Land tenure Institutions

Land Reform Bulletin: 1996
Réforme agraire: 1996
Reforma Agraria: 1996

The Reconstruction of Rural Institutions, Part One

G. Gordillo de Anda
Director
FAO Rural Development Division

At the end of the 1980s, most agriculture in Latin America and the Caribbean shared the following features: an over-protected agricultural sector; strong intervention from the state; excessive regulations and obstacles to interactions with other economic agents; a static land market; and a bimodal type of productive organization, i.e. a few powerful economic units and a large mass of smallholder producers. During recent years, in the context of economic and political liberalization, analyses and public debate on agriculture in developing countries have explored new trends that include a broader view of the role of agriculture, a change in strategies and a new conception of the interactions among markets, state and civil society. The task of transforming the cluster of state institutions in the rural sector has been very significant. Although some important progress has been made, governments still have a long way to go and there is a lack of institutional answers to the demands and needs of less well-endowed producers. This article reflects on the issues of rural institutions and their reconstruction.


La reconstruction des institutions rurales

La plupart des systèmes agricoles de l'Amérique latine et des Caraibes avait plus ou moins en commun, à la fin des années 80, les caractéristiques suivantes: une agriculture surprotégée; une forte intervention de l'Etat; des règlements excessifs et des contraintes aux interactions avec d'autres agents économiques; un marché foncier statique; et un type d'organisation de production bimodal, c'est-à-dire peu d'unités économiques puissantes et une large masse de producteurs de petites exploitations. Ces dernières années, dans le cadre de la libéralisation économique et politique, des analyses et des débats publics sur l'agriculture dans les pays en développement ont exploré de nouvelles tendances qui comprennent une vision plus large du rôle de l'agriculture, un changement de stratégies et une nouvelle conception de l'interaction entre les marchés, l'Etat et la société civile. La transformation de l'agglomérat d'institutions publiques dans le secteur rural a été très significatif. Cependant, magré des progrès importants, les gouvernements sont encore au milieu du chemin et il y a un manque de réponses institutionnelles à la demande et aux besoins des producteurs les moins dotés. Dans cet article, l'auteur présente une réflexion sur les aspects des institutions rurales et leur reconstruction.


La reconstrucción de las instituciones rurales

La agricultura de la mayoría de los Países de América Latina y el Caribe podía ser caracterizada, al final de los años 80, por algunos aspectos comunes: una agricultura muy protegida; fuerte intervención estatal; excesivas reglamentaciones y obstáculos a la interacción con otros agentes económicos; un mercado de tierra estático; y dos modelos de organización productiva, por un lado unas pocas unidades con capacidad económica y por el lado una enorme cantidad de pequeños productores. En los últimos años, en el contexto de la liberalización económica y política, el análisis y el debate público sobre los temas de la agricultura en los países en desarrollo han explorado nuevas tendencias, reconociendo una mayor importancia del papel de la agricultura, un cambio de estrategia y una nueva concepción de la interacción entre mercado, estado y sociedad civil. La transformación de las instituciones estatales del sector rural ha sido una tarea difícil. Sin embargo, a pesar de algunos importantes logros obtenidos, los gobiernos se encuentran en la mitad de un camino en el cual existe una carencia de respuestas a las demandas y a las necesidades de los productores económicamente débiles. En este artículo, el autor propone una reflexión sobre los aspectos que conciernen a las instituciones rurales y su reconstrucción.


Contents

Part One

Part Two (separate document)


Statism and rural economy

Deregulation, the streamlining of bureaucracies and the privatization of state enterprises have been predominant features of the first stage of agricultural reform in Latin America and the Caribbean. There is growing consensus about the desirable features of a second stage of reform focused on institutional reconstruction and including: These desirable features assume that reconstruction of the rural institutional framework is not limited to changes in the organizational structures and functions of state institutions.

Several academic works (Bardhan, 1991; Bruyn, 1991; North, 1992; Streeck and Schmitter, 1985; Schmitter and Lehmbruch, 1992) point to new, favourable conditions for institutional change and to the dynamics of social interventions in the market or the role of social capital in institutional crafting. More generally, the possibilities to combine market-assisted strategies, based on interventions by the state, the community and professional associations within state, market, communities and associations, can channel conflicts and generate the kind of synergies needed in a process of reform.

These combinations concentrate on communities that enhance the necessary mutual trust for stable economic change: producers' organizations and other associations that contribute to the development of contracts among social agents that are reciprocally negotiated and agreed upon; markets that open reproduction opportunities to communities; and public policies that assist the market's potential as an efficient mechanism to allocate resources. These combinations have been an exception but, under the new development conditions that are being created, they appear to be feasible and perhaps indispensable.

The academic contributions call for a reformulation of the conceptual frameworks and assertions that were adopted as premises. In this regard, it is worth emphasizing several points that are of critical importance when considering the possibilities for change and development of agrarian institutions.

As a starting point, it is necessary to adopt an institutional framework that is not limited to the network of state institutions and legal supports, but also includes the rules and conventions that are acceptable and agreeable to the producers and the ethical and moral norms of behaviour that are part of the structural framework of social interaction (from a talk by the President of the World Bank to the Staff after the Annual Meeting, October 1996). Within this broader approach, the main role of institutional development is to increase efficiency and reduce uncertainty through the design of a stable - but not immutable - structure that favours economic and social interaction.

Another point of departure is that the institutional framework, in particular the structure of opportunities and incentives created by this framework, is the underlying determinant of economic performance; this thesis has been particularly documented within the scope of the agricultural performance of developing countries.

According to one study, institutions in the broadest sense serve to reduce the uncertainties of people's daily lives; this is expressed in an infinite number of formal and informal rules which regulate the conduct of an individual, i.e. his/her transactions within a society. Institutional stability will last as long as it conforms to a cost-benefit balance for the society. Thus the reformist thrust is created when it is more attractive to alter the institutional contract than to maintain its continuity.

One important consequence of this approach within the framework of what is now known of the political economy on reform is that, although institutional change is propelled by changes in relative prices, demography or technological structure, the only way to define a rhythm of change that limits the inevitable instability change brings is by engaging in processes of consensus building.

Recent political and economic liberalization reforms involving deregulation, privatization, tax reforms and economic stability have made it possible to cancel anti-agriculture biased policies.

Still pending, however, are the implementation of schemes directed to reducing: the disparity and high levels of transaction costs in the rural sector; the missing linkages and inertia that limit economic reorganization and, in particular, the multiplication and diversification of contractual and associative forms; the obstacles to community-based development; and the absence of policies that recognize the diversified strategies of rural producers.

Furthermore, an institutional framework is lacking that would guarantee people's participation as well as redefine the new role and dimensions of state promotion. To sum up, the following are needed:

The purpose of reform is to establish a path of transformation that will reflect consensus, direction and the stability of agricultural policies in order to generate certainty and contain authoritarian and discretionary risks.

The above elements form the basis for future institutional developments within the desired features of autonomy, inclusion and effective subsidiary action by the state. The definition and implementation of rules and practices that acknowledge the growing dynamism and diversity in the countryside are expressed through the new social agents, groups, associations and organizations that have unfolded a complex and pluralistic fabric and that need to find positive forms of coexistence and synergy.

The transition period of the reform can, however, also result in an institutional crisis in the rural sector in which four factors may arise: an institutional vacuum may be generated or exacerbated by the absence of a new institutional framework for the entire rural society that is operational for all of the implemented structural changes; an imbalance may arise between the intention and the capacity for renovation of rural institutions that must also maintain their legitimacy; a strong, but sometimes dispersed, resistance that can hinder or distort the institutional changes proposed in the reformist strategy; and an absence of synchronization between the structural and institutional development of the rural sector and the changes in the rest of the economy and society, which would imply that a favourable macroeconomic and political setting is not sufficient for structural transformation to take place at the micro- and sectoral level.

The continuation of a rural institutional crisis can create or deepen stagnation of the agricultural sector if there are no new institutional structures able to open new channels through effective economic development supported, in the long term, by a rural development vision that would allow for a greater balance in the relations between the agricultural sector and the rest of the national economy.

Another factor that has an impact on the agricultural sector is the tendency towards selective modernization which takes place only in some sectors or regions based on simplistic economic criteria that envisage these as the only "viable" sectors. In reality, this is the basis for deepening productive and social imbalances in the rural sector, under conditions in which the macroeconomic environment of a country cannot offer by itself a real and lasting alternative to the displaced agents or regions in the countryside, thus leading to vacuum plus exclusion within the restructured countryside.

The three main objectives for rural development can be summarized as: increased productivity; greater justice through higher incomes; and food security. The achievement of these objectives demands an integral transitional strategy based on increased autonomy for producers. It does not make sense to promulgate flexibility, transparency and participation without acknowledging differentiation and economic pluralism. The important thing is to incorporate the many forms of differentiated strategies and social agents in a broader dialogue that results in inclusion. As stated by de Janvry (1989), when the available information is imperfect, it is more important and convenient for the state to strengthen the bargaining power of the less favoured than to try to regulate private contracts.

Without political and social empowerment, which are by no means indifferent to economic performance, it is foreseeable that under the new conditions of deregulation and flexibility in production, farmers - without the strength of a democratic organization and participation - will face greater disadvantages resulting from the opening of the economy and the influence of entrenched local powers.

In other words, it is essential that the complex rural society be reflected in the structure and practices of public institutions, so as to include and qualify the demands of social agents, especially of those who were excluded from the first phase of the reforms.

These factors require profound changes in the mechanisms for access to support services and public resources, accompanied by strong decentralization of development entities, in order to guarantee the necessary autonomy for local agencies in the allocation of resources and a flexibility of their programmes, as well as to open effective and permanent possibilities for reaching a consensus with producers.

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Rethinking the perspectives towards ownership of rural policies

Old problems and new trends

The old paradigm of the rural economy which prevailed until the end of the 1980s included five elements: The agriculture paradigm that worked within a closed economy, implemented by the state and with precarious links among economic agents, has been contested not only in academic terms but also by actual developments. The development model based on import substitution was not only biased against agriculture in toto but it also developed a compensatory sectoral policy - expensive and inefficient in productive terms - disproportionately favouring economic units devoted to agricultural exports or designed to meet new consumption patterns in expanding urban markets. By contrast, support and services to the family farm economy were insufficient.

The transformation of the rules of the rural economy implies a change in paradigm - a change that faces many obstacles, but that also presents opportunities. The possibility exists to build an agricultural paradigm with the features mentioned below. Although a new interpretation of the role of agriculture is still a long way off, important trends must be taken into account:

Changes and challenges in the countryside

The Latin American countryside has experienced four critical changes during the last years:

Policy reform: towards a responsible and responsive state

Reflection on the new role of the state, in particular of public intervention in agricultural and rural development, has evolved around four main issues: policy instruments, legal framework, rural participation and institutional re-engineering. A basic plan for the promotion of a new state would start with the expansion and deepening of the agriculture and livestock policy reform instruments, which are at present committed to the rebuilding of flexible institutions, with the high participation of producers and with a dynamic that does not affect economic freedom or free trade.

Likewise, it is necessary to build social consensus on the objectives, terms and costs of the main policies of rural promotion, especially with regard to supports, and translate these agreements into legal schemes that will guarantee the fulfilment of commitments and the stability of policies and rules. The latter is a precondition to the achievement of any other objective and to the generation of certainty among the economic agents in the countryside.

Another essential aspect of the promotion plan is decentralization, i.e. the redistribution of state power into geographical areas, which - in a general democratic context - means the devolution of power in a co-responsible way to both municipalities and producers' organizations. This aspect is also essential for the successful management of differentiated interventions.

A new support policy (enshrined in law and periodically reviewed) can become the nucleus of state promotion. The "green" subsidy - detached from a narrow productive process and focusing on rural incomes - could be the basis for differentiated interventions taking into account producers' characteristics, rural household strategies, regional imbalances and adaptation to trade liberalization. Without neglecting the objective of securing a certain level of income for producers with low incomes, the policy should favour multi-activity in the countryside and reconversions at the farm level, especially if strongly linked with sustainable policies such as soil conservation and water harvest.

In this sense, a support policy decoupled from products would have to incorporate, in a balanced manner, the following objectives: the improvement of competitiveness vis-à-vis the main commercial producers of the country and, thus, a better balance among direct support services delivered by agriculturalists at the national level; the selective compensation, directly or temporarily, of those producers whose incomes and economic strategies have been negatively affected by the structural reforms, i.e. support to such producers so that they can adapt to the new conditions; and the provision of direct assistance and services at the household level in disadvantaged areas, in order to provide an element for capitalization and options for income generation.

Such a policy of direct support could form the pivotal point for the other policy instruments and should support new linkages among policy-makers, producers and other economic agents.

The other four important components of this support system would be:

To sum up, the processes that accompanied structural reforms have made it possible to cancel inefficiencies and limitations. They have also improved, in a very incipient manner, fragile incentive schemes and opportunities in the Latin American and Caribbean agricultural sectors. However, there are still pending issues to be solved: the high levels of transaction costs in rural areas; the sluggishness and lack of opportunities that hamper economic reorganization, especially the multiplication and diversification of contractual and associative forms; obstacles to the development of community initiatives; and the absence or frailty of specific markets, for example land and credit.

Similarly, in general, there is a need to develop a particularly "user-friendly"

institutional framework, including legal norms and practices. The acknowledgement of farmers' associations as public entities with rights and responsibilities for the management of rural policies, is needed and should be accompanied at national and regional levels by negotiated contracts in the sector, the design of public policies and the allocation of resources. There is also a need for the crafting of a public institutions system that would draw from informal or customary arrangements and provide for systematic consultation and decision-making in relation to public policies (Ostrom, 1992 and 1995). In other words, the purpose is to establish a legal framework that would bring consensus, direction and stability to agricultural and livestock policy in order to generate desirable certainty in the countryside.

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To: The Reconstruction of Rural Institutions, Part Two



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