Cak-cak / Indonesia

Development strategies start with small-scale farming

Evert-jan Quak | 01 April 2013

The final report of the Tracking Development project concludes that successful development strategies focus on small-scale farmers and give them and small entrepreneurs the freedom and protection to build on a future rather than on industrialisation.

To kick-start – or rather ‘re-launch’ – this blog, it is interesting to have a  better understanding of countries’ growth strategies in recent decades. What do we know about the impact of development strategies? How can they be made more inclusive? What role the agricultural sector has to play? The results of the Tracking Development research programme at the University of Leiden’s African Study Centre can shed some light on this. From 2006 to 2011, researchers from Africa, Southeast Asia and the Netherlands made a comparative study of half a century of economic development in four countries in sub-Saharan Africa and four in Southeast Asia. They focused primarily on the policies adopted over that period. In addition, the Asian researchers also looked at an African country, and the Africans at a country in Asia. The project now has been finalised with the interesting publication of the report 'The richer harvest: economic development in Africa and Southeast Asia compared: the tracking development project 2006-2011' written by Dirk Vlasblom.

Comparing economic development in different countries has always been popular among development researchers. The rise of the Asian Tigers in the 1980s in particular sparked many comparisons. While Southeast Asian economies were booming, African exports were collapsing, despite all of these countries starting from more or less the same situation after independence. The big questions the researchers of the Tracking Development programme wanted to tackle were: Why was economic development different in African and Southeast Asian countries after independence? Did Africa fail to do something that Asia did right, or did it do the same thing in the wrong way? Can Africa learn something from Asia? What actually gets development on the move?

Where early studies tracking and comparing development strategies in the 1990s mostly came down in favour of mainstream macroeconomic policies (the Washington agenda of competitive markets), it is interesting to see that more recent comparisons are emphasising more heterodox economics. Although there are many studies that compare Southeast Asian growth models with those in Africa, or with the West (see, for example, ‘Kicking away the ladder’ by Ha-Joon Chang), the researchers on the Tracking Development project compare their results in particular with the recommendations of the World Bank report ‘The East Asian Miracle’ (1993). The explanation in that report for the success of the Tigers has become an article of faith for donor countries to push for the Washington agenda. The World Bank emphasised that the Asian Tigers were able to grow thanks to their macroeconomic policies (controlling inflation, keeping exchange rates at a level that was good for exports, effective banking systems that generated confidence in foreign investors) and their investments in education. Researchers of the Tracking Development project are now considering just how valid these conclusions are twenty years further.

The final report of the Tracking Development programme, ‘The Richer Harvest’, compares Indonesia and Nigeria, Malaysia and Kenya, Vietnam and Tanzania, and Cambodia and Uganda. The general conclusion is that, in recent decades, macroeconomic policy has played an even more important role in development in Africa than in Southeast Asia. The difference is that ‘financial discipline went hand in hand in Southeast Asia with government incentives for smallholders to raise food production, higher rural incomes and poverty reduction. In Africa, there was a corresponding policy of poverty reduction.’

The researchers emphasise that ‘The East Asian Miracle’ devotes just five pages to ‘Dynamic Agricultural Sectors’ while experience in Southeast Asia has shown that ‘agriculture is much more important than is suggested by this scant coverage’. In addition, the World Bank suggests that export-driven industrialisation was the key to Southeast Asian success. However, the Tracking Development researchers demonstrate that industrialisation ‘was more the result of an appealing investment climate than of industries established and protected by the state. Income development in agriculture led to the creation of a domestic market, and management of urban food prices kept wages and salaries low, making it appealing for industry to move into the area.’

The researchers therefore conclude that policy decisions are more important in explaining development than good governance: ‘Policies weigh stronger than governance’. What makes policies work well for economic growth and poverty alleviation is adequate macro-economic management, pro-poor, pro-rural public spending, and economic freedom for peasant farmers and small entrepreneurs. In other words, the World Bank was correct to emphasise macroeconomic management (stability) but not by looking at already competitive markets, rather by focusing strongly on small-scale farmers and give them and small entrepreneurs the freedom and protection to build on a future.

For example, while Indonesia was spending its oil dollars in the 1970s on labour-intensive agriculture, Nigeria was using its oil revenues for capital-intensive industrial projects, including an enormous steel factory that has never produced any steel. Even when they produced something, these new industries employed very few people. A trickle-down effect could never occur, except in theory, as Nigeria’s politicians were not interested in shared growth: ‘They were not interested in the relationship between industrialisation and combating poverty. They accepted the fact that the gap between the rich and the poor would increase as their ambitious projects went ahead.’

The report adds: ‘The Indonesian planners in the 1970s saw development as a process that would result in poorer people getting richer, whereas Nigerians saw development as a process of transformation in which poor countries acquire things that rich countries have, and poor countries haven’t. The Nigerian planners saw heavy industry and higher education as talismans of development. They believed that you needed them to develop. Their point of reference was an idealised form of ‘modernity’, in other words industrial modernity, the desirable destination of the development process.’ The Indonesians, argue the researchers, had another point of reference: the grim reality of rural poverty, the undesirable point of departure for the development process. This could only be tackled at root, using available resources, and not by planning for a distant future but by setting priorities and acting accordingly.

However, not all countries in Southeast Asia made the right choices. Both Uganda and Cambodia left agricultural development to the market. As a result Cambodia’s results were not as good as those of Indonesia, Thailand, Malaysia and Vietnam. It introduced successful agricultural education and other agricultural programmes, but lacked an effective supply of subsidised inputs like fertiliser, seeds and pesticides, subsidised credit and stable food prices, which made all the difference.

The study contains many other interesting comparisons, along with well written overviews of policies in the different countries. The conclusions do not refer directly to an inclusive growth strategy, but can be very useful in designing such a strategy based primarily on agricultural investments: not 10 percent of GDP and based solely on agro-industry, as is currently the case in many African countries, but closer to 20 percent of GDP based on an integral strategy of rural development for the rural poor. The industrial and export sectors in Asia started with rural investments that sparked specialisation and higher agricultural outputs. The result was opportunities for industrialisation. Such strategy has also been mentioned a lot in the food security debate on The Broker’s website.

Photo credit main picture: Cak-cak / Indonesia