Jerry Buckland

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Notes for Presentation on

The Inadequacy of Liberalization & Economic Growth to Overcome Global Poverty:

Mixing up Means & Ends in the Rural Development Debate

By Jerry Buckland

International Development Studies, Menno Simons College, Winnipeg

For Winnipeg Food Security AssemblyPanel: The Global Context of Food Security: Challenges and Opportunities for Action, Thursday 14 October, 9-10:15 AM

 

Introduction

1)      The Washington consensus in agriculture and rural development, WARD, that has dominated rural development theory, policy and practice since the 1980s calls for liberalization, the means, through retrenching state and expanding markets, trade and modern technology in order to re-organize state-market-society relations so to foster economic growth, the end. WARD proponents argue that the problems of rural poverty and food insecurity can be resolved through economic growth. WARD adds that growth in turn is best achieved through markets by clawing back the state. While WARD is undergoing some revision with the addition of democracy and civil society as sub-goals, it is still largely focussed on liberalization as the means to the end, economic growth with by-products of overcoming poverty and food insecurity.

 

2)      I think that markets and economic growth have a role to play in addressing poverty and food insecurity in parts of the South, e.g., South Asia, sub-Saharan Africa. (On a side-point considering this conference is focused on food security in Canada it is less clear to me how expanding markets and accenting economic growth in Canada can address poverty and food insecurity here.) I argue that global poverty is more complicated than WARD proponents would suggest. Liberalization may not lead to economic growth, particularly if markets don’t exist or are uncompetitive. Economic growth may not reduce poverty particularly if the structure of the expanding economy excludes poor and food insecure people.

 

3)      My argument in this presentation is that accepting liberalization as the means, and economic growth as the end with by-products such as reduced poverty and food insecurity is problematic. What I think is required is to place food security and the alleviation of poverty as the ends and see markets, society and the state as well as different structures of economic development as different actors and tools available to address poverty and food insecurity. Accepting this position has important implications for food security in Canada in terms of its own, as well as the support of other nations, economic development.

 

4)      Neoliberal policies of economic growth through liberalization have not lived up to their promises to reduce poverty and food insecurity in the South. My presentation focuses on structural economic aspects of the rural development debate and does the following: section 1 provides some evidence about rural poverty during the last twenty years; section 2 points to some factors explaining stagnant poverty in the face of a growing world economy and section 3 suggests options for rethinking rural development.

 

1. The Rural & Farm Face of Global Poverty[1]

1)      During the decade of the 1990s world GDP grew at 2.5 percent increasing world GDP from from $21.4 trillion in 1990 to $30.2 trillion in 1999, but there has been a stagnation in the numbers of people struggling with poverty[2]:

a)      Absolute income poverty, measured by those with per capita per day income less than $US 1 moved from 1.18 billion (28% of the total world population) in 1987 to 1.19 billion (24% of the total world population) in 1998. According to IFAD’s Rural Poverty Report (2001) three-quarters of the income poor are rural people while agriculture provides 60-75 percent of rural work.

 

b)      The latest figures in the FAO’s State of Food Insecurity (2003) on food insecurity measured by those who are undernourished indicate between 1995 and 2000 the number undernourished increased from 798 million (18%) to approximately 800 million. The number of food insecure did drop from the 1979-81 period estimated at 948 million (29%).

 

c)      The percentage and numbers of people facing unsafe water, sanitation and illiteracy have improved marginally in the last twenty years and for several Southern regions the rural-urban odds ratio (rural percent divided by the urban percent with access to service) has improved. However the latter is not the case for sub-Saharan Africa and barely the case for South Asia, the regions with the greatest numbers of poor in regards to water and sanitation. Lipton and Eastwood found that in 49/55 nations the illiteracy odds ratio increased through the 1970s and 1980s between rural and urban. The double disadvantage of rural women is highlighted in these data where rates of rural female illiteracy are far in excess of urban male literacy.

 

2)      So how can we explain the co-existence of poverty with economic growth? It is explained in part by the structure of economic growth. (I note that another factor is the size of population growth. For instance where rural population growth is significant positive economic growth will be diminished. But high rates of population growth are generally caused by poverty: poor households choose to have more children to assist the family and provide social security.) When economic growth is concentrated in the North and pockets of the South (urban China, East and South-east Asia) then it by-passes large parts of the South. This structural imbalance is evidenced in income distribution data. These data show that world income distribution has become more concentrated between 1988 and 1993 (most recent data). It is rural people in sub-Saharan Africa, South Asia and rural China are one of the major losers in this growing maldistribution of income.

 

3)      So what happened to the neoliberal policy? The WARD story went that prior to the 1980s Southern states had depressed farm prices in order to industrialize. By freeing up markets, farmers would receive better prices for their outputs, raising their incomes, livelihoods and food security. However, the data on farm price trends in the last twenty years do not support this idea:

a)      Farm output prices have declined or stagnated in world markets. Internationally traded agricultural products as a group saw a 55 percent decrease in price from 1980 to 2000. During this same time the prices paid by the South for Northern manufacturing exports rose by 40 percent.

 

b)      Farm prices have done little better domestically in much of the South. The urban-bias in prices that WARD proponents complained about in the 1970s have not been addressed. A major study found only modest improvement in terms-of-trade between agriculture and industry in some nations. With declining government services during the 1980s the consequence for rural regions is highly problematic.

 

2. Factors Explaining Persistent Global Poverty

In this section I would like to identify some key factors that have led to the apparent paradox of significant levels of world economic growth with continuing poverty and food insecurity. Why has WARD, in face of strong global economic growth failed to deliver on poverty reduction?

1)      First, the world economy started off in the 1980s with a major international debt crisis, significant levels of global poverty and significant world income maldistribution.

 

2)      Next, economic growth, the end goal of the global economy, has been lop-sided:

a)      Growth has been concentrated in North and parts of the South (e.g., East Asia): economic globalization (Foreign Direct Investment or FDI, trade and portfolio investment) have a strong ‘Northern face’ (e.g., majority of FDI in Japan, North America and EU). Northern economic growth recreates a structure of economic growth that does not benefit much of the South. For instance it does not lead to a substantial increase in Southern exports (due to synthetic substitutes, Engel’s law, etc.), dampening Southern exports and economic growth there. This is opposite what I would argue to be the ideal structure of economic development. Ideally economic development would centre on depressed communities and nations, particularly in the South. In this scenario economic growth would achieve its highest rates in depressed regions while economic growth in the North, where it is less necessary to achieve human development, would be at its lowest, perhaps as Herman Daly has suggested achieving a steady state.

 

b)      Meanwhile in the 1980s parts of South (e.g., sub-Saharan Africa and Latin America) experienced a drop in per capita economic growth. In other parts of the South (e.g., South Asia) per capita income growth declined between 1950-1970 and 1980-1990 periods. The poor performance in the 1980s is partly explained by debt and structural adjustment discussed below.

 

c)      The structure of economic growth and the world economy reinforces, and has been reinforced by liberalization as means that is blueprint, uneven and one-sided.

 

3)      Blueprint liberalization: WARD calls for structural adjustement programs (SAPs), designed by the World Bank (WB) and International Monetary Fund (IMF). But the blueprint approach is too broad a brush. Socio-cultural, political and historical factors have a great bearing on a particular country’s problems and opportunities. Simple liberalization for economic growth may not, and usually has not addressed these complex problems. A common consequence in sub-Saharan Africa is that when the state has cut-back in agricultural services, markets have simply not provided the need due to such things as non-competitive markets and high barriers to entry. Blueprint liberalization does not allow for tailored solutions to diverse challenges.

 

4)      Uneven national liberalization: SAPs were introduced by WB and IMF in the South during the 1980s; they were not introduced in the North. This resulted in uneven liberalization: Southern states opened their markets and reduced state support while North did not open its markets further (e.g., tariff rate escalation on processed agricultural goods) and continued to subsidize some sectors (e.g., US and EU agricultural subsidies amounting to approximately $US 1 billion per day). Uneven liberalization means that Southern states have less control as compared to Northern states over external shocks such as agricultural dumping. This reinforces dependence on traditional exports and reinforces dependent economic structures in the South.

 

a)      The WARD call for declining state support in areas such as rural development (including social and productive services) can seriously undermine rural economic development in a variety of ways: reduced protection of agricultural markets cannot control foreign agricultural dumping; declining state involvement and declining world prices for agricultural products can combine to maintain a domestic economic structure that is not able to develop dynamic sectors.

 

b)      Uneven national liberalization has persisted into the 2000s even after the establishment of a permanent international trade body, the WTO, which replaced the GATT and was expected to facilitate a fair process of trade liberalization. The current round of negotiations, referred to as the Doha Development Round is supposed to address the particular needs of the South. But the process and outcomes of negotiations are often biased against South in favour of the North through:

i)        Process of decision-making (e.g., green room meetings in Seattle WTO Ministerial were an explicit example of this; dispute resolution system that might be influenced by the quality/quantity of resources available to plead one’s case) and

 

ii)      Continuing imbalance between stated goals of the WTO (in particular to reduce state support for agriculture that is trade distorting) and the reality of US and EU state subsidies.

 

5)      One-sided liberalization: liberalization processes have concentrated on opening up nations for trade and investment. WARD has not been concerned to ensure that market actors, businesses including transnational corporations (TNCs), operate in a competitive fashion. Yet the existence of competitive markets is a central assumption in neoclassical economic theory, an important root of the neoliberal policy emphasis on liberalization. Markets are assumed to competitive so that there is little or no reason, or capacity to regulate them. And yet there is lots of evidence that in world agriculture markets this is not the case:

a)      A handful of TNCs control 85+ % of trade in wheat, coffee, cocoa, grains, jute, tobacco and tea. When a small number of large TNCs have such overwhelming control one has to be concerned about the probability of collusion among them. This would undermine a basic assumption of neoliberal ideology. But data on corporate operations including profits, pricing and trade between parent and subsidiary are hard to come by. There are some studies suggesting problems including:

 

b)      It is estimated that agricultural exporters have lost $US 100 billion/year in revenue because declining producer prices have not been transmitted to declining consumer prices (and therefore quantity demand did not rise as it should). Compare this to the $US 58 billion that the OECD members provide in ODA each year. One study found that as Cargill’s wheat sales increased so did the mark-up consumer’s faced.

 

3. Rethinking the Means to Overcoming Poverty & Food Insecurity

I would now like to address the question what might be some components of a system that attempts to directly address poverty and food insecurity.

1)      We need to clarify and challenge the current assumption in WARD that liberalization is the chief means to the chief end of economic growth itself leading to important by-products like declining poverty and food insecurity. These points have been clarified by such scholars as Denis Goulet, a development ethicist and Amartya Sen, an economist-philosopher who underscore that economic growth must be understood as a means to, not the end of human fulfilment. The alternative is that societies pursue economic growth without necessarily achieving human fulfilment. At the extreme economic growth might be a kind-of unbreakable rule or god that must be pursued. If this confusion of ends and means is clarified and challenged then action at the community, national and international levels will more effectively address poverty and food insecurity.

 

2)      Moreover economic growth can take many different structures: e.g., national economies seeking to integrate into the global economy, more internally focused national economic growth, and more rural and community focused economic growth, to name a few. If the end is to reduce poverty and food insecurity then the structure of economic growth will take on a particular shape for different communities and nations. For low-income and food-insecure people to benefit from economic growth they must find an increasingly valued role in the expanding economy.

a)      Where food security is a particular concern, economic growth needs to encompass farmers and farm workers. The well-being of the rural poor and farm biodiversity is intimately related to the wellbeing of farmers. Thus the structure of economic growth needed to address poverty must support farmers, their communities and their environment. Support can take a variety of forms including support for production (research and extension, assistance with marketing and inputs) and support of social services (appropriate education, health care and other social infrastructure). These services will require resources from the state that might be partly financed through improved tax revenues if international farm prices increased and from international actors such as aid donors.

 

b)      This goal can be facilitated by an expanded role for rural civil society organizations as catalysts, experimenters and advocates for development. This could be supported through guaranteed state support.

 

3)      If poverty alleviation is the end goal and a certain structure of economic development is part of the means to that end then this has important implications for the role of liberalization. In my mind businesses operating in particular competitive markets can contribute to the common good. But these two —liberalization and businesses operating in particular competitive markets— are not the same.

a)      As discussed above some markets are not competitive and some markets simply do not rise up after states retreat. In some cases TNCs dominate agriculture trade or input supply. For these markets to function effectively they must be regulated by the state. This requires regulation and public disclosure of business income and other aspects of their operations at the national and international levels.

 

b)      Moreover competitive markets respond to opportunities for profit. Poor food-insecure people have limited incomes and they do not offer great profit opportunties. Sometimes businesses simply ignore them. Thus states have a responsibility to provide services for these people (see point 2a).

 

c)      An additional challenge faced by famers is access to, and control over resources such as land, water and farm genetic resources. WARD places emphasis on private ownership of these resources is often biased towards large entities including large farmers, large businesses and TNCs. For instance a small number of agricultural biotechnology firms control the majority of patents on farm genetically modified organisms (GMOs). This form of private ownership is in competition, and one-up on traditional systems of ownership such as communal land ownership and the free sharing of genetic resources.

i)        Land reform needs to move back onto the agenda as a means of reducing rural poverty. Lessons can be learned from Kerala (India), Sri Lanka and more recently MST’s work in Brazil.

 

ii)       The TRIPS agreement in the WTO allows for nations to establish sui generis systems of property protection but many nations lack the resources or will, in the face of Northern pressure, to develop these systems. Resources need to be made available to achieve that end.


[1] Most data for this paper are taken from Buckland, Jerry 2004. Ploughing up the Farm: Neoliberalism, Modern Technology and the State of the World’s Farmers. Fernwood: Halifax.

[2] The relationship between rural poverty and food insecurity is close but not all rural poor are food insecure (e.g., subsistence farm household with decent land-holding but no political voice) and not all food insecure are rural. In this paper I focus on economic poverty and prices. This is not to say other aspects of poverty are not important.