DECENTRALIZATION & RURAL DEVELOPMENT

• What Is Decentralization?
• Decentralization is a multi-dimensional process of shifting the focus of development away from central planning and bureaucratic government agencies to community-based, participatory systems that use the full range of local public and private institutions.
• The political, fiscal and institutional elements of decentralization are particularly important. Research findings suggest that each element needs to complement the others, or the decentralization initiative can be undermined.
• How Does Decentralization Affect Rural Development?
• Communities:
• Empowers communities to make decisions on matters that affect their lives and on which they potentially have the ability to manage
• Provides communities with control over some fiscal resources to implement local programs of rural development
• Encourages greater accountability at the local level by promoting responsive institutions through the electoral processes
• Government:
• Frees up scarce institutional capacity by removing the need for government agencies to implement all aspects of rural development programs
• Enables governments to stretch scarce development resources further, as communities are typically able to carry out simple rural development projects at lower cost than government agencies
• Helps inform government of local needs and encourages a reorientation of public goods and services to where they are needed most
• What Needs To Be In Place?
• High-level political commitment to transfer appropriate powers and responsibilities to local government
• A system of intergovernmental fiscal arrangements that provides local governments with sufficient resources to enable them to carry out their prescribed functions
• Community-level institutions capable of carrying out the requirements for implementing the elements of a rural development strategy
• A sound agricultural policy environment that does not unfairly discriminate against agriculture
• What Is the Bank's Role?
• Help governments to develop a policy framework that promotes a rational, sustainable approach to decentralization
• Promote decentralized, participatory approaches to rural development through program and project interventions
• Provide technical assistance on development appropriate decentralization mechanisms based on global development experience
• What Is the Bank Doing?
• Lending for projects targeted at the rural poor that contain participatory, decentralized mechanisms for rural development (Albania, Brazil, Colombia, Mexico)
• Engaging in policy dialogue with governments interested in exploring decentralization as a mechanism for encouraging rural development (Argentina, Lesotho, Nigeria)
• Implementing a program of research that seeks to develop a revitalized strategy for rural development based on decentralized, participatory mechanisms

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Everything else can wait, but not agriculture

-- Jawaharlal Nehru

Time to Revitalize Rural Development

It is time to revisit the rural economy and revitalize its growth. Few countries have significantly reduced poverty without also experiencing economic growth. For most developing countries, improved agricultural productivity will be the engine of non-agricultural growth. Agriculture and associated activities—the driving force of the economy in many developing countries—typically accounts for around 60 percent or more of all employment and more than a third of national income. Indeed, growth in food and agricultural output has been the main basis of economic growth, higher per capita incomes, and better diets for most countries. Most of the developing countries that grew rapidly during the 1980s, and achieved the largest improvements in diets, experienced rapid agricultural growth in the preceding years. For example, China’s remarkable annual economic growth rate of around 10 percent during the 1980s and 1990s was preceded by rural and agricultural policy reforms of the late 1970s and early 1980s. Indonesia and Thailand also experienced strong agricultural growth prior to the period of high nonagricultural growth, which continues today.

Rural growth also contributes to reducing urban poverty. When agricultural productivity improves, rural wages and employment rise, reducing labor flows to urban areas -- leading to wage increases for the unskilled and semi-skilled in cities too (Ravallion and Datt, 1996). Increased farm productivity also reduces the price of food in urban areas, often a significant component household expenditures for the urban poor. Indeed, stimulating sustained growth is unlikely to succeed unless agriculture is first energized.

If rural economic growth and development are so important, why are they not happening?

Lack of understanding and commitment — political and economic — to a broad vision of rural development is a major reason for the low priority given to agriculture and rural well-being.

Why are countries uncommitted if the agenda is so important?

Agriculture is viewed as a declining sector. As countries develop, the share of the rural and agricultural sectors in production (GDP) and employment shrinks relative to the industrial and service sectors. Many developing countries focus resources on the urban and industrial sectors, often at the expense of the rural sector, and in doing this, fail to recognize rural productivity and growth as the primary engine of their long-term development towards an urban-industrial economy.

Falling real food prices over the last two decades have led to complacency. Over the past two decades real cereal prices have declined, reducing the returns to irrigation and other investments in agriculture. Much of the decline in prices has been due to the use of better technologies and practices — the result of investment in agricultural research.

The rural poor have little political power. Geographically dispersed and lacking communications and transportation infrastructure, rural people have difficulty organizing and expressing their preferences through political processes. The rural poor and women in particular have little political voice.

Urban elites pursue policies which put the agricultural sector at disadvantage. Over-valued exchange rates, industrial protection, export taxes, and low urban food price policies are a few examples. This policy-set, often identified as urban bias, has been pervasive in many countries. Rural elites are often able to obtain some compensation, but this is insufficient to offset urban bias and often aggravates the impacts of urban bias on the rural poor.

Fruits of agricultural research are the dramatic gains in yield for critical crops

Yields for three important food crops have jumped dramatically in the past 30 years, due to global commitment to research on them:

Wheat. Average developing-country wheat yields have doubled, rising since the early 1970s, from 1.2 to 2.5 tons per hectare. In 1965 developing countries produced 77 million tons or about a quarter of the world’s wheat. Their output has since more than tripled to 250 million tons and their share of the global harvest has almost doubled to 47 percent.

Rice. Total rice production almost doubled from 257 million tons in 1965 to 520 million tons in 1990. More than 300 rice varieties were developed. Over 11 million hectares are now planted to just one variety, IR 36, which is resistant to about 15 insects, diseases and environmental stresses.

Potatoes. Potatoes are now becoming an important crop for diversification, particularly in countries that are reaching self-sufficiency in rice. Both India and China, the world’s most populous nations, are cultivating potatoes as a second crop after rice. During the last decade , India’s potato output quadrupled and China’s tripled.

Cassava. FAO has calculated that between 1980 and 1994, sub-Saharan Africa’s farmers increased cassava output by at least 3.4 percent a year. The crop is well-suited to smallholders because it is drought-tolerant and pest-resistant, cheap to produce, well adapted to poor soils, and allows farmers to maximize output without much cash or input.

Waning international interest in the rural economy

Among the many reasons for sagging international interest and support for agriculture and rural concerns are:

There is a perception that the world is awash in food surpluses and that much excess capacity is held out of production by policies of the industrialized countries. The upward trend in food supplies and century-long declining trend in real grain prices induce a false perception that global food supplies are assured. This perception persists despite the fact that between 1993 and 1996, grain stocks fell to lower levels than at any time since World War II. In early 1996, the stock-to-use rate was below 15 percent, lower than it was during the price run-up of 1972-73. While the crisis has eased, due to good harvests in the major exporting regions, stocks remain low.

There is general aid fatigue among donor countries. External assistance for agriculture in the developing world has declined by nearly 50 percent since 1986. Ironically the declining trend in food prices is due largely to productivity gains as the result of investment in research and technology supported by donors and partner countries. This positive result should not trigger declining investment. Improvements to meet food demand are unlikely to occur without continuous investment in research and efforts to improve agricultural policy and delivery systems.

Lending for agriculture reflects the decline

The World Bank’s portfolio for agriculture and rural development has declined 50 percent over the past decade, from over US$6 billion a decade ago to US$2.6 billion in 1996 constant dollars. In its overall lending portfolio, agriculture as a proportion of total lending has also been declining, from nearly 32 percent in 1975 to 12 percent in 1996. Relatively high costs of agricultural lending operations, limited opportunities for further development of large-scale irrigation systems, and an overall complacency about the world food situation, leading to policies in many countries that do not favor agriculture, have contributed to the decline.

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Wisdom enough to leech us of our ill
Is daily spun; but there exists no loom
To weave it into fabric

--Edna St. Vincent Millay
(Sonnet)

Chapter 3 Meeting the Challenges: What Will the World Bank Do?

The World Bank’s overarching goals are:

• Rural development and poverty reduction
• Widely-shared economic growth
• Household, national, and global food security
• Sustainable natural resource management.

To realize its vision on agricultural growth and rural well-being, the World Bank will work on several fronts to:

• Provide global leadership to put agricultural growth and rural development on center stage of national and international agendas.
• Forge strategic alliances and stronger partnerships with the international community to integrate rural concerns into development strategies.
• Reformulate rural strategy by country, using its wide-ranging analytical capabilities and country-specific sectoral knowledge.
• Help build consensus with and within countries on the critical policies and actions needed to foster rural growth, break the cycle of poverty, hunger, and environmental degradation, through an assistance strategy.
• Provide lending support to countries in support of revamped rural policies, programs and projects. Innovative ventures will be encouraged on a pilot basis.
• Involve the entire World Bank Group in rural development. Teams of specialists from different parts of the World Bank Group will prepare and implement the rural strategies. Coordination is critical.

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Box 1 The World Bank Group’s vision for rural development

Rural growth is widely-shared, with private and competitive agriculture and agribusiness as the main engine of growth.

Family farms and non-farm enterprises provide ample remunerative employment opportunities to men and women.

Rural people manage the soils, water, forests, grasslands, and fisheries in a sustainable manner.

Rural people are linked to well-functioning markets for products, inputs, and finance.

Rural people have access to medical care, clean water and sanitation, educational opportunities, and sufficient nutritious foods.

Essential legal frameworks, public investment, productive and social services are provided and financed in decentralized and participatory manner.

Rural Development: From Vision to Action

To revitalize rural development, the World Bank has produced an action plan. The key directions are:

A broad focus, moving away from narrow sectoral approaches of the past, will be essential for promoting rural growth. Agriculture, forestry and livestock production should not be looked at separately, but rather in the context of supporting sustainable production system development. Projects on irrigation and drainage for example, will in the future need to look more at water resource allocation and comprehensive water resources management.

Tackling long-ignored issues including politically charged ones such as land reform, and morally inadequate commitment to food and nutrition consumption policy. Gender will be an important factor in many of these issues. For many partner countries, land reform and better land policies would provide the incentives for investment and growth needed to raise food output and rural incomes. With appropriate policies, all citizens could be made better off.

Taking on old issues in new ways: Promising approaches to be piloted and monitored include:

Revitalizing rural development at local and community levels.

Involving stakeholders in the development and execution of projects through all stages.

Delivering rural financial services to the poor using new approaches.

Involving the private sector in delivering infrastructure and other services wherever possible.

Promoting sustainable resource use through community-based management.

At the international level, the rural action plan defines a set of complementary actions:

Further worldwide liberalization of agricultural trade--a necessary condition for ensuring that countries can rely on international markets--rather than self-sufficiency policies for their food security.

Collaboration with other international, national and private institutions to help low income food-deficit countries cope with the recent sharp rise in world cereal prices.

Coordination with others to discourage major exporters and importers from adopting inappropriate policies which could worsen the situation.

Enhanced Non-Lending Services

The emphasis on strategy and consensus-building will be complemented by a sharper focus on increasing the incomes and participation of the rural poor and other vulnerable groups in all assistance programs. This will require politically difficult reforms in policies, institutions and expenditure patterns which have in the past favored urban and rural elites, but which hinder the pace and quality of rural development. The emphasis on improving incomes and participation of poor and marginal groups is particularly strong in the proposed actions in long-ignored areas or areas in which execution has been especially poor--food and nutrition policy, rural finance, land policy and land reform, local and community-based rural development, and decentralized and participatory natural resource management. To strengthen the capacity of countries to better deal with these complex issues, the World Bank will enhance its non-lending services to member countries in areas of:

Analysis and dissemination of cross-country experiences

Helping create capacity for strategy and policy formulation

Linking countries with centers of excellence around the world

Promoting processes for in-country and international consensus-building.

Revitalization of Lending

Clearly lending will continue to be the main vehicle of support to countries from the World Bank. The focus and quality of that support will therefore be at the heart of what the Bank does to contribute to revitalizing agricultural and rural growth. With a strengthening of country strategy formulation the World Bank will increasingly adopt a program approach to lending through which long-term development strategies would be agreed with governments and lending sequenced to support such strategies. Accordingly there would be more smaller or pilot projects at the outset which would be scaled up, commensurate with growth in country experience and capacity. The Bank would, therefore, commit itself to work with countries and other national and international partners "over the long haul" to tackle some of the most critical and intransigent problems constraining broad-based rural development. This represents a break with the past decade of lending which pursued a more subsectoral project approach to development.

Strategic checklist for rural development

Macroeconomic and sectoral policies are stable. The foreign exchange, trade, and taxation regimes do not discriminate against agriculture, but are very similar for the rural and urban sectors.

The growth of private agriculture is encouraged by minimizing distortions among input and output markets and by market development for agriculture and agroindustrial products, both at home and abroad.

Public investment and expenditure programs for economic and social infrastructure, health, nutrition and education do not discriminate against rural populations or the rural poor.

Large farms and large agroindustrial firms do not receive special privileges and are not able to reduce competition in output, input, land or credit markets.

The agrarian structure is dominated by efficient and technologically sophisticated family-operators who rely primarily on their own family’s labor. The rights and needs of women farmers and wage-laborers are explicitly recognized.

Access to and security of land and water rights is actively promoted. Restricting land rentals hurts the poor. Where land distribution is highly unequal, land reform is needed. Decentralized, participatory, and market-assisted approaches to land reform can achieve this much faster than expropriation by land reform parastatals.

Private and public sectors complement each other in generating and disseminating knowledge, and technologies. Public sector financing is particularly important for areas of limited interest to the private sector, such as strategic research, smallholder extension, and diffusion of sustainable production systems and techniques.

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