28 February 2007 - International [Afghanistan]
The Defence Secretary, Des Brown, announced that there will be an increase in the number of troops going to Afghanistan in the coming weeks. The additional 1,400 troops will take the total deployment in Afghanistan to around 8,000, more than the number of troops in Iraq. The reason for the extra troop numbers is intelligence that suggests the Taleban will be launching a spring offensive. The Taleban have proved formidable opponents so far in the campaign.
What does this have to do with business and economics? Quite a lot as it happens. Many of the British troops in Afghanistan are based in the south of the country in Helmand Province a particularly dangerous part of the country. The Taleban are strong in this area and the British and local authorities are keen to avoid promoting support for the Taleban and especially providing more recruits for the organisation. It is not only the Taleban that provides the danger; landlords exert considerable control and power in the area and in many respects are seen to be operating outside the rule of the law with little chance of ever being punished and prevented from doing so.
This is where the dilemma facing the authorities in Afghanistan comes in. 90% of the arable farmland in Helmand is turned over to growing poppies from which comes heroin. It is estimated that 90% of the heroin that makes its way to the UK is grown in Helmand. The authorities recognise the problems that poppy growing causes right through society. They have begun a programme of eradication of the poppy crop in an attempt to break the cycle but in doing so create other problems that might lead to a rise in support for the Taleban.
Local farmers grow poppies for a very simple business and economics reason - the return they get is far greater than growing any other crop. Some estimates put the return they can get per acre as 20 times more than if they grew a crop like wheat. There is a very big incentive therefore to grow poppies rather than any other less dangerous crop. Many of the farmers in the Province are poor. They have to use the local landlords to borrow sufficient money to grow the crop in the first place. The assumption is that when they receive money for the crop they are able to pay back landlords. However, the reputation of the landlords is fearsome. They do not take into consideration the circumstances of the farmers when demanding their money back.
If the eradication programme is successful, therefore, many farmers would find themselves with no income to pay back their debts. This destroys their livelihood and puts them at great risk from the demands of the landlords. Watching Afghan officials with the support of British troops destroying the poppy crop with no alternative provided is not something they support - even if they were sympathetic to the underlying reasons for trying to limit the supply of heroin.
When officials do come in to destroy crops as part of the eradication programme, the response of farmers is understandable. The authorities are concerned that such a programme will simply play into the hands of the Taleban who are able to garner support from disaffected farmers who simply have nothing to look forward to and very few options open to them.
In such circumstances, the workings of the free market provide significant problems. Farmers are responding to price signals and allocating resources to a use which gives the best return. The return, however, carries significant social costs but not to the farmers themselves who do not bear the brunt of this cost. The challenge for the Afghan government is to change incentives; simply destroying poppy crops will not solve the root cause of the problem in the first place.
Listen to the podcast [mp3 1.55 MB]
Using an example, explain the meaning of the term 'market'. (4 marks)
In the context of markets, explain how price signals are meant allocate scarce resources efficiently. (6 marks)
Using your knowledge of economic principles, explain why farmers in Helmand Province would rather use their land to grow poppies rather than wheat, even though the effects of growing poppies is significant in countries like the UK. (8 marks))
Discuss the importance of incentives in changing the behaviour of farmers in countries like Afghanistan. (10 marks)
Assess the contrasting social costs of eradicating poppy growing in Afghanistan against the social costs of the heroin problem in a country like the UK. (12 marks)