Lecture 3 Role of the State in Rural Development

 Rural infrastructure contributes to efficient marketing of agricultural commodities and creating rural employment  What are marketing infrastructure.  Farm-to-market roads, highways[r]

LECTURE 3

 Why does the state intervene in rural

development?

 What roles does it undertake?

 How is the role of market?

 What kind of interventions should the

state do? Why?

 What does the market do?

Some Definitions

 The State: Relations?  The State: Institutions?  The State: Organizations?  The State: Exclusive power?

 Weber (1968), the state is commonly defined in terms of its exclusive power by monopolizing on the legitimate (by

subjects’ judgment use of violence)

What constitutes rural development policy?

 Goals

 Role of government at state level

 Roles of government at local level

Goals of Rural Development

1 General goals:

Stimulate rapid economic growth in line with poverty reduction

 Government should act in such a way to maximize the well-being of society:

 Efficiency: Allocate scarce resources across households and

firms such that social economic well – being (includes individuals and firms) is maximized

 Equity: Achieve an equitable distribution of utility and

Goals of Rural Development

1 General goals:

Stimulate rapid economic growth in line with poverty reduction

Question:

 Is there any conflict between “efficiency” and

“equity”?

 Is there any conflict between “rapid economic

growth” and “poverty reduction”?

 Is there any conflict of resource allocation

Important issues

 Farm income is low because of lack of

technology, capital and natural resource

 Policy makers’ bias against agriculture

Goals of Rural Development

2 Special goals in rural development:

 Increased rural livelihoods

 Increased employments, incomes for

farmers and people living in rural areas

 Increased grass-root democracy

 Protected and conserved natural

Role of Government at state and local level

1.Demarcating role of government at different level depends on the structures of state power, but

not only clear - cut

2 Role of government at state level: Macro policy and institutions building

3 Role of government at local level:

Why does State intervene in rural development?

 Governments should provide public goods and

Why does State intervene in rural development?

 Development requires the optimal trade-off

between efficiency and equity the potential of state intervention to stimulate growth from

starting points in the interior and frontier

 The contribution of agricultural development to

growth of the entire economy and to poverty alleviation  requires implementation of

Why does State intervene in rural development?

 Rural development requires well-developed

infrastructure and supportive public goods and services and good markets

 Government intervetions are to provide public

goods and correct imperfections, imperfect and asymmetric information

Warning!

 State interventions may potentially create

Purpose of Government Intervention

 Extract resource from agriculture

 Expansion of the state – central authority  Protect the environment and agriculture as

resource

 Promote economic development  Promote food security

Government interventions

1 Agreement in principle on public sector investments

 Agricultural research (1)  Agricultural extension (2)

 Rural Infrastructure, esp Irrigation (3)  Marketing infrastructure (4)

2 Disagrement on policies and institutions

 Land tenure? (5)

Government interventions

1 Agreement in principle on public sector investments

 Agricultural research (1)

 Is agricultural research a public good?

 Which are private good supplied by the firms? (hybrid seeds with secret inbred lines, patented chemical

formulas, other intellectual properties, etc.)

 Which are public good provided by the state? (most technology for food grains, livestock, inputs)

Government interventions

1 Agreement in principle on public sector investments

 Agricultural extension (2)

 To deliver technology and knowledge to farmers  Is it a public good?

 Problems:

 Approach: top-down vs bottom-up; training vs participatory

 Wide cultural and educational gaps between scientists,

gov extension agents and farmers

 Gaps between experimental trials and practical

Government interventions

1 Agreement in principle on public sector investments

 Rural Infrastructure, esp Irrigation (3)

 Should be private or public? Should be mixed?  Small-scale?

 Large-scale?

 Consequences of water use if provided free of charge or low prices (subsidy):

 Misuse by farmers

Government interventions

1 Agreement in principle on public sector investments

 Marketing infrastructure (4)

 Rural infrastructure contributes to efficient marketing of agricultural commodities and creating rural employment  What are marketing infrastructure?

 Farm-to-market roads, highways, railways

 Trucks

 Communication networks  Electricity

Government interventions

2 Disagrement on policies and institutions

 Land tenure? (5)

 Farmer organizations? (6)  Marketing boards? (7)

Government interventions

2 Disagrement on policies and institutions

 Land tenure? (5)

 Main question: equality or efficiency?  Is small-scale farm efficient?

Government interventions

2 Disagrement on policies and institutions

 Farm organization? (6)

 Main question:

 is overall-productive efficiency improved?

 What are dynamics/incentives for farm organization?

 Reduce transaction costs?

 Enhance negotiation power for farmers?  Easier accessibility to credit?

 Better linkages (vertical) to value chain, supply chain?

Government interventions

2 Disagrement on policies and institutions

 Marketing boards? (7)

 The state to take over the marketing directly, either output or inputs  to tax export commodities, stabilize internal price  monopoly

 Questions?

 Abolition of middleman?

 Not efficient: private marketing sector has lower costs and

better information?

 Market failures caused by private sector is smaller than GOV’s

marketing boards?

Government interventions

2 Disagrement on policies and institutions

 Price interventions? (8)

 Question: should the Gov intervenes in agricultural prices?

 Improve the efficiency of the economy and thereby speed economic growth?

 Improve income distribution and raise the welfare of the poor?

 Debates:

 Pro: stabilizing food prices in long-run contributes to both

economic efficiency and improved income distribution

The Role of Social and Economic

Organizations in Rural Development (?)

 Banks and credit unions

 State companies

 Private sectors

 Social organizations

State Interventions and Rural Differentiation

 State’s interventions to control over rural

society while simultaneously transforming the productive base of rural society

 State’s alliance with rural elites and dominant

rural groups

 Dominant rural groups seeking benefits

State Interventions and Rural Differentiation

 State’s interventions cause agrarian

transformation and social differentiation

 Agrarian change can follow a number different

paths, depending the configuration of external political economic forces and internally

State’s interventions get rural development right?

1 Every country is different, history, institutions, economic structure differ from those of even its closest neighbors

2 The appropriate role of the state in rural

development is an empirical question which requires sophisticated policy analysis to