Sunday, March 29, 2009

What Balanced Growth means to the World Bank

Abusaleh Shariff and Amitabh Kundu
Amidst the global gloom of economic meltdown rivaling only the depression of the 1930’s, the World Bank has delivered its 31st ‘world development report’ (WDR) in its own ritualistic fashion last week in New Delhi. The report is a visual treat as the complexities of world’s business is presented in three dimensions, using geographic depictions that are easy to understand. Although it argues for balanced growth between the rural and urban areas, it makes a strong case for the ‘scale economies’ that can occur through geographic concentration of economic activities, which alarmingly is taking place in and around a few large city concentrations. The case of Tokyo which accounts for closer to one half of Japan’s exports is presented as an illustration with a lot of fervor. The cases of Seoul in South Korea, Dongguan in China, specified region in Egypt have been noted to strengthen the case. The report introduces the concepts of ‘three Ds’ depicting density, distance and division all in geographic parlance and their spatial overlapping without going into the details of their distressing manifestations in many of the countries in less developed regions.
The report makes a case against policies which could hinder the so called natural process of rural to urban migration and process of urbanization. It argues for well informed and people friendly provisioning of services to urban areas so as to facilitate economic growth oriented industrial and service activities. Understandably, the large cities with greater potentials are to be preferred in designing the strategy. A compulsive argument made is that it is just not for the sake of higher wage incomes and better jobs that people migrate to cities and urban agglomerations. They do so due to concentration of economic and social infrastructure; for example, the markets, facilities for education, health, entertainment, leisure and so on. In this context there is emphasis on the fact that it is no more a dichotomy of rural and urban areas but it is a continuum, rural-villages to towns, cities and metropolises that should constitute the premise of the development strategy.

The durability and resilience of an economy during the crises is linked with its own diversity and vastness in terms of the sectors of economy, For example, economies dependent on export of single or few commodities would get affected much more from a sharp fall in global prices of these commodities, compared with economies with a diverse basket of goods and services in its markets. One can extend the argument to geographic diversity and hold that a broad spread of economic activities across all different regions in a country including rural areas and semi-urban corridors would be less vulnerable to such global shocks. Thus the key to long term efficiency and stability in growth lies in economic and geographic spread and not in its concentration. Note that such counter arguments and conflicting policy orientations between economics of specialization, agglomeration and even division of labor are as old as economic thought itself and there cannot be a single prescription for countries that face very different economic situations. There have to be a range of economic prescriptions depending upon the nature, depth and breadth of global integration and level of economic development itself.
The WDR recommendation in favour of concentration of economic activities in the name of size economies would be grossly unsuited for countries like India for several empirical reasons. The country owing to historical and socio-economic reasons has experienced low rate of migration, if you exclude mobility of women occurring largely for marriage and family linked factors. More importantly, the male population has become less mobile over the past several decades. The rhetoric of the regional leaders leading to antagonism between the local population and outsiders is partly responsible for this. The decline in the rate of immigration can be observed not only in case of Maharashtra but also other developed states like Punjab, Haryana, West Bengal, Gujarat and Tamil Nadu. Correspondingly, the rate of outmigration from the less developed states has gone down. Expenditure class wise data from the National Sample Survey suggest that the poor households are worst hit by this trend and their migration rates have declined significantly. Furthermore, the WDR does not draw lessons from the fact that it is the rural-rural migration which has created fascinating geographic economic linkages in India. This linkage is the result of technological transformation of agriculture in specified areas which had relative advantage in water resources and other inputs. In the context of the rural areas the WDR under emphasis two important processes: (a) the role of technology in agriculture, and (b) the role of agriculture in economic growth and livelihood sustenance to the teaming millions in India.
The decline in the growth in urban population during the past two decades indicates that rural urban migration has not gone up despite accentuation of rural-urban disparity. The metropolitan cities have become hostile to the migrants and consequently their poverty levels have come down sharply to about 12 per cent as compared to the figure of 24 per cent for the country as a whole. The household level data show that growing rural-urban disparity provides economic rational for greater migration. Unfortunately, the socio-political reality of the country has come in the way of its materialization. It would be imprudent to plead for a strategy resulting in grater regional imbalance without ensuring that mobility can indeed be increased given the present social environment.
The major concern of the inclusive strategy designed for the Eleventh Five Year Plan is regional imbalance and social justice. A large number of programmes have been designed, targeting the development of backward areas and regions that also have large concentration of socially vulnerable people. The Prime Minister’s flagship programmes including NREGA are trying to reach out to the people who have benefited only marginally from the growth dynamics of the earlier periods. Redressal of the problem of regional balance is taken as a key component of the strategy of inclusive development in the Plan. India is not the only country where regional and social inequalities have gone up in the past few decades, partly associated with adopting measures of globalization. The WDR for the year 2006 entitled Equity and Development had expressed serious concern on this issue and pleaded for providing access to basic factors of production and strengthening the capabilities of the people in vulnerable social groups and regions. The policy perspective emerging from the present report is bound to send erroneous signals to policy makers in developing countries and come in the way of achievement of MDG by 2015. Economic growth foundations if linked securely to the economics of agglomeration will do more harm not only to the farming communities but also to those who live in relatively less endowed geographic spaces; besides creating mega-problems faced by mega-cities. Can anyone imagine India marching ahead on a high growth path even for the next couple of decades by strengthening infrastructural facilities and high quality services in a few urban agglomerations, ignoring the five thousand small towns and six hundred thousand villages, even in the short run? Utopianism can show us the moon, but only a few can reach there. The development practitioners must think about the welfare of the millions living in un-serviced villages and urban slums rather than projecting a dream of creating a few millionaires.

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