Initiating inclusive growth

Opening economy to all citizens, than just elite, will create broad base of competition, efficiency, productivity.

In my academic papers, I have been arguing that we need inclusive growth if we are to break out of the historical pattern of stop-go growth with inequality. The specific sense in which the term inclusive growth has been used in my work is a growth process within an institutional structure that provides equitable access to the middle classes and poor over productive assets, credit, high wage employment and markets. Such an opening up of the economy to all of the citizens rather than just the elite would create a broad base of competition, efficiency, innovation and productivity increase. Since a wider range of citizens would be driving the growth process, it would be growth through equity.

Now that the Eleventh Five-Year Plan is on the anvil, it may be helpful to consider, what in my humble opinion, are five concrete elements of an inclusive growth strategy for Pakistan. We will discuss the first two in this article and the remaining three in the next article.

First, a small- and medium-farmer based agriculture growth strategy (that is farms below 25 acres). These farms have a considerable yield potential and also constitute a substantial part of the agrarian economy. Farms below 25 acres constitute 94 per cent of the total number of farms and over 60 per cent of the total farm area. The key constraint to increasing their yields per acre is that 29.4 per cent of the farm area in this category is operated by tenants or owner-cum-tenants, who neither have the incentive nor the ability to raise their yield per acre.

It can be argued that a policy initiative that enables the tenants to acquire land is essential to providing the small farmers with both the incentive and the ability to raise their yields per acre. How can this be done? The first step in this regard would be to allot the existing state-owned agriculture land of about 2.6 million acres in five-acre packages to landless tenants. This would make 58 per cent of tenants into owner farmers. For the remaining tenants, an opportunity could be provided by setting up a Rs500 billion credit fund to enable these tenants to buy land.

The second concrete element of an inclusive agriculture growth strategy is to enable small farmers to substantially raise their yields and thereby contribution to national income. In the pursuit of this objective, it is proposed that a Small Farmer Development Corporation (SFDC) be established. The SFDC could be owned by small farmers and run by professionals as a social enterprise. The small farmers could be provided with loans to buy equity in the SFDC, which could be paid back from the dividends. The SFDC could be run as a commercial enterprise to provide to small farmers the following services: land development; laser leveling; brick-lined water channels on the farm or drip irrigation to improve on-farm water management; provision of new technologies for growing high value off-season vegetables through tunnel farming; access over credit as well as input and output markets to enable the small farmers to get better quality seeds, fertiliser and pesticides, and also get a better price for their output. The SFDC, by enabling small farmers to increase the on-farm water application efficiency on the one hand and growing high value crops on the other, could make a significant improvement in water use efficiency, that is, the GDP generated per unit of water used. This would be crucial not only for the welfare of the small farmers but a key element in sustainable development in an increasingly water scarce country.

In Pakistan’s history and the history of economics, inequality has been seen as the inevitable concomitant of economic growth. It is time to make history and turn the received wisdom on its head. In this and the ensuing articles, I will specify a new growth process that is fuelled by the enterprise and innovation of farmers, as well as industrial entrepreneurs in the small- and medium-sized category: this would achieve faster growth through equity.

Published in The Express Tribune, November 8^th, 2013.

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