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Old Tuesday, May 22, 2007
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Default Reviving the farm sector

Reviving the farm sector By Shahid Javed Burki


PUNJAB’S agricultural endowment must be put to full use for obtaining a high and sustainable rate of growth in the provincial GDP (PGDP). Not only can agriculture provide a bounce to the provincial economy, it also has the potential to significantly reduce the incidence of poverty and improve income distribution.

There are several other benefits as well. For instance, by increasing agricultural output and productivity of the sector, the province should be able to reduce the explosive growth of its large cities. A buoyant agricultural sector should help to direct rural to urban migration towards cities and towns more closely connected with the countryside. This should release demographic pressures on such cities as Lahore and Rawalpindi.

All this can be realised by the adoption of public policies that are explicitly directed towards putting to economic and social use the enormously rich endowment with which the province started its life as the most important economic region in the state of Pakistan. This, with two exceptions, did not happen.

The exceptions were the two “green revolutions”, one in the late 1960s and the early 1970s and the other in the 1980s. In the first, Punjab saw an impressive increase in the output of wheat and rice; in the second the province increased the output and productivity of the land devoted to the production of cotton. In both cases the environment for increasing output was created by those responsible for making public policy.

The circumstances that launched the first green revolution are well known but need to be briefly recalled in order to set the stage for a discussion of what motivates policymakers.

In the 1960s agricultural scientists working in the institutions that belonged to the network managed by the Consultative Group for Irrigation and Agriculture Research, the CGIAR, were doing intensive research in several parts of the world on high-yielding seed varieties. Impressive results were produced by those working on wheat in Mexico and by those at the Philippines doing research on rice.

The government of General Ayub Khan — in fact the president himself — was impressed with the research results and decided to import the high yielding seed varieties from these research centres.

This was a good moment for bringing about change in the country’s agriculture but the high-yielding seeds needed large doses of fertiliser and greater application of water. It was not known then in Islamabad that the farming community had invested heavily in sinking tubewells in the more fertile areas of Punjab.

The technology used for the wells had come to the attention of the farmers in Punjab when the government launched its massive Salinity Control and Reclamation Programme, the SCARP. This was a fortuitous development since the tubewells eased the water constraint and persuaded the farmers that they could take the risk for switching to a new variety of seeds.

As the farmers introduced this change the government did a great deal of hand holding by using the new system of local of government, the “Basic Democracies”, to provide them with all manner of public services.

Although the Basic Democracies system became the special target of attacks by those who opposed Ayub Khan and eventually caused him to vacate his office, it played an important role in bringing change to agriculture, in particular to agriculture in Punjab. The system brought the community of farmers closer to the centres of policymaking.

The government’s interest in reviving agriculture was influenced in part by Ayub Khan’s economic and social background. He came from a middle class family with interest in land.

The army over which he presided had strong representation at the lower levels of people close to the soil. He and the constituency that supported him were less urbanised in their economic interests and social outlook than the policymakers who were replaced by the military’s takeover. Under Ayub Khan, the federal government was ready to once again to turn its attention towards the sector of agriculture.

The second green revolution took place in the 1980s and this time it affected the cotton growing areas of south Punjab and upper Sindh. This time it was the maturation of the fertiliser industry that proved to be the agent of change.

The government under Zulfikar Ali Bhutto had made large investments in the industry after nationalising it. It is hard to tell whether the reason for that was to help the cotton growers who were by far the largest consumers of this product, but that turned out to be its effect once the new capacity created came into production in the early 1980s.

Not counting these two episodes of change in agricultural policies and practices, little was done to benefit from the rich endowments that were available to the sector at the time of Pakistan’s birth. To understand why Punjab neglected its rich agricultural inheritance, we should seek help from what economists call the theory of public choice.

In 1962, James Buchanan and Gordon Tullock published ‘The Calculus of Consent’, a book that went on to revolutionise thinking about how policymakers work in economic systems and how their work is influenced by those who are likely to benefit from their decisions. They abandoned the long held belief that all individuals, no matter what their station in life, are welfare maximisers; they work to further their own interests.

Collectively, however, they manage to achieve what is good for the society at large. The revolution wrought by this line of thinking — for it was a revolution and it resulted in Buchanan winning the Nobel Prize for economics in 1986 — brought the concept of public choice into economics.

Economists now began to pay heed to the workings of special interest groups and social groups within economic systems and how they were able to influence policymaking. As a result of Buchanan’s thinking, institutions, norms or culture, or all of these, came to stand at the centre of development economics.

Buchanan’s book had an enormous impact on the thinking of social scientists who had begun to work on the role governments and institutions play in economics. His work was reinforced by that of Mancur Olson, another economist who published ‘The Logic of Collective Action’, three years after the appearance of Buchanan’s work.

Like Buchanan, Olson claimed the territory of political science for the tools of economics. He argued that policy decisions could be explained by looking at politics as a competition between the private interests of specific groups, rather than a process of delivering public goods in a neutral and disinterested way.

In other words, public policy has deep roots in narrow political and social concerns and is not necessarily the result of a careful review of larger public interest.

Equipped with this line of thinking we can begin to make some sense of why agriculture was neglected for so long by Punjab’s policymakers. In some earlier works — as well as in the earlier articles in this series — I have discussed the enormous change that came about in the structure of Punjab’s society as a result of the partition of the province in 1947 and its incorporation into the new state of Pakistan.

For almost two decades the province’s partition politically eclipsed the large landlords who, with a few notable exceptions, had opposed the creation of Pakistan as an independent state. Those who pushed back this once powerful group to the margins of political society were the members of the refugee community that came into the new country in two streams.

The one that originated in the Muslim minority provinces of eastern and central India went to Karachi and several other urban centres of the province of Sindh. The other came from Punjab’s eastern part that was separated and incorporated as a state in India.

Both groups had actively campaigned for the idea of Pakistan and both became important policy players in Pakistan’s early days. Both were more urban in their social, cultural and economic backgrounds than was the case with the group — the large landlords — who had the most influence on public policymaking during the British period.

The new state of Pakistan, therefore, spent more time, energy and resources on settling the refugees and industrialising the new country than on building on the rich agricultural endowment of the Punjab and upper Sindh. The result was the neglect of the sector of agriculture.

This neglect caused a near total transformation of Punjab’s agriculture. It lost the dynamism that was infused into it by the British who had worked hard and invested heavily into turning the province into the granary of their food-deficit empire.Nothing illustrates this change more than the fact that by the mid-1950s — in less than a decade after independence — Pakistan was unable to feed its population and became heavily dependent on food imports from the United States.

There was some change under President Ayub Khan when he created space for the landed community in his political system. This probably contributed to the launch of a series of public initiatives that brought Pakistan its first green revolution.

It is my belief that the political system and the make-up of the Punjabi society in recent times has created an environment conducive for bringing agriculture back as a major player in the economy and for using it to produce economic and social change in the province.

For the first time in the province’s history, many operating in agriculture have developed economic interests in the urban economy and many urban economic and social groups have developed stakes in the province’s agriculture. Public choice theory tells us that such a confluence of interests should lead to the formulation and implementation of policies that will further these developments.

There are many social and economic changes now in place that have brought together entrepreneurial activities in some parts of urban and agricultural economies. Among them perhaps the most significant is the rapid increase in the number of people who belong to the upper income classes — not just the very rich and the rich but also the upper middle class.

These people have patterns of consumption, supported by rapid increases in disposable incomes, that needs to be satisfied by the development of agro-processing industries. These industries now account for the most rapidly increasing industrial outputs in the country. They are also bringing in foreign direct investment into the sector once neglected by foreign entrepreneurs.

While the environment is now there to increase the output, productivity and the level of sophistication of this sector of the economy, this will happen more rapidly if the government were to lend a helping hand.

Public policy could now help the sector of agriculture to regain the place it once occupied in the economy but for that to happen the government must first understand what is required by the agents of change operating in this area. Strengthening the system of local government has to be an important part to play in this enterprise. I will turn to this subject next week.
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