A Productive Response to Illegal Immigration

Published July 3, 2007

The recent immigration legislation crafted by a coalition featuring Sen. Edward M. Kennedy and President George W. Bush failed because it just didn’t make sense to a significant majority of Americans. One way to fix that would to be tackle a real, underlying problem: U.S. farm subsidies that drive poor Mexican farmers out of business and send them north looking for jobs.

The Environment Working Group, a Washington-based nonprofit, estimates the U.S. government spent more than $21 billion on farm programs in FY2005, including $16 billion on commodity subsidies. More than half of those subsidies went to the top 7 percent of farms, with revenues above $250,000 per year. This corporate welfare to agribusiness is concentrated in five commodities: corn, rice, wheat, soybeans, and cotton.

The Congressional Research Service has documented that in FY2000 subsidies in rice and cotton covered 174 percent of market income, encouraging overproduction of those commodities. In turn, overproduction reduces conservation of marginal land and water resources and causes overuse of pesticides. The overproduction further decreases prices in the global market for these products.

That’s where the effect on immigration comes in. The North American Free Trade Agreement (NAFTA) permits heavily subsidized U.S. corn to be imported into Mexico. As a result, more than 10 million Mexican farmers are left unable to compete against the U.S. They have abandoned their subsistence farms and come across the border as undocumented workers. Their alternative is to work in Mexico-based, American-owned maquiladora sweatshops that offer subsistence wages and harsh working conditions, pollution, congestion, and exploitation of women.

U.S. farm subsidies don’t do Americans any good either. The Cato Institute has extensively documented the trade-distorting aspects of government farm subsidies. In 2005 Cato released its “Ripe for Reform” report outlining how removing trade barriers and price supports could lower food costs domestically for consumers of sugar and dairy products. U.S. industries that use these products would also enjoy lower production costs to pass on to the American consumer.

Artificially high prices for domestic farm products also jeopardize export sales, investment, and jobs, both here and abroad. The Organization for Economic Cooperation and Development has estimated, according to Cato, that there is a hidden “food tax” on American consumers of at least $8 billion per year as a result of artificially higher costs of sugar and dairy products due to tariffs and price supports.

In “Freeing the Farm: A Farm Bill for All Americans,” Cato’s Sallie James and Daniel Griswold suggest a solution to this dilemma: a one-time buyout from the U.S. government to all current recipients of corporate welfare known as farm subsidies. They propose lump-sum payments to farmers of not more than the present discounted value of future support under the existing 2002 Farm Bill legislation. A $45 billion payout would represent 70 percent of the present discounted value of the next seven years of U.S. Farm Bill payments for subsidies.

The lump-sum payments would be decoupled from production decisions or price fluctuations. Farmers who receive the payments could use them “as a kind of self-insurance program, a rainy day fund that farmers could draw on to ease their transition to a fully liberalized market for farm products, to smooth their income during years when prices or yields fall, and to purchase insurance in the event of a disaster,” the Cato authors note.

Since the one-time payments would not be linked to production, they would not distort farmers’ decisions on what crops constitute the best investment based on real market factors.

The bottom line: The proposed buyout of agribusiness corporate welfare through one-time lump-sum payments totaling about $45 billion would free U.S. farm trade from distorting government policies and relieve much of the pressure for Mexicans to immigrate illegally to the United States.

Ralph W. Conner ([email protected]) local legislation manager for The Heartland Institute and former village president of Maywood, Illinois.