Rao 3c institutional and infrastructural prerequisites
- 1. FOOD SECURITY Concepts, Basic Facts, and Measurement Issues June 26 to July 7, 2006 Dhaka, Bangladesh
- 2. Rao 3c: Institutional and Infrastructural Prerequisites Learning: Trainees learn to identify components of physical and social infrastructure, public and private institutions, and to analyse typical reasons for public provision and possible roles of market failures and state failures.
- 3. Brief Contents • institutions and infrastructure identified as development prerequisites • reasons for public infrastructure provision • decisions involved in infrastructure provision and implementation failures • social infrastructure: public services, expenditure and institutions • infrastructure cost recovery and implications for FS • rural economic & social infrastructure, other public goods, and institutions
- 4. Infrastructure and Institutions in Context • FS depends crucially on the provision of public infrastructure (both 'hard' and `soft') – HARD/Economic irrigation, transportation, reclamation, etc. – SOFT/Social education and health services, social safety nets • It also depends on the creation and proper functioning of institutions – BOTH legal RULES of property, access & regulation to resources and services – AND ORGANIZATIONS involved in services delivery
- 5. What is an “institution”? • Institution is a law, rule, norm, or social practice that regulates an activity in which many individuals engage. • E.g., Criminal law is an institution and so are the rules and regulations concerning prisons. But the prisons and courts themselves are the legal infrastructure. • E.g., Rural primary health clinics are part of the social infrastructure. But rules of access to those clinics and regulations regarding service provision are institutions. • E.g., Public irrigation works or water supply networks are part of the physical infrastructure. But the rules of access to the water and regulatory authorities such as water associations are institutions.
- 6. The Market is an Institution ... • The market is an institution of exchange (of land, labor, credit, and products or services i.e., commodities) • It requires well-defined property rights, a set of laws relating to contracts, and a system to enforce them. • Information about buyers, sellers, prices, is also needed. • Not all markets are alike e.g., sellers may collude to form monopolies in small localized credit markets. • But an economy is governed not only by the market. Government may intervene to prevent or enable certain types or exchanges. e.g., illegality in some countries of indenturing children e.g., in many advanced economies, minimum benefits are guaranteed to prevent hunger
- 7. ... that itself requires other Institutions to function • Perhaps far more important is the fact that markets cannot function by themselves – the notion of the self-acting market is a myth. • As liberalization in the former communist countries shows, institutions necessary for effective market functioning must be in place. • Also, specific institutions can step in where markets just will not come into being. • Thus, non-market institutions are fundamental both when markets function (whether poorly or well) and when they do not function at all.
- 8. The Role of the State • The state is the "mother of all" institutions since it can rule out other institutions. • Today, international finance has somewhat emaciated state power. Countries dependent on foreign capital (private or governmental) are constrained to follow policies and develop institutions that make them "creditworthy" • The dominant view today holds that the state must institute a legal-regulatory framework to facilitate market exchange and not be an agent itself in the marketplace. • State action may also be seen to be legitimate when markets fail or in providing social goods. But this has been much restricted on grounds of state failure in such provisioning. • Part of this whittling down of the state's role arises from recent political economy analysis emphasizing state tendency to pervert markets by investing their time in rent-seeking activities (resource expenditures in redistributive conflict rather than in value addition)
- 9. MARKET FAILURE: Reasons for Public Infrastructure Provision • Why infrastructure provision by government? Rationale is market failures. • Two main types based on the concepts: – `Public goods’: benefit consumers collectively and where no one can be excluded e.g., a rural road or a court system. – `Externalities': Good externalities provide benefits to third parties while bad ones impose costs on e.g., public health measures or auto pollution.
- 10. GOVERNMENT FAILURE in Infrastructure Provision • Government failures in infrastructure supply can arise due to: – Expenditure failures (inadequate money) – Allocation failures (e.g., sectoral biases, or higher education vs primary) – Technical failures (poor design or delivery institutions) – "Governance" failures (bad implementation arising from corruption, lack of democracy and accountability - Poor especially suffer in this regard – Poverty may be caused not just by bad interventions (errors of commission) but also because of not intervening when appropriate (errors of omission). • e.g., lack of rural transport, etc. causes poor development of rural industry and so employment opportunities
- 11. Decisions Required in Infrastructure Provision • Government provision of economic infrastructure entails two sorts of decisions: – re: level and allocation of public expenditure for infrastructure – re: access rules, pricing and cost recovery, and delivery institutions • Both sets of decisions involve important implications for: – resource allocation and economic growth • e.g., guns VS schools, schools VS hospitals, large city hospitals VS PHCs • e.g., present VS future generations, poor VS rich, food security VS housing – equity and poverty reduction
- 12. Social Infrastructure: Public Services, Expenditure and Institutions • Elements: 3 basic elements of social infras.: health, education and social safety nets. – network of primary, secondary and tertiary schools – network of health centres or hospitals – SS nets include relief from disasters (floods, droughts, etc.), regular income, in-kind or employment support (e.g., food subsidies, free school lunches, old age pensions, food-for- work, rural public works etc.)
- 13. Rationale for Social Infrastructure • As with econ. infras., social infras. provision by government is also rationalised in terms of market failures i.e., public goods and externalities. – Benefits of education are both private/individual and public/collective – Benefits of health too have both characteristics – In case of SS Nets, individual benefit is the insurance aspect of it while the collective benefit lies in the fact that there is social sympathy and empathy among people. – But note importance of poverty: without public provision, poor will not have critical services. Yet, these (health and education) may give the poor even higher returns than for rich – Lacking public services, poor may be compelled to make very costly choices • Note dual nature of soc infras: add directly to well-being (so consumption) and also indirectly by raising productive capacities (so investment)
- 14. Public Sector Institutions • These are institutions directly owned & operated by government. They form a subset of institutions legally enacted or otherwise enforced by the government. – e.g., public rice marketing monopoly VS public rice subsidies • They are important in their own right as determinants of poverty, inequality and food security but also due to their close links to on account of their close linkages, in many cases, to private market or other institutions
- 15. Box 3.1: Typology of Policies Targets Instruments Examples Infrastructure Economic Infrastructure Allocation of Public Capital Rural road development & Services and Current Expenditures Public veterinary services Social Infrastructure Allocation of Public Capital Rural hospitals & Services + Safety Nets and Current Expenditures Free education for rural girls Food-for-work programs Rules & Institutions Commodity Market Privatisation Privatisation of marketing Institutions Deregulation Pan-territorial pricing Marketing co-operatives Micro-enterprise development Factor Market Credit Market Regulations Agricultural credit quotas on banks Institutions Financial Liberalisation Deregulation of bank lending rates Labour Market Regulations Regulation of child labour Institutions for Privatising Service Delivery Sub-contracting for road construction Infrastructural Administrative Reforms Creating irrigation users’ associations Services Rules for targeting of health subsidies Access to Land Reforms Land ceilings Productive Assets Tenancy Reforms Sharecroppers’ rights Access rules for commons Rules for sharing forest products
- 16. Three Main Approaches to Institutional Reform 1. Administrative reforms to increase efficiency 2. Abolition of government monopolies 3. Privatisation of the institutions and their functions. • Sometimes all three of these approaches are applied simultaneously.
- 17. Public (Infrastructure) Expenditure Cuts • Cuts in public investments are common to SAP • Governments favour this since burdens are not immediate (they prefer to maintain current "consumption" rather than investment) • Yet, even its SR impact can be large (multiplier effect on demand) • In SR, labour demand falls, reducing employment & wages. So food entitlements will go down. • In LR, growth is adversely affected.
- 18. Public (Infrastructure) Expenditure Cuts • In SR & LR, extent & depth of burdens depends on nature of the investments. • e.g., l food availability is strongly affected by rural infrastructure (roads, irrigation). Less FS will follow from reduced supply and higher prices. • Public investment cuts are more anti-poor than anti-rich since poor do not have private alternatives to public services.
- 19. Infrastructure “Cost Recovery” & Food Security • In the case of pure public goods, "cost recovery" is actually impossible. So provision must be based on social calculation & planning e.g., agricultural research • In other cases (e.g., irrigation, health, education) "cost recovery" is possible but entails appropriate taxes or "user charges" and subsidies. • In many cases, user charges will be quite inefficient if the revenue yielded is small relative to the costs of administration or collection • In most cases, user charges likely will be insufficient to cover costs since the service may be a "merit good" requiring subsidy or because the fixed costs may be very large
- 20. Infrastructure “Cost Recovery” & Food Security • Reduced expenditures & cost recovery in health sector hurt food security in two ways: – larger share of income must be given over to health reducing food entitlements – HH may refrain from using the service so morbidity rises & nutrition worsens
- 21. Risks and Problems of Reforms for FS • Often private traders lack skills, money or infrastructure to take on marketing functions done by government institutions. • Privatization as simple replacement of government with private monopoly can be expected to (and in fact does) little to change efficiency or equity or access.