21-05-2013, 11:23 AM
AN INSTITUTIONAL FRAMEWORK FOR INCLUSIVE GROWTH
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INTRODUCTION
An Alternative Policy Paradigm
Pakistan is in the midst of a war of national survival as Taliban-Al Qaeda combine have captured large swathes of Pakistan’s territory in the NWFP and are now launching guerilla operations in some of the major cities such as Peshawar, Lahore and Karachi. As military combat is undertaken it is clear that an important dimension of prosecuting the war against extremism is to provide a stake in citizenship to the large proportion of the population that is suffering from growing poverty, unemployment and the deprivation of basic services. Economic growth in the past 60 years has failed to make a substantial dent into the poverty problem. This is because of an institutional structure within which high economic growth has been neither sustainable nor equitable.
The Elements of Inclusive Growth
A new approach to inclusive growth could be adopted by establishing an institutional framework for the provision of productive assets to the poor as well as the capacity to utilize these assets efficiently. In this way the poor by engaging in the process of investment, innovation and productivity increase could become the active subjects of economic growth rather than being merely recipients of a “trickle down” effect: Thus a sustained high growth could be achieved through equity. Inclusive growth so defined can become both the means and the end of GDP growth.
THE INSTITUTIONAL STRUCTURE OF ENDEMIC POVERTY
The Poverty Process
The poor in Pakistan cannot be simply seen as individuals with certain adverse ‘resource endowments’, making choices in free markets. Poverty occurs when the individual in a fragmented community is locked into a nexus of power which deprives the poor of their actual and potential income. The poor face markets, state institutions and local power structures, which discriminate against access of the poor over productive assets, financial resources, public services and governance decisions which affect their immediate existence.
In this context some of the questions that arise are: How do distorted markets for inputs and outputs of goods and services result in the loss of the actual or potential income of the poor? If this is indeed the case then what is the magnitude of the income loss?; how do power structures adversely affect tenancy contracts of the poor peasants?; how do local structures of power with respect to landlords.
Poverty, Power and Asymmetric Markets
Various forms of dependencies of the peasant on the local power structures and the distortions in the input and output markets functioning against the poor, constitute the elements of the process of poverty generation amongst the peasantry.
A substantial proportion of the potential as well as actual income of the poor peasantry is lost to the increasingly adverse tenancy arrangements and the obligation to sell labour at less than market wage rates or without any wages at all, to the landlords. This is because of the social and economic leverage that the landlords exercise over the poor peasants. For example, the NHDR data shows that 50.8 percent of the extremely poor peasants have taken a loan from the landlord and of these peasants 57.4 percent worked for the landlord without wages and 14 percent worked for the landlord at a daily wage rate of only Rs.28, compared to the typical market daily wage rate of about Rs.150.
At the same time there is unequal access over both the input and the output markets. For example, the NHDR data shows that the poor peasants have to pay a higher price on their inputs and get a lower price on their outputs compared to the large farmers. As a consequence the poor are losing 20.5 percent of their income in the major crops alone due to asymmetric markets.
The Dynamics Of Participatory Development
The process of Participatory Development proceeds through a dynamic interaction between the achievement of specific objectives for improving the resource position of the local community and the sense of community identity. Collective actions for specific objectives such as a small irrigation project, fertilizer manufacture through organic waste, clean drinking water provision, or production activities such as fruit processing, can be an entry point for a localized capital accumulation process, leading to group savings schemes, reinvestment and asset creation. The dynamics of Participatory Development are based on the possibility that with the achievement of such specific objectives for an improved resource position, the community would acquire greater self confidence and strengthen its group identity.
INSTITUTIONAL FRAMEWORK FOR A SMALL AND MEDIUM FARMER AGRICULTURE GROWTH STRATEGY
Pakistan’s fragile democracy is threatened by an economic crisis combined with growing poverty that fuels terrorist organizations. An important factor in the economic crisis is the food deficit and the underlying stagnation in yields per acre of major crops. (In the year 2007-08, crop sector growth was negative). It can be argued that if the yield potential of the medium and small size farm sector is achieved, food shortages can be converted into food surpluses. Such a shift can enable Pakistan to convert its weakness into its strength: The current crippling economic burden of food imports can be converted into a strength through food exports. To bring about this transformation a new policy framework is required to shift from the earlier elite farmer strategy to a new small farmer growth strategy.
Land for the Landless
A policy of enabling tenant farm households to acquire ownership rights together with access to the markets for inputs could play a vital role in making the small farm sector the leading edge of a faster and more equitable agriculture growth. Such a policy could have two main elements: (a) Transferring the existing 2.6 million acres of state owned land to landless peasants together with an institutional framework for providing them with access over high quality seeds, fertilizers, water and extension services. (b) Institutional changes to open up the land market together with the provision of credit to tenant farm households for enabling them to purchase land. Let us briefly discuss each of these policies in turn.
State Land for the Landless
An initial step in providing productive assets to the rural poor could be to allot the available 2.6 million acres of State owned land to the landless. This cannot be seen as a substitute for a land reform programme of ‘land to the tiller’. According to the Census of Agriculture 2000, there are about 4.97 million acres of private farm area under pure tenant cultivation in farms below 25 acres. It is this acreage that would need to pass into peasant ownership for a genuine land reform to occur. Nevertheless 2.6 million acres (assuming that all of it is cultivable) could make a significant contribution to the reduction of rural poverty. For example if the 2.6 million acres of state owned land were to be transferred to landless farm households in holdings of 5 acres each, then as many as 520,000 tenant farmers would become owner operators. This means that out of the total number of tenant farmers (about 897,000) in the less than 25 acre category, as many as about 58% would become owner operators.