Asset redistribution programs have immediate and enduring effects in reducing inequalities and increasing the share of income flowing to the poorest. The land reforms that occurred in Taiwan, Korea, and China had substantial impact on both inequalities and poverty in each of those economies. Land reform, however, faces daunting problems of domestic political opposition, since it typically involves a transfer of wealth from the affluent to the poor. And land reform in the absence of corresponding support programs (e.g. provision of rural credit, appropriate price policies, marketing arrangements, etc.) is likely to leave the rural economy in a stagnant state. (See Herring 1983 for a detailed comparative study of Asian land reform programs.)
Irma Adelman (1978) makes a strong argument for the need for redistribution of assets-before the period of rapid economic growth. Her argument is based on the post-war experience of Taiwan and Korea, in which a sweeping land reform occurred prior to industrialization and agricultural modernization, with an outcome that is favorable for both inequalities and poverty. She argues that asset redistribution (land reform) is necessary in most LDCs because land is the chief productive asset in most poor countries, and development of agriculture without redistribution will lead to the bulk of rising incomes flowing to large farmers and landlords. A simple model demonstrates that the distributive outcome resulting from agricultural modernization in an environment of highly skewed landholdings depends critically on the effect of modernization on the demand for unskilled labor; if demand rises sufficiently, then large farmers, small farmers, and landless laborers all show gains (with the greatest gains flowing to large farmers). Many such innovations, however, are not labor-intensive-for example, mechanization; and in these circumstances, the incomes flowing to the landless poor will stagnate or decline.
Further, Adelman argues that redistribution should occur before development, for two reasons. First, the assets are still low in value, so redistribution will be less politically and financially costly. And second, by redistributing in advance it is all but guaranteed that development will lead to more evenly distributed income gains across rural society. (Adelman's article in Lewis (1986a) is a concise summary of her proposals on this score.)
Adelman's arguments largely depend on equity grounds. But it is often argued that land reform is in many contexts a positive step in agricultural productivity through its capacity to increase the productivity of land. This increase results from the fact that agriculture commonly involves few economies of scale; small farmers with appropriate institutional support, are able to implement agricultural innovations, and generally supply greater inputs of labor per hectare. So there is generally an increase in yields as farm size decreases. A second advantage of asset redistribution is the increase in demand that it creates for light manufactured goods-thus providing an impulse to growth in the industrial sector.
Hollis Chenery (1974) offers a more modest proposal as a solution to the maldistribution of assets in LDC contexts. He argues that direct asset redistribution is too politically contentious to be feasible in most LDC contexts. (This conclusion mirrors the World Bank view of land reform-a not unsurprising finding, given Chenery's role in World Bank analysis in the early 1970s.) Instead, Chenery argues for a policy of "redistribution with growth," in which LDC governments will commit themselves to channeling a significant fraction of annual growth into building up the productive assets of the poor-for example, education, rural credit, irrigation facilities, or input subsidies. Chenery holds that this is a politically feasible means by which to gradually build up the asset-base of the poor, without directly challenging existing property arrangements. (It ought to be noted, however, that the problem of keeping in place a redistributive program of this sort over a period of decades, in the face of the political opposition of elite and middle class organizations, is not much less daunting than that of implementing land reform itself.)
These arguments suggest that land redistribution is critical and attainable in many circumstances. But the political context is critical; the strength of propertied elites is quite different in different contexts. In Brazil and the Philippines landed elites are dominant in the political system; anti-elite policies cannot get on the agenda. In India elites cannot block the agenda, but they can block the implementation of policies contrary to their interests. Thus Atul Kohli argues that land reform is much more feasible in a multi-class setting, with elites in both urban and rural sectors, than is a transition to socialism in a two-class industrial setting. The central variable, according to Kohli, is the presence of a politically competent party with organizational capacity that is committed to development policies favoring the poor. The obstacles are not class opposition so much as weak states and failures of administrative capacity.
But Kohli raises this problem: what are the mechanisms that translate greater rural equality into greater urban and industrial equality? Why should the fact that rural incomes are more equal lead to greater equality in the modern sector? Why is Korean development so much more egalitarian than India's? This is a paradox, since the Korean elite political ideology is anti-egalitarian, while official Indian ideology is egalitarian.
Turn now to employment-increasing measures. At any given time a domestic economy can be tilted in a variety of directions: more heavy industrialization, more light industry, more agricultural development, more production for exports, more high-technology production. Some of these options have substantially greater impact on the condition of the poor; in general, those products and production processes that create the greatest demand for unskilled labor have the most immediate and extensive impact on poverty. Irma Adelman explores this dynamic in numerous writings and comes to the conclusion that two strategies of development are most effective: agricultural development, increasing the demand for rural labor and decreasing food costs; and industrial development oriented toward the production of labor-absorbing products for export [Adelman, 1986, #6]. This line of thought suggests that developing states need to evaluate possible industrial strategies in terms of the net employment effects of the various alternatives. In a perfect neo-classical world it would be unnecessary to address this problem, since a labor-surplus economy will induce entrepreneurs to select labor-intensive products and techniques. However, many developing states have introduced a bias toward capital-intensive innovations through state-subsidized credit for industrial investment. And in circumstances where investment funds are undervalued, there will be a tendency for capital-intensive innovations to dominate, leading to slack demand for labor.
We may also consider public works employment as a state-financed effort to increase the demand for labor, while at the same time increasing the stock of public assets (irrigation systems, roads, etc.). There is disagreement over the net effect of such programs. John Mellor argues that public works programs have only a limited role to play in large economies like that of India [Mellor, 1976, #1112]. Given the vast size of the Indian rural labor force, even large budget expenditures will have only a marginal effect on rural welfare [Mellor, #1112,, : 101]. Mellor concludes that public works expenditures are most likely to have enduring effects in regions in which other forms of agricultural development are proceeding as well: extension of irrigation and multiple cropping, new seed varieties, and chemical fertilizers. In these circumstances the assets created by public works expenditures can have a positive effect on other improvements in agricultural productivity.
More recent observers of the Indian rural economy are more positive about public works programs. Atul Kohli describes one such program in West Bengal that had a substantial effect on landless workers [Kohli, 1987,, : 137]. And Dreze and Sen emphasize the importance of public works programs as an instrument of famine prevention, by providing emergency entitlements to endangered households [#175, : 113-15].
As the final two columns of table 1 show, the bulk of employment in most LDCs is still in agriculture, and the majority of the poor are rural. (This is true in spite of the fact that agriculture in most Asian economies is now less than 50% of GNP.) This implies, then, that agricultural modernization is an efficient way of addressing poverty in most LDCs-in spite of the fact that the overall growth rates of agriculture are constrained by inelastic demand and the limits of nature. Development policies that are designed to increase the productivity of agricultural labor and to extend the demand for labor in the rural sector will have the effect of inducing a rising trend in agricultural incomes.
Developing states have generally neglected agriculture, for a variety of reasons. (Indeed, Nick Lardy argues that this is true of China as well; [Lardy, 1989, #1118].) First, there is the now-familiar urban bias, and a related preference for industrial development over agricultural development. Second is an inference about the longterm process of economic development, and the inevitability of structural transformation: if the longterm pattern is for a dwindling of agriculture's share within modernizing economies, then there is some reason to think that investments in industry rather than agriculture will be more productive. And finally, there is an argument about the relative value of agricultural products versus manufactured products that suggests, once again, that the state should channel investment into the expansion of manufacturing. Each of these arguments, however, seems to be wrong. A smaller agricultural sector may nonetheless be increasingly productive-thus justifying continuing investment in agriculture. Improving agricultural productivity is an important component of a national policy of enhancing food security. Progress in agricultural development may be a necessary macroeconomic condition for development in other sectors. Finally, improving the productivity of agriculture is the only plausible way of improving the incomes flowing to agricultural workers in the forseeable future, since urban employment cannot expand rapidly enough to absorb a sizeable percentage of the rural workforce. The upshot, then, is this: the developing state needs to reverse the anti-agriculture bias that is common in the developing world. It needs to make adequate investment funds available to the rural sector, through credit institutions that are broadly accessible. It needs to organize and fund a variety of agricultural infrastructure projects: agricultural research, roads and market facilities, extension services, and extension of irrigation facilities. And it needs to pay adequate attention to the institutions of land tenure that are in place within the rural economy.
A fourth important policy option for a developing state is to increase social spending on programs that enhance human resources of the poor: education, job retraining, health care, public health measures, and nutritional status. A related way of enhancing the productivity of the poor is to improve the quality of the infrastructure assets to which they have access: clean water, roads, market facilities, irrigation systems, electricity, and telephone service. The chief asset controlled by the poor is unskilled labor. Policies that work to increase the value and productivity of this asset through higher literacy and other technical competences should have the effect of raising the in comes that flow to the poor. This avenue represents a major role for the developing state: substantial state resources need to flow into rural education and health programs-with the result of improving both the current welfare and the future productivity of the poor.
Finally, in this context we need to consider as well direct state expenditures on welfare-enhancing programs such as food subsidies for the poor. [1] The immediate goals of such programs are varied: to enhance the food security of the poor, to improve nutritional status across large population groups, or to reduce the likelihood of food-crisis unrest. Two points emerge as particularly salient in the context of poverty alleviation, however: first, food subsidy programs are costly but economically feasible (contrary to the "getting the prices right" orthodoxy), and second, they can have substantial effects on the welfare and nutrition of the poor. The budgetary costs are high but not prohibitive, and problems of targeting are difficult but not insuperable. These considerations suggest that a poverty-alleviating state will give careful consideration to food subsidies as a policy instrument for improving the welfare and productivity of the poor. At the same time the problems of economic analysis and policy design are highly complex in this area, since the macroeconomic effects of food subsidy programs are both substantial and difficult to anticipate.
Each of these forms of public support involves the expenditure of state resources on public and private assets available to the poor: education, health care, public health programs, roads, market facilities, and food subsidies. These policies require the redirection of substantial state revenues toward the poor; in the first case, with the goal of improving the productivity of labor, and in the second, to improve the quality of life of the poor. But this in turn requires the expenditure of political power, which is likely to occur only in circumstances where the rural poor are capable of exercising political influence on their own behalf. (See [Kohli, 1987, #394] and [Lipton, 1976, #451] for analysis of the politics of poverty reform. Dreze and Sen (1989) provide a vigorous defense of public policy spending directed to the alleviation of hunger and poverty.)
Another important policy option affecting the condition of the poor is to attempt to substantially increase government spending on programs providing public goods that typically fail to reach the poor: clean water, roads, electricity, telephone service. Both these policies require the redirection of substantial state revenues toward the poor; in the first case, with the goal of improving the productivity of labor, and in the second, to improve the quality of life of the poor. But this in turn requires the expenditure of political power, which is likely to occur only in circum stances where the poor are capable of exercising political influence on their own behalf. (See Kohli 1987 and Lipton 1976 for analysis of the politics of poverty reform.)
Is it possible to design a process of socialist rural development that (i) is largely just on the criteria above; (ii) that is likely to be successful; and (iii) that works within the constraints of political power and individual motivation and consent? In this section I will discuss the problem of designing cooperative institutions as an alternative to the institutions of private property and capitalist farming.
My discussion of agrarian reform is guided by three constraints. First, cooperative institutions need to be technically efficient; they ought to work at least as well as private enterprises at planning, investing, allocating resources, and the like. Within a capitalist farming system, each farmer aims at producing a profit within a market-defined environment of choice. Thus investment decisions are made by private owners (influenced by state policy); labor discipline and organization is administered by supervisors employed by the capitalist farmer; and incomes are distributed by market forces. This system has some admirable features leading to efficient allocation of resources (along with the grave distributive defects noted above). So cooperative institutions need to be designed in such a way as to efficiently satisfy these economic functions.
Second, cooperative institutions should embody a system of incentives that effectively elicit voluntary cooperation by individual producers. The goal of agrarian reform is to advance the welfare and security of rural people through cooperative and democratic institutions; so it is critical that institutions be designed in such a way as to elicit the willing participation of rural people as they are. These incentives are various: the complex of cooperative institutions should successfully improve the material wellbeing of participants, and they should be sufficiently stable as to lead participants to the confidence that these institutions will persist over the foreseeable future. If these conditions are not satisfied, then we should expect defection to private activity, low-quality contributions, and low levels of commitment to the cooperative enterprise; and these flaws may stimulate more coercive efforts by the central authorities.
And finally, such institutions ought to embody the idea of "producers' democracy", according to which the economic and political decision-making process is responsive to the interests and preferences of the producers. An important goal of agrarian reform is to replace the economic and political power of the rural property-holding elite with the power of the dispossessed. And the institutions that emerge ought to provide a concrete experience of democratic self-administration for rural society.
Some of the tasks for cooperative institutions in rural society include these:
The obstacles to a rational and equitable process of agrarian reform are several. First, there is the problem of pre-reform distribution of political powers. Existing elites have both the interest and the opportunity to defeat and sabotage fundamental reform. Second, the problem of designing effective and fair institutions is non-trivial, and may be expected to require an extended time of experimentation and error. Finally, even with well-designed institutions there will un avoidably be a period of transition which will pose potentially disruptive problems. There are substantial problems of transition; if property arrangements are to be significantly altered, various players will have counterproductive incentives during the transition. For example, if oxen are to be confiscated in the next period, then the owner of the ox has no incentive to keep the ox alive; he may consume it, drive it to death, or in other ways attempt to make use of its value before confiscation. More innocently, as new institutions come into existence it is necessary to rally support from various segments of rural society for them, and this requires raising public confidence in their efficiency, fairness, and stability.
The earliest demand voiced by the rural poor is for fundamental land reform-a "land to the tillers" program. The goal of such a program is to level out land ownership by confiscating the holdings of large landowners and distributing them to the land-poor and landless. The result of such a program in most environments is a system of peasant proprietorship of small plots worked with family labor. Fundamental land reform addresses several of the chief aims of agrarian re form: in particular, it addresses the problem of rural inequality and it substantially reduces or destroys the political power and influence of the rural elite.
A program of fundamental land reform by itself is insufficient, however, because it fails to address problems of efficiency. Small holdings with inadequate access to credit are not a feasible basis for modern high-yield agriculture; but without sustained development in agriculture, it will be impossible to raise either average welfare or the welfare of the least-well-off stratum. More over, a peasantry that has achieved the patchwork of smallholdings implied by this system will politically oppose further transformations of the agrarian system.
This observation suggests that we need to consider other institutional reforms that do not simply amount to a return to classical peasant production, but which reflect the goals of equity and democratic control of society's assets. This brings us to the question of cooperative institutions and socialist rural development. Is it possible to devise institutions through which investment decisions can be made and investment funds collected; through which collective goods (e.g., irrigation projects) can be planned and implemented; and through which larger-scale technologies can be acquired and efficiently used by producers?
The argument to this point may be summarized in these terms. The fundamental determinant of the distribution of income within an economy is the set of property relations through which production occurs. Property relations in the less developed world are typically highly stratified, with a small class owning the majority of wealth (chiefly land). Ownership of wealth confers both high income and substantial political power; so large wealth holders are able to absorb innovations and to influence the political process of planning in a way advantageous to their interests. In most developing economies there is significant stratification of landholding, with consequent stratification of income. In an agrarian economy, land ownership is the primary source of income. So without land reform, it is difficult to see how the lower strata of rural soci ety will be able to improve upon their distributive share of income generated by the rural economy.
From this we may draw something like an inference: development that proceeds through existing economic and political institutions will tend to reproduce and perhaps intensify inequalities between classes. This analysis suggests that if we are interested in a process of development that reduces the structure of inequalities, it must be grounded in a set of institutional reforms that redistribute property rights and political powers. In a word, development strategies that aim at reversing inequalities must embody a program of agrarian reform.
What is agrarian reform? It is a process through which property relations and political powers are redistributed in such a way as to favor the interests of the rural poor. Ronald Herring puts the point this way:
Agrarian reforms worthy of the name transform rural society through alterations in the property structure and production relations, redistributing power and privilege. (Herring 1983:11)
The political obstacles to agrarian reform are obvious, both in theory and in history. For as we have already argued, agrarian reform is directly contrary to the economic interests of the politically powerful. Thus agrarian reform appears to presuppose a dramatic increase in the political power and influence of the rural poor. And secondly, the problem of institutional design-the creation of property arrangements through which efficient, modern agriculture may proceed while serving the ends of equity and welfare-is a knotty one. In the next section, therefore, I turn to a brief consideration of some of the possible features of an agrarian system that is efficient, equitable, and oriented towards the welfare of the least-well-off.
There is, of course, a more radical alternative to poverty-first development; this is the example of China, and a sweeping program of socialist reform. The defects of centralized administration of a complex economy are now painfully obvious; but the possibility of alternative property systems, involving some state ownership, some cooperative ownership, and some private ownership, provide promising avenues of development which cannot be further developed in this context. [2]
Each of these strategies holds out promise for poverty reduction in developing societies. In order to go beyond a qualitative listing of possibilities, however, we need to consider the economic characteristics of the alternative policy options discussed here. Is it possible to estimate the effects on GNP, growth, poverty, and inequalities, of various of these options within a particular macroeconomic environment? To what extent are these alternatives compatible with each other? Are there likely to be contradictory effects of employment creation in choice of manufacturing strategies and greater state spending on rural amenities, for example? These questions suggest that we need to make use of formal econometric models and simulations in order to attempt to work out the systemic consequences of various policy choices.
We should also ask briefly what strategies are the most unfavorable to the poor. Several chief instances should be mentioned in this context. In industrial development, it is argued that import substitution tends to be capital-intensive (since it involves a substantial degree of heavy manufacture). So import substitution strategies tend to result in slack demand for labor, with attendant slow effects on the incomes flowing to the poor. And in agriculture, mechanization is plainly labor-replacing, thus reducing the demand for rural labor. To the extent, then, that a given rural economy selects mechanization rather than more labor-absorbing innovations (irrigation and multiple cropping, for example), it will have harmed the rural poor. Finally, the policy of "squeezing" agriculture through unfavorable terms of trade and a price policy that favors urban consumers over farmers is directly contrary to the goal of reducing poverty; since most of the poor are rural, disadvantaging agriculture relative to industry inevitably harms the poor.
The argument to this point may be summarized in these terms. The fundamental determinant of the distribution of income within an economy is the set of property relations through which production occurs. Property relations in the less developed world are typically highly stratified, with a small class owning the majority of wealth (chiefly land). Ownership of wealth confers both high income and substantial political power; so large wealth holders are able to absorb innovations and to influence the political process of planning in a way advantageous to their interests. In most developing economies there is significant stratification of landholding, with consequent stratification of income. In an agrarian economy, land ownership is the primary source of income. So without land reform, it is difficult to see how the lower strata of rural society will be able to improve upon their distributive share of income generated by the rural economy. From this we may draw something like an inference: development that proceeds through existing economic and political institutions will tend to reproduce and perhaps intensify inequalities between classes. This analysis suggests that if we are interested in a process of development that reduces the structure of inequalities, it must be grounded in a set of institutional reforms that redistribute property rights and political powers. In a word, development strategies that aim at reversing inequalities must embody a program of agrarian reform.
[1] For an extensive discussion of the role and variety of food subsidy programs see Pinstrup-Anderson, ed. (1988).
[2] See Elster and Moene, eds. (1989) for a number of useful essays on such alternative forms of non-capitalist organization. William Hinton's (1990) recent criticisms of the rural reforms in China are also worthy of attention.