Including people through employment

Employment & Income,Inclusive Economy26 Jun 2013Kees Blokland, Jur Schuurman

Where to start an economic transition? A proven approach is to start in the rural areas. Farmers’ organizations spur specialization, increasing employment and income.

Somewhat in line with an earlier contribution to this debate by David Cichon, on the importance of trade unions in economic development, we contend that inclusive economic transition builds upon what is being proposed and developed by organizations that have been formed by the ultimate stakeholders: consumers, workers and farmers.

Agriterra has developed this line of thought in two previous articles for The Broker debates, the gist of which was that investments and economic policies that connect with what is happening ‘on the ground’ have a much greater chance of being non-disruptive and inclusive. And when we say ‘on the ground’, we mean not only that those investments and policies should follow a ‘bubble-up’ approach as advocated by David Woodward in this very debate, but also that it is vital that they happen in permanent dialogue and consultation with said organizations of stakeholders.

The reasoning is probably generally valid but in our (Agriterra’s) case, we apply it specifically to farmers’ organizations and cooperatives. This does not mean that our plea for inclusiveness is merely about including farmers in markets; that is not enough. Rather, and taking into account the unavoidable long term reduction of the total number of farmers worldwide, it is about including people in employment. It is the very farmers themselves, and their organizations that, through bottom-up specialization and investments higher up in the chain in line with what they actually produce, can lay the ground for this inclusive (employment-generating) rural-based growth.

At the risk of violating the Broker online discussion norms, we quote one of our previous contributions (Employment is the key to food security):

“There is one particularly obvious way to make this (structural) transformation to happen faster: by connecting the agricultural investments to cooperative societies and farmers’ unions that stand for and implement a relatively labour intensive and fast rural industrialization. To connect to their initiatives is to ensure that when investments in rural areas are done, they take into account the productive basis in the region and build upon it. Kenyan dairy farmers that get organized and build up their own cooperative processing and marketing unit, create employment in rural areas, albeit outside agriculture – it is as simple as that. The process happened in what is now one of the world’s most prosperous and egalitarian countries: the Netherlands, and there is no reason why it should not happen elsewhere.

“Why is Holland so prosperous and egalitarian? In the late 19th century, Dutch farmers founded local cooperative societies that mitigated the usual disruptive impact of structural transformation on employment and food availability, in a situation with a growing population that is increasingly employed outside agriculture. Mergers and growth transformed these local co-ops into successful farmer-owned cooperative societies. This gradual process guaranteed a relatively rapid economic growth and fast structural transformation, safeguarding – and this is important – employment and food balances, also fostering a more equal distribution of income and wealth. Transformation of the economy will take a long time, but probably not as long as development with capital-intensive investments of the business park type, and surely with less socioeconomic disruption and hunger. Strong farmers’ associations can make this happen!”

To this Dutch background, we now add an example from Asia. In a 2001 comparative study of the Yale University on the differences in development between South Korea and Taiwan, the better performance of the agricultural sector (average yields, output) in Taiwan is explained by, among other factors, ‘the more effective role of rural institutions, specifically the farmers’ organizations.’ In Taiwan, these organizations were more ‘embedded’ in local structures and had a more ‘bottom-up’ nature (some examples are given, such as the one on fertiliser distribution. In Taiwan this was handled at the local level by Township Farmers’ Associations, thus ensuring better satisfaction of the farmers’ needs), which made for more efficient service provision ‘by facilitating horizontal information flows within the organization, by providing a degree of voice to the membership or clientele, and by promoting ideas among the membership about their right to monitor performance,’ the authors write, adding that in Taiwan the farmers’ associations had more cooperative elements than in Korea. ‘This, along with other differences, may account for the better performance of Taiwanese agriculture and also contributed to the undoubted greater success of Taiwan’s rural non-agricultural activities.’

Thus, in Taiwan, capital and labour shifted gradually from agriculture to other sectors, in the form of an industrialization that occurred primarily in rural areas. In addition, this led to a reduction in income inequalities both in the countryside and between rural and urban areas, along the lines of what we claimed in our Broker article on fighting inequality.

This shift of capital and labour from agriculture to other economic sectors just means that farmers invested their time and capital to build rice mills and other cooperative enterprises, just like the Dutch farmers that met in 1892 in the local bar of Tungelroy to take the initiative to start the first dairy cooperative in the Netherlands. In hundreds of villages throughout the country, farmers did the same in the decades that followed. All those efforts by subsequent growth and mergers paved the way for the present world market player, FrieslandCampina.

The big economic challenge is, then: how do people get started to invest their ideas, time and money, and make things happen? Economic freedom is a basic prerequisite. In the Netherlands, many things started by private initiatives, even in education and healthcare. The public support came afterwards. Nowadays, development processes often show more state initiative. The Soviet experience shows how development can happen in a very disruptive way, very much to the detriment of food and employment balances. South Korea and Taiwan in the postwar decades also showed a very active and dominant state, and the farmers’ organizations were almost implementing state agencies. In both cases, this has proven, however, to be an effective ‘coproduction’; the reported better performance of Taiwan is attributed to the greater economic freedom at the grassroots level. There was more financial and decision making, unleashing the farmer ambition to build a future.

In recent conversations with the Ethiopian Federal Cooperative Agency and with the Minister of Agriculture of Rwanda, Agriterra highlighted this aspect. Both governments have ambitions to rapidly modernize and to increase GDP. They need to realize that coproduction is the way forward. This refers to synergetic relations between the state, the farmers’ organizations at all levels and even with other private and public parties, also from abroad, like Agriterra or FrieslandCampina. That is the way to achieve resource complementarities, such as, for instance, the inputs’ supply in the mentioned Asian countries, with the state managing the stocks of fertilizer and the farmers the distribution mechanisms.

The other essential component is social embeddedness: shared ideas, comfortable working relations, horizontal information flows and parties that listen to each other. It means respect from these governments for both the advocacy role of farmers’ organizations and for their role in unleashing farmer economic creativity promoting cooperatives and other farmer-led companies. In practice this was seen in, again, Taiwan, where the operational rigidities associated with the power-control organizational setting were modified into more flexible and responsive directions. The macro economical and external policy environments were responsible for this process. Thus, if the importance of coproduction and economic freedom for farmers is really seen by governments with development agendas, they can actively contribute to flexibility with regard to farmers’ initiatives and responsiveness to farmers’ interests.