Non-Trade Concerns in Agricultural and Environmental Economics: How J.R. Commons and Karl Polanyi Can Help Us

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Some of conflict around agriculture in the World Trade Organization (WTO) is focused on Non Trade Concerns (NTCs). In the first section of this paper, we present how the Organization for Economic Co-operation and Development (OECD) connects these NTCs to the notion of multifunctionality and tries to promote its own "positive" approach. In the second section, we use J.R. Commons's conception to propose a specific interpretation of the OECD's position. This position implicitly constitutes a particular institutionalist practice aimed at reducing the multifunctionality of agriculture, while proposing recourse to the market as an "organizing social order." But, Commons' point of view suggests that trade and non trade outputs result from the same institutional process, and therefore may not be analytically separated. In the third section, we use Polanyi's framework to suggest that NTCs cannot be considered as "non economic" items, but belong to the "substantive economy" where they take place with their own regulation, resource-allocation decisions, non market price system, and in opposition and complementarity to market economy.

From Agricultural Market Liberalization to Multifunctionality

In the 1980s, states apparently gave a single goal to agricultural policy: liberalize trade in agricultural products, making a substantial and progressive reduction in support and protection (Daugbjerg and Studsgaard 2005). Since the early 1990s, societal objectives have started to be explicitly considered with measures like "greening the agricultural policy" in Industrial Societies (Larkin et al. 1995; Laurent and Bowler 1997). Moreover, the 1994 Uruguay Round Agreement on Agriculture (URAA), article 20, encouraged WTO member countries to "take into account ... non-trade concerns" and introduced the concept of multifunctionality. Multifunctionality means to produce several outputs at the same time. Thereby economists recognized that economic policies may include legitimate domestic objectives such as preserving family farms and rural landscapes or ensuring food safety, food security, and animal welfare. (1) These concerns reflect a fear that free market expansion and globalization may undermine the provision of valued non-market amenities and cultural traditions associated with agriculture.

The OECD (2001) defined agricultural multifunctionality and proposed a guideline to analyze it in a document prepared in close connection with members of traditional agricultural and environmental economics. (2) We wish to underline the two following points of this approach, which will subsequently be discussed.

The definition retained by OECD (2001, 14) lets it be known that societal objectives are treated "in the context of empirical works," wherein multifunctionality seems to be a natural and objective characteristic of certain economic activities, whose feature is jointness in the production of commodity and non-commodity outputs. Therefore, sources of legitimate jointness are described as resulting from irreducible technological interdependencies, or the presence of non-allocable input or allocable fixed factors, what OECD calls multifunctionality's "positive definition." Other sources of jointness--social organization, firm's boundaries, cultural tradition, etc.--would be considered "normative" ones, resulting from political choices and therefore less legitimate.

Jointness between production outputs induces market failures. The OECD's ideal multifunctional situation is that non-commodity outputs would be private goods that would give rise to specific markets ensuring efficiency in resource uses. Unfortunately "bad market goods" do exist, for instance in the case of "public goods." The OECD's problem becomes how to minimize public intervention, and "possible policy failures associated with incorrect estimation of the demand of public goods" (OECD 2001, 20). (3) To solve it, the OECD proposes to divide the different aspects of "bad market goods. …