Landbouweconomie als beleidswetenschap : een pragmatische kritiek

Research output: Thesisinternal PhD, WU

Abstract

AGRICULTURAL ECONOMICS AS POLICY SCIENCE:
A PRAGMATIC CRITICISM

Introduction

This study aims to make a contribution to the discussion of how to increase the scientific quality of agricultural economics, by means of an epistemologically based assessment of the discipline. The analysis consists of two parts. Part I outlines the foundations of the study. The work begins with a pragmatic or instrumentalistic view of science, as elaborated by Meehan (1982). The criteria derived from this view for the assessment of policy-oriented empirical research are illustrated in two scientific areas that are closely tied to agricultural economics: economics and the agricultural sciences. Next, the history of agricultural economics is examined. Part II presents case studies of characteristic examples of modem, post-war agricultural economics research. For this purpose seven examples were chosen that have been presented as relevant for policymaking, are representative of their types, and that together give an accurate picture of major trends in agricultural economics research.

This summary includes a short overview of the assessment criteria used, followed by the most important findings and general conclusion of the research.

Assessment criteria

Agricultural economics exists as a specialization within the field of economics due to the shared characteristics of economic issues concerning food supply and agricultural production. These characteristics stem from agriculture's specific technology and institutional framework, and they are expressed, among other ways, in price and income formation and in the use of production factors (Horring, 1960).

To substantiate its existence, the discipline must contribute to the handling of relevant issues. Economic issues are by nature issues of choice. Questions such as which goods and services should be produced, how scarce resources should be utilized, who should be allowed to benefit from the fruits of production, and which policies should the society institutionalize to achieve its goals are of central importance.

Extensive knowledge is necessary to handle these policy issues. Reasoned choices require empirical as well as normative knowledge. Normative knowledge is considered here to be the ability to choose between various possible courses of action, and to systematically defend that choice.

One of the starting points of this research is the belief that the discipline of agricultural economics wants to and also must provide the empirical knowledge needed for policymaking. The policy concept of Meehan (1982), defined as a manual on how to achieve important goals, offers a way to further specify the knowledge that is required. The empirical requirements of policyaking are instruments with which processes can be directed. To obtain these, knowledge of causal relationships is necessary, in the sense of fixed connections between actions and effects. Such relationships are generally defined in theories. If the policy-oriented empirical sciences take their pretensions seriously, they will have to strive to develop and assess theories regarding causal relationships in important policy areas.

A generally accepted research theory that leads to results which are reliable and adequate for policyaking is not available. However, it is advisable to use the research methods that give the greatest possible chance of achieving such results. As explained in Part 1, indications for the use of such methods can be based on the assumption that theories are creatively developed from generalizations of specific experiences (induction). Generalizations are made up of concepts and observations, descriptions and predictions. Predictions can be based on theories, but also on classifications and on correlations between variables. For the development of both theories and predictions, precise and adequate empirical descriptions are needed. Descriptions, in turn, are dependent on the quality of observations and the concepts used.

Based on the above considerations, the assessment criteria for policy-oriented research are defined as follows:
- Research goals: research must aim to develop socially relevant theories that connect actions to their effects (causal relationships).
- Research methods: empiricism (descriptions and fundamental concepts, and observations) should be of central importance. Assumptions about the characteristics of people, things and their interrelationships must agree as much as possible with reality. Assertions derived from axioms cannot be challenged empirically, and are therefore not suitable for policyaking Although deduction plays an indispensable role in research, a rationalistic or postulational research strategy cannot possibly achieve the required results.
- Validation of research results: potential users should be given the opportunity to evaluate the presented theories. For this purpose, it must be apparent to what extent the theory and its limiting factors agree with existing knowledge. The description of limiting factors should make it clear what the theory exactly applies to. Also the theory should be accessible and verifiable. Enough supportive evidence should be presented to prove that the theoretical structure functions as expected when actions are based on it. Finally, the theory should address relevant side-effects.

These criteria apply to theoretical research. It cannot be expected of descriptive research that it reveals causal relationships, because it does not profess to. Considering their role in the development of theory, descriptions must be not only precise, but also adequate for the purposes for which they are eventually used.

Findings

Research goals

Critics of the economic discipline in general contend that a great deal of modem theoretical work does not relate directly to reality, that it does not attempt to develop instruments with which processes can be directed, and that it therefore cannot make a meaningful contribution to policymaking. In the agricultural sciences, however, conscious efforts have been made to describe actual processes and to develop methods for improving and increasing agricultural production. This is accomplished by influencing naturally occurring processes (for example: fertilization, cattle feeding, crop protection, improvement of machinery and buildings). 'Agricultural scientists', according to C.T. de Wit (1977, p.93), 'have long known that very little will be accomplished with a laissez faire approach'.

The agricultural sciences, thus, generally meet the criteria for research goals. This is also the case for the economic specialization within the agricultural sciences. In the history of agricultural economics there are many examples of empirical research conducted for the purpose of contributing to the solution of policy issues. For example, the physiocrats of the eighteenth century, led by F. Quesnay, conducted agricultural economic research to increase the wealth of the French monarch, and thereby also improve the wealth of the entire kingdom. The British forerunner of agricultural economics, Arthur Young, developed models of the ultimate profit-making farms. This was also one of the central objectives in the work of A.D. Thaer, the founder of the agricultural sciences. Thünen discovered that the relative attractiveness of agricultural enterprises is dependent on price ratios, which are in turn partially influenced by transport costs. Another eminent German economist who worked extensively on agriculture, W.G.F. Roscher, tried to find a business structure that would best serve the interests of society. Buchenberger looked for practical ways to improve the critical condition of agriculture, and conducted research to determine, among other things, under what circumstances price controls for agricultural products could be justified.

Modem agricultural economics, at least in the selected examples, strives to meet the following objectives:
- Agricultural Economic Research Institute LEI-DLO reporting of business results and financial status attempts to give a representative picture of developments in Dutch agriculture, while also focusing on the changes taking place in the various groups of agricultural businesses (clustered according to type, size and specialization). The LEI figures are intended for various institutions and individuals: the European Union and national government, business organizations, entrepreneurs and their advisors, and financial institutions. The reporting does not provide these users with readymade theories or instructions. However, the descriptions do serve as a basis, in agricultural economics research for example, for predictions and theories, and consequently for the making and evaluation of policies.
- The aim of Agriculture in an Unstable Economy, by Th.W. Schultz (1945), was to lay the foundations for post-war agricultural policy in the United States.. To do so, Schultz identified the circumstances and policy measures that could contribute to a successful development of agriculture in the growing, but unstable, American economy. His research is for the most part an attempt to provide empirical arguments for the concluding policy recommendations.
- Farm Prices: Myth and Reality, by W.W. Cochrane (1958), attempts to make an accessible contribution to the discussion concerning agricultural price and income policies in the United States. Cochrane uses his analysis of the price formation of agricultural products to make predictions and to provide insight into the effects of various possible policy measures. The book concludes with a plea for a supply control program.
- Agricultural Development: An International Perspective, by Y. Hayami and V.W. Ruttan (1985), is a comprehensive study that focuses on the technological and institutional developments in world agriculture. The goal of the study was to develop a complete agrarian growth theory that could serve as a guideline for agricultural policymaking in developing countries.
- The concepts PSE (Producer Subsidy Equivalent) and CSE (Consumer Subsidy Equivalent) refer to the measurement of government support of a sector. They have recently received much attention, thanks in part to the Uruguay round of GATT negotiations, in agricultural economics research concerning the extent, structure and development of agrarian protection. PSE and CSE results are supposed to reflect the politically induced income transfers between consumers, taxpayers and agricultural producers.
- Disarray in World Food Markets; A Quantative Assessment, by the Australian agricultural economists R. Tyers and K. Anderson (1992), is a recent example of a separate category of studies concerning global agricultural markets. The goal of this research was to give insight into the economic effects of protection and liberalization.
- The Economics of Agricultural Policies, by B.L. Gardner (1987) is a textbook on agricultural policy analysis. According to Gardner, the task of the agricultural economist is not to take sides in agricultural politics, but to determine the effects of policy options. The aim of his book was to develop useful methods for the economic analysis and evaluation of agricultural policies.

These examples of modem agricultural economics research are all concerned with socially relevant issues. Furthermore, nearly all of them meet the criteria that research should attempt to identify causal relationships. The LEI reporting does not claim to do this, but such reporting is a prerequisite for theoretical research and policymaking The PSE and CSE studies of OECD and USDA are also descriptive in nature, but they claim to measure in part the income effects of agricultural politics. The other studies deal explicitly with causal relationships. The question is whether, and under what circumstances, the relationships actually hold.

Research methods

Aside from being designed with good intentions, research must also be based on responsible methods if it is to make a meaningful contribution to policyaking In the agricultural sciences, observation and description of phenomena occurring under specified conditions (in the field, greenhouse, and laboratory) play a central role in research. This is much less the case in theoretical economics. As explained in Part I, Meehan and others have criticized general theoretical economics for allowing the postulational and rationalistic research strategy to dominate over the empirical. More attention is paid to axioms and mathematical manipulations than to empirical data. Such methods and assumptions form an obstacle to the emergence of theories that are suitable for policymaking.

The agricultural economics discipline, as shown in this research, has a strong empirical tradition. The gathering and interpretation of factual matter was already a major part of research for the forerunners of the profession, the physiocrats and Arthur Young. Big names in the history of the profession (including Thaer, Thünen Roscher, Buchenberger, Laur, and Taylor) are known for their original answers to the questions of what data should be gathered and how this must be done. They used comparative business research, data from bookkeeping records, agricultural surveys, bookkeeping networks, historical material, and production and price statistics.

The seven examples demonstrate the role empiricism plays in modem agricultural economics:
- The research conducted by the Agricultural Economics Research institute LEI-DLO is a textbook example of thorough descriptive economic research. It begins by typifying and giving dimension to the population of farms (as reported in the May census); thereafter a stratified sampling is made from the population. At the sample farms numerous relevant empirical data are gathered and organized. Afterwards they are translated into verifiable information using diverse statistical techniques.
- Schultz' (1945) study begins with an inventory of the concrete conditions, developments and problems that had occurred or could be expected to occur in the American agricultural economy. The descriptions and predictions are followed by theoretical analyses of the underlying factors. After evaluating the then current agricultural policies, the study concludes with advice on how particular problems could be handled by the government.
- Cochrane (1958) also focuses on the practical problems of agricultural politics. However, his book is more of an expressed opinion on which agricultural market and pricing policies should be adopted, than a report of empirical, scientific research. The theoretical discussion is rather abstract. With the help of aggregated short-term demand and supply functions, Cochrane presents an interesting but controversial analysis of historical price formation of agricultural products.
- Hayami and Ruttan (1985) place important emphasis on empiricism in their research. However, as the quality of the material used is often questionable, interpretations must be made with great caution. Furthermore, the methods that the authors use to deal with the material tend to be postulational and rationalistic. Reality is viewed using the neo- classical economic concepts of the developed induced innovation model, such as production function, demand, supply and equilibrium. But technical and institutional changes also have important socio-cultural causes and effects.
- The PSE and CSE studies quantify market price supports, measured as the actual difference between national market prices and world market prices, and subsidies that are directly financed by the government. The concepts are based on unrealistic assumptions. Therefore, caution must be taken in interpreting the results. Neither income nor trade effects of agricultural policies are measured.
- The study by Tyers and Anderson (1992) is hardly empirical at all. It does begin with factual information about developments on the world market and about agricultural polities of rich and poor countries, but the main part of the study consists of simulations derived from a mathematical model. This model is a series of equations that describe relationships between levels of production and consumption, and prices. The model is based on the period 1980-1982. It is doubtful whether the model is in fact an accurate reflection of reality. A very problematic assumption in the model is that without government interference the market mechanism in agriculture and elsewhere will lead to an optimal allocation of production factors. This assumption ignores the typical characteristics of agriculture. The idea that the market mechanism works perfectly in the rest of the economy is just as unrealistic.
- Gardner (1987) refers in his textbook on the economy of agricultural policies only occasionally to concrete conditions and problems. Instead, the numerous pages are filled with simple and more complicated partial-equilibrium models for the analysis of possible government measures. Such measures cannot be analyzed, according to Gardner, until they are reduced to a variable that can be incorporated in a supply and demand model. Reality is thus compromised on two levels. This axiom-based strategy is a typical example of rationalistic, postulational research strategies. A fundamental objection to them is that it is impossible to empirically test whether their logical conclusions agree with what actually occurs. It is for this reason that such analyses cannot be used for policymaking.

The examples illustrate that empiricism has not been forgotten in modem agricultural economics. However, modem neo-classical economics with its axioms, nominal concepts and deductive methods has played an increasingly important role in the discipline. Gardner's (1987) textbook is the best example of this, but Hayami and Ruttan (1985) and Tyers and Anderson (1992) confirm the trend. With regards to methods, these researchers are unlike Schultz (1945), who used a much more inductive approach.

Validity of research results

Causal assumptions are only defensible - and useful for policymaking - once they have been subjected to a proper test programme and have thereby been proven accurate. The completeness of the results is also very important: they can not be suitable for policymaking if they neglect to address important side-effects.

There appear to be great differences in the above mentioned areas between modem theoretical economics and the agricultural sciences. According to critics, the results of modem theoretical economics are often insufficient: the designed instruments are unsatisfactory, models or logical structures are often not appropriate, supporting evidence for assumptions is seldom offered, and there is the problem of incompleteness. The latter is an important area of concern in the agricultural sciences as well. Nevertheless, agricultural scientists have undeniably achieved impressive research results.

The history of agricultural economics demonstrates that this specialization has achieved results which are useful in policymaking. Some immediate examples are recommendations regarding the design, structure and planning of agricultural enterprises; instruments for market and price regulations and income protection, and instruments for agricultural development polities.

In the case studies of modem agricultural economics the research results are validated as follows:
- The LEI-DLO research on Dutch agriculture does not claim to reveal any causal relationships. A positive aspect of the reporting is that it provides supporting evidence for the representativeness and reliability of the results. An important limitation
of the research is that the small (part-time) farms, are not represented in the sampling. Very large agricultural firms and stock-farms are also not included in the described population.
- Schultz (1945) presents in his study empirically testable predictions and useful instruments for agricultural policymaking. The post-war years have proven that his vision of long-term development in agriculture was correct: due to a combination
of technological forces and agricultural particularities, development in agriculture coincided with great changes in the utilization of the production factors in agriculture, with severely altered relative prices, and with continuous pressure on agricul
tural incomes. Schultz's suggestions for pricing policy (forward prices at equilibrium levels) were not put into practice. In the post-war years, income-directed agricultural market and pricing policies retained its prominent position in American agricultural politics.
- Cochrane's (1958) plea for a comprehensive supply control program in agriculture is empirically less sound. Particularly weak are the assumptions that the supply control can easily be made effective, that this automatically leads to the desired price increases, and that they in turn will result in a long-term increase in agricultural incomes. These crucial , assumptions are not supported by convincing evidence.
- Hayami and Ruttan (1985) demonstrate the importance of technological and institutional innovations in agrarian development. But the validity and normative adequacy of their 'induced agricultural development model' must be brought into question. The authors admit that, in addition to changing factor scarcities, other factors (product demand, market disturbances, cultural factors, general scientific and technological innovations) can also play a role in the process of technological and institutional change. Such statements make their model irrefutable.
- The PSE and CSE calculations of OECD and USDA offer a very static insight into the degree of governmental intervention in agriculture. The concepts are in fact no more than new names given to variations on the concept nominal rate of protection (NRP). The descriptions quantitatively summarize particular conditions. This research can have very little impact on the development of sound theories and agricultural policies.
- On the basis of simulations from their model of world agricultural markets, Tyers and Anderson (1992) conclude that liberalization of agricultural markets will increase prosperity in the world. The results are derived directly from debatable assumptions, for which no supporting evidence is given. Therefore, the researchers' results and policy recommendations can not be trusted.
- Gardner (1987) recommends abstract models and formal methods for the analysis of market and price measures. His work is only indirectly related to reality. The usefulness of the methods is not demonstrated, and the theoretical contributions in the book cannot be used in policymaking

As far as validity of results in concerned, most of the examples do not meet the established criteria. In some cases an attempt is made to identify causal relationships, but supporting evidence is often lacking. Moreover, the completeness of the research results is problematic. The exception to the rule is Schultz (1945) who developed testable predictions and useful policy instruments.

Conclusion

As a policy science, the agricultural economics discipline aims to provide knowledge for policyaking Considering the economic problems faced by Dutch, European and global agriculture, this is a very worthwhile goal. The policy issues, some that have
existed for years and others that are relatively new, cover areas such as: food supply (food shortages and hunger coinciding with agricultural stockpiles); uncontrolled productivity growth; rules of conduct in international agrarian trade; alarming agricultural price and income developments; unbalanced distribution of income and wealth; declining employment opportunities; soil, water and air pollution; the diminishing quality of nature, etcetera. These policy issues are essentially important, not only to the people involved in agriculture, but also to society as a whole.

Scientific endeavour in these fields can therefore not be taken lightly. On the contrary, it brings with it a great deal of responsibility. The knowledge required to comprehensively deal with these policy issues is overwhelming. One of the starting points of this research is that agricultural economics should provide the empirical information needed to make reasoned normative choices. Namely, it should make predictions regarding future developments and theories that can connect actions with their effects (causal relationships). Due to the dynamics and complexity of society, it is a very difficult task to provide such information, but not an impossible one.

This study has demonstrated that the history of agricultural economics offers examples of high-quality policy-oriented research. It has also shown that post-war agricultural economics research provides important information about developments in the agrarian sector, and thereby creates a basis for theorizing, and for the making and evaluation of policy. The discipline also boasts a classical policy-oriented study, by Schultz (1945), that can be recommended to economists as an example worth following. There is thus some justification for the praise given to agricultural economics by Leontief (1971).

By contrast, the other examples of modem agricultural economics in this study cannot provide the scientific results needed for policyaking This judgement confirms the general view expressed by several critics (cited in Part 1), including Paarlberg, Brandow, Bonnen, Doering, Dietze, Hagedorn, Brandes, Louwes, Van den Noort, De Hoogh, Veerman and Oskam, that the quality of current agricultural economics can and must be improved.

From the described epistemological analysis of modem agricultural economics it can be concluded that the shortcomings, at least of the examples considered, are not in the goals of the research, but in the research methods and the validation of causal assumptions. Empiricism should play a much more central role in research, and assumptions about the characteristics of people, things and their interrelationships should agree as much as possible with reality. Alas, in modern agricultural economics, just as in modern general economics (including neo-institutional economics), the postulational and rationalistic research approach has become increasingly popular in the last decennia. The overwhelming trust in formal methods and nominal concepts, such as demand, supply and equilibrium, coincides with a great abstraction of real conditions and problems. As a result, the validation of causal assumptions is inadequate for the potential users of the information.

This development in agricultural economics stems from the idea that the reality to be researched can be represented as an axiomatic system. This idea in turn comes from the classical mechanistic view of the world. Such a Newtonian view of science and reality has been extremely successful in some scientific fields, but it has not been accepted as generally applicable in the natural sciences for years. The world as seen in the modem view is much more complex, less understandable, and also less predictable than in the mechanistic one. Not unrelated to this is the replacement of fundamentalism with fallibilism, according to which all knowledge is in principle fallible. The pragmatic epistemology upon which this research is based makes the same claim: only that which works is 'true'. This view is universally accepted by agricultural scientists, and also had a considerable following among classical agricultural economists.

Agricultural economics has gone through a fundamental change during the past decades. Agrarian economists nowadays lean heavily on general neo-classical microeconomics, which typically neglects the traditional policy-oriented and applicable character of the economics discipline. Colander (1992) refers to this as 'The Lost Art of Economics'. Indeed, if agricultural economists wish to contribute constructively and scientifically to the resolution of policy issues, they will have to go back to practising their trade as an art.

Original languageDutch
QualificationDoctor of Philosophy
Awarding Institution
Supervisors/Advisors
  • de Hoogh, J., Promotor, External person
  • Veerman, C.P., Promotor
Award date4 Nov 1994
Place of PublicationWageningen
Publisher
Print ISBNs9789054852988
Publication statusPublished - 1994

Keywords

  • agricultural economics
  • agricultural policy
  • green revolution
  • economics
  • government policy
  • agricultural law
  • Netherlands

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