FOOD SECURITY
Concepts, Basic Facts,
and Measurement Issues
June 26 to July 7, 2006
Dhaka, Bangladesh
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.
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
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
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.
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
... 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.
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)
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.
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
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
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.)
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)
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
Box 3.1: Typology of Policies
Targets
Instruments
Examples
Infrastructure
Economic Infrastructure
& Services
Allocation of Public Capital
and Current Expenditures
Rural road development
Public veterinary services
Social Infrastructure
& Services + Safety Nets
Allocation of Public Capital
and Current Expenditures
Rural hospitals
Free education for rural girls
Food-for-work programs
Rules & Institutions
Commodity Market
Institutions
Privatisation
Deregulation
Privatisation of marketing
Pan-territorial pricing
Marketing co-operatives
Micro-enterprise development
Factor Market
Institutions
Credit Market Regulations
Financial Liberalisation
Labour Market Regulations
Agricultural credit quotas on banks
Deregulation of bank lending rates
Regulation of child labour
Institutions for
Infrastructural
Services
Privatising Service Delivery
Administrative Reforms
Sub-contracting for road construction
Creating irrigation users’ associations
Rules for targeting of health subsidies
Access to
Productive Assets
Land Reforms
Tenancy Reforms
Access rules for commons
Land ceilings
Sharecroppers’ rights
Rules for sharing forest products
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.
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.
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.
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
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
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.