Surplus Yo Momma, an Argument with Krugman on Economic Development

New York Times columnist and Nobel Laureate, Paul Krugman made an observation today about China that has resonance far beyond China. If taken as a guide for planning--which it is--then it upsets people around the world and has serious consequences for global development. 

While discussing the economic crisis China faces that, he argues, will be disastrous for the world, Krugman mentions the development model China has followed and quotes “an old insight by the economist W. Arthur Lewis, who argued that countries in the early stages of economic development typically have a small modern sector alongside a large traditional sector containing huge amounts of ‘surplus labor’ — underemployed peasants making at best a marginal contribution to overall economic output.”

This is a very troubled statement, what ever its merits are in the discipline of economics.   Let me give a real world example to show why it is so troubled.  

Two years ago the southern highlands of Peru rose up  against the development plans of the Government of then president Alan Garcia. They came close to provoking a major national crisis. Of special concern were two major mining developments.  

Peru’s economy depends on the export of raw materials, such as minerals. Multinational mining concerns, as well as petroleum concerns have a strong influence, as a result, in the political economy of the country. 

In this case, rural people of the Department of Puno, especially Aymara-speaking campesinos--peasants like those Krugman mentions, rose up to stop mining in their region when the government announced an agreement with an international mining consortium, Patagonia Metals, to exploit the mineral wealth of Cerro Khapía, an extinct volcano on the border with Bolivia.  The Aymara campesinos demanded the mountain be declared a protected zone.  

At the same time they demanded that another mining concession given to the Canadian Bear Creek Mining Company be rescinded. This concession was called the Santa Ana 

Project and was in the area of Huacullani, Chucuito Province, almost on the opposite end of the southern area of Puno from Cerro Khapía.  

In response to the peasant demands, the government and the media argued that the mining concessions were critical for national development in that they provided income and especially jobs. It was argued that they were helping to reduce poverty and led to the over all development of the country. 

The media and government voices held that the campesinos were irrational in the opposition in that they did not understand the benefits of a modern economy and were caught in an unreasonable and ignorant tradition that focused on spiritual benefits--i.e. the Mountains as protector deities, rather than on their own need for employment. 

In the insistence that the peasants were crazy and irrational, the actual arguments of the demonstrators were lost.  

The Aymara-speaking campesinos were arguing that their way of life--as rural, subsistence farmers (AKA peasants)--be respected and preserved.  They insisted on its fundamental value in providing the good life for themselves and their children. 

In place of a neo-liberal development model that saw them as “underemployed” people who made little contribution to national society, they argued they were at the core of Peru. They challenged the value system enclosed in Krugman’s quote.  

Instead of seeing development as calculated in per-capita GDP, they demanded a development model that saw their rural communities as existing at the center of national society.  They did not want jobs which would tear apart the fabric of their society and force them to become mine workers, or undertake some other menial job in order to fit into censuses as economically active.  What they wanted, in recognition of their demographic growth and real poverty, was a development model which provided job but which supported and sustained their way of life as a central value.  

Since this voice was ignored, Peru never had a viable debate on the merits of a peasant based model of economic development. When the new president Ollanta Humala came into office, largely elected by the population of Southern, Peru, he became co-opted by the same model of resource extraction industry and macro-economic measures of development. As a result, disaffection with his government is strong and social movements grow ever fiercer in opposition to mining and petroleum or gas extraction. 

The seeming “common sense” of Krugman’s quote negates the very values that millions of Peruvians and “peasants” like them through out the world hold.The peasants openly challenge the rationality of liberal economics which they see as inherently flawed. Unless these positions are taken into account, economic development will only happen at the point of a machine gun.  

Mines, factories, and oil pipelines will increasingly become protected by heavily armed forces and become enclaves of international action, while national politics around the world will be roiled by uprising and opposition to them.  

Economists and politicians throughout the world should listen to the peasants, who still are one of the largest segments of the world’s population, and think through how a development model could work from their perspective and not simple dismiss them completely from the accounting other than as “surplus labor.”