Interview with Daniel Lederman on Beyond the City: the Rural Contribution to Development

It’s possible that rural development can help reduce armed conflict like narcotrafficking, but the truth is that we can't be sure because it’s also possible that rural investments could aid the cultivation and trafficking of illicit products. We should definitely study this issue more profoundly.

It’s very possible that the structure of public spending in our countries and the allocation between urban and rural sectors is the product of political economic forces. For example, the capacity of political mobilization/lobbying of urban interest groups could be stronger than those from rural areas because the costs of grass roots organization in rural areas are higher.

English version:

Your question is extremely important and has to do with two key points. First, how do we invest the scarce resources that we have disposable for the rural sector? Second, how can we finance public spending for the rural sector?

We think the answer to the first point is that, as you say, rural spending has to emphasize the provision of public goods like education, health, roads, and investments in agricultural research and development.. Also, we think that more public spending needs to be financed initially through the reallocation of resources, reducing subsidies to special interest groups and increasing social spending. Once we have achieved this change, we can discuss how to increase total public spending in the rural sector. But first, we definitely have to emphasize the quality of public spending at our current disposal.

In Latin America, we have numerous experience with the public sector programs to aid small producers, and in general, the assistance received by each producer has been, and should probably continue to be, relatively small.

So, for example, it should be enough to help the rural families overcome the most extreme forms of poverty, especially food poverty, and those usually families participating in these programs can expect to get some percentage of the value of the basic food basket. So, we can get like 30 percent of the value of purchasing the basic food basket.

What we are saying in the report, which is perhaps more important, is that such assistance can also be conditioned on the communities themselves taking actions to help invest such that the communities, as a whole, can restructure their productive activities. So, for example, one possibility is to follow the model of pro campo in Mexico whereby small producers would get a fixed financial assistance that they could do whatever they want with it, and we believe that this type of program has a disadvantage, that it doesn't provide any direct incentives for communities to undertake important social events.

Another model to look at is the programs such as the bursa familia in Brazil (or something) in Mexico, whereby rural families receive financial assistance from the government conditional on families, communities maintaining children in school, and/or obtaining medical checkups so that we ensure that future generations will have good health and sufficient education to help both generations find a way out of poverty.

English version:

In general, there are two types of programs of support for small producers during periods of productive transformation. The fist is based in direct, unconditional financial transfers (subsidies) to producers. This type of program, for example, was implemented in Mexico through “Procampo”.. The other option is to provide conditional financial support, whereby small producers are obligated to make productive investments. For example, educating children or constructing social capital in the communities. This type of program is similar to Oportunidades in Mexico or Bolsa Familia in Brazil.

The islands also face important challenges because an important source of their wealth comes from tourism, and we believe that the tourism industry can be a source of wealth for the islands and for development, and this challenge is faced more in the islands than larger economies that have a more diversified productive structure. And we look forward to working with all of the governments of the Caribbean on these and any other developmental and poverty challenges that you can present to us. We try our best to give answers, and if we don't have them we look for them.

What these researchers versus found, for example, is that PROCAMPO beneficiaries were able to generate somewhere between 1.4 and 1.8 pesos for each peso they got from the program.

This means that the rate of return for the PROCAMPO benefits ranges between 40 and 80 percent. These are very large numbers, and we still have some doubts about how those numbers can be so large. One possibility is that the poor rural households face severe market failures in access to rural credits, and therefore when they are given one peso, they are able to make the productive investment that they hadn't previously done, such as investments in making the farm more efficient or funding the nonfarm employment in nearby rural communities, for example, might be some of the benefits that you get that go beyond the government assistance, and that's how sometimes public assistance might be able to generate more than one peso from each peso that they receive from PROCAMPO.

Now, the disadvantage of programs like PROCAMPO is that though we know that they benefit directly the families that received the transfers, we are not sure if it benefits rural communities as a whole.

In other words, it's expected that people who receive money from the government will be better off than people who don't. But we do not know if the community, as a whole, needless to say the country, is better off from those transfers to poor rural families.

On the other hand, we have programs like Bolsa Familia in Brazil where the public sector assistance depends on the families and communities making invaluable investments in human capital, meaning education and in health. And a well educated and healthy society produces benefits for everybody, not just for the children who are getting medical checkups and are getting the proper education.

So, think hard, as we move along, especially in the World Bank, about what is a good methodology for evaluating the social gains or the gains to society as a whole from programs such as Bolsa Familia or even PROCAMPO, and that is a very difficult and complex issue, and we look forward in the coming years to work on adequate program evaluation tools to aid our government and community leaders to better decide public policies to help make strides in the fight against rural poverty.

However, we note from historical experience in Latin America and the Caribbean that land reforms do not necessarily guarantee that the beneficiary families will be able to find a way out of poverty, and the reason is very simple: Land alone does not create income which would then allow families to overcome poverty. You need much more than land. You need access to credit. You need access to technological services, research and development services. You need some minimum infrastructure so that people can go to school and workers can get to their jobs, and farmers can find markets for their products.

If we focus only on land, we run the risk of providing land and nothing else which will condemn future generations of rural poor families to continue to do the impossible in their search for a better standard of living, which is to work on soils of poor quality without the needed complementary assets that are required to really make a dent in rural poverty. So, land alone will not do the job.

However, we also are realistic in that we realize that the majority of Latin American and Caribbean countries are net importers of the agricultural commodities that are subsidized in the rich countries. Therefore if we are successful in our efforts to limit these subsidies, we can expect prices of those commodities to rise, and therefore the majority of Latin American and Caribbean countries will face higher food prices, and these higher food prices will benefit producers of those commodities but hurt consumers and countries as a whole, especially poor people in rural and urban areas that are important consumers of food, such as bread, tortillas, rice; and therefore, we also realize that in order to reduce the potential damage that increases in food prices can have on Latin American societies, we can reduce the sometimes extremely high, high taxes imposed on the importation of food into our countries.

Now, you do have to pay a lot of attention to those producers, rural producers, the small, poor households that produce the sensitive crops to help them adjust to a context in which there will not be any more rich country subsidies, but also will not have the high import taxes.

So, we must help them take necessary steps so that future generations of rural families of Latin America and the Caribbean do not face the same obstacles to their well-being. Now, the specific question as to how many financial resources will be required to help those families, that will depend on specific situations. Usually these programs have granted financial assistance from the government to small producers or small households that is just barely enough for them to be able to purchase a minimum food basket. So, how much that costs, how much the food basket costs will not only vary across countries but even across regions within countries, and therefore it's a very difficult question to answer precisely. But usually it will be a percentage of the poverty line or a percentage of the minimum wage in each country.

Now, I think that the more important question is what type of assistance they require. How do we spend that extra peso or that extra dollar in rural communities? I think that will be the most difficult question, and what we say in the report is we are better off in terms of reducing poverty and helping the competitiveness of Latin American and Caribbean agriculture if we spend more public funds in making the necessary investment in the provision of social services than in providing direct subsidies to producers of particular commodities, which often end up in the hands of large commercial farmers and never reach poor rural families.

We hope that this report will instigate debate not only within The World Bank Group, but throughout the developing world, and especially throughout Latin America and the Caribbean, about how do our societies want to face up to the challenge of extreme rural poverty and to the challenge of maximizing the potential, the great potential that the rural sectors have to contribute to the well-being and to the development not only of rural communities but of society at large.

We do not have all the answers, but when you are looking into creating new ways to fight rural poverty more effectively, and to fight general poverty more effectively... What have we done been doing in terms of our relationship with governments? One of the main messages of this report is that rural development programs need to, and must be, designed and implemented in a partnership not only with central governments and local governments, but especially with local communities so they are better able to achieve those objectives, one, to identify the needs of local communities in terms of implementation of public services such as transport services, infrastructure; such as communications, water, et cetera; schooling, health. There is nobody that knows better in the development what are the obstacles to poverty reduction in rural communities than the residents themselves. Moreover, the quality of public investment in social services, especially in infrastructure and transport services will depend on the efforts of local communities to help maintain the roads, help maintain the electricity lines; and therefore, we see no choice and no better alternative to community-driven development programs.

Now, it doesn't mean the government should take the back seat to local communities. On the contrary, the central government has a key role to play in terms of coordinating the nation's efforts to combat rural poverty everywhere, including urban poverty, and thus the central government has a key coordination role, and also has to play a strong role in terms of informing communities about the experiences of other communities, so that mistakes don't get repeated and good good ideas get replicated.

One government also has a role to play in communicating local community leaders and local and civil society more generally, and most supervise the maintenance and implementation of local investment projects.

So, this complicates our work, but development and the fight against poverty has never been easy.

At the national level, even developed countries but also in poor countries, sometimes it will be virtually impossible to ascertain with precision what is the value of a natural resource, be it natural beauty or be it environmental services; and therefore, the solution has historically been to set aside areas for environmental conservation that the scientific community believes are crucial for sustainability of the environment and biodiversity in the countries and for the world as a whole.

However, this policy needs to be accompanied with international and national government investments in helping the residents of those areas where the valuable resources are located find alternative livelihoods to the exploitation of our forests and the contamination of our waters.

This will be more complicated because in each country, the context will be different, and the costs of transforming those communities will vary, but we certainly believe that the rest of the world and the rest of society within our countries must at least become aware that those communities and regions that are rich in environmental resources and rich in biodiversity are, in fact, providing a service to us all.

De hecho, en el estudio presentamos análisis estadísticos que demuestran que cuando crece el sector agropecuario, el resto de la economía promedio de América Latina también crece. Asimismo, cuando crece el campo, aumentan los ingresos de los hogares más pobres en una proporción mucho más alta de lo que sugiere el tamaño relativo del sector.

English version:

Definitely we think that agroindustrial development in Latin America could be a source of economic dynamism and an important component in the fight against poverty. In fact, in our study we present statistic analysis that demonstrate that when the agricultural sector grows, the rest of the economy also benefits.

At the same time, when the rural sector grows, the income of the poorest households grow at a much higher rate than what the relative size of the sector would suggest.

The answer is that this is very difficult to do, but a good place to start is by ensuring that public investment projects are linked to the active participation of rural communities, so that at least in that way will ensure they have some voice in determining the types of public investment that will be undertaken in their communities.

Another interesting option is to think about how to restructure the institutions of government so that the ministries of agriculture have a say at the table with respect to where public investments are made and what public investments are made. In most Latin American countries, the structure of government is such that the ministries of public works and the ministries of education and other members of the governments are the ones, along with the ministries, make the decision as to where we invest in schools, where we invest in health, and where we invest in roads, and this means that the ministries of agriculture are therefore relegated to becoming a spokesperson for strong agricultural interests, and this might be one explanation of why rural public expenditures in Latin America end up being so burdened by subsidies and provision of public services remains scarce.

But if we think hard about it, the real solution in the long-run, for which I do not have a particular recommendation, is political development characterized by more active participation by rural populations.

Now, the fact that we know that the rural population is quite large means that there is some hope for the future because in democratic regimes, the weight of votes cannot be ignored, so it becomes really an issue of social and political organization at the grassroots level.