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Addressing Food Commodity Speculation

December 21, 2012
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Casino Capitalism

As I’ve noted before, the sharp increases and increasing volatility of food prices over the past five years is primarily the result of speculation in food commodity markets. Blogging for Triple Crisis, Jennifer Clapp calls for the re-regulation of such speculative investment.

I should note that I’m a big fan of Jennifer Clapp’s work. Her recent article, “Troubled Futures? The global food crisis and the politics of agricultural derivatives regulation,” co-authored with Eric Helleiner and published in Review of International Political Economy, provides a powerful analysis of the domestic political interests in the United States in the process of de- and re-regulation of speculative investment in agricultural commodities. Her post at the Triple Crisis blog updates the article, observing that a series of law suits in the United States have effectively stalled efforts to re-regulate food commodities markets. Meanwhile, regulatory reforms in the European Union appear to be moving forward.

While Clapp greets such initiatives with a hopeful note of optimism (and simultaneously points out that returns on such investments have been declining and that popular opposition from civil society has prompted other investment houses to consider withdrawing from such investment practices) I remain more pessimistic.

The general trend over the past several decades has been towards greater commodification, financialization, and privatization of risk. Developments in the agricultural sector merely mirror broader economic and social trends. When the housing bubble burst, largely as a result of excessive speculation in mortgage-based credit default swaps and other forms of “casino capitalism” (to use Susan Strange’s famous phrase), there appeared to be a brief moment in which demand for regulatory oversight of Wall Street surged. Some even called for a return of the Glass-Stegall Act, passed in the wake of the Great Depression, which established a firewall between commercial banks and securities trading firms. The Dodd-Frank Act was originally envisioned as a way of imposing stricter regulations. But the watered down compromise, subsequent lawsuits which overturned key provisions of the Act, and refusal of the Senate to confirm key appointments to the regulatory bodies which the Act created, have left Dodd-Frank a hollow shell.

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