Lecture 3 Role of the State in Rural Development

 Rural infrastructure contributes to efficient marketing of agricultural commodities and creating rural employment  What are marketing infrastructure.  Farm-to-market roads, highways[r]

LECTURE 3

The Role of the State in

Rural Development

development?

state do? Why?

Questions

Some Definitions

 The State: Relations?

 The State: Institutions?

 The State: Organizations?

 The State: Exclusive power?

 Weber (1968), the state is commonly defined in terms of its

exclusive power by monopolizing on the legitimate (by

subjects’ judgment use of violence)

 Barzel (2002)’s definition: The state consists of (1) a set of

What constitutes rural development

policy?

Goals of Rural Development

1 General goals:

Stimulate rapid economic growth in line with poverty

reduction.

 Government should act in such a way to maximize

the well-being of society:

 Efficiency: Allocate scarce resources across households and

firms such that social economic well – being (includes individuals and firms) is maximized

 Equity: Achieve an equitable distribution of utility and

profits across all households and firms

 Is there any conflict between “rapid economic

growth” and “poverty reduction”?

 Is there any conflict of resource allocation

among economic sectors? In Vietnam?

Important issues

 Farm income is low because of lack of

technology, capital and natural resource

 Policy makers’ bias against agriculture

 Imperfect and asymmetric information

Goals of Rural Development

2 Special goals in rural development:

 Increased rural livelihoods

 Increased employments, incomes for

farmers and people living in rural areas

 Increased grass-root democracy

 Protected and conserved natural

resources, biodiversity, and environment

Role of Government at state and local level

1.Demarcating role of government at different level

depends on the structures of state power, but

not only clear - cut

2 Role of government at state level: Macro policy

and institutions building

3 Role of government at local level:

implementation of policies and programs for

rural development and poverty reduction

Why does State intervene in rural

development?

 Governments should provide public goods and

correct important market failures

Why does State intervene in rural

development?

 Development requires the optimal trade-off

between efficiency and equity the potential of state intervention to stimulate growth from

starting points in the interior and frontier

 The contribution of agricultural development to

growth of the entire economy and to poverty alleviation  requires implementation of

multiple policy instruments, such as price and trade policy, generation of employment, rural

Why does State intervene in rural

development?

 Rural development requires well-developed

infrastructure and supportive public goods and services and good markets

 Government intervetions are to provide public

goods and correct imperfections, imperfect and asymmetric information

Warning!

 State interventions may potentially create

failure to be worse for growth prospects than the market failure

Purpose of Government Intervention

 Extract resource from agriculture

 Expansion of the state – central authority

 Protect the environment and agriculture as

resource

 Promote economic development

 Promote food security

 Improve welfare of the poor

 Promote political stability

Government interventions

1 Agreement in principle on public sector

investments

 Agricultural research (1)

 Is agricultural research a public good?

 Which are private good supplied by the firms? (hybrid

seeds with secret inbred lines, patented chemical formulas, other intellectual properties, etc.)

 Which are public good provided by the state? (most

technology for food grains, livestock, inputs) On-farm innovations

Government interventions

1 Agreement in principle on public sector

investments

 Rural Infrastructure, esp Irrigation (3)

 Should be private or public? Should be mixed?

 Small-scale?

 Large-scale?

 Consequences of water use if provided free of charge or

low prices (subsidy):

 Misuse by farmers

 Rural infrastructure contributes to efficient marketing of

agricultural commodities and creating rural employment

 What are marketing infrastructure?

 Farm-to-market roads, highways, railways

 Trucks

 Communication networks

 Electricity

 Market centers and wholesale terminals

 Legal grades & standards for commodities

Government interventions

2 Disagrement on policies and institutions

 Land tenure? (5)

 Main question: equality or efficiency?

 Is small-scale farm efficient?

 Is large-scale farm efficient?

Government interventions

2 Disagrement on policies and institutions

 Farm organization? (6)

 Main question:

 is overall-productive efficiency improved?

 What are dynamics/incentives for farm organization?

 Reduce transaction costs?

 Enhance negotiation power for farmers?

 Easier accessibility to credit?

 Better linkages (vertical) to value chain, supply chain?

 What are problems?

Government interventions

2 Disagrement on policies and institutions

 Marketing boards? (7)

 The state to take over the marketing directly, either

output or inputs  to tax export commodities, stabilize internal price  monopoly

The Role of Social and Economic

Organizations in Rural Development (?)

 NGOs

State Interventions and Rural

Differentiation

 State’s interventions to control over rural

society while simultaneously transforming the productive base of rural society

 State’s alliance with rural elites and dominant

rural groups

 Dominant rural groups seeking benefits

through extraction and accumulation and

maintain social relations with superiors and

State Interventions and Rural

Differentiation

 State’s interventions cause agrarian

transformation and social differentiation

 Agrarian change can follow a number different

paths, depending the configuration of external political economic forces and internally

generated process

State’s interventions get rural development right?

1 Every country is different, history, institutions,

economic structure differ from those of even its closest neighbors

2 The appropriate role of the state in rural

development is an empirical question which

requires sophisticated policy analysis to

determine in each particular setting