The manifestos of almost all the big political parties vying for power in the forthcoming elections have failed to mention the rural non-farm economy. More than 60 percent of our population lives in the rural areas and rural poverty is far deeper than poverty in the urban areas. Those who own land are much smaller in number compared to the total rural population which means that the economic lives of the majority of voters living in the rural areas depend on the rural non-farm economy.
If the vote is the real power in democracy, then how can the political parties afford to ignore rural non-farm economy? What explains their nonchalance towards non-agricultural rural economy? Is this neglect due to some misconception? Or is it due to the rural power structure where only land defines power?
Rural development is considered synonymous with agricultural development. This thinking is premised on the assumption that rural lives in one way or the other are linked to agriculture. And enhancing agricultural productivity will automatically promote non-farm economy by creating backward and forward linkages. For example, agriculture production will create the need for further processing of agriculture produce (forward linkages).
Consequently, economic activities like rice husking, wheat milling, oil extraction, and cotton ginning etc will evolve. Similarly, agriculture inputs like auto parts for tractors and harvesters, fertilizers, pesticides and repair shops etc will create backward production linkages. Consumption linkages are also associated with agricultural productivity, meaning more productivity in agriculture and rising incomes will increase demand for goods and services produced in the sectors covered in the rural non-farm economy.
Undoubtedly, agriculture productivity and growth creates demand for the goods and services produced in the non-agriculture sectors. But the question is: will a rural non-farm economy develop automatically? In order to establish an enterprise, you need technical, financial and institutional support. Leaving it to the land-owning agriculturists may raise serious equity concerns. Empirical evidence suggests that landlessness and poverty in the rural areas are directly related to each other.
Focus on agriculture and neglect of the non-farm economy thus means that the state is pandering to the powerful economic sections of the rural society and that too at the expense of the landless majority.
The socio-economic transformations that have taken place in rural society in the last few decades also warrant a distinct treatment of non-farm rural economy without confusing it with agricultural growth and productivity. Before the advent of mechanised farming, the majority of the people living in the rural areas were directly or indirectly associated with agriculture.
Those who did not own land either worked as agricultural labourers on the farms or rendered services to the agriculturists as ‘sepis’ (those generally rendering non-tradable services to the villagers). At the time of sowing and harvesting of seasonal crops, almost the whole of family of the agriculture labourers worked on the farm. Landowners and agriculturists paid them in kind.
In this way, they were able to secure basic food necessities for the next six months. ‘Sepis’ like barbers, cobblers, and blacksmiths gave their services to the agriculturists around the year. They were also paid in kind at the end of the year or crop season, meaning basic food security was guaranteed.
In case agriculture was hit by some natural calamity, the surplus labour temporarily migrated to the cities to work in industries or as construction workers. And when the industrial sector was down due to an adverse business cycle, they returned to the rural areas to work on farms. But in the past few decades things have changed. The impact of the mechanisation of agricultural farming that started in the wake of the Green Revolution is now showing on rural employment. Sowing, harvesting and threshing etc is mostly done by machines.
Two profound changes are now visible in the rural landscape even to the naked eye. First, agriculture is no more able to absorb agriculture labour due to replacement of human tasks by machines and increasing population pressure.
Second, agriculturists no longer like to pay the agriculture labourers in kind which means that the price of labour (due to the phenomenon economists call stickiness of wages) has not kept pace with the price of agricultural commodities, having grave implications on food security. Add to this the industrial sector’s failure to diversify itself. Consequently, it is unable to absorb the surplus agriculture labour.
It may be mentioned here that Pakistan’s economy – like other developing countries – is characterised by ‘dualism’, where economic growth takes place through structural changes. In developed countries, the process of structural change is driven by technological changes and innovations whereas in a developing country like ours, it is the capacity to absorb such technical changes, though with a lag, that drives economic growth.
Unfortunately, our industrial sector neither upgraded nor diversified itself with the changing technology. This is partly due to the protectionist policies pursued by the state. We did not explore new avenues but continued to pamper a few industrial sectors like textile through liberal provision of rebates and other subsidies. The process of moving from low productivity to high productivity sectors that drives growth did not happen with a result that we not only failed to sustain our economic growth but the productivity of labour has also not improved.
The neglect of the rural non-farm economy can also be explained from a political economy perspective. The argument can be made that the people for whom the rural non-farm economy is basically meant are not politically empowered – being landless.
It is the sardar, wadera or feudal of the area who determines their political choices, so political parties and elite are not bothered much about the landless and rural non-farm economy. Whatever the explanation for the neglect of the rural non-farm economy, the point is that poverty reduction and growth in rural Pakistan will remain a distant dream unless we seriously focus on this economy.
However, focusing on the rural non-farm economy should also take into account equity considerations. Big non-farm activities like rice mills, flour mills, ginning factories etc are generally undertaken either by big farmers or entrepreneurs with collateral for obtaining loans from the financial institutions.
On the other hand, poor rural households dominate small activities like small-scale trading and manufacturing, repair shops, and small hotels etc. They do not have easy access to loans. Focusing on such poor households will generate immense possibilities of employment and help in reducing poverty and inequality.
A three-pronged strategy concentrating on the financial, technical and institutional aspects is needed to promote rural non-farm economy. The biggest constraint small rural entrepreneurs face is their limited access to finance due to stringent collateral requirements and weak intermediation of financial institutions. So in order to promote rural non-farm economy, easing of collateral requirements, developing new forms of collaterals and simplifying loan procedures should become the primary component of such a strategy.
The second component relates to the technical aspect. Only feasibility reports for the small and medium rural enterprises will not suffice. Rather the technical aspect should also involve the transformation of outmoded business practices and the improvement of standards and quality of the goods and services produced in the rural non-farm economy. The third ingredient of the strategy is the removal of institutional impediments to the growth of a non-farm economy. Here the role of the government as facilitator and provider of public goods is highly crucial.
Developing human capital, taking care of the power shortage and improving physical infrastructure are some of the areas warranting priority. Further, the judicial system needs to be geared towards strict enforcement of contracts in a minimum possible time. One of the basic reasons for predominantly sole proprietorships in the non-agriculture sector is the weak enforcement capacity of the government and the courts. The institutional aspect of the strategy requires a critical re-think of the entire institutional architecture currently in place.
The writer is a graduate of Columbia University.Email: jamilnasir1969@gmail.com
Jamil Nasir, "Is it worth neglecting?," The News. 2013-05-09.Keywords: Economics , Economic issues , Political parties , Economy-Pakistan , Economic development , Economic growth , Policy making , Agriculture-Pakistan , Agricultural income , Elections , Poverty , Labour , Pakistan