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Agriculture and Rural Development

Growth Without Apology

Shanta Devarajan's picture

 Chhor Sokunthea / World BankFrom time to time, countries experience rapid economic growth without a significant decline in poverty. India’s GDP growth rate accelerated in the 1990s and 2000s, but poverty continued to fall at the same pace as before, about one percentage point a year. Despite 6-7 percent GDP growth, Tanzania and Zambia saw only a mild decline in the poverty rate. In the first decade of the 21st century, Egypt’s GDP grew at 5-7 percent a year, but the proportion of people living on $5 a day—and therefore vulnerable to falling into poverty—stagnated at 85 percent.

In light of this evidence, the World Bank has set as its goals the elimination of extreme poverty and promotion of shared prosperity. While the focus on poverty and distribution as targets is appropriate, the public actions required to achieve these goals are not very different from those required to achieve rapid economic growth. This is not trickle-down economics.  Nor does it negate the need for redistributive transfers. Rather, it is due to the fact that economic growth is typically constrained by policies and institutions that have been captured by the non-poor (sometimes called the rich), who have greater political power. Public actions that relax these constraints, therefore, will both accelerate growth and transfer rents from the rich to the poor.

Some examples illustrate the point.

Food for Thought

Homi Kharas's picture

Close the Gap - School Feeding Programs As we enter the holiday season, it is worth reflecting on one of the most pernicious slow-moving crises of our time: the continued presence of hunger in a world of plenty. Ending hunger by 2030 and protecting the right of everyone to have access to sufficient, safe, affordable and nutritious food is one of the targets proposed for the post-2015 agenda by the High-Level Panel on the Post-2015 Development Agenda, and many others are also promoting the same message. Pope Francis is the latest entrant into this debate with his announcement of a global campaign of prayer and action to end to hunger and malnutrition, “One Human Family, Food For All”. The campaign includes encouragement for local, national or global level action against food waste and the promotion of food access and security worldwide. The Pope prompts us all to ask ourselves, what will it take to end hunger?

A Tale of Two Impacts: Minimum Wage Outcomes in South Africa

Haroon Bhorat's picture

Worker pruning fruit trees Economist and Nobel Prize laureate James M. Buchanan remarked to the Wall Street Journal in 1996 that "Just as no physicist would claim that "water runs uphill”, no self-respecting economist would claim that increases in the minimum wage increase employment."  Of course this statement remains broadly true today, but the advent of better data, improved statistal techniques and the proliferation of country studies – have made economists far more careful about pre-judging the impact of minimum wages on employment and wages.  Indeed, in a now famous study of fast food restaurants in New Jersey and Pennsylvania, David Card and Alan Krueger showed how the imposition of a minimum wage had no significant disemployment effects, and in some cases increased employment, arising out of a large enough increase in demand for the firms’ products.
 
The evidence for South Africa, some twenty years after the demise of apartheid, is equally compelling.  In a two-part study, my co-authors and I find an intriguing set of contrasting economic outcomes, from the imposition of a series of sectoral minimum wage laws.  In South Africa, the minimum wage setting body, known as the Employment Conditions Commission (ECC), advises the Minister of Labour on appropriate and feasible minimum wages for different sectors or sub-sectors in the economy.  Currently, the economy has in place 11 such sectoral minimum wage laws in sectors ranging from Agriculture and Domestic Work, to Retail and Private Security.

中国的三中全会:会带来诸多改变——对其他发展中经济体而言亦是如此

Manu Bhaskaran's picture
Also available in: English

CN142S09 World Bank 一些观察人士提醒人们三中全会后中国共产党提出的各项改革可能因为既得利益方的阻力或缺乏政治意愿而落空。而我认为这会给中国带来根本性变化,只因为一个简单的理由——政治。首先,中共领导层完全明白该党已经因为越来越严重的腐败问题和裙带之风、越来越招人怨恨的收入不均、对食品安全的巨大怀疑以及日益恶化的污染而丧失了人民的信任。第二,他们认识到现有的经济模式不能持续地提供足以换取民众对党的拥护的经济进步。中国共产党的领导者们知道需要对当下的经济模式作出根本性改变才能重新赢得人民的信任。正因为要生存下去就要进行重大变革,因此,中共领导层将全力以赴。
 
但是有没有进行改革的政治能力呢?且来看看习近平主席是如何亲自掌控监督经济改革的机制的。习近平将领导负责“全面深化改革”的小组,这个小组将具体实施规划的各项改革。此外,他还设立了一个将由他领导的“国家安全委员会”。原中国领导人江泽民曾试图设立这样一个国家安全委员会,但未能成功。显然,习近平的同事们准备给予他推进改革所需的政治权威,而即便是江泽民这样有影响力的人也缺乏这种权威。有了他个人的权威作为这些改革的后盾,习近平不太可能妥协或退让。
 
最开始变革将分阶段谨慎地展开,但累积起来后会在2020年前改变中国的经济格局。在经济领域内,市场力量将被赋予更大的影响力,国有企业将被迫按照更商业化的方式运作,私营部门将被给予更大的活动空间。农村土地市场将建立起来,同时对农村移民在城市地区生活的限制也将分阶段取消。中央、省和地方政府之间的关系将有所改变,后两级权力部门将能更公平地分享到税收收入,从而与它们承担的责任更一致。金融改革将消除诸如对储户的不公平待遇等诸多扭曲问题。如果一切都能按计划进行,中国将变成一个更高效的经济体,拥有比现在更具活力的私营部门,出现从能在环境和收入分配方面产生更好结果这个意义上来说质量更高的增长。
 
其他发展中国家应该留心中国发生的变化。如果中国能咬紧牙关,作出维持经济发展所需要的痛苦改变,其他大的发展中经济体——比如印度和印度尼西亚——为什么就不能同样做到呢?
 

China’s Third Plenum: Much will Change - for Other Developing Economies Too

Manu Bhaskaran's picture
Also available in: 中文

CN142S09 World Bank Some observers caution that the reforms proposed by the Chinese Communist Party (CCP) after the Third Plenary meeting of its Central Committee may fall short of promise because of resistance from vested interests or a lack of political will. My view is that it will bring about fundamental changes in China for one simple reason - politics. First, the CCP leadership fully understands that the party has lost the trust of the people because of rising corruption and cronyism, increasingly offensive income inequality, huge question marks over food safety, and worsening pollution. Second, they realize that the current economic model cannot sustainably deliver the economic progress that citizens expect in return for their allegiance to the CCP. The CCP leaders know that fundamental changes are needed to this economic model to regain the trust of the people. Since survival demands big changes, the leadership will pull out all the stops.

Disrupting Low-level Political Equilibria

Shanta Devarajan's picture

Absentee teachers, negligent doctors, high transport costs, missing fertilizers, and elite-captured industrial policy all stand in the way of poor people’s escaping poverty.  While the proximate reason for these obstacles may be a lack of resources or an erroneous policy, the underlying reason is politics. Lawmakers meet during a session of Parliament in Accra

- In many developing countries, teachers run the political campaigns of local politicians, in return for which they are given jobs from which they can be absent.  The situation can be described as an equilibrium, where the candidate gets elected and re-elected, and teachers continue to be absent.  The losers are the poor children who aren’t getting an education.  The equilibrium has no intrinsic force for change, especially if, as in Uttar Pradesh, India, 17 percent of the legislature are teachers.

 - High transport costs in Africa are due not to poor-quality roads (vehicle operating costs are comparable to those in France) but to high prices charged by trucking companies, who enjoy monopoly power thanks to regulations that prohibit entry into the trucking industry.  High transport prices and monopoly trucking profits are an equilibrium. In one country, the President’s brother owns the trucking company, so prospects for deregulation there are grim.

- Several countries subsidize fertilizer, sometimes to the tune of several percentage points of GDP, only to find that it fails to reach poor farmers.  Thinking that the problem is the public distribution system, some governments have tried to use the market to allocate fertilizer, by giving farmers vouchers that they can redeem with private sellers.  A scheme in Tanzania found that 60 percent of the vouchers went to households of elected officials. When subsidies are captured to this extent by political elites, their reform will be resisted—another equilibrium.