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close this bookWho Will Be Fed in the 21st Century? (AAEA - ERS - IFPRI, 2001, 124 p.)
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View the documentCHAPTER 5: The Critical Role of Income Constraints - G. EDWARD SCHUH
View the documentCHAPTER 6: Food from Peace and Roles of Women - ELLEN MESSER

CHAPTER 5: The Critical Role of Income Constraints - G. EDWARD SCHUH

In thinking about ways to alleviate food insecurity, there is a tendency to emphasize new production technology for staple food crops. Such technology is certainly important in increasing food supplies and in promoting economic growth generally, especially in the low-income developing countries. However, the role of the social sciences is also critical. In particular, it is necessary to better understand the economic policies needed to promote economic growth and development, the nature of opportunities and constraints facing food-insecure households, and the importance of safety nets to protect the most vulnerable members of society.

Three important sources help to frame the challenge. Pinstrup-Andersen and Pandya-Lorch (Chapter 1) provide a starting point by documenting the dimensions of the current food-insecurity problem around the world. Amartya Sen (1981) made the important point that poverty, not lack of food supplies per se, is the fundamental cause of malnutrition and hunger. In addition, the World Bank's 1986 policy paper on food security criticized the distortions in economic policy that were commonly used to ensure a cheap food supply as the means of dealing with food insecurity, provided additional evidence on the importance of poverty alleviation as the means of achieving food security, and stressed the importance of economic growth and safety nets as means to alleviate poverty.

Pinstrup-Andersen and Pandya-Lorch note that the total number of food- insecure people worldwide has declined from 960 million people in 1969-71 to 791 million in 1995-97, a significant accomplishment. The largest reduction has taken place in East and Southeast Asia, where economic growth has been the most pervasive and most vigorous during this period. More modest reductions have occurred in South Asia and North Africa. However, the number of food-insecure people has doubled during this period in Sub-Saharan Africa, where economic growth has been stagnant. It is worth noting that food insecurity is a problem even in the United States, as discussed in the 1999 United States Action Plan on Food Security (Interagency Working Group on Food Security and the Food Security Advisory Committee of the Board for International Food and Agricultural Development 1999).

In relative terms, progress in reducing the food-insecurity problem over time has been significant. The share of the world's population that was food insecure declined from 37 percent in 1969 - 71 to 18 percent in the most recent period. That reduction is testimony to the pace of agricultural modernization that has taken place during this period, to the pace and pervasiveness of economic growth, and to the increased integration of the global economy.

This chapter focuses on the ways in which income constraints may be overcome and, in particular, on how contributions from science must interface with social, economic, and institutional change, and with commitments by governments to improving food access and achieving the desired outcome of food security for all. This chapter is divided into three parts:

· the contributions of macroeconomic policy, especially international trade policy and its interactions with development policy as the means of promoting global economic growth;

· the importance of the household in addressing the poverty problem and the need for both policymakers and scientists to give more attention to that important institution in society as the means to alleviate poverty and promote economic growth; and

· the role of safety nets and how they might be supported.

Macroeconomic Policy

INTERNATIONAL TRADE

To promote economic growth, it is essential to create an economic environment that is stable and that provides appropriate incentives to producers. However, the role of international trade in promoting economic growth and alleviating poverty is also important, especially in light of the concerns voiced over the past year regarding globalization and the World Trade Organization.

Such concerns appear to be two-fold. The first is the concern about low wages in developing countries and fears that competition from other countries could lead to unemployment in the domestic economy. Much of that fear seems to be misplaced, after 10 years of uninterrupted expansion in the U.S. economy and levels of unemployment at the lowest levels in 30 years. It is important to keep in mind that low wages do not necessarily correspond to low-cost output. Rather, productivity is the key issue. As Wassily Leontief noted some years ago, the United States tends to export labor-intensive goods and services despite relatively high wages, and does so in large part because of the high productivity of the U.S. labor force (Leontief 1953).

The other concern relates to the basic principle of comparative advantage, which is a relative, rather than an absolute, concept. Countries have to export in order to import, and to focus on only one side of the exchange is a mistake. In fact, much of the recent sustained economic growth in the U.S. economy has been driven in large part by international trade. Even imports can facilitate economic growth if they provide modern inputs and raw material for the domestic production sectors.

A quiet revolution has been taking place in economics that provides some important insights on this issue. The centerpiece of this revolution is what is described as “induced growth models,” which have shifted the focus of traditional growth models away from their emphasis on growth accounting in an ex post sense to an emphasis on the forces that induce economic growth. The new perspective provides for the first time a link between international trade theory and policy on the one hand and economic growth and growth policy on the other. The link comes from revitalizing the ideas of Adam Smith, who published his book on The Wealth of Nations in 1776, and Allyn Young, who wrote in 1929 about sectoral specialization as a source of external economies in generating economic growth and development.

Adam Smith put a great deal of emphasis on specialization and the division of labor as viewed at the microeconomic level. He argued that this specialization and division of labor was an important source of economic growth and the elevation of per capita incomes. He wrote, of course, at a time in which production technology did not have the improvements it does today. Smith also emphasized that economic growth driven by this means was limited by the extent of the market. That meant that the size of an economy eventually put a constraint on economic growth.

Allyn Young revitalized Smith's perspectives on specialization and division of labor, and gave them a new interpretation. He argued that the specialization and division of labor also took place at the sectoral level as activities required for the production of a single product, say an automobile, were spun off as separate sectors of the economy. That specialization and division of labor also was, in his view, an important source of economic growth. In the case of the automobile, the production of wheels, tires, parts, and even metals could be done at a lower cost if done in specialized economic sectors. In some cases, these economies could be widespread.

The important contribution of this insight is that national limits to the growth process are overcome in the context of open international trade. Rather than being limited by the size of the domestic economy, a nation's growth process could be unlimited as long as the nation was willing to specialize and engage in international trade. Thus, the size of the domestic economy no longer was important so long as the conditions identified were present. This is an enormously uplifting idea, and one of great value to small countries, or to those who in the past have pursued autarchic economic policies.

The success of the rapidly growing economies of Asia, before their late-1990s crises in foreign exchange markets, is largely attributed to this kind of specialization, with the key being to identify niches in the international markets and take advantage of them. Notably, it is in Asia, and in the newly industrializing countries, that food insecurity has been reduced the most since the end of the 1960s. Moreover, the driving force behind economic development and improved food security in those economies was not in increasing their food supplies, but in generating economic growth through expanded exports of manufactured products.

The contribution of international trade goes beyond this specialization and division of labor. International trade also provides competition to the domestic economy that leads to modernization and a search for efficiency in resource use and allocation. It also can be an important source of new production technology. Finally, an open economy with sound trade and other economic policies becomes an attractive source of investment by the international economy. Thus, savings may be mobilized from other parts of the world to help finance a higher rate of economic development and growth.

The policy implications from more careful reflection on international trade are clear. First, countries should move to an increasingly open international trade policy so they benefit from the increased specialization and division of labor. Second, they need to invest in the science and technology that will make them more competitive in the international economy. Finally, countries need to maintain proper adjustment policies to help those individuals and households that are dislocated by international trade adjust to new opportunities. (This final implication will be discussed further in subsequent sections.)

AGRICULTURAL RESEARCH AND POVERTY ALLEVIATION

Agricultural research and the development of new production technologies contribute to poverty alleviation in two important ways. First, when they focus on food staples, the new technologies will, through general-equilibrium effects in the economy as a whole, generally lead to lower prices for the commodities in question. Those lower prices are equivalent to increases in real income for consumers of those commodities. If the staples are widely consumed, the increases in per capita incomes will be widespread in the economy. Although the increase may be small for an individual household, the aggregate increase across the economy as a whole will be large. That is one of the reasons why the social irate of return to agricultural research is so high.

The more important issue is the relative benefit to the poor within society because they tend to spend a larger share of their income on food. This share may be as high as 70 to 80 percent in many cases. Thus, the benefits of investing in agricultural research should be considered in the context of the larger economy, recognizing impacts on consumers as well as on agricultural producers. A large share of the benefits may in fact go to the poor in urban areas.

Many observers argue that, to alleviate poverty, agricultural research should be focused on the problems of smallholders. In fact, this emphasis is so great now that general agricultural research programs around the world are being significantly distorted from paths that would contribute more widely to poverty alleviation if they were to concentrate on broader issues. With this emphasis on smallholders, insufficient recognition is given to an important feature of economic growth and development: large amounts of labor will inevitably have to leave agriculture, and most of that labor will come from the population of smallholders. Public resources might better be invested in education and training programs that would facilitate that shift.

Agricultural research can also contribute more generally to poverty alleviation if some part of it is directed to export or cash crops, or to crops that compete with imports. For example, foreign exchange will be earned from exports by making the agricultural sector more competitive in the international economy. In the case of crops that compete with imports, foreign exchange will be saved. In both cases, the increased supply of foreign exchange can be used to service foreign debt, or to finance higher rates of economic growth by making it possible to import critical imports of intermediate capital inputs and raw materials. If the increase in exchange earnings or savings is large enough, the value of the nation's currency in foreign exchange markets may actually rise.

It should be noted that export crops tend to be labor intensive, so increased competitiveness in this area would lead to direct increases in agricultural employment. By financing a higher rate of economic growth, agricultural research may also make it possible to generate additional employment through the expansion of the nonfarm sector. That would create employment opportunities for the poor who are leaving agriculture and contribute to poverty alleviation. If the increases in foreign exchange are sufficiently large to contribute to a rise in the value of the nation's currency, the benefits to society would be even more widespread.

The Importance of the Household

When policymakers and members of the international development community design policies to promote economic growth, they tend to think about the firm as the basis of their policies. In today's world they tend to think about policies to free up markets, or policy reform; stabilization policies to reduce inflation and stabilize foreign exchange markets; and subsidies in the form of cheap credit, privileged access to foreign exchange, or other direct subsidies to private or public firms. All of these policies - except for the last set - are necessary conditions for promoting economic growth. However, they are not, alone, sufficient conditions for promoting economic growth.

In addition to creating the right economic environment, public investments are also needed to promote economic growth and development. Critical public investments in this context include investments in physical infrastructure, investments in science and technology (including, especially in developing countries, investments in agricultural research), and investments in education and health. These are important sources of economic growth, with important implications for household welfare, and for the most part they are investments the private sector is not going to make - at least not at socially optimal levels.

A vibrant and vigorous private sector is obviously necessary if an economy is going to grow. However, the household is the key to alleviating the constraints to economic growth, and especially to reducing poverty in the economy. The household is important because most of the human capital in a society is produced there. Investments in human capital are inexpensive sources of economic growth, especially in the sense that they yield a high social rate of return. Moreover, in modern economies such as the United States', human capital is the source of almost all of the increases in per capita incomes and economic growth.

What forms do human capital take? From a household perspective, the list includes the nutrition, health, and education of both the children and the adults in the household, as well as the level of technology used in the household. The perspective of the new household economics teaches that the household must be thought of as a firm that acquires inputs from the market economy and combines them with household labor to produce goods and services. The failure of economists in general to recognize the importance of the household has caused them to neglect the fact that much of the important human capital in an economy is produced in the household.

This proposition about the role of the household is seen in its most obvious form, perhaps, in the cases of nutrition and health - important forms of human capital that are critical to both the physical and cognitive abilities of members of the household. The household may purchase food from the market, but that food is combined with labor in the household and converted into meals and adequate nutrition. The same applies to health more generally. Health care may be acquired from public-health posts or from private doctors. However, much of the production of sound health comes from the daily care and nurturing of the members of the household. This includes adequate nutrition, hygiene, and care and sustenance when one is ill.

Less widely recognized is the education and training that takes place in the household. Adults and older children are typically in a position to be teaching and developing cognitive and vocational skills on an almost continuous basis. Moreover, if members of the family are literate, much of their reading and self-study may take place within the household. Education and training are critical to raising the productivity of labor on farms, to gaining productive nonfarm employment, and even to raising the productivity of labor within the household.

Even more neglected is the role of the production technology used in the household. The sight of women and children carrying water and firewood on their heads for household use is common in the low-income developing countries. However, less commonly recognized is the fact that improvements in the form of new technology imbedded in public water systems, or improved stoves that use fuels other than firewood, could alleviate labor constraints in the household and raise the output of the household, especially in the production of human capital.

Finally, there is the critical role of the woman in the household. In rural areas of developing countries, the woman typically is the one mainly responsible for the production of the various forms of human capital identified above. However, she also contributes labor and often managerial inputs to farm production, and in many cases she is the main source of family labor for the production unit, especially when male members of the household are off working in nonfarm employment. Even when the household moves to urban areas, the woman still may be responsible for the household, even if she has gainful employment outside the household. Sadly, the importance of the woman in these multiple roles still continues to be neglected. Somewhat ironically, even when the importance of the woman in farm production and management is recognized, the response is often limited to providing a female extension agent to teach the woman improved farming skills, but nothing about how to better manage the household.

What policies are available to alleviate these constraints within the household? A starting place would be to emphasize the importance of literacy, formal schooling, and vocational training for women and girls. Improvements are being made on this front in many countries. However, there is still a long way to grow.

A second thrust should include an expanded research program to understand the widely differing social and economic conditions in households around the world. Although the family is the key social unit in almost every country in the world, knowledge of the economics of the household unit is still dramatically limited. A basic knowledge gap involves information on how time is used by all members in the household. Proper policies cannot be designed until these issues are better understood.

A related point is that research is needed to develop new process and product technology for the household. Unfortunately, many of us from developed economies, where women have made large advances in gaining employment in labor markets and ultimately economic independence, fail to recognize the role that household technology makes in reducing the demands on the time of the woman in the household, thus freeing her to participate in the labor market. Examples of improved product technology are legion, enabling time savings in common household chores. Less often recognized are women's other skills such as preparing nutritious meals, making efficient use of their time, and imparting knowledge to their children in their day-to-day interactions.

Finally, it is essential to recognize the importance of extension and adult education programs for women in poor households. These programs should not focus just on imparting farming skills, but also on teaching the women how to better manage their activities in the household. In a paper (2000) I originally gave at the CGIAR's poverty conference in Costa Rica, I called attention to the way extension programs began in the United States. The county extension office was typically staffed with a male extension agent who worked with the farmer and a female home demonstration agent who worked with the woman in the household. These home demonstration agents taught women nutrition and how to obtain it; health care and hygiene; and how to make more efficient use of time in the household. Nothing less than this, plus agricultural extension, is needed for the women in poor households of low-income countries.

Safety Nets

Even if policymakers follow all of the precepts described, the development process will bypass some individuals and households - some for short periods of time and others permanently. For that reason, safety nets of some kind or another are needed if food security for all is to be realized.

The labor-adjustment policies referred to above are one such safety net. The goal should be to retrain workers for alternative employment, and to help them relocate to alternative employment. As a corollary, some means of sustaining them through the training program and the process of relocation is often needed. Labor-intensive public works or food-for-work programs are examples of safety nets that have been important in providing both food and employment in times of economic distress in a wide variety of contexts. If properly designed - for example, to encourage self-targeting - these programs provide both a safety net to those most in need and an opportunity for developing economies to invest in the construction or maintenance of productive capital. It should be noted that facilitating labor mobility in this way also accelerates the rate of economic growth and development.

The problem of adjustment policies became controversial during the widespread economic reforms promoted by the World Bank and the International Monetary Fund during the 1980s and 1990s. In that case, these international institutions were trying to facilitate the large reforms in economic policy made necessary as a consequence of the international economic and debt crisis of that period. Those policies could have been easier to undertake by local policymakers, with less harm to the poor (who ultimately bore much of the costs of adjustment), with more effective policies. Because of the large currency devaluations required as part of those reforms, much of the burden of adjustment resided on the urban poor. These victims of the process could have benefited from targeted feeding programs. Ironically, food aid was available during that period. A more human face could have been put on the adjustment policies if more use had been made of food aid in the form of targeted feeding programs, rather than the widespread monetization of that food aid that occurred.

One way to address the issue of the workers who are permanently bypassed by the development process, or who are disabled in such a way that they cannot participate in the labor market or sustain themselves, is targeted feeding programs. These can be programs similar to the food-stamp program in the United States; specialized stores for the disadvantaged, as used in a number of countries; or other means of providing access to food. An important point of the World Bank's 1986 food-security paper, however, was that policies that generally distort the prices of food as the means to benefit the poor, tend to benefit the well-to-do the most and are counterproductive.

Concluding Comments

In thinking about alleviating the food-insecurity problem, the tendency is to put the emphasis on new production technology for food staples. Such technology is certainly important in promoting economic growth generally, especially in the low-income developing countries. However, as has been shown, the role of the social sciences is also critical. The economic policies required to promote economic growth and development need to be better understood, as does the household. Ways of protecting those who fail to benefit from the broader process of growth and development are also needed.

Alleviating the income constraints that lead to food insecurity must ultimately be based on a multipronged approach. In most countries, the modernization of agriculture to induce lower food prices and the reform of trade and exchange rate policy are critical as beginning points. However, an improved focus on the household in development policy is equally important, even though the benefits may take longer to realize. Finally, appropriate safety nets are needed for groups that are passed by the development process.