the familiar western model of economic development prescribed for post-war ‘developing’ countries by economists like Arthur Lewis.

Shaohua Zhan writes:

Lewis’s model was premised on the assumption that urban areas would provide livelihoods for rural labourers displaced by the industrialization of capitalist agriculture. This may have been the case for early-industrializing economies, but it was never a reality for the majority of countries in the Global South, where jobs in the city were poorly paid and often too scarce to absorb the total amount of excess labour, forcing peasants into the informal sector where they eked out a living in urban slums. Since the late 1970s, the model has ceased to apply even to developed countries. As neoliberal reforms led to the gradual replacement of secure jobs in the formal economy with precarious work in the informal sector, unemployment and under-employment surged, giving rise to social polarization and a swelling underclass


By pushing for the financialization of rural land, the consolidation of farms and urban expansion, both state and capital intended to extract maximum surplus from China’s land and sustain high rates of economic growth. However, this mode of development has proved unable to provide secure livelihoods for the majority. Rising urban precarity has lent credence to those advocating for the protection of small-holder farming.

Sure enough, in 2017 the Chinese Government rowed back on its urban bias and introduced a policy of ‘Rural Revitalization’, while a 2018 government report remarked that a large rural population would continue to be a “basic reality in China”1.

Where this blog leads, the governments of the world are apt to follow…

OK, so I accept that Chinese policy isn’t (yet) fully in line with the vision for a small farm future I articulate here. Nevertheless, as we contemplate the global economic landscape in the wake of the pandemic, I’d suggest it’s wise to avoid both the ‘poor household’ economic analogy of austerity and the ‘rich household’ economic analogy of quantitative easing and endlessly deferred debt. Instead, another household analogy presents itself – household responsibility. So to the question ‘how will humanity’s collective household pay for Covid-19?’ my answer is neither to squeeze the poor, nor to squeeze the future by closing your eyes and believing in the magic of the money tree. Instead, I’d suggest you look out your old spade and hoe from the back of the garden shed. There’s work to be done.


  1. Shaohua Zhan. 2020. “The land question in 21st century China.” New Left Review, 122: 115-33.

31 thoughts on “Covid-19 economics: beyond austerity and debt-finance

  1. If you are right, the rest of the world eventually gets there, no?
    Another massive tome that I’ve read recently and highly recommend is Ferdinand Addis’ The Eternal City: A History of Rome which reads like a novel and weaves an intricate brocade of the centuries-long decline of that empire. I don’t think it will take centuries for the US to decline, we are on a much faster cycle these days, but it will take a while, no matter how intent we US voters seem to be on maximizing the velocity of our descent.
    What fascinates me is the implicit agreement with your argument that seems to be right there under the surface of rich-country modes of living that until quite recently centered almost entirely on shopping, travel, eating out, and more shopping. When things start getting iffy, suddenly the urge to grow some food – both animal and vegetable – bubbles up something fierce.

  2. As many people have noted, money is just a “marker” for physical assets, like energy, food and shelter. Moving the markers around just moves the ownership of real assets around, it doesn’t actually create anything. To really create something, a resource must be extracted, manipulated and then transported to those that can use it.

    Money can facilitate that process of creation by moving ownership of the means of production to those who can best use them, but this fact is often mistaken for the belief that money is an essential part of the process of producing goods and services themselves. In fact, even in highly financialized economies, like the US, unpaid work is about 20% of real GDP. In the more distant agrarian past, almost all production was performed without any use of money. It was relatively easy to live one’s entire life without having any money at all.

    But the days in which it was possible to live without having money are pretty much gone, at least in rich countries, and that makes it very difficult to opt out of the market. People can create useful things on their own without buying them, but only around the margins, as in gardening, crafts and creative hobbies. To me, this dependency on the use of money is going to create a great deal of conflict, not only in the wake of the corona virus, but as critical resources per capita slowly become more and more scarce. If most people could opt out of the monetary economy when participating in it became a burden, that would be great, but except for a lucky few, most are chained to a money-seeking treadmill.

    Now consider what is likely to happen when real wealth, the thing that money is a marker for, gets more and more difficult to produce. The people who have the power to maintain their share of a shrinking pie will do everything they can to keep their piece from shrinking and let everyone else get less.

    Unfortunately, there are only two things I know of that let people exert influence on the politics of who gets what. One is ownership of a large piece of the pie already. This lets a wealthy person use their wealth to influence anyone, like politicians, that might have an influence on the mechanisms of resource distribution. The other is coercive force, the power to simply take what you want and keep it. Some people might want to include the ability to vote politicians in or out of office as an influence on the politics of distribution, but numerous studies have shown that the desires of voters have a negligible effect on actual policy, no matter who they vote for.

    This has been a long-winded way to get to the crux of our situation, in times of stagnating or declining real wealth, the most likely outcome will be, as the old adage says, that “the rich get richer, and the poor get children”. Your suggestion to go grab some garden tools and start growing food is a good one, but that kind of wealth creation will only go so far without land, probably not far enough to keep most families alive, and even that option is not available to the vast majority of people in cities. And I am not holding my breath waiting for the Trump administration to embark on a massive program of land re-distribution.

    Rather than waiting for the chance to opt out of the market economy, those folks who don’t have a lot of money to lobby congress might want to forego the gardening tools and instead prepare for the coercive option. Leave the spade and hoe in the shed and go get a bigger “pitchfork”. Buy a gun and plenty of ammo, because you may have to start a revolution. I think it’s worked before.

  3. With more than 90% of China’s farms being less than 2.5 acres [National Geographic, Feb 2018], it looks like some version of the “small farm future” has already arrived there (or has never really departed). The small farms (up to 6 or 7 acres) are generally more efficient, and consolidation to larger farms requires more equipment and capital inputs, adding to the debt problems.

    A study published in 2019, “Farm size and production efficiency in Chinese agriculture: output and profit,” concluded that “the appropriate farm size is around 10–40 mu [1.7-6.6 acres] and the optimal farm size is around 20–40 mu [3.3-6.6 acres] both in terms of output efficiency and profit efficiency in Chinese agricultural production under the current agricultural technology and land management system.” [1 mu or mou is equivalent to 0.165 acre, according to]

    Another study from 2019 provides some explanation for why the larger farms can be less efficient, and why “the [Chinese] policy of subsidizing farms to rent land will result in resource misallocation between household farms towards the inefficient large farms.” This study, which was published in the American Journal of Agricultural Economics, concludes that “reducing market frictions and institutional barriers in labor and capital markets (rather than subsidizing large farms) will assist larger farms to substitute labor with capital, and thus become a better way to facilitate land consolidation.” In other words, the agricultural economists are still promoting the reliance on capital markets and debt to achieve less labor inputs, at the cost of more debt service and (probably) more unemployment.

    The Relationship between Farm Size and Productivity in Agriculture: Evidence from Maize Production in Northern China
    Yu Sheng, Jiping Ding, Jikun Huang
    American Journal of Agricultural Economics, April 2019

    “…farms that operate at a scale less than 1 hectare can usually increase labor input as they enlarge the operational scale through recalling back services from their off-farm family members or increasing their own on-farm work to full-time. This is a reasonable phenomenon because very small farms in China usually treat their on-farm work as a secondary source of income. However, as they decide to enlarge the operational scale by renting land, the farming business activities become more serious and they will reduce off-farm employment…”

    “However, as farm size further increases, family labor is unlikely to be sufficient to support the expansion of agricultural production. Instead, hired labor is introduced into farm production… When more hired labor is used for agricultural production, the supervision costs gradually catch up. As the supervision costs grow at the same speed as hired labor, further increasing labor input may not increase yield.

    “From then on, if farms continue to enlarge their operational scale, they need to use machinery to substitute labor so as to compensate for the declined marginal land productivity due to enlarged operational scale. Above a certain operational scale, farms are more likely to adopt capital-intensive technology and, in this sense, capital input plays a more important role than labor input in affecting the farm size–productivity relationship…”

    “Since 2004, a series of public policies have been implemented to subsidize large farms, which in turn results in land consolidation towards less efficient large farmers. Our study suggests that rapid land consolidation is partly driven by the current land market reform, and the policy of subsidizing farms to rent land will result in resource misallocation between household farms towards the inefficient large farms. Instead, reducing market frictions and institutional barriers in labor and capital markets (rather than subsidizing large farms) will assist larger farms to substitute labor with capital, and thus become a better way to facilitate land consolidation.”

  4. A good many years ago I was told by someone who ought to know his stuff that three acres was about as much as one person could cultivate by hand (even that sounds a bit ambitions) so it sounds as though the figures quoted above tie in with that.

    But an excellent article.

    Bring back The Land Settlement Association – and perhaps a version of Rural Resettlement Ireland for the UK

  5. Thanks for this really illuminating post.

    I am an environmental scientist and engineer working in the field of “global sustainable development,” particularly in the sector of water, sanitation, and hygiene.

    In the professional corridors of my field, the UN Sustainable Development Goals are ever present and largely set agencies’ agendas and metrics.

    I have strived to point out that something I call the “Imperial Wealth Pump and Waste Dump” is both the basis for the affluence we enjoy in enclaves of developed regions, and the driver of poverty and environmental destruction that brings about the poor conditions the SDGs affect to solve. In my view, as long as this underlying mechanism is in place, we are unlikely to achieve the SDGs – because we who are trying to solve the problems are at the same time causing the problems. My question to our profession is, “How can we stop doing that?”

    Because my training is in the physical sciences, I tend to focus on flows of energy and materials and their effects on the environment. For example, using essentially (and sometimes literally) slave labor (including child labor) in the Congo to mine coltan for the manufacture of tech devices, which are disproportionally enjoyed by wealthy consumers, and the dumping of e-wastes from obsolete tech devices back onto poor communities in Africa and Asia.

    I’m grateful for the clarity of your post describing the economic superstructure of this process.

    Also FYI, my wife (a farm animal veterinarian) and I recently bought a small hilltop farm in Appalachia. We subscribe to your ideas about the desirability and practicality of a small farm future. We are fellow travelers and thankful for your work and writing.

  6. So … welcome to Josh, welcome back to Michelle and thanks to everyone else for coming back for more. The final copy edit of my book has just come back to me so another silence for just a week or two beckons…

    But just in brief… Michelle, I’m not quite sure what you mean about the rest of the world eventually getting there. I think what I’m saying is that financialization and deindustrialization is prelude to political decline, and there will be a shift in geopolitical power away from the ‘west’ … but financialization and industrialization is already reaching limits in the Asian countries poised to assume greater power … and that’s before we even start talking about energy, climate and other such crises. So here’s to the urge to grow food you mention…
    The Roman Empire and the pace of decline are interesting issues that I hope to come back to soon.

    Joe, yep I pretty much agree with that – except I’d add that money also works by making anticipatory linkages between people that generate greater productivity than would otherwise be possible, and that this is problematic when the productivity is ecologically unsustainable. Sadly, I agree with you about pitchforks – Part IV of my book examines optimal pitchfork deployment. But the more we all get going with the spades and hoes, mercifully the less we need the pitchforks … unless we’re making hay, to resurrect a recent controversy.

    Steve – thanks for that link. More evidence of the inverse productivity relationship. Try as they might, the engrossers and ‘improvers’ just can’t keep the small farm down…

    John – The ‘Report on the Decline of the Agricultural Population of Great Britain, 1881-1906’ asserted that 40-60 acres “was sufficient to employ the whole labour of a man and his family and not enough to necessitate the employment of hired labour”. They were tough in them days! But I imagine they were using horses…

    Amen to bringing back the Land Settlement Association. I’m doing my best on that front… Also, let’s not forget the land settlement aspects of Roosevelt’s New Deal – something that contemporary green new dealers might make more of…

    Josh – thanks for that. ‘Imperial wealth pump and waste dump’ is a resonant phrase. I want to digest the work of people like Durand and Suwandi (not to mention Jason Hickel…) a little more and hope to write some more on this issue presently. And best wishes for your farm … I hope you’ll return here for more comments in future. Farm water engineering is high on my to do list at the moment, so there’s another topic…

    • Just ran across a quote from economist John Kenneth Galbraith that speaks to the prospects for reducing inequality via redistribution vs revolution…

      “People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.”

        • Yes, and the quote is from his book The Age of Uncertainty, one result of a TV project that began in 1973, well before Kahneman and Tversky became famous for their studies of behavioral economics.

  7. since the invention of the federal reserve (1913 ) the US dollar value has fallen from $1 to $ 0.01 , in the seventy years i have been alive the UK pound has fallen from $ 5 to USD to $ 1.2 , in 1947 values the pound is virtualy worthless and the Dollar is getting there .
    Forbes tells us that China has recieved $13 trillion of us dollar investment , and sold $20 trillion of goods to the rest of the world . China is now buildi g its belt and road , the world transport hub is now centeredd on china not the usa who reolaced the uk , raw materials are being sucked out of africa on chinese owned railroads to chinese owned ports on to chinese ownes ships and on to china , china is now building a replacement to the uk / us empire .

  8. Congratulations on the book progress, Chris. My first line was just a response to your joke about the CCP falling in with SFF.
    I’ve been rather in the trenches with an improvised local working group on developing agricultural policy for pandemic response. Our group is distinctly pro-small-farm, but we are in a shadow battle with powerful political players who prefer the capital-intensive, get big or get out model. Which generally hasn’t worked out so well here in our tiny island state far from markets with no place to externalize pollution. But the power players are still infatuated with that big $$
    signs. SFF politics in action! Involves lots of Zoom calls!
    Love the China quotes in your piece and have no argument with the argument that financialization (Patrick Noble calls it the casino) gone amuck and deindustrialization (bullshit jobs?) is a harbinger of decline. But then, as you know by now, I’ve no instinct for the intellectual gladiator ring. I prefer to cheer you on.

    • Ah OK, got it … having to have a reference to my own joke explained to me isn’t a good sign. Perhaps I need to get out more. Perhaps we all do.

      Meanwhile all power to you in the local agricultural policy world. The intellectual gladiator ring is child’s play by comparison…

  9. Gah! I am working double the hours with COVID relief right now, and Small Farm Future is getting juicy. I missed out on the last comment section and I am late to this party too.

    Chris, thanks for the links to the pro and con household debt model, I look forward to reading them.

    And yet I notice there is little mention of ecological abundance or the lack thereof. I wrote a post about that in the company of fellow travellers on this very blog.

    • Hello Ruben, and sorry for adding to your workload. I agree that much of the writing about economic crisis and Covid-19 economics is remarkably silent about ecological abundance, or even about the resounding issue of climate change. I read that piece of yours a while back and will happily endorse it here – moving and evocative.

  10. Chris.

    You have talked about ruminants but for the smallholder what about Poultry? Geese eat grass and chickens will eat pretty much anything, including of course insects.

    Unlike sheep & cattle they are much smaller & eggs are much simpler to deal with and sell than milk

    • As for poultry eating insects, we suffer deer ticks here (as in the UK and elsewhere, ever more so with global warming), and I found Lymes disease to be no laughing matter. However, I read that Guinea fowl will eat such ticks (while foxes wait in the wings, maybe). If anyone knows of any other remedies I’d be interested to hear them though I apologise that this flies far from the subject of this post.

      • PS And apologies to any entomologists reading this – I see a tick is not classified an insect but an arachnid.

      • wait untill the fire ants get there they clean out the ticks almost completely, though they decimate ground nesting birds . They love warm wet climate .

        • I didn’t know that. We do have the little ginger ants with a fierce bite, so I live in hope. I should try harder to stop deer breaching the fence I suppose. I’ve been wondering how a Fukuokan ‘do nothing’ approach might solve it… some kind of Zen barrier about 8-foot high ought to stop ’em.

  11. Sorry for not replying to new comments. Ensconced in what’s hopefully almost the final edit of my book.

    Yes, poultry make sense for the smallholder. Or even for the largeholder, as part of the overall system. My experience of geese as grazers is that they’re pretty fussy and not really a substitute for ruminants, which work better overall in managing the farmscape – but there’s certainly a place for geese on the farm.

    Re Joe’s Galbraith quote above on people of privilege, I think that’s true – maybe the crunch comes when the middle classes decide they’re not people of privilege, and ally with the poor.

    Re deer ticks – arachnid or insect, whatever it takes to keep their numbers down… But please leave me Baltimore Blues No.1:

  12. Are Ideas Getting Harder to Find?
    The title of a piece from April in American Economic Review. Not a rosy picture. I still have some little quibbles, but their argument is pretty persuasive. Ag researchers get some attention in Figures 5 & 6 (in Fig 6, panel B soybean gets some notice). From long personal experience I have to admit their thesis tracks well. Must get back to the salt mine and try pushing that curve in a positive direction.

    Hat tip to Adam Tooze via Twitter…

    • In that article, public and private R&D spending is combined before the data is analyzed. However, despite the substantial increases in Ag R&D spending (public + private), public funding of agricultural R&D has been decreasing in the US (even prior to the current administration). It seems fairly obvious that private R&D would be focused more on the potential for private profits, rather than the wider potential for public benefits. Perhaps this effective reduction in the scope of research could help explain why overall increases in R&D spending aren’t resulting in commensurate benefits.

      From a 2016 article, “U.S. Agricultural R&D in an Era of Falling Public Funding”:

      “Unlike in many other parts of the U.S. economy, the public sector rather than the private sector has historically been the dominant player in the conduct of research and development (R&D) directly used by agriculture. The U.S. public sector has also been the largest performer of agricultural R&D worldwide.”

      “In recent years, however, this status quo changed substantially. Between 1970 and 2008, the share of total food and agricultural R&D conducted in the United States by the public sector was relatively stable at around 50 percent. But, by 2013, that share had fallen to under 30 percent. This dropoff was due to a decline in Government spending on public agricultural R&D as well as a surge in R&D spending by the private sector. Between 2008 and 2013, for example, real (inflation-adjusted) public food and agricultural R&D fell by about 20 percent while real private R&D increased by 64 percent.”

      “The United States also lost its position as top global performer of public agricultural R&D, falling behind China…”

          • You’re correct to note that public funding of agricultural R&D has significantly dropped off in recent years. But I think that misses the point that regardless of how R&D is paid for, the returns to R&D investment are slowing according to the authors in the piece I linked to.

            To your conjecture that the scope of the research being conducted is changed by the source of funding… I suppose it could. But as a private sector soybean scientist of over 40 years (thus having had a front row view of the R&D changes in at least one piece of this phenomenon) I would offer that the overall project portfolio of R&D in total hasn’t shifted so much as which funding mechanisms have taken responsibility for various parts of the portfolio. For example, public funds for more basic projects has not moved as much as for applied efforts (which is where the private end has picked up).

            There should also be consideration that if private funding were not available and we were still running with former levels of public funding that we’d have witnessed far less total R&D funding. Public funding on all fronts (infrastructure, education, health care, etc) has been shrinking.

    • Clem wrote:  “I think that misses the point that regardless of how R&D is paid for, the returns to R&D investment are slowing according to the authors in the piece I linked to.”

      That paper (“Are Ideas Getting Harder to Find”) looks at the increasing number of ag researchers over the years, compared to trends in ag productivity and crop yield growth rates. These growth rates have been declining, so the authors conclude that the “research productivity” has declined significantly (by a factor of 3.9 in the US between 1970-2008)..

      This hints that the authors might be assuming no limits to growth, such that crop yields could keep improving at increasing rates. I’m not an ag researcher, but I think that some other factors are at work here (beyond a shortage of ideas), like some ultimate limits to the growth of farm productivity and crop yields per acre. Once the low-hanging fruits (on the yield-improvement tree) have been picked, I’d expect that achieving higher growth rates would progressively become more difficult.

      I’m also skeptical about the statistics for agricultural productivity, expressed as Total Factor Productivity. I doubt that all costs are counted, to include costs that are often externalized (such as the environmental and societal costs resulting from pesticides and herbicides, nitrogen runoff, GM pollen drift, etc.)

      Anyhow, regarding whether the major increases in private funding have an effect on the research scope and productivity, here’s what the USDA says about it (in the article I linked above):

      “The decline in U.S. public spending on agricultural R&D may have negative implications for agricultural productivity…”

      “In simple dollar terms, the decline in public sector funding has been more than offset by a rise in private research spending… Yet, public research and private research are not substitutes. Rather, they are complementary ingredients to the Nation’s agricultural innovation system. The effects of a decline in public agricultural R&D are likely to become more pronounced over time if the pace of fundamental advances in agricultural sciences slows. Meanwhile, studies continue to find high rates of return to public spending on agricultural research…”

      “This private R&D, however, has tended to focus on commercially useful applications, so the public sector is still responsible for much of the fundamental research that creates the building blocks for major agricultural innovations. Private R&D also has tended to gravitate toward technologies that are easy to patent or otherwise protect with intellectual property rights. Many important new farming technologies—such as agronomic and animal husbandry practices, farming methods that conserve environmental resources, and technologies requiring collective action like pest eradication—are not likely to be profitable for private R&D.”

      • Steve L says:

        This hints that the authors might be assuming no limits to growth

        I don’t see it necessary to project this sort of assumption on the authors of the study. One can collect the data shown and through their model find their results. To the next step though I think you are closer – that the low hanging fruit have been picked. Accounting for externalities is not directly relevant to their findings where the externalities were not accounted over the time periods monitored (thus TFP was consistently assayed). But to your externalities point… they should be considered (they matter); so a cogent question might be whether the externalities have changed (they have, have they changed MORE than the other changes observed?).

        The USDA message you’ve quoted here is mostly speculating (“not likely to be”, etc). Some of the studies mentioned showing high rates of return to public spending on agricultural research are real to a degree… but they tend to leverage total outcomes back to specific funding events. Total public investment in infrastructure, and private investment made deploying discoveries tend to be unaccounted. The USDA has a stake in defending public research investment (much the same as private firm managers have a stake in defending their existence to the moneyed class who buy their shares).

        Like a lot of the debate we’ve considered here, nuance abounds.

        If one must summarize to a single sound bite… it comes back to the low hanging fruit notion. The well is not without some limit.

        • Why I speculated (not projected) that the authors might be assuming no limits to growth of crop yields:

          According to the authors, if the annual growth *rate* of crop yields was constant (for example, the crop yield per acre grows 2% every year, for 40 years), while the number of researchers has tripled (during that same 40 year period), then the “research productivity” has declined by a factor of 3.

          By these measures, for the “research productivity” to stay at the same level (not decline) during the years 1970-2010 (in this example), the annual growth rate of crop yields would need to have tripled during those 40 years, meaning that a 2% growth in crop yields for 1970 would have to increase to a 6% annual growth in crop yields in 2010.

          For soybeans, the number of researchers hasn’t tripled during that 40-year period, they have increased by a factor of 24, while the crop yields grew about 1.5% per year.

          Using the authors’ definition for “research productivity”… In order for this increased number of soybean researchers to have maintained the same “research productivity” that researchers achieved in 1970, the soybean yield improvements would need to have risen to 1.5×24= 36% annual increase in soybean crop yields by 2010.

          That’s a huge amount of compounding. I think this would seem even more unrealistic when translated to bushels per acre. Thus my speculation that the authors might be assuming no limits to growth of crop yields.

          • A simple spreadsheet shows that the average yield of 26.7 bushels per acre of soybeans in 1970 would have needed to increase to about 26,000 bushels per acre by 2010, for the the researchers of 2010 to have the same “researcher productivity” as the researchers in 1970 (according to how the authors define “researcher productivity”).

            26,000 bushels per acre!
            At 60 pounds per bushel, that’s more than 1.5 million pounds of soybeans per acre.

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