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Political economy in the
alleviation of poverty
and food insecurity


The previous sections review various technological and socio-economic aspects of agriculture, rural development and food security from a historical perspective. The picture that emerges is one of major achievements in terms of increased agricultural production and productivity and greater food security for large parts of humanity. However, poverty and food insecurity continue to affect a large share of the world's population. This section completes the historical analysis of the preceding sections by focusing on political economy and governance factors that, rather than reducing such situations of poverty and food insecurity, help to perpetuate them.

The principal politico-economic question is why the escape routes from poverty are often blocked. It is important to identify the political and institutional mechanisms that prolong poverty and draw lessons from the few cases among less developed countries where the blocks have been successfully removed so as to consider the context-specific prospects of replicating such cases. The focus in this section will be more on conceptual issues than on descriptive or prescriptive details.

There is now a large literature on the processes that generate poverty traps, although attention has shifted from the traditional discussion of Malthusian demographic traps and the physiological traps that cause undernutrition to reproduce itself as a result of low work capacity, towards imperfections in credit and insurance markets. Here, wealth constraints (and the usually costly private adjustments to those imperfections) severely restrict the ability of the poor to enlarge their scale of production, buy or lease land and equipment, take up high-return high-risk projects or occupational choices, avoid shortsighted strategies and invest in productivity-raising human and physical capital formation.


Low-level equilibrium traps suggest some kind of coordination failure. This implies failures in a society's various coordination mechanisms at the level of the market, the government, or the local community institutions. Failures at these three levels are often interconnected. Credit market failures, for example, are crucial to our understanding of the origin and perpetuation of poverty, but attempts to correct them through various credit subsidy programmes in poor countries have been beset by political and governance failures. This is illustrated by the mixed results of the Integrated Rural Development Programme in India, which is one of the world's largest credit programmes for asset-building by the rural poor.


Poverty trap A lack of coordination among markets,
governments and local institutions blocks the escape
routes from poverty

- FAO/16961/KNIGHT

There is a similarly disappointing history of subsidized rural credit programmes in Latin America.1

Wealthy and powerful interests in developing countries often obtain subsidies intended for the poor.

Wealthier borrowers (and entrepreneurs) often appropriate the credit subsidies intended for the poor. Credit administered through government or parastatal agencies weakens incentives to invest wisely or repay promptly, and the formation of political connections to obtain debt relief and rent-seeking sometimes becomes more important than responsible investment behaviour. It is also a case of local institutional failure, as community organizations that have the local knowledge to overcome the inherent enforcement and information problems related to official credit agencies are not deployed in many cases. The relatively successful cases such as the Grameen Bank in Bangladesh and the Self-Employed Women's Association (SEWA) in Gujarat, India, are still few and far between. SEWA is a self-help organization for poor women, now encompassing more than 200 000 members. The Grameen Bank aims to reach the poorest and most vulnerable women. For the period 1985-1996, it had an adjusted repayment rate of 92 percent, a real interest rate of 10 percent and a subsidy of 11 percent per loan.2 From a panel data set in two villages surveyed in northwestern Bangladesh, Amin, Rai and Topa3 show quite convincingly that subsidized credit is largely successful in reaching the poor and the vulnerable under the Grameen and other microcredit programmes. Selection devices such as offering only small loans, requiring weekly attendance, and providing only moderate subsidies may have discouraged the rich from participating and diverting the credit in these programmes. However, as Morduch4 points out, the microcredit movement worldwide has yet to make significant inroads in areas where agriculture is the primary activity of the borrowers.

Microcredit uses participatory processes that ensure only targeted groups benefit.

Failures of the insurance market, in addition to those of the credit market (originating in similar information problems), make the life of the poor extremely vulnerable to temporary shocks (weather or market price fluctuations, illness, pests, etc.). Movement in and out of poverty is sometimes as common as chronic poverty. Data from the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) covering six Indian villages over the period 1975 to 1983 showed that, while half of the population was poor in a typical year, only 19 percent was poor every year. In a panel data set in rural China covering the period 1985 to 1990, Jalan and Ravallion5 found that transient poverty, defined as poverty that can be attributed to intertemporal variability in consumption, accounted for 37 percent of total poverty for those households that were below the poverty line on average.

Poor people use low-return income strategies to reduce vulnerability.

Faced with pervasive risks, the poor try to follow ex ante risk management strategies (including crop diversification, use of low-yield drought-resistant varieties, protective irrigation, sharecropping, migration of family members, etc.) or ex post risk-coping strategies to smooth consumption intertemporally (dissaving, sales of assets, borrowing from relatives and other informal sources, remittances, withdrawing children from school, etc.). Yet these attempts are often costly and insufficient. For example, Morduch (1995)6 has shown from ICRISAT data in India that households that are more vulnerable to income shocks devote a much smaller share of their land to risky high-yielding varieties compared with less vulnerable households. Thus, a low-return low-risk approach tends to prolong poverty.7 Attempts at local, informal risk pooling have proved insufficient, particularly when there are systemic and covariate risks at the village and region levels. In general, the difficulties in enforcement and information dissemination associated with both insurance and credit transactions frustrate poor households in their efforts to insulate their consumption from income shocks.

Some microcredit programmes, such as that of Burkinabé Caisse Villageoise d'Épargne et de Crédit den Bangh in Burkina Faso, SEWA in India, the Grameen Bank and Bangladesh Rural Advancement Committee (BARC) in Bangladesh, explicitly provide simultaneous access to credit and insurance. Loan defaults by poor women members in SEWA declined significantly after there was a provision of insurance against health and other risks. In order to diversify its own risks, the SEWA Bank has now arranged for group insurance contracts with a large state-run insurance company. Joint arrangements between state and community organizations mitigate different kinds of information problems and risks faced by both types of organization, for example the local community organization can provide group screening and monitoring services while the state organization can cover for covariate risks. Such arrangements are crucial in building viable credit and insurance programmes for the poor but, as yet, there are too few of them in developing countries.


One of the main ways in which governments in some countries have tried to alleviate food insecurity is to make available subsidized food at authorized points of public distribution. India, for example, has a large programme of public food distribution through "fair price" shops, accounting for a significant part of the government's budgetary subsidies. It is a very costly programme, as an estimated 72 percent of the food subsidy is taken up by overheads, storage, freight and interest costs, etc.) and its benefits reach only a tiny fraction of the rural poor in the whole country.8

A much more cost-effective way of reaching the poor (specifically the able-bodied adults) is through public works programmes where work is made available for low wages whenever the worker wants. This is an arrangement offered by the Employment Guarantee Scheme (EGS) in the state of Maharashtra in India, for instance. Since the poor, particularly in lean agricultural seasons, can self-target themselves in such works programmes, the leakage of the benefits to the non-poor is relatively small (bogus master rolls may, of course, divert some funds to the non-poor entrepreneurs). A detailed comparative study, carried out by Guhan,9 of the cost-effectiveness of EGS vis-à-vis the public food distribution programme in India suggests that the former is twice that of the latter (even after taking into account the foregone earnings of those participating in EGS). In addition, there are secondary benefits of EGS, including asset creation (roads, irrigation, etc.) and increased bargaining power of peasant farmers in the agricultural labour market. Other studies to determine the cost-effectiveness of alternative anti-poverty programmes in India - by Radhakrishna et al.10 and Dev11 - show that the cost per rupee of transfer to the poor was Rs 5.37 for the public food distribution scheme, Rs 2.28 for an India-wide public works programme (called JRY) and Rs 1.87 for EGS in Maharashtra.

Of course, programmes such as EGS are more effective in relieving transient poverty and providing a floor to agricultural wages than in improving skills, sustainability of income or autonomy. Self-employment on farms and in artisan shops is a better avenue for the latter purposes. Regarding self-employment, while those who emphasize market failures point to the constraints posed by credit, marketing and physical infrastructure (e.g. roads or electricity supply), those who emphasize government failure point to cumbersome regulations and state interventions in pricing. The latter also show that serious underpricing of scarce inputs - such as capital, energy, water and environmental resources - often leads to the adoption of capital-intensive and environment-damaging projects, which ultimately hurt the poor. In addition, the requisite government subsidies drain the public treasury of funds that could have been much better invested in infrastructure and public investment in agriculture. Those who emphasize local institutional failures point to the fact that inappropriate technology and disenfranchisement of the poor from their traditional access to environmental resources are often the outcome of distant centralized decision-makers not being sensitive to local information on methods of production, traditional arrangements and particularistic needs.

Government interventions to address transient poverty are different from those aimed at long-term income sustainability.


It is now generally agreed that, while the government often plays an obtrusive role in areas where it usually performs poorly (e.g. in certain lines of manufacturing or trade, including regulations in foodgrain marketing and pricing),12 it frequently does not play an important role where it should (e.g. providing basic education, research and extension services, public health and sanitation and roads). In particular, falling public investment in agricultural research and development in many countries is slowing the rate of technological progress in agriculture, while the decline of investments in the maintenance and repair of irrigation and drainage systems and rural roads as well as in the prevention of soil erosion have curtailed the effectiveness of earlier investments in agriculture. In Africa, public agronomic research aimed at locally specific technological improvements has been seriously deficient. In China, recent projections by IFPRI suggest that every yuan renminbi invested in research and irrigation over the coming decades could yield returns of between Y 3.6 and Y 4.8.

Lagging support for needed public goods and infrastructure has slowed technological progress in agriculture.

Those who emphasize the role of local institutions underline the importance (from the point of view of both targeting and cost-effectiveness) of local governments, accountable to the local people, in the provision of public goods and services. Standard examples of this are the serious problems of absenteeism of salaried teachers in village public schools and doctors in rural public health clinics - a situation that may be mitigated by making the teachers and doctors answerable to local village councils and dependent on them for at least part of their salary. The same applies to the accountability to local farmers of government officers such as extension agents, irrigation engineers, water guards and veterinarians for farm animals.

Accountability usually brings responsibility in decision-making and in implementation, which helps in improving quality and cost-efficiency. There is some scattered evidence of such quality improvement and cost savings. The World Development Report 199413 on infrastructure reports several cases. In Mexico, under the municipal fund project introduced in 1990, community committees (Comites de Solidaridad) manage rural investment in simple infrastructure such as small water supply systems, rural roads and bridges and school buildings. Studies have found that these projects often cost one half to two thirds as much as similar projects managed by state or federal agencies. A review of World Bank data for 42 developing countries found that, where road maintenance was decentralized, backlogs were lower and the conditions of roads better. Data for a group of developing countries reveal that per caput costs of water in World Bank-funded water projects are four times higher in centralized than in fully decentralized systems. An econometric study by Isham, Narayan, and Pritchett14 of 121 completed rural water supply projects in 49 countries showed that seven out of every ten projects succeeded when the intended beneficiaries took an active part in project selection and design, but that only one in ten succeeded when they did not.


Members of a village committee discuss anti-erosion
measures in a maize field
Local social capital results
from a shift in emphasis from massive state interventions
to better local resource management

- FAO/17418/H.

With the aim of improving the effectiveness of investments, the emphasis of public investments in agriculture is shifting from massive state investment in large dams (which often cause large displacements of people, environmental damage, waterlogging and salinity and arbitrary water control operations run by a corrupt and distant bureaucracy) to better local management of existing irrigation systems and minor irrigation projects under some form of community control.

Local participation in projects vastly increases their chance of success.

In a comparison of the mode of operation of canal irrigation bureaucracy in the Republic of Korea and India, Wade15 finds the former to be more sensitive to the needs of the local farmers, and thus more effective. The Indian canal systems are large, centralized hierarchies in charge of all functions (operations and maintenance as well as design and construction). Their ways of operating (including promotion and transfer rules for officials, rules designed to minimize identification between the irrigation patrollers and the local farmers, and the frequent use of low-trust management and supervision methods) and their sources of finance (most of the irrigation department's budget is in the form of a grant from the state treasury) are totally insensitive to the need for developing and drawing on local social capital. In contrast, in the Republic of Korea there are functionally separate organizations in the canal systems: the implementation and routine maintenance tasks (as opposed to policy-making and technical design work) are delegated to the Farmland Improvement Associations (one per catchment area), which are staffed by local part-time farmers (selected by the village chiefs). These farmers have knowledge of changing local conditions, are largely dependent for their salary and operational budget on the user fees paid by the farmers and continually draw on local trust relationships.

In government transfer programmes to the poor or the provision of safety nets, again, issues of local accountability are considered important for reducing leakages (in the form of both misappropriation by non-target groups and failure to reach all members of a target group). While the literature on targeting emphasizes the administrative and incentive aspects of targeted interventions, some politico-economic discussion suggests that a transition from a universal to a more narrowly targeted anti-poverty programme designed to minimize leakages may seriously erode its political support base and worsen the condition of the poor. Examples may be cited from the food subsidy programmes in Sri Lanka and Colombia, where episodes of increased targeting have been followed by reductions in overall benefits.

Alliances among different groups in a country are required to mobilize political support for poverty reduction programmes.

Concerning political support for anti-poverty programmes, it is generally agreed that the poor are not usually sufficiently organized to mobilize political pressure and need explicit or tacit alliances with other groups in society to push for these programmes. It often requires astute political leadership to organize short-term sacrifices on the part of wealthier taxpayers to fund anti-poverty programmes that will generate positive externalities also for the élite groups in the long term (less crime and public squalor, a better-educated and healthier populace and labour force, a larger demand base for industries, etc.). Policies that combine growth with redistribution (i.e. sharing in the increments rather than in the existing pie) soften the opposition to public anti-poverty programmes. In general, democracies provide a more hospitable environment for support to such programmes (there seems to be some cross-country evidence16 of a positive correlation between democratic regimes and the human development indicators, controlling other factors). More generally, regimes that are characterized by transparency and accountability in their institutions may have a better chance of reaching out to the intended beneficiaries of such programmes.

Going beyond the impact of local accountability on the quality of service in publicly supplied facilities, it is important to note that, if a local community organization has a stable membership and well-developed structures for transmitting private information and norms among the members, it may have the potential for better management of common property resources (e.g. forests, grazing lands, fisheries and minor surface irrigation works). These are resources on which the rural poor are vitally dependent for their daily livelihood and also for insurance in the form of a fallback source of food and fodder in bad crop years. There are several documented examples in different parts of the world of successful and autonomous local community-level management of commons - see Ostrom,17 Tang,18 Baland and Platteau,19 and Lam.20

Nevertheless, there are also many cases of failure of cooperation in the management of common resources in poor countries, leading to an anarchical regime in the scramble for these resources. With the erosion of the local commons - the decimation of forests and grazing lands, silting and increasing toxicity of rivers and ponds, the depletion of aquifers, soil erosion and desertification - the life of the rural poor in many parts of the world has become more insecure and impoverished in ways that are not captured in the usual poverty estimates based on private consumer expenditure data. Many countries actually have a long history of balanced resource management under highly informal local community arrangements.

The erosion of the commons set in only with the major demographic and institutional changes that occurred in recent decades, often accelerated by commercial or bureaucratic appropriation of the common resources, supplanting the traditional historical rights of local communities over these resources. A devolution of power back to these communities can succeed in regulating, conserving and maintaining these resources. In some cases, for example in forest protection and regeneration and wasteland development in India, there have been successful instances of joint management by the state and the local community, with the latter taking major responsibilities.


The implication of the foregoing is that a more nuanced theory of the state is required than is usually available from the age-old state-versus-market debate. On the one hand, factors limiting the state's capacity as an economic governance structure should be recognized, for example its lack of access to local information, its lack of local accountability and its vulnerability to wasteful rent-seeking processes. On the other hand, the state is not to withdraw into its minimalist role of classical liberalism but, instead, should play an activist role (if only as a "catalyst") in enabling the mobilization of people in local participatory development; in providing supralocal support by pump-priming local finance and underwriting risks (but at the same time avoiding the associated moral hazard of encouraging dependency); supplying technical and professional services to build local capacity (including in accounting and bookkeeping); acting as a watchdog for service quality standards, evaluation and auditing; investing in larger infrastructure; and providing some coordination in the face of externalities21 across localities. This is a complex but necessary task for any state, but it is often unappreciated by proponents of decentralization.

The state has an important role in catalysing public involvement and decision-making.

Advocates of decentralization sometimes also ignore the fact that problems relating to distributive conflicts are a major hindrance to most schemes of decentralized governance. In areas of high social and economic inequality, the "capture" of local governing agencies by the local élite group can be severe, and the poor and the weaker sections of the population may be left grievously exposed to their mercies and malfeasance. The central government can also be "captured", but there are many reasons why the problem may be more serious at the local level. For example, there are certain fixed costs of organizing resistance groups or lobbies: as a result, the poor may sometimes be less organized at the local level than at the national level, where they can pool their organizing capacities. Similarly, for a number of reasons, collusion among the élite groups may be easier at the local level than at the national level. Policy-making at the national level may indeed represent a greater compromise among the policy platforms of different parties and such "capture" may be subject to greater media attention at the national level. When a local government is captured by the powerful and the wealthy, instances of subordinate groups appealing to supralocal authorities for protection and relief are not uncommon. In such cases, interventions by the long arm of the state in remote corners of poor countries have been by invitation, and not always by arbitrary imposition. Ultimately, tendencies of the élite to capture local bodies and use them for their own purpose can be kept in check only as accountability mechanisms and local institutions of transparency and democracy take root (and as experience in self-management acquired by the poor - e.g. in cooperatives, unions and other rural social and political organizations - starts spilling over from one activity to another).

The same problem clearly afflicts local (non-governmental) community organizations in management of the commons. Extreme social fragmentation in a country, for example, makes cooperation in community institution building much more difficult than in more socially homogeneous countries. One beneficial by-product of land reform, frequently underemphasized in economic analyses of the issue, is that, by changing the local political structure in the village, such reform gives more "voice" to the poor and induces them to become involved in local self-governing institutions and the management of local commons.


The relationship between the state and local governance is also important in thinking about the question of why progress in the alleviation of poverty and food insecurity in recent decades seems to have been slower in some regions than in others. This is a complex question, and it is difficult to give a satisfactory answer. Only one broad aspect is touched on here: while geography and climate, droughts and disease and declining and volatile terms of trade for commodity export-based economies have been emphasized in the recent literature, the issue of governance may also be important. It is possible to argue that regions with slower growth in general may have seen no more government interventionism than other regions. More important than the quantity of intervention, however, is the quality of intervention. The quality of governance in some countries has been directly affected by rampant ethnic conflicts and civil wars. With weak and fragmented governments (even under authoritarian rulers), the state often may not enforce the laws or property rights that provide the minimum underpinnings of a market economy. The problem in slower-growing regions may to a large extent be linked with state capacity and social integration within the boundaries of the state, with the disjunction between state and community or civil society being much more egregious.

Under these circumstances, in centralized regimes where power is in the hands of dominant ethnic groups or regions, decentralization in the sense of the devolution of power to local units and communities and the local accountability of officials delivering public services is crucial in defusing ethnic tensions that often arise from minority groups and regions fearing discrimination and permanent exclusion. A system of checks and balances against the arbitrary abuse of power to the detriment of minorities and regional autonomy in major political and economic decisions can go a long way to creating institutions of trust and commitment. Under the pressure of reducing fiscal deficits in a structural adjustment programme (SAP), the central government often tries to shift the fiscal responsibility of some redistribution programmes to the underfunded local units, with serious implications for poor ethnic groups and backward regions. As Azam, Berthelemy and Calipel22 show in their econometric tests on the basis of a large sample of African countries, political unrest is often triggered by wrong government decisions regarding redistributive versus repressive expenditures.

The context of sharply demarcated ethnic groups or regions also raises the issue of the possible need for group-specific public interventions. In situations of historically disadvantaged groups (differentiated by ethnicity or gender, for example) and backward and remote geographical areas locked into poverty, anti-poverty programmes in poor countries may have to go beyond the usual policies addressed to individuals and households per se, and policies aimed at poor areas and groups as a whole may be fruitful in terms of equity, efficiency and intergroup harmony. Of course, preferential policies towards some groups or areas designed to cope with historical handicaps can carry the risk of being difficult to reverse, once adopted, and of having perverse incentive effects. A particularly important aspect of the problems relating to disadvantaged groups or areas refers to opportunities for intergenerational social mobility. The data on poverty and inequality in poor countries are generally remarkably deficient in indicators of such intergenerational social mobility for different social and economic groups. Yet some of the intense democratic struggles and ethnic movements in poor countries are less about income distribution and poverty lines, and more about opportunities for such intergenerational mobility.

Obstacles to collective action for change

Finally, in trying to understand why dysfunctional institutions that perpetuate poverty persist, one cannot avoid the general issue of power constellations in a society and the difficulties of changing them, even when such changes may be shown to be beneficial for the majority of the people. The crux of the problem is in organizing collective action that orchestrates the movement from a "bad" equilibrium to a "good" equilibrium. Sometimes the gains from such a movement are diffuse or uncertain in the perception of the gainers. But even if everyone were to know that the social gain from an institutional change clearly outweighed the loss, and that gainers could compensate the losers, potential gainers cannot credibly commit themselves to compensating the losers ex post. Ideally, the state would issue long-term bonds to buy off the losers and tax the gainers to repay. But in most poor countries there are serious limitations to the government's ability to tax as well as to keep inflation under control, and so the bond market is thin.


Extension services Trainers convey integrated pest
management techniques to improve local management skills

- FAO/20896.1/K. PRATT

The classic example of inefficient institutions persisting as the lopsided outcome of distributive struggles relates to the historical evolution of land rights in developing countries. In most of these countries the empirical evidence suggests that economies of scale in farm production are insignificant (except in some plantation crops), and the small family farm is often the most efficient unit of production. Yet, the violent and tortuous history of land reform in many countries suggests that there are numerous roadblocks on the way to a more efficient reallocation of land rights put up by vested interests for generations. Why do the large landowners not voluntarily lease out or sell their land to small family farmers and take much of the surplus arising from this efficient reallocation? Clearly there has been some leasing out of land, but monitoring problems, insecurity of tenure and the landowner's fear that the tenant will acquire occupancy rights on the land have limited the efficiency gains from and the extent of tenancy. The land sales market has been particularly thin (and in many poor countries the sales go the opposite way, from distressed small farmers to landowners and moneylenders). With low household savings and severely imperfect credit markets, even the potentially more efficient small farmer is often unable to afford the market price of land.

Landowners also resist land reforms because the levelling effects reduce their social and political power and their ability to control and dominate even non-land transactions. Large landholdings may confer on their owners a disproportionate degree of social status or political power (so that the status or political effect of owning 100 ha is larger than the combined status or political effect accruing to 50 new buyers owning 2 ha each). Thus, the social or political rent of landownership for the large landowner will not be compensated by the offering price of the numerous small buyers. Under these circumstances, the former will not sell, and land concentration - which may be inefficient from a purely productivity perspective - will persist.

The creation of productive small farms is impeded by rigidities in landownership.

Even in the context of increasing returns to landownership in terms of political rent, land concentration is not always the unique or stable political equilibrium. Much depends on the nature of political competition and the context-specific and path-dependent formations of political coalitions. An interesting example, in terms of comparative institutional-historical analysis, is provided by Nugent and Robinson.23 Holding constant both colonial background and crop technology, they compare the divergent institutional (particularly in terms of smallholder property rights) and growth trajectories of two pairs of former Spanish colonies in the same region (Costa Rica and Colombia, on the one hand, and El Salvador and Guatemala, on the other) producing the same principal crop (coffee).

In general, an important aspect of political rent is that both sides are really interested in relative, rather than absolute, gain or loss. In a power game, as in a winner-take-all contest or tournament, it is not enough for an institutional change to increase the surplus for all parties concerned. One side may gain absolutely, and yet it may lose relative to the other side and thus may resist change.

Given the strength of opposition of vested interests, many regard the political prospects for land reform in most poor countries as bleak, and therefore drop it altogether from the agenda of poverty alleviation. This is not always wise. Some aspects of land reform (e.g. extension of tenurial security) may be less difficult to implement than others (e.g. land ceilings). Furthermore, in the dynamics of political processes and shifting coalitions, the range of feasibility often changes, and options that are left open contribute to the political debate and may influence the political process. Some policy advisers (in international lending agencies) who rule out land reform as politically infeasible are at the same time enthusiastic supporters of other policies that may be no less politically difficult; an example is the strict targeting of food subsidies (that we have already alluded to) and thus cutting the substantial subsidies to the vocal urban middle classes. In the context of political coalitions, a radical policy sometimes becomes feasible if it helps cement strategic alliances between, for example, sections of the urban upper classes (including white-collar workers) and the rural poor.

Some methods of land reform can be counterproductive, particularly in situations of land scarcity and weak organization of land-poor groups. Well-intentioned measures such as the abolition of tenancy often end up driving tenancy underground or leading to large-scale eviction of tenants, and they take away the part of the agricultural ladder by which the landless could formerly climb out of poverty. Redistributing land without adequate provision of credit and marketing facilities and extension services may make land recipients worse off as they are obliged to burn their bridges with the erstwhile landlord-creditor patron. In recent years, there has been increasing support for "market-assisted land reforms" (as opposed to confiscatory land reforms), whereby the government assists voluntary transactions in the land market through credit and subsidies to the small buyers.


Reducing poverty and food insecurity is not simply a question of enhancing agricultural productivity and production or of generating more income. Institutions are the structuring features that command access of people to assets, to voice and to power over their lives and that regulate competing claims to limited resources. It is fundamental to address those institutional, governance and politico-economic factors that tend to exclude individuals and population groups from progress. This section has assessed the experience in this regard and suggested avenues for reorganizing governance and institutions (particularly in agriculture and the rural economy in general) with this purpose in mind.


1 See, for example, J. Yaron, B. McDonald and S. Charitonenko. 1998. Promoting efficient rural financial intermediation. In World Bank Research Observer, and R. Vogel. 1984. The effect of subsidised agricultural credit on income distribution in Costa Rica. In D.W. Adams, D. Graham and J.D. von Pischke. Undermining rural development with cheap credit. Boulder, Colorado, USA, Westview Press.

2 See J. Morduch. 1998. The microfinance promise. Princeton University (unpublished paper).

3 S. Amin, A.S. Rai and G. Topa. 1999. Does microcredit reach the poor and vulnerable? Evidence from northern Bangladesh. CID Working Paper, Harvard University (October 1999).

4 Morduch, op. cit., note 2.

5 J. Jalan and M. Ravallion. 1998. Transient poverty in post-reform rural China. Journal of Comparative Economics, 26(2): 338-357.

6 J. Morduch. 1995. Income smoothing and consumption smoothing. Journal of Economic Perspectives.

7 For a similar effect on the adoption or the spread of new technologies for grain production in semi-arid Africa, see J. Sanders, B. Shapiro

and S. Ramaswamy. 1996. The economics of agricultural technology in semi-arid sub-Saharan Africa. Baltimore, Maryland, USA, Johns Hopkins University Press.

8 In many states (including some of the poorest) it has been found that more than 95 percent of the population does not receive any of their foodgrain supplies from the public distribution system.

9 S. Guhan. 1994. Social security options for developing countries. In International Labour Review.

10 R. Radhakrishna and K. Subbarao with C. Indrakant and C. Ravi. 1997. India's Public Distribution System: a national and international perspective. World Bank Discussion Paper No. 380. Washington, DC, World Bank.

11 S.M. Dev. 1998. Rising food prices and rural poverty: going beyond correlations. Economic and Political Weekly, 39.

12 For examples from the United Republic of Tanzania and Kenya of how heavy government regulations in grain marketing made food prices more volatile, and how the adoption of cash crops by smallholders - a main source of agricultural growth - was slowed by government pricing policies, see D.L. Bevan, P. Collier and J.W. Gunning. 1993. Agriculture and the policy environment. Paris, OECD.

13 World Bank. 1994. World Development Report 1994. Washington, DC.

14 J. Isham, D. Narayan and L. Pritchett. 1995. Does participation improve performance? Establishing causality with subjective data. In World Bank Economic Review, May 1995.

15 R. Wade. 1997. How infrastructure agencies motivate staff: canal irrigation in India and the Republic of Korea. In A. Mody, ed. Infrastructure strategies in East Asia. Washington, DC, Economic Development Institute, World Bank.

16 See, for example, A. Przeworski and F. Limongi. 1997. Development and democracy. In A. Hadenius, ed. Democracy's victory and crisis. New York, Cambridge University Press.

17 E. Ostrom. 1990. Governing the commons: the evolution of institutions for collective action. New York, Cambridge University Press.

18 S.Y. Tang. 1991. Institutional arrangements and the management of common pool resources. Public Administration Review, January/February 1991.

19 J.M. Baland and J.-P. Platteau. 1996. Halting degradation of natural resources: is there a role for rural communities? Rome, FAO.

20 W.F. Lam. 1998. Governing irrigation systems in Nepal: institutions, infrastructure, and collective action. Oakland, USA, ICS Press.

21 An externality, or an external effect, refers to a situation in which the production or consumption of a good or service by one individual consumer or producer directly affects the welfare of some other consumers or the costs of production of other producers. Such externalities can be either positive (when they reduce costs or improve the welfare of other economic agents) or negative (when they raise costs or reduce the welfare of others).

22 J.-P. Azam, J.-C. Berthelemy and S. Calipel. 1996. Risque politique et croissance en Afrique. Revue Économique, 47(3): 819-829.

23 J.B. Nugent and J. Robinson. 1998. Are endowments fate? On the political economy of comparative institutional development. Department of Economics Working Paper. Los Angeles, USA, University of Southern California.

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