Ruinous Sugar Politics
by Warren Coats
Issue 97 - December 12, 2007

Late month I spent a week in Nairobi Kenya discussing monetary policy with seven senior officials from the Bank of Southern Sudan (BoSS), the branch of the Central Bank of Sudan set up in the South as part of the Comprehensive Peace Agreement that ended Africa’s longest civil war.

I didn’t want to go to Sudan, so they agreed to meet me in Nairobi. The gathering included three days of 9 to 5 lectures, the most lecturing I have ever done in three days. It was exhausting but well received and fun. We are all crossing our fingers that the civil war does not reignite before the African South votes for independence from the Arab North in 2011, at which time BoSS will become the Central Bank of Southern Sudan.

I have tried in these notes to share experiences from my travels that shed light on current events. I have avoided preaching to you about my political views on other topics. Our great country is full of first rate political commentators with whom I could hardly compete. This is a mini exception, justified I hope by the fact that I spent two college summers working for the Speckle Sugar Company in Kern County, California.

The sugar beet industry in the U.S was launched in the mid 1960s to fill the sugar gap created by the then new U.S. economic boycott of Castro’s Cuba. We thereby hurt ourselves and our national security in two ways. First, like virtually all economic (as opposed to military) embargoes, this one strengthened Castro’s hold on Cuba and weakened the communist opposition within Cuba by making Cuban society more dependent on its government in coping with the impact of the embargo. Secondly, by subsidizing a U.S. sugar industry that was otherwise uncompetitive, rather than importing it from other more efficient sugar producers, we diminished (modestly) our economy’s productivity and thus our economic strength, which is an essential aspect of our military and political strength in the world.

Since that time we have significantly liberalized our economy (banking, airlines, and telecommunications, to name a few) and greatly liberalized and expanded trade with the rest of the world. As a result, the U.S. economy has grown rapidly, and employment and the standard of living for virtually everyone has increased significantly. Unemployment is at historically low levels. But we still have the artificially created “temporary” sugar industry and the subsidies without which it could not exist. Forty years later we still have Castro and the economic waste of an uncompetitive sugar industry.

A bill now in Congress would authorize another billion dollars (we didn’t use to even speak in terms of such large numbers) over the next ten years to keep this otherwise non viable industry going and to keep out competition. You pay for this in taxes and again in higher sugar prices. “The Government Accountability Office has estimated that the sugar program costs consumers and food processors between 1 billion and 2 billion annually” (Washington Post 11/4/07).

How can this happen? So far this year alone, “nine sugar farm or refining groups have made more than 900 separate contributions totaling nearly 1.5 million dollars to candidates, parties and political funds…” ( Washington Post 11/4/07).

The government’s increasing catering to special interests is wasting more and more precious resources, but more worryingly it is increasing a climate of corruption. There is no other honest name for the buying of favors by special interest groups against the interests of the country as a whole. It is a result of government involving itself in the economy in unnecessary and undesirable ways. It will eat away at our economic strength and thus our military and political strength unless we can restore a more limited roll for government.

Warren Coats is an international financial consultant.