<html><body><P>American Enterprise Institute</P> <P>October 30, 2007</P> <P>[Edited transcript from audio tapes]</P> <P><BR> <TABLE cellSpacing=1 cellPadding=1 width="100%" border=0> <TBODY> <TR> <TD> <DIV class=BodyText>5:15 p.m.&nbsp;</DIV></TD> <TD> <DIV class=BodyText>Registration</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>5:30</DIV></TD> <TD> <DIV class=BodyText><EM>Introduction</EM>:&nbsp;&nbsp;</DIV></TD> <TD> <DIV class=BodyText>Nicholas Eberstadt, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText><EM>Presentation</EM>:&nbsp;</DIV></TD> <TD> <DIV class=BodyText>C. Peter Timmer,&nbsp;Stanford University</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>7:00&nbsp;&nbsp;</DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Adjournment and Wine and Cheese Reception</DIV></DIV></TD> <TD> <DIV class=BodyText>&nbsp;</DIV></TD></TR></TBODY></TABLE></P> <P>Proceedings:</P> <P>Nicholas Eberstadt:&nbsp; Ladies and gentlemen, welcome to the American Enterprise Institute on this crisp and brilliant afternoon.&nbsp; I m Nicholas Eberstadt, the Henry Wendt Chair in Political Economy here at AEI.&nbsp; This is my favorite day of the year, and the very favorite part of my job, for this is the--&nbsp;[Inaudible voice from the audience] </P> <P>&nbsp;Nicholas Eberstadt:&nbsp; You have to leave [laughter].&nbsp; This is the day that I ve got the pleasure of introducing the annual awardee for AEI s Wendt Distinguished Lecture.&nbsp; In just a moment, you will be hearing from our honoree:&nbsp; Stanford University s Professor C. Peter Timmer.&nbsp; AEI s Wendt Program in Global Political Economy was established through the generosity of the SmithKline Beecham pharmaceuticals company and Mr. Henry Wendt, CEO emeritus of SmithKline Beecham, now GlaxoSmithKline.&nbsp; Henry Wendt is very much with us.&nbsp; In fact, he is with us in the front of the room right now.&nbsp; Henry, would you say hello to everybody please?</P> <P>&nbsp;Nicholas Eberstadt:&nbsp; His career has been an adventure story in itself.&nbsp; Mr. Wendt is an entrepreneur, philanthropist, sportsman, vintner, and patron of the arts, among other things.&nbsp; The Wendt Program at AEI is one of this latter-day Renaissance man s diverse contributions to public life.&nbsp; The Wendt Program is devoted to the study of globalization and its consequences.&nbsp; One very special component of this program is the Wendt Distinguished Lecture.&nbsp; The lectureship is awarded as an honor--conferred on a scholar or thinker who has made major contributions to our understanding of some aspect of what we might term the modern phenomenon of globalization--but it is also an intellectual event in itself, an occasion at which the awardee is invited to extend his or her ambit for our benefit in public.&nbsp; </P> <P>Our first five Wendt Lecturers were Angus Maddison, Deepak Lal, Jeffrey Williamson, Ron Lee, and Dwight Perkins- scholars and thinkers who I think need no introduction in this room.&nbsp; We are delighted that Peter Timmer, arguably today s foremost thinker on the interplay between agricultural progress and economic development, should agree to join in this select confederation.&nbsp; According to our sometime AEI colleague Paul Johnson, the modern era--the truly global era--was born just about two centuries ago.&nbsp; </P> <P>Throughout our modern era, the very most modern of our thinkers have had precious little use for agriculture and its trappings.&nbsp; To the contrary, they have typically viewed farming, and indeed the whole rural sector of real existing societies, as an embarrassment--as an affront to modern life, or worse.&nbsp; Karl Marx and Friedrich Engels--who were perhaps the most influential moderns of their day--wrote unashamedly of what they called  the idiocy of rural life. &nbsp; In their account, one of the precious few virtues of the  bourgeoisie was what they described as its  rescue of the vast numbers of families then being incorporated through capitalism into urban and industrial processes.&nbsp; </P> <P>Marx and his children may be somewhat out of fashion today, but among all the other currently thriving intellectual lineages sired by descendants of the moderns, the agricultural sector and those who inhabit it remain still essentially orphans.&nbsp; This is evident, among other places, in the august halls of economic theory, and on the front lines of development policy in practice.&nbsp; </P> <P>Just consider for a moment the World Bank s flagship, the World Development Report.&nbsp; Between its inception in 1978 and its twenty-eighth edition last year, exactly one--just one--volume was devoted to the problems of agriculture: the sector, and occupation, whose circumstances govern the prospects of the great majority of the world s very poorest families.&nbsp; As for the Nobel Prize in Economics, between its inauguration in 1969 and the present day, just one of the sixty-plus Laureates to date was honored for achievements related to the agricultural economics--that exception being the illustrious Theodore W. Schultz.&nbsp; </P> <P>As you may know, here at AEI, we are proud to report that Ted Schultz s great student, the late Gale Johnson, served as Chairman of our Council of Academic Advisers for many happy and fruitful years.&nbsp; Like Ted Schultz and Gale Johnson, today s honoree can honestly claim to be an economist who was  country when country wasn t cool. &nbsp; Indeed, for nearly four decades, Peter Timmer s powerful, penetrating, and ultimately persuasive work has illuminated the humanizing truth that agriculture and industry are not locked in a zero-sum struggle on the path to material advance; but rather, are complementary components in the formula for human economic progress, and in fact always have been.&nbsp; </P> <P>I have much more to say about Peter, which you will read later, if you care to, on the website.&nbsp; I know he blushes rather easily.&nbsp; I will skip over my encomium of his accomplishments, but I think I have to mention at least this part here:&nbsp; Peter happened to grow up on a farm.&nbsp; I suspect that in his time, he may well have been the only tenured member of the Harvard economics faculty who knew how to operate a tractor or repair canning equipment.&nbsp; </P> <P>But in another sense, Peter Timmer is really a gardener.&nbsp; We see this in his commitment to teaching.&nbsp; Peter Timmer s gentle cultivation has touched and helped raise a generation and a half of students at Stanford, Cornell, Harvard, and now again Stanford.&nbsp; It is no exaggeration to suggest that Peter is a beloved, and indeed inspirational, figure for his students.&nbsp; That is one of the reasons why we see so many of them here tonight.&nbsp; </P> <P>Professor Timmer has done some of his most important teaching overseas.&nbsp; Since the early 1970s, he has been committed to teaching food policy in Indonesia, where he has trained a veritable cadre of food and agricultural policy professionals.&nbsp; Though perhaps unheralded internationally, Peter Timmer can nevertheless claim some perhaps considerable credit for Indonesia s qualified success against poverty in rural and urban areas over the past quarter century and more.&nbsp; </P> <P>I mentioned earlier that until this year, the World Bank had devoted just one of its annual World Development Reports (WDR) to the issues of agriculture.&nbsp; I am happy to say that the latest WDR, released earlier this month, is titled Agriculture for Development.&nbsp; I hear that Paul Wolfowitz, who is now a colleague at AEI, may have had something to do with selecting this particular theme; I know that Peter Timmer was intimately involved in the report itself.&nbsp; </P> <P>Tonight s lecture is titled  A World without Agriculture --an ironic play on some of the themes he helped to contribute to this latest WDR.&nbsp; Without further ado: Peter Timmer, take it away!</P> <P>Peter Timmer:&nbsp; You always wonder who is going to stand up after something like that.&nbsp; Thank you, Nick, for the lovely introduction.&nbsp; Nick clearly has a weakness for economic history, given the list of people he s chosen for the Wendt Lecture.&nbsp; At least four, and perhaps more, would count themselves as economic historians in the broader scheme of things.&nbsp; I certainly count myself in that category as well.&nbsp; </P> <P>I make the point because economic history seems to me not to be a topic that has great resonance in this city, Michael Clemens sitting there notwithstanding.&nbsp; And so, I suspect that the good turnout today is partly people who have come to hear something that they re not likely to hear in the routine seminars that go on in Washington.&nbsp; </P> <P>I want to thank Henry Wendt for making this possible.&nbsp; Invited lectures are fun to do.&nbsp; I mean, in this particular case, they give you the opportunity to stand back and think a little bit outside of the peer-reviewed academic journal box that many of us have put ourselves in.&nbsp; So, I really welcome the opportunity to talk about A World without Agriculture which is, as Nick notes, partly a play on words and partly a reality that I want to talk about.&nbsp; And I want to thank all of you for coming.&nbsp; I actually do see a lot of familiar faces here and so, presumably, not too many rotten tomatoes in your hands.&nbsp; </P> <P>It s a great honor to be here.&nbsp; It s distinguished company that I m with.&nbsp; Of course, Dwight Perkins and Jeff Williamson and I were colleagues for many years.&nbsp; Indeed, we taught a course at Harvard called The Structural Transformation in Historical Perspective that was the introductory Ph.D. course in Economic History.&nbsp; It took the role that Alexander Gerschenkron s course used to take, but it was also simultaneously the introductory Ph.D. course in Development Economics.&nbsp; </P> <P>Harvard was the one place that understood development really needs to be thought about as a historical process, not just something where we can optimize short-run economic relationships.&nbsp; My perspective is likely to be something of--I ve always thought of myself as a scholar practitioner, the Indonesian word that Nick referred to, and I suspect that what I m going to talk about today has a little bit more of a policy flavor than some of the early Wendt Lectures.&nbsp; That s probably not going to be a disappointment to many of you, other than Bruce.&nbsp; I don t think I m going to get peer reviewed this afternoon.&nbsp; </P> <P>But the policy focus that I want to make sure is front and center here is the goal of reducing poverty.&nbsp; That s what we re here for, in terms of understanding the role of agriculture.&nbsp; That s what I think economics is meant to do as a discipline.&nbsp; I m primarily interested in how you reduce poverty.&nbsp; I think if we ve learned anything in the last thirty or forty years, in which I ve been an active academic practitioner, you can t do that unless you can connect the poor to economic growth.&nbsp; </P> <P>Economic growth is going to be the key to reducing poverty, but it doesn t help unless you can connect the poor to economic growth.&nbsp; My argument is going to be that where the growth takes place, the sector of economic growth, will be fundamental to how much poverty reduction we get out of the growth process.&nbsp; </P> <P>So where did this title come from, A World without Agriculture?&nbsp; Well first of all, it does come from growing up on a farm and leaving.&nbsp; I m a successful migrant.&nbsp; I got out.&nbsp; My brother still--I was about to say my brother still runs the farm, but in fact, he sold all the equipment last year and now rents the farm because it was no longer profitable to actually operate the farm.&nbsp; The tomato canning factory that I grew up in and actually designed, built, and served as quality control director of for a number years before I went off to college--that still operates as Tip Top Canning Company in Tipp City, Ohio canning tomatoes.&nbsp; It s still functioning; and from the little operation I grew up in, now produces over a million cases of tomatoes a year.&nbsp; That s a lot of canned tomatoes!&nbsp; </P> <P>But the title does come out of a world where I left agriculture, where clearly lots and lots of people leave agriculture.&nbsp; If you look at--let s see if I can do this.&nbsp; This is a confession: my very first PowerPoint.&nbsp; In many ways, this picture tells the story.&nbsp; This is in color.&nbsp; You should have a copy of this in your handout.&nbsp; This is thanks to Selvin Akkus, who is research extraordinaire at the Center for Global Development, and has worked with me almost a year now on this project.&nbsp; </P> <P>This is, as it says, eighty-six countries annual data between 1965 and 2000.&nbsp; The red dots are the share of--it says employment, but it s really the labor force--workers in agriculture.&nbsp; You can see zero in the middle, going up to a share of one, and then the negative we ll talk about in a second.&nbsp; But you can see the share of the workforce in agriculture has a pretty uniform tendency to decline.&nbsp; </P> <P>The blue dots are the share of agriculture in GDP, in value added, in income generated if you like.&nbsp; That too has a negative slope, but notice that it is almost uniformly a lower share than the employment share at any given income level.&nbsp; That, going to the right, is the logarithm of real per capita income in purchasing power parity terms in standard 2000 dollars.&nbsp; I have all the provisos in there, but that s a pretty pervasive tendency.&nbsp; And if you look at the WDR to 2008 in chapter one, there s a picture of those two trends, just basically to say,  Gosh you know, this is both time series and cross section a very powerful tendency for the share of agriculture to decline in both employment and in economic activity. &nbsp; </P> <P>The share--I m not saying anything about the total or per capita output; I m just talking about the share in the economy.&nbsp; The world without agriculture is the right hand point.&nbsp; Both of those converge on zero.&nbsp; That s the world without agriculture.&nbsp; I taught a course this past spring at NYU.&nbsp; I was actually taking the place of my daughter while she was on maternity leave, and I tried this picture out in the introductory lecture I gave in the course.&nbsp; I said, as an example--this is a Bruce Gardner story because Bruce documented this very carefully--when did we basically get to this not-significantly-different-from-zero point in the United States?&nbsp; </P> <P>The answer is sometime in the 1980s.&nbsp; There are more lawyers in the United States than there are farmers.&nbsp; There are more dry cleaning establishments than there are farms.&nbsp; And one of the women in my class this spring said,  Well, duh!&nbsp; And all of the ones on my block are Korean. &nbsp; No surprise to people who live in the Upper West Side of Manhattan that, oh yeah, of course you need more dry cleaners than you need farmers.&nbsp; That s the economy that we live in.&nbsp; But that picture points at a world where agriculture is a trivial part of the economy.&nbsp; When you count correctly in the United States, agriculture is less than one percent of GDP.&nbsp; </P> <P>That is value the output, take the subsidies away, and count real contribution.&nbsp; It s less than one percent of GDP.&nbsp; I mean, that s really small.&nbsp; That s the world that I m looking at.&nbsp; That s a picture of success.&nbsp; That s where we re trying to get to.&nbsp; That s where we want everybody to get to.&nbsp; Rich.&nbsp; Okay?&nbsp; That s where the title comes from.&nbsp; </P> <P>Now, there s a short-run dimension and a longer-run dimension as well.&nbsp; The topic--Nick indicated that this is sort of a paradoxical title for me because the argument I m going to make is that it s premature to think about a world without agriculture for the world s poor.&nbsp; It s fine to think about a world without agriculture for the world s rich, even though our politicians don t seem to get that.&nbsp; I ll come back to that in a moment.&nbsp; </P> <P>But my argument is going to be that we have to think about agriculture if we re going to deal successfully with poverty.&nbsp; So, this title and this theme have both a short-run and a long-run dimension.&nbsp; The short-run dimension is, again, Nick hinted at.&nbsp; It s the fight I ve had over the last 30 years with my colleagues.&nbsp; Part of the fight is that much of that time I was at Harvard, and there aren t a lot of people at Harvard who thought agriculture was important as a field.&nbsp; I m, in many ways, the grandchild of John D. Black, who was brought to Harvard from the University of Wisconsin and founded the field of economics of agriculture, not agricultural economics; Charles Warren founded that at Cornell for a management school.&nbsp; John D. Black founded the field of understanding agriculture in the role of the overall economy and its contribution to, and its needs from, the rest of the economy.&nbsp; </P> <P>There were really only three places in the United States, academically, that sort of thought agriculture from that macro perspective.&nbsp; Harvard was one; it was John D. Black.&nbsp; His replacement, as you all will remember was Ken Galbraith, who decided agriculture really was for idiots and wrote to that effect.&nbsp; Harvard never did really find somebody to keep the field of economics of agriculture alive.&nbsp; There s nobody at Harvard doing agriculture any longer.&nbsp; </P> <P>Chicago was another place--the University of Chicago with Ted Schultz, D. Gale Johnson, and George Tolley.&nbsp; I mean, there was a whole stream of very influential people who thought of agriculture as an instrument in a broader array of things.&nbsp; Nick noted that Schultz got the Nobel Prize in Economics, but in fact it was for his work on human capital, on the role of education, not so much for agriculture per se.&nbsp; Norm Borlaug got the Peace Prize for Agriculture.&nbsp; Arthur Lewis got it for the two-sector model development where agriculture is one of them.&nbsp; The third, by the way, just because I call it home, is Stanford had taken agriculture seriously as a macroeconomic field and activity.&nbsp; </P> <P>So, in the short run, it s been this debate--this interchange with my colleagues--especially at the World Bank, but in academia as well, trying to keep the role of agriculture in the development process on the policy agenda.&nbsp; It was not hard to do, working in Indonesia for a government.&nbsp; Whatever else you think of the Suharto regime, it was a regime that was really very concerned about feeding its people.&nbsp; It was not all hard to convince that government or the Chinese government early on, or Vietnam after the reform started, that agriculture and food policy were important.&nbsp; </P> <P>What was difficult has been to convince the donor community broadly, the World Bank and USAID specifically, that agriculture, even when the market judged the value of its output to be modest--and anybody who follows commodity markets knows that there s ups and downs to that.&nbsp; I m actually old enough to remember the 1966-1967 droughts in India, when world food prices went up.&nbsp; Then, of course, we remember the world food crisis in 1973-1974 and then again in 1979-1980, and then things collapsed.&nbsp; If you look at from the mid-1980s right through into the early 1990s, you see a trough of commodity price:&nbsp; Oil at ten dollars a barrel, wheat at two dollars a bushel, rice at 120 dollars a ton, a collapse of commodity prices.&nbsp; </P> <P>If you re sitting in the World Bank and you re asking,  What s the role of agriculture in the development process? &nbsp; Sure, 80 percent of the world s poor are in that sector, but if rice is only worth 120 dollars a ton in the market, how can you possibly invest in roads or irrigation or research and extension?&nbsp; How can you possibly invest in that when the marginal cost expected from that investment requires rice to be 250 or 300 dollars a ton to pay off?&nbsp; Well, you can t; not if you re a banker.&nbsp; </P> <P>But what if there are non-market values to growth in input in the agricultural sector?&nbsp; Non-market values.&nbsp; My concern was that s there where the poor are.&nbsp; Poverty doesn t have much of an economic value--the incomes the poor make.&nbsp; But the fact that they re poor--there s no distributional demand to our judgment of the growth process when we just add GDP up and say that s it.&nbsp; I ve spent much of my academic life arguing that markets don t always get the value right in the long run, in terms of the sector of economic growth.&nbsp; Part of this talk today is letting go with that argument.&nbsp; </P> <P>I am just delighted that the WDR is on agriculture this year.&nbsp; I am on record for twenty years arguing that the World Bank needed to do something after the 1986 WDR.&nbsp; I feel like the arguments weighed in.&nbsp; Whatever else you think of Paul Wolfowitz, he personally decided to do agriculture, and he really empowered Francois Bourguignon to go get the best team that he could get to do it right.&nbsp; I know for a fact that Paul wishes he were here.&nbsp; He s actually in New York today.&nbsp; Quite fairly, I think he d like to take a little credit for having put that on the World Bank s agenda and for having empowered a team to do that.&nbsp; </P> <P>The second reason in some ways for where we re going next is a long-run perspective that grows out of teaching economics.&nbsp; And here, Nick is one of those students that took this course.&nbsp; Several folks here have taken this course on the structural transformation in historical perspective.&nbsp; My role--and this was with Dwight Perkins who did China and some other things, and Jeff Williamson did Latin America and some other things.&nbsp; I did the role of agriculture in the development process, starting in 1700 in England and working through France, Germany, Russia, Japan, Thailand, and Indonesia.&nbsp; </P> <P>It s sort of a 250-year sweep of history across almost three continents, and looking not at what Marx would have us look at, which is the process of industrialization, but looking at what agriculture s role was, what happened to agriculture during that role, and the extent to which policy could influence sort of the strategic relationship, the role itself that agriculture played in the development process.&nbsp; When you think that in England in 1688, the Corn Laws come to bear and we ve got a very visible policy intervention on behalf of agriculture.&nbsp; I mean, you could say it was for the large landlords and that was the price of bringing William and Mary over.&nbsp; </P> <P>But the point was that we got a very, very substantial policy intervention into English agriculture that was not followed on the continent.&nbsp; And we can then trace changes in agricultural productivity, to a large extent induced by both the stability and the level of incentives provided to English agriculture.&nbsp; We can trace where the savings, where the food--how that fed a workforce and kept real wages under control.&nbsp; We can actually trace, at least I think I can trace the impact of that set of incentives on productivity; the productivity impact, subsequently, on the Industrial Revolution.&nbsp; </P> <P>Jeff Williamson, my colleague, built a wonderful computable general equilibrium model of England in 1840, looking at what would have happened to English development with and without the Corn Laws because that s when the debate was ended in 1848.&nbsp; Much to his surprise, the Corn Laws were really quite essential.&nbsp; They didn t in any way impede the development.&nbsp; They actually were very important, partly in terms of trade effects, which is what they were designed to do.&nbsp; Then, as I say, trace this role of agriculture through French provisioning as opposed to protection, the German decision to industrialize at all costs, but doing that first without agriculture and not being very successful; then providing the incentives agriculture needed and things speed up; and Russia extracting surpluses on behalf of industrialization.&nbsp; </P> <P>Japan, Thailand--I don t want to do all of the history for you, but what I want to argue is that this long-run historical perspective that starts in 1965--I could put another picture up that stars in 1820 with the U.K., and then in the mid-1850s or 1860s for another ten to twelve countries.&nbsp; And the astonishing thing, when you put the long run historical data on there, they just overlay that.&nbsp; This is not something new and different.&nbsp; This is a very long-run and, as far as we can tell, very stable process by which economic growth both induces structural transformation, and structural transformation by releasing capital and labor, induces economic growth.&nbsp; That is to say this is not a one-way relationship:&nbsp; agriculture helps industry and that s that.&nbsp; This is a two-way relationship.&nbsp; </P> <P>Within the growth process, I m going to argue that unless we understand the role of agriculture from this economy-wide perspective--if you like, a general equilibrium perspective--we can t understand what the appropriate role for agriculture is going to be in the growth process.&nbsp; And if we don t understand that, then we can t figure out what kind of investments we need, what kind of strategic approach, what kind of policies we will need in order for agriculture to play the role that it needs to play in stimulating economic growth, and connecting the poor to that growth.&nbsp; So that s what I want to talk about today.&nbsp; </P> <P>Now, Nick had indicated that it was a little bit like being out in the wilderness for awhile.&nbsp; Structure as an economic concept is still not very popular in the economics profession, even though it s coming back.&nbsp; That s partly because there was a very sterile debate back in the 1960s between the structuralists and basically the neoclassical school of development economics, where the structuralists felt that the only thing that matters is the structure of the economy and people don t respond and, you know, everybody s fixed in their behavior, and that predetermines things so you need revolution basically to change the nature of a society.&nbsp; </P> <P>The neoclassicalists basically saw the world as sort of infinitely substitutable; you move on smooth transformation services and you can get anywhere you want if you change the prices enough and people will respond.&nbsp; The neoclassicals won that and for good reasons, I suspect, except that the extremes in both of those were wrong.&nbsp; Its structure is back now.&nbsp; It s back partly because the World Development Report has put it back, but the Millennium Development Goals have put it back as well.&nbsp; There s just this sort of sickening realization that something between 70 and 80 percent of the world s poor live in rural areas and depend either directly or indirectly on agriculture for their living.&nbsp; </P> <P>You can say, okay--as Chairman Mao said--the only way out for agriculture is industry.&nbsp; Let them make shoes.&nbsp; Actually, people said that, even recently.&nbsp; But when you put a time horizon on the desire to reduce poverty by sort of definable agreed limits, whatever you think of the Millennium Development Goals, and I suspect that many of us in the room think they re not going to be met and it s not necessarily a good idea to set goals that you can t meet because that just makes you discouraged.&nbsp; But whatever you think about it, it has put a new focus on the realities of poverty: where the poor are, how they make a living, how you reach them, what you would do to actually reduce poverty quickly and in sustainable ways.&nbsp; </P> <P>My experience--a lot of it in Indonesia, but China and Vietnam are the two other countries that I ve worked in a good deal--my experience was that those are three countries actually that will meet the Millennium Development Goals.&nbsp; They ve had the most massive reductions in poverty in history; not just modern history, but period.&nbsp; More people, faster rate of poverty reduction than every before in the history of the world; and all three countries did it by being sure that the rural economy grew, that agricultural productivity grew.&nbsp; And that required active public sector engagement in policy, investments in things like schools and rural health facilities.&nbsp; It required active public sector strategy policy investments on behalf of agricultural productivity growth.&nbsp; </P> <P>At the same time--this is what makes it so hard--they had to respect individual farm households , traders , and consumers sovereignty.&nbsp; That is markets.&nbsp; Markets were the only feasible way to reach millions of farmers, connect them to millions of consumers through millions of middlemen, intermediaries.&nbsp; If you don t use markets, you can t do it.&nbsp; State action alone won t work, but markets alone don t work either so that s the tension that we face in reaching the poor in sustainable fashion.&nbsp; </P> <P>Okay, the empirical part of what I want to talk about is the green dots, or flashes I guess they are, down in negative territory.&nbsp; I did it that way.&nbsp; That s nothing but the share of agriculture in GDP, minus the share of agriculture in employment.&nbsp; It s just straight subtraction.&nbsp; You look at the picture, you re going to get a negative number most of the time.&nbsp; That is simply relative labor productive in agriculture versus non-agriculture.&nbsp; What it says is--I call that  the gap, the agricultural gap share just technically for my analysis.&nbsp; That s just a gap between the employment share and the GDP share.&nbsp; It s negative because there s always more workers in share terms than they re producing, which is to say their labor productivity is always less then labor productivity outside of agriculture.&nbsp; </P> <P>It s just almost unheard of to find examples that hold up for two or three decades where that s not true.&nbsp; I mean, you can see individual data points; sometimes I think they re just errors.&nbsp; But basically, what we see is that gap being quite large when countries are poor.&nbsp; A gap of 50 percent is not unusual.&nbsp; Eighty percent of the population working in agriculture only generate 30 percent of GDP--that would give you a gap of 50 percent.&nbsp; That s not uncommon for poor countries there, but as we can see, there s a steady inexorable rise here--the reason I made the definition that way is so I could put it all on one picture and you can see very graphically what s going on.&nbsp; </P> <P>That gap approaches zero as well.&nbsp; A successful conclusion to the structural conformation is when the gap is zero.&nbsp; That is to say there are no economic distinguishing features of agriculture versus construction or steel or automobiles or dry cleaners or lawyers, in terms of labor productivity.&nbsp; I mean, there may be special features because it s subject to the rain, just as construction is, but in productivity terms, a successful conclusion to the structural transformation is when that gap is zero, the share in agricultural employment is the same as its contribution to GDP.&nbsp; </P> <P>That to me is the world without agriculture.&nbsp; That is when agriculture no longer has special claim on policy attention, academically and intellectually.&nbsp; It no longer has special claims, especially for my concerns, that is for poverty.&nbsp; There is no longer--and I take this directly from Bruce Gardner s book on the history of U.S. agriculture--there is no longer a rural significant term in the poverty equation in the United States.&nbsp; </P> <P>I mean, there are poor people that live in rural areas, but it s not because they live in rural areas that are connected to agriculture that they re poor.&nbsp; Agriculture is no longer a significant variable in the poverty equation.&nbsp; That s what I m trying to get to.&nbsp; That s the world without agriculture: a world without agriculture as a special case, as a special claimant on policy attention or on resources.&nbsp; That s actually why I like the title, A World without Agriculture.&nbsp; So that s what I m going to walk us through.&nbsp; </P> <P>Indeed, when the monograph comes out that I promised Nick for January or February, you ll be able to see the heavy duty data and econometrics.&nbsp; I m two-thirds of the way there, but it s not quite ready for primetime yet.&nbsp; Any policy maker sort of on the left side of that picture, looks at that picture and is instinctively going to think if agriculture requires public resources to develop it--roads, research, irrigation systems, rural infrastructure, whatever--if agriculture requires substantial public expenditures and attention, but we re headed off to the right, why not forget about it?&nbsp; Can t we just skip the agricultural intensification stage and move directly to urban industry, modern services, and just become Singapore?&nbsp; </P> <P>I mean, that s a very appealing idea.&nbsp; A bunch of countries tried it, starting in the 1960s and 1970s.&nbsp; One of the questions we need to answer is whether you actually have to invest in agriculture to get that result; is the only way to move to the right by making major investments in raising agricultural productivity?&nbsp; </P> <P>The second question I want to address is that a process of poverty reduction, or is it simply a process economic growth?&nbsp; We know in the very long run, they overlap about 100 percent, but within generations it s a legitimate question whether that s a poverty reduction process or just an economic growth process.&nbsp; It s not one, by the way, that the historians have spent very much time thinking about.&nbsp; And so my question is going to be, if we have a specific poverty focus to our attention, is agriculture one of the main connectors between growth and poverty reduction?&nbsp; </P> <P>My third question, and this goes very much to sort of the broad theme of the Wendt Lecture Series, is whether globalization is changing the nature of this process in important, understandable, and maybe even remediable ways?&nbsp; If it s having negative consequences, either for the rate of growth of the distribution of the growth or for the poverty dimensions of that?&nbsp; Are the pressures being generated by globalization--and I ll try to define what I mean by that very shortly--is this process changing under the force of globalization?&nbsp; </P> <P>There s certainly some reasons for thinking that globalization is having an impact on this long-run historical process.&nbsp; First of all, despite what s happened in the last couple of years, real agricultural commodity prices are much, much lower than they were ten, twenty, thirty, forty, fifty years ago.&nbsp; When the real index of rice prices goes from 1,000 to 100 in real terms, you can double those and go to 200 and still be well below the peak that you were at earlier.&nbsp; And so, despite what s happened in the last year or so--some of which I think is actually temporary and some of which is a dollar question rather than a scarcity question--if you re trying to invest in raising agricultural productivity, it ain t worth what it used to be.&nbsp; The value of the ton of output is not what it had been a generation before.&nbsp; </P> <P>The second reason for thinking that globalization may be changing things is that borders are actually a whole lot more open to agricultural flows and the food flows than they had been a generation before.&nbsp; That s without any impact from Doha.&nbsp; We see trade volumes and values rising.&nbsp; My personal view is that free food aid doesn t help with governments making decisions to invest in their agriculture.&nbsp; </P> <P>Modern supply chains have been doing some work recently on what impact supermarkets are having in the developing world.&nbsp; The nature of these supply chains and their aggressive pushing costs out of the system makes the connection between markets much, much more efficient and much more rapid.&nbsp; These are things that make you feel like, well, individual country decisions now have to be made in a global context that probably wasn t true a generation ago.&nbsp; </P> <P>What I m going to be interested in is whether we can see any impact of that in the nature of the process.&nbsp; There s some big puzzles I m going to put on the side.&nbsp; I suspect all of you will want to talk about them, but one is climate change and its impact on agricultural productivity in different regions of the world.&nbsp; Most people think Africa is going to be most severely and negatively impacted by climate change.&nbsp; That s not something I m looking at.&nbsp; I even stop in 2000 before we worried a lot.&nbsp; </P> <P>The second thing I m not going to worry to much about is the livestock revolution, the role of consumer demand in driving dietary change and the multiplier effects on agricultural commodities that come out of a demand for basically grain-intensive meat.&nbsp; I m not going to talk about biofuels.&nbsp; Biofuels could turn our whole world upside down.&nbsp; I m going to argue that the structural transformation is primarily driven by Engle s Law.&nbsp; Engle s Law says that the demand for agriculture commodities has an income elasticity of less than one.&nbsp; So when incomes go up 10 percent, the demand for agriculture commodities goes up by less than 10 percent--8 percent, 6 percent, 2 percent, zero.&nbsp; </P> <P>If agricultural commodities become the source of liquid energy, the income elasticity for that is about 1.4.&nbsp; Structural transformation is done if that becomes a market reality, as opposed to a political reality.&nbsp; I m not going to talk about that, but understand in the background here there s something that may not be so inevitable after all about this.&nbsp; </P> <P>The last thing I m not going to talk about is I think a revolution that we re seeing, certainly through Asia and I suspect it s going to be widespread everywhere: consumer demand for food safety, for traceability, and increasingly an interest and desire in knowing where their food comes from, and maybe even having it produced where they can see it or where they know--the local production phenomenon.&nbsp; Gosh, Nick, you want me to stop in five minutes.&nbsp; Okay, a little bit.&nbsp; </P> <P>Let me walk very quickly through the theory.&nbsp; You re not really interested in the theory, are you?&nbsp; You can t do this unless you think in general equilibrium terms.&nbsp; The structural transformation is basically not visible from inside the agricultural sector.&nbsp; You can feel the pain of it from inside the agricultural sector, but you can t really see it from inside.&nbsp; You ve got to stand outside and look at the whole economy, and look historically to see what s going on.&nbsp; </P> <P>The paper has a whole section on the general equilibrium dimensions of this.&nbsp; I argue that this is primarily in my mind a demand-driven phenomenon because of Engle s Law.&nbsp; The trade economist says that can t be right.&nbsp; It just can t be right.&nbsp; In an open economy, you know, if you ve got a comparative advantage in agriculture production, you should be able to export it.&nbsp; Be New Zealand.&nbsp; It turns out, in fact, there s a huge non-tradable dimension to agricultural commodities.&nbsp; Even New Zealand is going through a structural transformation.&nbsp; I mean, the level is different, but the path looks to very similar to everything else.&nbsp; </P> <P>Secondly, that green line is about income distribution.&nbsp; In fact, take the negative of that--the positive coefficient.&nbsp; That is actually the sectoral genie coefficient between incomes in agriculture and incomes in non-agriculture.&nbsp; It s a measure of inequality.&nbsp; Something on the order of 30 percent of the countries in the sample overall genie coefficient is explained by where they are on that green line.&nbsp; If you re interested in income distribution and inequality, the agriculture/non-agriculture balance is a very big piece of that.&nbsp; </P> <P>If it turns out that that s not a uniformly upward shaped sloping curve, as I m going to show you in a moment, things actually get worse before they get better.&nbsp; We actually have rising inequality between agriculture and non-agriculture in the early stages of development.&nbsp; We probably ought to be worried about that.&nbsp; Agriculture and poverty connections seem like--I m going to see if we can--whoops!&nbsp; Where did that come from?&nbsp; What should I do [laughs]?&nbsp; I knew this would happen.&nbsp; Where s my blackboard when I need it?&nbsp; Let me try--yes, thank you.&nbsp; Great!&nbsp; Connections.&nbsp; </P> <P>This was actually done for the WDR, as we tried to think through how what we re doing on the lower left part of the triangle--growth in agriculture productivity--how does it affect our objective function on the right side, which is poverty reduction?&nbsp; There s a natural tendency to think if you can just raise productivity on the small farms, you re really going to have a big impact on poverty.&nbsp; History says that s just not so.&nbsp; There s not very much evidence to say that raising productivity on small farms translates into reduced rural poverty directly.&nbsp; </P> <P>We just actually don t see that.&nbsp; The reason is partly the non-tradability part of what farmers are producing.&nbsp; You produce 10 percent more and the price falls 12 percent.&nbsp; You know you re not actually better off, even though you re more productive from the point of view of the economy.&nbsp; Something like 85 percent of the impact of the Green Revolution on poverty came through lower real prices for food and their impact on consumers.&nbsp; </P> <P>Farmers are consumers too.&nbsp; They benefit from that.&nbsp; But you get on a productivity treadmill if prices are falling.&nbsp; We want food prices to fall; we don t like high food prices.&nbsp; Well, my brother does.&nbsp; But as an economist interested in development, poverty reduction--the poor spend 50 to 60 percent of their budget on food.&nbsp; You double the price of food and you make them really, really poor.&nbsp; You cut the price of food in half, you make them a whole lot better even if their money wages haven t changed at all.&nbsp; And so, the upper part of this triangle is where the real action is.&nbsp; </P> <P>It s the role of agricultural productivity contributing to faster economic growth through real wage effects, and migration, through contribution in savings, sort of standard rules of the role of agriculture in economic development that Bruce Johnston and John Mellor were writing about in the American Economic Review (AER) in 1961.&nbsp; Yeah, those mechanisms still work.&nbsp; They re still out there.&nbsp; Most of the action empirically is through the macro-economy and then back down.&nbsp; Notice that there s a reverse arrow from the macro-economy to agriculture.&nbsp; </P> <P>I think the evidence is really very clear that you cannot have a successful agricultural transformation unless the rest of the economy is growing.&nbsp; Agriculture is very much stimulated by demand.&nbsp; Yes, supply-side technology is important, but in fact, farmers are very responsive to the market.&nbsp; And so, having a rapidly growing macro-economy stimulates growth and productivity.&nbsp; </P> <P>One of the tables that s in the monograph that s not here shows that if you ve got 3 percent growth in agriculture, it s pretty good over a twenty year period.&nbsp; Then you ve got three different scenarios of the macro-economy, in terms of how fast it s growing in labor absorption.&nbsp; The faster the external economy grows, the faster labor productivity grows in agriculture, even with agriculture itself growing at the same pace.&nbsp; The interconnection is done through the labor market.&nbsp; I mean, Bruce really taught us that the convergence in labor productivity comes primarily from the labor market.&nbsp; It doesn t come from the productivity side; it doesn t come from technology.&nbsp; It really comes because you integrate labor markets between urban and rural, agriculture and non-agriculture.&nbsp; </P> <P>I m going to just go back for a second.&nbsp; That green line also has a message for political economy.&nbsp; I know it s unfashionable to put a lot of weight on inequality as a variable in economics, but I happen to think that inequality is hugely important in politics.&nbsp; A sense of fairness, a sense of growing disparity between my income--you know, the joke is, okay, if you can t get me a raise, at least give Sam a cut; you know, just so I can feel better about myself.&nbsp; We behave that way.&nbsp; </P> <P>I mean, the behavioral economists are really beginning to understand, even at the level of neuroscience, that the role of perceptions of inequality in how we behave, not just in the marketplace--as investors, we do all kinds of crazy things.&nbsp; People get rich when they re super rational and understand that the rest of us are really fools in the stock market.&nbsp; But politically, I am convinced that the inequality that we see, especially if that inequality is growing, drives a very basic political process, which is somehow we ve got to help farmers.&nbsp; Somehow, we ve got to make farmers equal in income and we ve got to do that sooner rather than later.&nbsp; Obviously, it makes sense in democracies.&nbsp; </P> <P>The single largest identifiable voting block in Indonesia, 35 million folks, are rice farmers.&nbsp; If you don t pander to rice farmers in the electoral process, you re not going to get elected.&nbsp; Rice farmers really feel like they re getting screwed because the rest of the economy is going so much better than what they are, even though they re not doing badly either.&nbsp; The political economy of the inequality that we see in that green diagram is, I think, fairly crucial.&nbsp; This is just sort of a piece of evidence for the connection between agriculture and non-agriculture.&nbsp; </P> <P>I actually did something that looks almost identical to that back in 1997.&nbsp; This is modern data that was done for the WDR at Berkley.&nbsp; All it says is that for the bottom three or four expenditure deciles, that is for the poor, a given percentage growth rate in agriculture translates into more income growth from them than does a given percentage of non-agriculture.&nbsp; </P> <P>For some reason, it s even negative for the bottom decile.&nbsp; That may be sort of lousy data for the bottom decile, but the shape of the curve makes perfectly good sense.&nbsp; The poor are concentrated on the left; they re in agriculture; agricultural growth should reach them.&nbsp; It turns out, I think, if you were to show countries that have highly skewed income distributions--Latin America for example, and some of Africa--the picture doesn t look that way because land distribution is different.&nbsp; Okay, last point I want to make.&nbsp; What s globalization doing to [inaudible]?&nbsp; </P> <P>Anyway, there s a lot of econometrics I m going to wave my hands over.&nbsp; We can talk about it if we want.&nbsp; The standard way of quantifying the structural transformation is to fit a log quadratic function to those curves: the employment curve, the GDP curve.&nbsp; I fit it to the gap curve.&nbsp; It turns out that nobody s actually been very interested in the gap, so there isn t any empirical work out there on that.&nbsp; But what I m interested in is the behavior of that gap over time.&nbsp; So, I fit the quadratic and put terms of trade, we ve got country effects and fixed-time-year effects, so we ve got fixed effects in and controlling for all of that.&nbsp; </P> <P>And then the question is, what s the shape?&nbsp; And where is the turning point?&nbsp; It does turn out that that green lines slopes down.&nbsp; That is, inequality gets worse in the early stages of development before it turns and then approaches zero.&nbsp; There s a turning point to the left of which, when countries are poor but growing, inequality between urban and rural is getting worse.&nbsp; That makes sense.&nbsp; It was true for the early developers.&nbsp; I actually did a separate data set with England, France, Germany, and so on, prewar.&nbsp; Even in those examples, inequality got worse.&nbsp; </P> <P>But what this traces out--there s supposed to be--okay.&nbsp; This line is a nine-year moving average of the quadratic regression log-squared, in terms of trade, country effects.&nbsp; Then looking at the turning point, each of those in taking the nine-year moving average; poor Selvin, that was a real struggle to do this.&nbsp; But this is the nine-year moving average of the turning point, by year, moving forward.&nbsp; This is the log of GDP at which things start getting better, inequality starts getting reduced, and we start converge in labor productivity between agriculture and non-agriculture.&nbsp; And so, you can see in 1970 to 1975 that s a fairly low level.&nbsp; </P> <P>These are per capita income paths for Mexico, Thailand, and this is France up here.&nbsp; This is Mexico.&nbsp; The bottom one, I think, is Kenya.&nbsp; So here s Kenya.&nbsp; That s the per capita income of Kenya average over these years.&nbsp; Here s where the turning point is after--beyond which, the inequality gap is narrowing, but it s getting wider up until here.&nbsp; And now look what s happening over time.&nbsp; Now, there are no countries who are rich enough to be closing the gap.&nbsp; It s gotten harder.&nbsp; We have to be much richer before the natural process of economic growth narrows the gap between agriculture and non-agriculture.&nbsp; </P> <P>Why is that?&nbsp; Well, I think the things I ticked off in terms of what globalization is doing--I think they re fundamentally root causes, but I don t know.&nbsp; That s what I m going to be working on in the next couple of months because I d really like to nail down the why.&nbsp; We ve never even seen the what.&nbsp; That s a really--if there s anything new I have to tell you, it s that this structural transformation and the equalization process by which labor productivity in agriculture approaches labor productivity in non-agriculture is getting much, much harder.&nbsp; I m going to leave you with that message.&nbsp; Thank you.</P> <P>Nicholas Eberstadt:&nbsp; Peter, thank you very much.&nbsp; Ladies and gents, we have about twenty remaining minutes.&nbsp; I think that Professor Timmer has had about forty years of fielding questions for himself, so I think maybe we ll let you do that.&nbsp; Just two house rules in AEI.&nbsp; Please wait for the mike, introduce yourself, tell us your name, rule number one.&nbsp; Rule number two:&nbsp; Please end your question with a question mark.</P> <P>Peter Timmer:&nbsp; Yeah, and nobody can ask a question that takes longer than the lecture.&nbsp; Here, and then there.</P> <P>Jean Montgomery:&nbsp; Jean Montgomery.&nbsp; I m curious if you --</P> <P>Peter Timmer:&nbsp; From?</P> <P>Jean Montgomery:&nbsp; Retired.</P> <P>Peter Timmer:&nbsp; That s a good status.</P> <P>Jean Montgomery:&nbsp; Retired government.&nbsp; The elements of public investment that might go into different kinds of agriculture in different circumstances--for example, Russia needing better transportation facilities, the kind of investment that might be needed in property right development, the invention of buyers co-ops, this sort of thing.&nbsp; Is there some way of assessing whether the potential for raising agricultural productivity is better in some of these circumstances?&nbsp; Roads, for example, might be very much more expensive than say buyers co-ops for smaller interests.&nbsp; Do you have a sense here of how this is distributed worldwide?</P> <P>Peter Timmer:&nbsp; Um, this is a question that the WDR team really struggled with because it was immediately obvious that there s just not one answer out there, even if you now say agriculture is really important.&nbsp; But certainly, Africa looks very different from China.&nbsp; South Asia looks different from Southeast Asia.&nbsp; Different parts of Latin America look very different.&nbsp; And so, how do you set those priorities?&nbsp; I mean, what s the binding constraint going forward?&nbsp; Is it the fact that--sure we ve got technology, but the farmers, if they produce something can t move it, or they can t get the fertilizer because the roads aren t there?&nbsp; Or is it the fact that they don t have property rights to their land, and therefore aren t willing to make investments that would last more than the crop season that they re looking at?&nbsp; </P> <P>The World Bank basically divided the world into three different sort of prototype categories, just to make it tractable to discuss: the very poor developing world, which is primarily Africa and still much of South Asia; the transitioning economies that are still fairly poor, but are growing pretty rapidly and you can see major progress; and what they call the urbanizing world, which is largely Latin America and parts of East Asia.&nbsp; Even there, it s not just that it s country specific.&nbsp; </P> <P>The northeast of Brazil needs different things than the central part of Brazil.&nbsp; Kalimantan needs very, very different investments than Java needs in Indonesia.&nbsp; China in the interior needs very different kinds of investments than on the coast or in the north.&nbsp; And so, my answer sort of takes me back to my earlier incarnation as a policy analyst sitting in the national planning agency.&nbsp; They still have things like that in some countries.&nbsp; You know, it s an empirical question.&nbsp; Where is the constraint?&nbsp; What will it cost to break it?&nbsp; Is that worth breaking?&nbsp; And if it s not, at market prices, then you have the question.&nbsp; I see Frank with his eyebrows up.&nbsp; </P> <P>Is it worth investing anyway, because you put a very high priority on food security and domestic production, poverty reduction--and that s where the poor are--or do you want to get elected next time?&nbsp; Those are not--I don t have general answers.&nbsp; I know how to ask the questions.&nbsp; I think I even know how to go do the empirical analysis and at what point you have to say,  Here s what the benefit/cost analysis says, given our best assessment of markets. &nbsp; But it s going to be a political decision, not an economist s decision--what you actually do.&nbsp; But I do think that that s a data analytical question.</P> <P>Abraham Avidor:&nbsp; Abraham Avidor, formerly with Foreign Ag Service with USDA.&nbsp; The thesis here that agriculture no longer requires special policy consideration or diminishing policy considerations.&nbsp; How come the farmers around the world and the farm organizations, the lobbyists, are so adamant in maintaining farm support subsidies, border protection, and so on?&nbsp; One just needs to listen to the deliberation of the Farm Bill, which makes it way through Congress, to realize how adamant the farmers, their organizations, and their lobbyists are so keen on maintaining a great deal of government intervention.&nbsp; They don t want to lose what they already have.&nbsp; Could you please comment?&nbsp; Thank you.</P> <P>Peter Timmer:&nbsp; Well, I think that answer to that grows right out of the very tensions that the structural transformation generates.&nbsp; It s the fact that labor productivity is so much higher and growing faster.&nbsp; Actually, it doesn t grow faster, but it looks like it s growing faster, certainly in absolute terms outside the economy.&nbsp; This rising inequality, this sense of grievance, translates into political pressure.&nbsp; </P> <P>And it doesn t even have to be in democracies.&nbsp; I mean, I ve seen dictators worry very much about the pressures coming out of the countryside.&nbsp; The fact that this is completely universal says that there is something very basic going on.&nbsp; What I think--I d be happy to entertain alternatives.&nbsp; I know [indiscernible] Olson used to talk about how hard it is to form coalitions and when you get fewer farmers, then they can wield their power.&nbsp; I actually don t think what s called the  positive political economy explains very much.&nbsp; </P> <P>I think it s this growing sense of inequality, and in Asia--maybe even it s true in Europe and the United States--but in Asia, there is a sense that the very large numbers of population against a fairly small arable land base means they have to grow a substantial amount of food themselves for food security.&nbsp; They just don t trust, especially the world rice market, which historically has been very thin.&nbsp; I think if you put a sense of grievance and inequality together with a national desire for food security, you can explain an awful lot of the political reaction, the political response.&nbsp; </P> <P>Let s face it--I hate to say this.&nbsp; It doesn t matter to the United States that we re spending $70-80 billion in agriculture.&nbsp; It just doesn t matter anymore.&nbsp; It s such a small part of the economy that we can indulge it.&nbsp; I don t like that answer, but I understand it politically.&nbsp; Yeah, there and then down there.&nbsp; Danny?</P> <P>Danny Leipziger:&nbsp; Hi, I m Danny Leipziger from the World Bank.&nbsp; Two questions, Peter.&nbsp; One is, uh, is it useful for policy purposes to distinguish between rural and agriculture?&nbsp; You tend to conflate the two.&nbsp; I can think of a lot of policy answers that might be different, depending on which of those two you choose.&nbsp; The second is that it s inevitable in fast-growing economies that there will be increasing inequality between rural and urban.&nbsp; Would you recommend slowing down growth, or would you recommend some other policy intervention?</P> <P>Peter Timmer:&nbsp; Good.&nbsp; I used to think it made a lot of difference to distinguish between agriculture and rural non-agriculture.&nbsp; The Japanese experience, and to some extent Taiwan, had led us to believe that there was a real rural industrialization root short of urbanization and urban industrialization that made this structural transformation easier.&nbsp; You didn t have to give up your home in order to leave agriculture.&nbsp; I just spend the better part of two years working on the rural non-farm study in Indonesia, and yeah, Indonesia is a pretty good example of rural non-farm income.&nbsp; Half of income of small farmers on Java comes from off of their own farm.&nbsp; </P> <P>It turns out that 98 percent of the demand for those non-farm jobs comes originally out of agricultural incomes.&nbsp; We were just staggered to understand, you know, agriculture really was the prime mover of the non-agricultural rural economy.&nbsp; Now, that s not God-given, but it was a fact that staggered all of us.&nbsp; So, I m much more sort of--we ve got to worry about agricultural productivity and incomes even if we are going to think about the rural non-farm sector.&nbsp; </P> <P>I m a little more careful now than I used to be when I distinguish those two.&nbsp; Sure, let s slow down the overall economic growth rate.&nbsp; I mean, that ll help everybody.&nbsp; We know what the answers are.&nbsp; It s making factor markets work much, much more efficiently: labor markets, capital markets, land markets, property rights.&nbsp; I mean, we don t need micro-credit, what we really need is formal financial intermediation all the way back down to the village.&nbsp; We need integrated factor markets so that resources can move a whole lot more flexibly.&nbsp; </P> <P>History tells us that it hasn t been fast enough.&nbsp; Even the most successful countries have had real pain.&nbsp; I still remember -- I wrote that chapter called Agricultural Transformation in the original Handbook of Development Economics.&nbsp; There s a sentence in there that says  successful agricultural transformation has been painful to every society that did it. &nbsp; Hollis Chenery said,  Peter, how can that be?&nbsp; Can t we do better than that? &nbsp; I think history is saying no.&nbsp; It s the nature of institutions and the fact that structure just doesn t change very fast.&nbsp; </P> <P>My only answer is, get the politicians to understand the dilemmas they re going to face.&nbsp; Make the investments in rural education and in rural health, so that the kids can get out even if the parents can t.&nbsp; Work hard on those factor markets.&nbsp; That s going to make things better.&nbsp; Start talking about migration.&nbsp; I m not talking international migration.&nbsp; Start talking about rural to urban migration as if that s a really good thing, and you need the cities to be ready for that, but we really want these kids to have opportunities off the farm.&nbsp; That s going to be the solution.&nbsp; I don t know a single country where rural-urban migration is considered a good thing.&nbsp; That s just wrongheaded.&nbsp; I ve got one here and then here, and then Anne.&nbsp; Okay, we ll get to Anne.</P> <P>David Torgerson:&nbsp; Yeah, my name is Dave Torgerson.&nbsp; I m with the Economic Research Service at the USDA.&nbsp; I have kind of a weird question.&nbsp; Given your thesis, did the EU do Eastern Europe a favor by essentially admitting all these countries?</P> <P>Peter Timmer:&nbsp; On the agricultural terms that they admitted though.</P> <P>David Torgerson:&nbsp; Correct.&nbsp; If you were called in to be a policy expert for the EU, what would you suggest that they change?</P> <P>Peter Timmer:&nbsp; Well, the reason Eastern Europe wanted in was to get the benefits, and so there was no deal without that.&nbsp; And let s face it, I mean, the core unit did phase them in gradually.&nbsp; They didn t come in all at once.&nbsp; Just like the labor market; they didn t open that up all together.&nbsp; Did they do them a favor?&nbsp; I think--</P> <P>[Inaudible voice from the audience]</P> <P>Peter Timmer:&nbsp; I don t think they ll grow faster.&nbsp; They may have a somewhat more equal distribution of income and be somewhat more politically stable.&nbsp; That may translate into better informed direct investment.&nbsp; Stability, by the way--the other half of my life has been stabilizing rice prices and worrying about the impact of stability on economic growth.&nbsp; Stability is really important for the long-run growth process.&nbsp; If that s a way of buying stability, it might be an effective-- I argued for twenty years the Japanese were buying political stability with their rice policy.&nbsp; </P> <P>You know, it was expensive to start, and the only reason they couldn t keep it up is that the United States was angry with them.&nbsp; If the United States hadn t been angry with them, they d just keep doing it.&nbsp; I suspect they may--I don t know.&nbsp; That s a tough call, whether they re slower or not.&nbsp; I had a question here and then a hand and then here.</P> <P>Lena Johansen:&nbsp; I m Lena Johansen.&nbsp; I m the new Journalism Fellow at CEI.&nbsp; I was just wanting to see if you had any thoughts on trade barriers like the European Union s GMO policy, and how this impacts the growth in poor countries.</P> <P>Peter Timmer:&nbsp; GMOs are obviously a dicey topic.&nbsp; I didn t mention them.&nbsp; On the other hand, I think they re inevitable.&nbsp; I think the potential for higher productivity out of GM technology is so great that eventually China and India are just going to break ranks and do it and tell the Europeans to go to hell.&nbsp; Then the Europeans will have to decide whether they want to live in that world or not.&nbsp; </P> <P>But I really don t see the kinds of productivity gains, especially in the basic staple cereals that we need over the next twenty years, coming out of what we would call conventional breeding.&nbsp; There may be tricks, a way around, actually putting exotic genes into rice plants and wheat plants.&nbsp; We may well be able to activate latent genes that are there that they can find through modern genetic technology, but not actually put an exotic gene in.&nbsp; We ll see how that plays out.&nbsp; That to me is, you know, it s the technology that people don t like.&nbsp; I m not so sure it s actually the foreign gene per se.&nbsp; But as I say, I think we re going to need that technology to keep the productivity rolling forward, given what we know is going to happen on population, income growth, and therefore on demand.&nbsp; Anne?</P> <P>Anne Krueger:&nbsp; Your income inequality political economy argument is appealing in some ways, but then one thinks about, for example, the farm program here.&nbsp; One thinks about who are the beneficiaries, and they are not the poor farmers.&nbsp; In some sense, if indeed it were the inequality, it would not be the kind of program where they can t even get the support below a million dollars per farm.&nbsp; Something is really strange here.</P> <P>Peter Timmer:&nbsp; I would agree that the United States is really strange.&nbsp; My father used to ask me why I didn t work on U.S. agricultural policy.&nbsp; Why did I work in Indonesia?&nbsp; And my answer was I can t do a thing about agriculture policy in the United States.&nbsp; It s just beyond--that s not something economists have anything to say about.&nbsp; But you know, I actually can do something in Indonesia.&nbsp; The Chairman of the Planning Agency has a Ph.D. in Economics from Berkley; and by golly, you put a regression in front of him and he says,  Oh, I see what that means. &nbsp; That s a different world.&nbsp; </P> <P>My guess is the political economy story I m telling out of inequality explains 1930-1960 in the United States.&nbsp; Then I think the farm program took on a life of its own, got the support of large-scale agribusiness, and it s, as you say--I don t know what the average payment is, but if you can t cut it off at a million bucks--I mean, my brother for ten years said he was farming the government.&nbsp; </P> <P>He wasn t really a farmer, and even then couldn t stay in business.&nbsp; He was losing money on the farm side of the little agribusiness.&nbsp; So, he sold the equipment and rents the land out.&nbsp; Instead of losing $300,000 a year, he s taking in $100,000 in rent.&nbsp; Hey, you know, that s a pretty nice turnaround.&nbsp; I just think the United States is perverse now, but then so is France.&nbsp; Last question, I suspect.&nbsp; Yeah, we re at seven.</P> <P>Ben Wattenberg:&nbsp; Ben Wattenberg, at AEI.&nbsp; You were talking about rural to urban migration.&nbsp; There is evidence coming in now of an urban to rural migration driven by two things: one is immigration, where the new immigrants are going out to meat packing plants in Omaha, Nebraska and North Carolina; and secondly, the advent of modernization.&nbsp; Once you have cell phones and computers and interstate highways and regional airports, a person can run any business anywhere.&nbsp; There s this wonderful website, Arts &amp; Culture Daily.&nbsp; It s put out from Christchurch, New Zealand.&nbsp; So, you can do anything from anywhere and get to most anywhere at any point, and that, it seems, most demographers would agree that idea is a very healthy one, because it establishes communities where those dear hearts and gentle people lead very successful lives.</P> <P>Peter Timmer:&nbsp; I really like that trend.&nbsp; I think the internet and modern communications has made life possible without having to sit in the Upper West Side.&nbsp; I tried to convince Nancy that I d be just as productive in the Sonoma Valley as I d be here in Washington.&nbsp; </P> <P>My guess is that there s a real limit to how much that--they call it reverse migration, urban to rural migration--how much that can happen.&nbsp; We can t hollow out the cities.&nbsp; I think the cities are just terribly important for the sort of interconnectedness, the spillovers, the economies of scale and scope that come.&nbsp; I mean, there s a reason that all of the finance folks are either in Greenwich or in Wall Street.</P> <P>[Inaudible voice from the audience]</P> <P>Peter Timmer:&nbsp; Yeah, and I mean, I think there s another reason for people at least going into the outer suburbs.&nbsp; I mean, the housing prices in the successful cities--the San Franciscos and the Chicagos and the New Yorks, even Washington--I know people who drive an hour and a half to get to work in the Silicon Valley.&nbsp; You know, they live out in rural California, if their house didn t burn down.&nbsp; </P> <P>As I say, I think that s a very desirable trend.&nbsp; It s just that we have to be--I think the cities need to have the necessary investment in local schools and just making cities themselves livable as well.&nbsp; I don t think we want to hollow out the cities.&nbsp; Your point is in the United States there s enough population growth you can maintain both, but even that, you know, twenty years from now there may be some trade offs that we ought to be looking at.&nbsp; But sure, I appreciate that kind of mobility.</P> <P>Nicholas Eberstadt:&nbsp; Here endeth the sixth Wendt Distinguished Lecture.&nbsp; Please join us outside for a reception; but first, please join me in thanking Peter Timmer for his splendid contribution.</P> <P>[End of transcript]</P> <P>&nbsp;</P> <P><BR>&nbsp;</P></body></html>