Sell the farm: agriculture and poverty reduction

Click to see the book on OECD iLibrary

In 1972, French film maker Louis Malle spent several days interviewing people he met in a large square in Paris. The resulting documentary, Place de la République, provides a snapshot of a country undergoing profound changes as a result of the postwar boom. Then, as now, a significant number of Parisians were not born in the city but “came up” from the provinces.

One of them was a road mender. Malle asks him what it’s like to do such a tiring, dirty, dangerous job. He agrees that it’s hard, but, he points out, it’s much better than working on a farm. He describes his life as a farmboy back in Normandy in the 1940s – the endless chores, the poverty, the lack of opportunity. He left as soon as he could, and never regretted it.

Across the world, millions would do the same in the search for a better life, and the process is continuing. It can be surprising to see how keen people are to quit farming and life in the country for the city. Author Fred Pearce interviewed women working in sweatshops in Bangladesh. Like Louis Malle’s road mender, they had no illusions about their present jobs, but they still preferred having some money and better prospects for their children than the alternative in rural villages. Nazma Akter, a campaigner for garment workers’ rights told Pearce that, poor as they were, “women are becoming an economic force here. This is the first time they have had jobs. They are independent now. They can come and go; nobody stops them. Don’t take that away from them.”

Today, it may be more difficult for unskilled farm labour in poor agriculture-dependent economies to be absorbed by other sectors than it was for, say, European farmers to move into industrial jobs a century earlier. But once the change starts – and, crucially, once people have the relevant skills – the pace is invariably more rapid than in the past. In Korea, agriculture’s share of employment fell from 40% to 16% in just 14 years – a transition which took 53 years in the US and 68 years in the UK.

One way of looking at this process and what governments can do to help is outlined in a new OECD publication  Agricultural Policies for Poverty Reduction, edited by Jonathan Brooks. Change can be seen as a four-phase process for the agricultural sector.

In the early stages of development, agriculture dominates output and employment, and the priority is to “get agriculture moving”.

The subsequent generation of a surplus within agriculture leads to a second period in which agriculture makes a key contribution to growth both directly and via a variety of linkages to other sectors. These linkages range from small-scale local arrangements such as farm households having another source of income off the farm, to participation in global value chains through selling produce to international food processors.

In the third phase, agriculture’s share of national income declines and agricultural incomes fall behind those in other sectors, so the priority lies in helping the adjustment to succeed.

The fourth and final phase is one in which the agricultural sector, including agricultural labour markets, is integrated into the rest of the economy.

Policy requirements vary at each stage, and many of the policies required to improve farmers’ opportunities are not agricultural. Education and health for example may be better investments for rural populations than spending on agriculture.

A number of poor countries, mostly in Africa, are at the first two stages of this development process, and agriculture can account for up to half of GDP and 80% of employment. The book argues that while there may be plausible reasons for governments to intervene in agricultural markets in poorer economies, any short-term benefits from these expenditures should be balanced against those from investments to support long-term agricultural development.

If this development is successful, it will lead to many farmers quitting the sector, so a strategy for strengthening rural incomes should emphasise three development pathways for farm households: improving competitiveness within agriculture; diversifying income sources among farm household members; and, finally, leaving the sector for a better paid job.

This approach is relevant for countries at all stages of development, even if the opportunities vary. Smallholder farming dominates agriculture in most poor countries, and while some smallholders will be able to establish commercially viable operations, others won’t. Every country that has made the transition to a modern economy has seen agriculture’s share of GDP and employment shrink, not because agriculture has become poorer (on the contrary, farmers have become richer), but because other sectors offer far greater prospects. Agriculture can contribute to development and the fight against poverty, but there is no evidence that it can win on its own.

There may be a price to pay in terms of traditional lifestyles and culture, but not all aspects of these traditions are positive. This is one reason why the experience of Louis Malle’s road mender in France or the garment workers in Bangladesh suggests that given the chance, many people living in poor rural areas will leave the farm.

Useful links

OECD work on agriculture

OECD work on poverty reduction

Social cohesion: making it happen

Click to get the report from the OECD Online Bookshop

Today’s post is written by Anne-Lise Prigent, the editor in charge of development publications at OECD Publishing.

A famous Deng Xiaoping quote goes : “Let some people get rich first”. Yet, in Spring 2011, the Beijing city authorities banned all outdoor advertisement of luxury goods on the grounds that they might contribute to a “politically unhealthy environment”.

The trouble with growth is that inequalities tend to rise with it. Growth does not necessarily translate into better life satisfaction – far from it, as the experience of Thailand or Tunisia shows. What happens when the fruits of growth are not shared, when people feel that income inequalities are rising and food prices soaring? Well, that’s when the so-called “politically unhealthy environment” sets in.

Millions voiced their frustration during the Arab Spring. From Tahrir square to the streets of Tunis, a huge emerging middle class showed that it has a tremendous capacity to mobilize people. It demands governments that are open and transparent, as well as more and better services. How can governments answer these demands? How can they go about redistributing the fruits of growth?

A new policy agenda is needed: one that focuses not only on growth but also on openness, fairness and inclusion. Social cohesion needs to be at the centre of policy making. Failing this, we may (re)enter a vicious circle where inequalities create a sense of injustice, which in turn can lead to (mass) protest and sometimes violence. As a result, social peace and stability, as well as long-term growth, may be jeopardized.

How can governments foster social cohesion? Perspectives on Global Development: Social Cohesion in a Shifting World from the OECD Development Centre published today, answers this. With this latest report, the Development Centre again proves that it is engaged with the world we live in, whether discussing tax revenues or the merits of football as a factor of social cohesion: having a sense of community can make a difference. That, along with equality of opportunities is what social cohesion is all about.

The report first shows how the world has undergone a shift of historical significance over the past decade, with the centre of economic gravity moving towards the East and South. The figures speak for themselves: in 2000, OECD countries represented around 60% of global GDP but by 2010 this was down to 51%, and it will be only 43% by 2030. In fast-growing economies, per capita growth rate was more than double that of high-income OECD countries over the last decade.

It is precisely this shifting wealth that opens a window of opportunity for development and social cohesion. In fast-growing economies, fiscal revenues rose from 20% of GDP on average in 2000 to 27% in 2008. These countries now have the (fiscal) resources to finance social policies that can make the difference – or, can they?

This report argues that public policies can make a difference. OECD countries with initially high income inequalities manage to redistribute income through taxes and transfers. The challenge is to leave no one behind. A cohesive society reduces inequality between groups and ensures that all citizens – the poor, the middle-earners, and the rich – are socially included.

Over the last decade, hundreds of millions of people were lifted out of poverty. This report argues that the emerging middle class should not be ignored either. Today, nearly 1 billion out of the 2 billion people living on 10 to 100 dollars a day in the world – the global middle class – live in fast-growing countries. This number is projected to exceed 3 billion in 2030.

The emerging middle class is a critical economic and social actor because of its potential as an engine of growth, particularly in the largest developing countries such as China and India. Its contribution to social cohesion can be high, and its expectations are sharply rising. What is needed is a social contract between citizens and the state, which entails more and better services in exchange for paying taxes. This would foster a virtuous circle that boosts social cohesion as well as growth. Citizens are more willing to pay taxes in societies where they feel a sense of belonging. Fiscal policy is thus a good place to start.

As the report highlights, fiscal, social and employment policies should go hand in hand. With recent innovations in social protection, the poorest are covered by social assistance and the wealthy by either contribution-based or private alternatives. Yet, a considerable number of (informal) middle-class workers are stuck in the uncomfortable “missing middle” of coverage. More comprehensive social protection systems should protect all sections of the population.

Stronger labour market institutions are also needed. They should aim to create more “good” jobs and reduce the duality in labour markets – between standard and non-standard contracts or between formal and informal workers. This will be critical in reducing inequalities and fostering social cohesion.

A series of cross-cutting issues have to be addressed coherently as well, including education, gender equality, food policy, the integration of immigrants, and institutions.

As Albert Einstein once said, “Reality is merely an illusion, although a very persistent one”. Ignoring people’s desires and the reality in which they live is perilous. Technocratically good policies that do that just won’t work and giving space to dissenting voices is essential to the creation of a sustainable, socially cohesive society.

Social cohesion is a means for development as well as an end in itself. What if social cohesion were the 21st century’s holy grail? A holy grail that can only be attained with some long-term vision and commitment – and a smile. Failing that, there might be rough times ahead.

Useful links

Social cohesion on Wikiprogress

OECD Development Centre

2012 年全球发展前景:转变中世界的社会凝聚力

Conflict minerals: demonise the criminals, not the miners

What's the best way to help him?

On July 15, we published Conflict Minerals: Hands-Off Is Not a Solution by Stephen P. Groff, former Deputy Director of the OECD Development Co-operation Directorate, now Vice President of the Asian Development Bank. Today, we publish a reply from Chuck Blakeman, founder of the Crankset Group, who recently visited the Democratic Republic of Congo to promote small business growth.

Stephen Groff’s article Conflict Minerals: Hands-Off is Not a Solution is remarkably naive and removed from the actual problem, and represents a pervasively uninformed and simplistic view of what is going on in the DR Congo. As a result of the Dodd-Frank Act’s demonization of minerals instead of criminals, exportation of the four minerals covered by the Act has nearly evaporated from the Congo.

A recent article in The Economist says that 95% of mineral exports have evaporated, while Motorola’s Solution for Hope Project argues that “Tens of thousands of people in the DRC depend on artisanal mining, many operating in regions where conflict is not present. Their livelihoods and the economic stability of the region have been threatened by the de facto ban.”

Personal experience backs this up. Our company, Groupe Weyi, has 50 tons of coltan from a local tribe sitting in a warehouse. Six weeks ago we had a buyer. Today we can’t find anyone buying coltan from DR Congo, anywhere in the world.

Our export process is well documented, government approved and done through a highly visible process that tracks it from the mine to the ship – but no one is buying. The smelters all say that minerals coming out of the Congo are “radioactive” now. Why buy from there when they can buy from a dozen other places on the globe without risking misperception? They have simply left the area.

So while all of those who are thousands of miles away pontificate about how great this solution is, honest miners all across the Congo are now starving because they can’t find a buyer.

Everyone likes to say this isn’t impacting people on the ground. But please note who everyone is quoting – giant NGOs, giant organizations, giant corporations and giant governments. Nobody seems to have spoken to anyone on the ground. That should say something very powerful to us. Why don’t the supporters of Dodd-Frank produce a poll of people in the Congo to tell us how much they love this law? Because the only support they can find is people who don’t live there.

I can produce chiefs and whole tribes who have been devastated by this demonization of minerals instead of criminals. Dodd-Frank is like blaming houses for the presence of a burglar. It burns down every house in the town so the burglar has nothing to steal. The burglar will simply move on to steal from stores instead of houses. Meanwhile 1 million people in the Congo who depend on mining for a living are being devastated by the universal collateral damage of this “nuclear” option.

The militias existed long before they found minerals as a source of revenue. What in the world makes anyone think that burning down the entire mining industry in the Congo will put the criminals out of business? What an incredibly naive and simplistic solution. The criminals will simply find something else to steal.

These minerals are mined in six regions – five of which are hundreds to a thousand miles from the conflict zone and aren’t even connected by a road. Dodd-Frank burns all of them down, too. The very people you think this is supposed to protect are being destroyed.

Get the United Nations to grow a backbone and go in and root out the militia. Or require Kinshasa to grow a backbone. Do anything we can to rid the world of those militias, but don’t do it at the expense of every man, woman and child throughout the Congo related to mining. A nuclear option that demonizes minerals instead of criminals is not acceptable.

Groups like ours are the solution, not another bureaucratic process that will only make it difficult for honest people to export while the criminals scoff and pay a bribe to make it all go away.

Groupe Weyi is not a mining company, not a multinational, but a company incorporated in the DRC, majority owned by a Congolese, that works with local tribes to build a local, sustainable economy and solve poverty within 5-10 years in the Congo and 10-20 years in Africa. Exporting minerals is what the tribes feel right now is their best, most stable and sustainable source of income, and one that can create higher wages almost immediately.

Mining will also generate revenues for creating other longer-term, much better local economic options at a much higher level than micro-financing could achieve, including agriculture, herding and husbandry, aviation and water transportation. We are already building our first commercial river barge. We will also use profits to rebuild infrastructure, water, schools, clinics and other necessary services.

A local economy will never be built on the backs of large corporations or multi-national entities, but by the emergence local businesses throughout the Congo creating a sustainable local economy that is not dependent on large corporations or mining for their existence.

And it won’t be built by depriving people of their livelihood. Unconscionable is the best description of Dodd-Frank’s 1502 provision.

Useful links

OECD work on due diligence concerning conflict minerals

Transcript of remarks by US Secretary of State Hillary Rodham Clinton at the adoption ceremony of the Recommendation on Due Diligence Guidance on 25 May 2011

OECD Guidelines for Multinational Enterprises

Focusing on inequality or poverty reduction is not enough

Click to go to the conference website

Our second post from the Annual Bank Conference on Development Economics (ABCDE) is from Mario Pezzini, Director of the OECD Development Centre. 

Day two of the 2011 ABCDE conference has just finished and so far, the conference has given me a lot to think about. There seems a growing consensus that high levels of inequality are not conducive to sustained growth and development.

At the Development Centre we go beyond this, arguing that societies that are growing rapidly and undergoing significant structural changes could see their growth trajectories compromised unless they put in place policies to help manage the process.

What is less clear is what policies should be employed, and in what order. Given the extensive changes that many countries are experiencing, focusing on inequality or poverty reduction is not enough.  Rapid economic growth may be instrumental to reducing poverty, but if large parts of the population get absorbed into the informal sector for example, then these “non-poor” will remain very vulnerable over time. 

In this context we need a broader policy objective, one which caters to the multi-faceted challenges that many emerging and developing countries face.  I would call this policy objective social cohesion: a combination of social inclusion, social capital and social mobility. These three dimensions all interact and influence each other, which is why they need to be viewed as part of a whole. 

I don’t mean to belittle what is being said at the ABCDE. On the contrary, the breadth of topics covered in both the plenaries and side-sessions is impressive. Yet there is still a tendency to fragment policies, focusing on isolated outcomes rather than broader development objectives. An example is education, where often the focus can often be on improving enrollment or raising completion rates. But if there is no coherence between education and labour market policies, aren’t today’s school children tomorrow’s (albeit higher qualified) unemployed?  

These issues are explored in a forthcoming OECD Development Centre publication, the second in our Perspectives on Global Development series which focuses on social cohesion in a world of Shifting Wealth.   

Finally, I would add that a broader policy framework requires new measures. More data detailing citizens’ perceptions and aspirations, and more robust tools capable of capturing new socio-economic realities. Combining traditional and subjective measures will help us get a better picture of the current state of social cohesion, and design policies to nurture it.

Fortunately, new measures and data availability are two areas that will be discussed at length during day three of the ABCDE, specifically during the roundtable on Democratising Development Economics.

I hope to see you there, or if not, that you get a chance to follow the debate online.

Useful links  

Mario Pezzini talks about “Shifting Wealth” to CNBC Africa

ABCDE 2011: Broadening opportunities for development

Click to go to the ABCDE website

At the next Annual Bank Conference on Development Economics (ABCDE), to be held at the OECD in Paris on 30 May – 1 June, leading economic thinkers and policy makers will discuss how economic opportunities can be broadened to accelerate poverty reduction, promote human development, and stimulate inclusive growth. Felix Zimmermann of the OECD Development Co-operation Directorate outlines the aims of the conference and introduces the key speakers.

These are uncertain times for decision makers concerned with development issues. The global financial crisis and its after-effects have tested their ability to facilitate job creation, improve education, equip young people with marketable skills, and design effective social protection programmes.

How might people be provided with better opportunities to access education and health services, and other forms of human capital? How might they be provided with access to affordable financial services and the ability to own land or other assets? How can better service delivery be ensured? And how can gender equality be promoted and ensured?

At ABCDE 2011, which will be co-hosted by the OECD, the Government of France and the World Bank, four distinguished policy makers and academics will deliver keynote speeches.

  • Michelle Bachelet*, Under-Secretary-General and Executive Director, UN Women, will share her views on gender equality and the empowerment of women at global, regional and country levels.
  • Daniel Cohen, Director, Centre for Economic Research and its Applications (CEPREMAP, France), will discuss globalization and wealth and income disparities among countries.
  • Christine Lagarde*, Minister of Economic Affairs, Finance and Industry of France, will elaborate on role of the G20 as a new international forum for global economic cooperation in the 21st century.
  • Francis Kramarz, Director, Centre for Economic Research and Statistics (CREST, France), will share results of his work on job and labour-market policies in developed countries.

Five plenary sessions will focus on current research and policies, addressing various dimensions of the challenge of broadening opportunities for development.

  • John Roemer and Vito Peragine will reflect on the concept of inequality of opportunities and how it can be measured;
  • John Haltiwanger and Francis Teal will explore the issues of job creation and the performance of labour markets, firm growth, and other issues in developed and developing countries, particularly Africa;
  • Janet Currie and Rodrigo Soares will provide insights on how early intervention programmes in health, education, and other social services can benefit human capital formation in young people and their transition to the labour market;
  • Stefan Dercon and Sudarno Sumarto* will review the literature on social protection programmes, with a particular focus on African countries and Indonesia;
  •  Finally, Pierre André Chiappori and Raquel Fernandez will look at female empowerment and labour market participation, among other outcomes, and analyze the role that household behavior and norms play in influencing these outcomes.

A High-Level Roundtable on “Democratizing Development Economics” will close ABCDE 2011. Panelists will be asked how developing countries can play a part in designing, implementing, and continually improving development solutions. How can the development community broaden its sources of knowledge, taking on board a wider set of lessons from emerging markets and developing countries? How can research in such countries be supported? And how can research and data be disseminated more widely, providing developing countries with the tools for sound development policy?

The OECD, the Government of France and the World Bank are honoured to be collaborating with one another on ABCDE 2011.

To apply to participate in the conference, click here. The deadline is 1 May.

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* to be confirmed.

End poverty, now?

What’s the best way to fight poverty? Just give money to the poor. That’s the idea – and the title – of a provocative new book on development policy. True, the book isn’t a call to throw money out of helicopters over shantytowns. But it does argue for giving small payments (and other benefits), directly to poor people, and letting them decide how to use them. Think of it as bottom-up, not top-down, development.

Two of the book’s authors, Professors David Hulme and Armando Barrientos, visited the OECD recently to discuss their work. As they explained, such programmes already have an impressive track record of success in a number of developing countries, for example Brazil’s Bolsa Familia and Mexico’s Opportunidades schemes.

The programmes vary greatly: Some countries simply give out allowances and child grants to the poorest families; others attach conditions, such as requiring children to attend school; and others, such as India, require families who receive payments to work on community infrastructure projects. Whatever form they take, schemes like these now reach an estimated 750 million people around the world, say the authors, and – amid growing interest in China – are on course to reach a billion by next year.

The programmes are interesting from a number of perspectives. One is that they come from “the South”. That’s development shorthand for saying they were designed and implemented by developing countries themselves, and not by donor countries or agencies. “The idea of the Millennium Development Goals and much of the discussion of global poverty over the past 10 years has tended to emphasise what rich countries can do for poor countries,” Prof. Hulme said at the OECD. “But when you look at the origins of these programmes, you find they’re very much from the South,” especially countries like Mexico, Brazil, South Africa and India.

Another is that families make good use of the payments and experience real benefits. To give an example, two years after the introduction of a programme in Mexico, children in beneficiary families were a centimetre taller than children in families that received no payments, Prof. Barrientos said. That suggests the beneficiary children were better fed and enjoyed stronger health.

Critics of the schemes argue they can create welfare dependency. But the authors argue that such fears are misplaced, for a number of reasons. Not least is the fact that the sums of money are very small – they often amount to no more than about a fifth of a household’s expenditure. In Bangladesh, the payment to pensioners is equivalent to only about $2 a month. Incidentally, the small size of the payments means the schemes are relatively affordable, even for poor countries.

The researchers also say they’ve found little evidence that the schemes reduce the number of people who are ready and willing to work. Indeed, the opposite may be the case. In South Africa, for instance, research shows that people living with an elderly person who’s receiving a pension go looking for jobs more often than those that don’t. “People say, ‘it’s because we’ve got the money to pay for the bus fare – before, we couldn’t pay the bus fare to go and find a job’,” said Prof. Hulme.

Impressive as these programmes are, they need to be seen in the wider context of development and the provision of adequate systems of education and healthcare. For instance, insisting that children go to school before a family receives its payment makes sense only if there’s a school to go to.

Still, the programmes give important pointers on how people can be empowered to tackle their own problems. And that’s an idea some developed countries are also picking up on. The Economist reported recently on a pilot scheme in London where homeless people were asked what they needed to change their lives. “One asked for a new pair of trainers and a television; another for a caravan on a travellers’ site in Suffolk, which was duly bought for him. Of the 13 people who engaged with the scheme, 11 have moved off the streets. The outlay averaged £794 ($1,277) per person (on top of the project’s staff costs),” it reported.

“Just Give Money to the Poor: The Development Revolution from the Global South”, by Joseph Hanlon, Armando Barrientos and David Hulme (Kumarian Press).

Useful links

OECD Development Centre

OECD work on poverty reduction

OECD Factblog: Why poverty is declining

Social Assistance in Developing Countries Database  at the Chronic Poverty Research Centre