Editorial»
Reshaping the economy
JAN 14 - Inter-sectoral linkages Increase in the production of the poor and their income also largely depends on the inter-sectoral linkages or spillover effects across different sectors of the economy and at different levels. To what extent the road to broad-based economic growth itself runs through an increase in the productivity of the rural resources and the rural poor are not made that clear in the PRSP.
Though focus on macroeconomic stability is important for economic growth, its contribution to the poverty alleviation would also depend on to what extent the growth makes use of the assets of the poor or induces demand for the product and services of the poor. Experience from other countries, such as from India, also indicate that both sectoral and geographical composition of growth, rather than overall growth, are important to the countrywide rate of poverty reduction.
Analysis of the inter-sectoral linkages and adoption of strategies based on these linkages and synergies in each poverty pockets are thus quite important for transforming the rural resources and the society into the helpers and beneficiaries of broad-based economic growth.
Poor people in the rural areas usually confront with multiple resource constraints that can only be addressed by some combination of increased natural resource productivity, economic diversification towards high value products and non-farm enterprises that would help in reducing the risk and vulnerability. Increasing the linkages between the productive activities of the poor and other sectors of the economy through increased support to the rural enterprises and environmentally sustainable rural activities are quite important.
Past studies in some developing countries have also shown that such reforms have had significant ‘multiplier-effects’ on the rural industrialisation and creation of employment opportunities for a sizeable population in excess of ecological carrying capacity and bringing them out of the poverty trap. Thus, instead of putting emphasis only on the conventional market measures as engines of economic growth, there is an urgent need of implementing measures based on the inter-sectoral linkages that would result in positive spillover effects and add-value to the production and processing of rural products.
Pro-poor public goods
Though the PRSP emphasizes on the infrastructure development, what level of the provision of pro-poor public goods and investment are required to support poverty reduction objectives are not made that clear. First, though the PRSP proposes an increase in development expenditure such as in agriculture and social services, the increment is only marginal and the ratio of allocated amount for social grants plus poverty alleviation fund to the total development expenditure is also very low (from 7 to 9 percent).
Second, though increased investment on rural infrastructures also would benefit the poor, the impact on poverty reduction, however, depends on many factors such as: i) the linkage between infrastructures and growth, ii) welfare impact of such growth on the poor; iii) improved access to the poor of such services, and iv) institutional efficiency in service delivery.
Third, direct investment in pro-poor public goods would help to lower the transaction costs of small-asset holders and to increase their self-esteem and confidence that would ultimately boost their competitiveness.
Thus, there is need for a budgetary shift from sectoral allocation of expenditure to the provision of pro-poor public goods in the poverty pocket areas that generates high positive impact on poverty reduction.
Likewise, institutional mechanisms are needed to mobilise domestic resources (e.g., through taxes and pricing policy reforms, creating mechanisms to lever additional funds from investors on natural resource projects) and transfer of adequate resources directly to the local communities on sustainable basis. Re-design and adoption of fiscal incentives are also quite important as the rural poor jointly provide vital local and global public goods (GPGs).
Conservation and sustainable management of both the forest and agriculture lands provide both location specific societal benefits (e.g., soil protection, regulation of water flows and improvements in water quality, water availability for irrigation, hydropower generation, reduced flood frequency downstream, etc.) and GPGs (e.g., biodiversity and global climate change mitigation). These different public goods provided by the rural and remote areas are not addressed in the fiscal measures and not compensated for these external benefits.
Next, the country could seek debt-relief measures in the form of “debt-for nature swaps” and raise it’s “effective demand” for receiving funds through different Multilateral Environmental Agreements (MEAs) for investing in pro-poor public goods in rural areas rather than only seeking external loans. In this context, raising country “effective demand” would require: i) identification of location specific pro-poor public and global goods, resource utilization and constraints in each poverty pockets; ii) design and adoption of fiscal incentive measures specific to the local resource use, and iii) specific institutional measures for financing pro-poor public goods. The pro-poor fiscal policies would thus increase local and GPGs, directly reward the poor with additional income and help in the redistribution of income and wealth that would also narrow down the income inequality.
Linking ‘local to national and to global economy’
While macro-stability, as emphasized in the PRSP, is certainly important to achieve economic growth and control inflation, it is the linkage of local dimensions of politico-ecological economy to the national and global change dimensions that will determine outcomes of such measures for many
rural poor.
Large spatial differences that puts limit on the labor mobility, lack of core market access and efficient technologies remain as bottlenecks to the direct links to the national and global economy. Also, for most developing countries, the current working of the international trade and finance systems does not provide sufficient resources to enable them to achieve the rapid and sustained growth needed to reach the domestically set out poverty alleviation targets.
Entry to WTO alone or opening the economy without fulfillment of the basic needs of the people at home would, no doubt, further increase the existing income inequality, marginalisation of the poor and threat to the sustainability of natural resource use.
Experiences from other developing countries also indicate that increasing openness to the global markets without sufficient advancement in reforms at the local level would increase vulnerability of the poor. Due to this, pursuing of well-targeted trade, investment and technological polices based on the local politico-ecological economic reality would be required in order to achieve broad-based growth and minimize the likely negative impacts of external trade on the rural poor.
Further, what is needed is to do our utmost to develop our local productive sectors linking with available opportunities for external trade diversification and technological improvement for increasing the productive capacities of the rural resource base.
Though, due to on-going insurgency, any attempts to revive the economy would face unprecedented challenges. There is need for new models of economic policy and institutional re-orientation using the real “bottom-up” approach that would also inheritate social equity and justice to the ordinary people and would convince those fighting for achieving these goals.
ConcludedPosted on: 2004-01-14 01:52
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