State's role in poverty eradication: A global phenomena
|
The debate is still on. To reduce poverty, should we use redistributive policies like taxation or accelerate growth so that the trickle down effect does the job? It is now clear that neither, by itself, is sufficient to eliminate poverty whether we look at the issue at the international level or at the level of a particular country or region.
Economic theory only tells us that, in general, the market is most efficient in promoting growth but is silent on its impact on equity. We also now know that growth will increase absolute incomes but not necessarily relative incomes. Clearly, state intervention (at the national or international level) seems warranted. How effective has state intervention been in this context? At the international level the best example has been international aid to Sub-Saharan Africa over the last few decades. At the national level we have India wrestling with the problems of poverty in general and the agriculture sector in particular. Some answers seemed to emerge in a series of papers presented in a recent international conference at the Centre for International Trade and Development, JNU. In a largely rhetorical paper Herbert Ross of South Africa looked the issue of the UN’s Millennium Development Goals (MDGs) and aid to Africa. Since independence about $1 trillion aid has been given to Africa. Yet Sub-Saharan Africa, for example, still seems to be getting nowhere as far as removal of poverty, growth or any indicator of development might indicate. As he argues, assessing the MDGs (indicators like primary education, poverty, health, global participation) only addresses the symptoms of underdevelopment rather than help in identifying the causes of underdevelopment of Africa. The problem seems to be the assumption of “one size fits all” in specifying the MDGs. In a neat complement to this, the paper by Prof Manmohan Agarwal used statistical analysis to argue that, since about 1991, countries which seem to be heading towards achieving the MDGs by 2015 are those countries of Latin America and Asia which would have achieved them anyway. These countries are not receiving any international aid largesse. Even more important, the huge aid expenditure on Africa does not seem to have improved their relative or absolute level of achievements in terms of the MDGs. The general message seems to be that untargeted aid to African countries seems to have only spawned corrupt governance which has no interest in development issues like poverty and growth. This reflects what we now know that much of aid in the past has served to merely increase demand for consumer and capital goods produced in developed countries with few domestic linkages. We must not also forget the demand for foreign consultants which seems to be insatiable in African countries! As far as India is concerned, we now know that the share of the agricultural sector in GDP has fallen while the proportion of population earning livelihood from agricultural occupations has remained more or less the same as a decade back. The paper on India by Prof G S Bhalla had some interesting statistics. In the ’80s, poverty levels (headcount measure) were inversely related to agricultural growth in various states. In other words, higher agricultural growth of a state reduced poverty levels. But this relationship breaks down in the ’90s. However, poverty does seem to be inversely related to the growth in overall GDP in both decades. This has some interesting implications. As I have argued earlier in these columns, the declining share of agriculture in GDP is a reflection of the well known law of economics known as the Engels Law. It indicates that merely attempting to raise agricultural output via input and other subsidies may not raise the per capita incomes of farmers unless accompanied by measures to reduce the workforce engaged in basic agricultural occupations. A related research by two colleagues of mine, Profs Alokesh Burua and Sandwip Das, has shown that the state domestic products (SDPs) are positively related to growth of the manufacturing sectors rather than to the agricultural sector. In other words, the only way to reduce poverty levels in the long run is to boost manufacturing output. Boosting manufacturing sector output will also reduce the workforce in basic agriculture and raise incomes of agricultural workers. Here is where some useful lessons can be drawn from the Chinese experience. The Chinese growth after 1979 was based on promoting the so-called village and town enterprises (VTEs) which were really what we in India would call village based small and medium scale industries (dairying, food processing, etc). In other words, you don’t need to bring the agricultural worker to urban manufacturing: you can take manufacturing to the agricultural sector. The phenomenal growth of the Chinese economy was based mainly on the growth of these VTEs. What then is the bottom line? Merely raising the budgetary allocations to the agricultural sector is not going to reduce poverty levels. The Rural Employment Guarantee Act, however, seems to be a step in the right direction if it leads to asset creation. Another useful initiative would be to target rural credit to rural non-agricultural occupations. The most useful initiative would, of course, be bringing technical education to the poor farmers to allow them to use new credit constructively. The poor farmers of Africa and India seem to have much in common. Unless their capacity to participate in the growth process is improved one will keep wondering why increased budget spends don’t dent poverty. This capacity depends as much on initiatives like spread of education and improved health care as on budgetary allocation for irrigation, input purchases, etc. The latter only address the symptoms of poverty not its cause. In the final analysis, there are no short cuts to reducing poverty. The author is professor at School of International Studies, JNU. Present article is based on the author view expressed in the economic times. |
Printable version
Back to top
