If the Dutch government wants to promote “inclusiveness” in their policy agenda, they should focus on creating an enabling institutional and policy environment for agricultural development. This article proposes five crucial areas that will enable agricultural development to reach its full potential for poverty alleviation.
In recent years, analysts and policy makers have increasingly turned to agricultural development as the panacea to foster pro-poor economic growth. This amounted to investing in the intensification and commercialisation of farming.
- Targeting: 75% of the poor in developing countries live in rural areas and the majority of them depend on agriculture for their livelihoods.
- Comparative advantage: Most African countries are agriculture-based, and tend to have a comparative advantage in the production of primary commodities.
- Intersectoral linkages: Agricultural growth has large multiplier effects in early stages of development. GDP growth originating in agriculture raises incomes of the poor much more than growth originating elsewhere in the economy.
However, while pockets of success in agriculture exist, aggregate agricultural performance is often judged as disappointing. A consensus has emerged that an “enabling institutional and policy environment” is a necessary next step, but there exists little agreement on what constitutes such an environment (or how to create it).
The new agricultural development agenda emphasises (i) linking farmers to input and output markets, (ii) identifying governance arrangements to strengthen property rights and asset control, and (iii) promoting technical innovation and diffusion of knowledge to increase land and labour productivity. However, most rural societies are characterised by high transaction costs, risk, weak information flows, and a weak institutional environment. Hence, market access remains limited, and the potential for agricultural development to leverage poverty alleviation remains under-exploited.
How to promote inclusiveness in Dutch development policy?
- Macroeconomic policy: create “policy space.” Available evidence suggests poverty alleviation has been most successful in countries engaging in specific forms of industrial policy –– protecting and promoting nascent but important (export-oriented) economic sectors. Oftentimes, the state played a large role in the development of such sectors. Such policy space has been limited by WTO rules, and a case can be made that providing (additional) exceptions to poor countries can help them to adopt context-specific policies that enable development.
- International finance: regulate international capital flows. Global deregulation and globalization of financial markets have outpaced the development of global institutions to govern international financial flows. The result has been instability and (occasionally unnecessary) economic contractions – with adverse consequences for especially the poorest and least protected individuals in society. Regulating international capital flows seems a potentially important component of packages that aim to promote inclusiveness.
- Microfinance: subsidized investments in human capital. Recent evidence shows that enhanced access to finance does little to alleviate poverty. Moreover, the focus on “financial sustainability” in recent years (as opposed to pro-poor outreach) has resulted in high interest rates that are unattractive for the poorest. If access to capital is to become a vehicle for pro-poor development and inclusiveness, it should in many contexts be based on subsidized interest rates, and be accompanied by investments in human capital (training programs, entrepreneurship programs).
- Sectoral development: institutional innovation. To promote sectoral development, diffusion of new technologies, and market integration, new forms of local institutions should be promoted. Innovation platforms, bringing together various stakeholders along agricultural value chains, may be an important first step.
- Local governance: improving accountability. Weak governance at the state level is widely seen as a factor explaining slow growth and persistent poverty. Equally important, perhaps, are exploitative governance arrangements at the local level. More research is needed to analyse how leaders and chiefs can be made more accountable to their local constituency. It is not evident whether creating parallel institutional structures offers a viable avenue for improving of local governance. Reforming existing systems – e.g. through enhanced transparency and political “competition” – may be more promising.
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