Wednesday, December 2, 2009

Poverty in Brazil, China and India

This item is about the progress been made by the three major developing economies on the resolution of internal poverty.  As mentioned, between them they account for half the global poverty.  They are also best positioned to ameliorate the problem.  Thus their paying attention is hugely effective.  The balance of the globe will require vastly more external support and inputs of foreign capability. 


The most effective thing that might be done is to properly moneterize the bottom third of society.  It is not very much individually, but it generates demand for service delivery.  It also establishes family capital that can support entrepreneurial expansion as experienced by the micro lending revolution.


You need to overcome a mentality among the upper third of society that believes they benefit from having people live in dependence.  In fact, the process of monetization expands the opportunities of this class.  They have expanded demand for their goods and services.


In practice, the increasing demand generates the needed tax revenue to support the transfer program.  That is what a VAT consumption tax is ultimately all about.


In short, the principal cause of poverty is economic ignorance.  The human energy is there and the natural resources are also readily available.  Provide the financial glue and abundant human wit will do the rest. 


China certainly has done the best job and Brazil has done well working from a much smaller problem.  India has moved comparatively slowly, again because of attitudinal issues that are worse than the others by far.


One of the great socialist theories was the idea of guaranteed minimum monthly stipend.   We sort of have something like that today in the developed world but more in the breach than as a constructive social measure.  No one has really tried something so radical so we hardly know what an effective system might look like.


This can be compared to the provision of universal basic medical support where we have ample examples of systems that do work at several different levels of service.  The debate is over details and unfortunately special interests.


I have thought long and hard about the core issue of incentivization which has been used to suppress any attempt to move toward a uniform monetization program.  After all, it is common sense that if an individual lacks the treat of starvation, and lack of shelter, he will join the idle rich.  That of course is not particularly true at all.


However, I do think all would welcome defaults that allowed them to actively participate in community efforts whenever more specific work is unavailable.  My conjecture is that we need to create and train up a default based economy that acts as a security blanket for all.  I think it can be done and also made wealth producing.



November 29, 2009

Poverty in Brazil, China and India and in Particular Bihar, India!+Mail

In 1981, 84% of China’s population was below the poverty line of $1.25 a day (in 2005 prices); in 2005 the share was just 16%. Brazil’s share of those in poverty fell by half from 17% to 8%, an annual reduction of 3.2%. India did least well, cutting the share below the poverty line from 60% to 42% between 1981 and 2005. This implies an annual reduction of 1.5% a year, though there are problems with Indian statistics; using different consumption figures yields an annual reduction of 3%, comparable to Brazil’s.

Brazil cut poverty by more than India despite much lower growth, just over 1% a year in 1993-2005, compared with India’s 5%. If you calculate the rate of poverty reduction for each unit of GDP growth per person, Brazil did even better than China: the ratio is 4.3 for Brazil, 0.8 for China and 0.4 for India (0.8 if you use the adjusted consumption figures). Per unit of growth, Brazil reduced its proportional poverty rate five times more than China or India did.

Government policy played a big role in reducing inequality. Brazil’s main cash-transfer programme, called Bolsa Familia, provides help to 11m families, or 60% of all those in the poorest tenth. In contrast, social security in China is still provided largely through the enterprise system (ie, companies), so it tends to bypass those not in work. And government interventions in India are extraordinarily perverse. People in the poorest fifth are the least likely to have any kind of ration card (the key to public handouts), whereas the richest fifth are the most likely to.

India had both growth and social policies, yet did worst because its policies in fact did rather little to help the poor. With its caste system, and bad state schools, India may be a more unequal society than the numbers alone suggest

Bihar, India's Poorest State But Fast Growing Since 2006

The economy of Bihar is largely service oriented, but it also has a significant agricultural base. The state also has a small industrial sector. As of 2008, agriculture accounts for 35%, industry 9% and service 55% of the economy of the state. Manufacturing has performed very poorly in the state between 2002-2007, with an average growth rate of 0.38% compared to India's 7.8%. Bihar has the lowest GDP per capita in India, although there are pockets of higher than the average per capita income. Between 1999 and 2008, GDP grew by 5.1% a year, which was below the Indian average of 7.3%. More recently, Bihar's state GDP recorded a growth of 18% between 2006-2007, and stood at 942510 Crores Rupees] ($21 billion nominal GDP). This makes Bihar the fastest growing major state.

The state has a per capita income of $148 a year against India's average of $997 and 30.6% of the state's population lives below the poverty line against India's average of 22.15%. However, Bihar's GSDP grew by 18% over the period 2006-2007, which was higher then in the past 10 years. Hajipur, near Patna, remains a major industrial town in the state, linked to the capital city through the Ganga bridge and good road infrastructure. The level of urbanisation (10.5%) is below the national average (27.78%); and behind states like Maharastra(42.4%). Urban poverty in Bihar (32.91%) is above the national average of 23.62%. Also using per capita water supply as a surrogate variable, Bihar (61 litres per day) is below the national average (142 litres per day) and that of Maharastra (175 litres per day) in civic amenities.

Bihar is the third most populated state of India with total population of 82,998,509 (43,243,795 male and 39,754,714 female). Nearly 90 per cent of Bihar's population lives in rural areas. 

The 90% rural situation in Bihar means a massive boost is possible IF India urbanizs Bihar.

The recent surge in GDP if it held means per capita GDP is up to $220-250 per cap. Still bad but in the right direction.

Five factors leading to endemic economic backwardness of Bihar:

1. In the post-independence period, the policy of freight equalisation did not enable Bihar to derive the advantage of its rich mineral resources as well as a large growing market. This policy which remained effective from 1952 to 1993 had serious repercussions in neutralising Bihar’s comparative factor advantage.

2. Notwithstanding Bihar’s considerable clout in the Central Government, central investments, (except by Public Sector Undertakings in what is now Jharkhand), there was little investment North of the Ganges or in the drought-prone areas in the South of Bihar.

3. The failure to break away from the past in implementing tenurial land reform changes resulted in excessive social stratification which prevented both vertical and horizontal mobility. Excessive preoccupation with caste and even communal factors dominated political discourse. Successive Governments were not held accountable on indices of improvement in life quality and other developmental indicators either in the overall growth achievement or performance of Index of Human Resource Development.

4. The failure to transit from a feudal-based economy to a market-oriented economy emphasised value systems which did not facilitate rapid economic development. This coupled with poor quality of infrastructure, social indicators and governance quality did not enable the State to attract meaningful private investment even in areas of its comparative factor advantage. Poor governance also resulted in decline of education and health.

5. The political parties in the State failed to secure meaningful arrangements with Nepal for better harnessing its river and hydro electric potential. The Kosi and Gandak embankment, the result of international treaty with Nepal, did bring significant relief to a large population in North Bihar from the vulnerabilities of floods but could not convert these transitional arrangements to permanent solutions. 

These temporary structures have long outlived their expected life span, and in any case they were designed to be transitional arrangement to be followed by taming these rivers upstream to harness the irrigation and hydel potential. These remained unimplemented. Durable infrastructure wasn’t created to withstand the destruction due to periodic floods and other vulnerabilities.

During the last four years, the initiatives taken by the Nitish Kumar Government have concentrated on six factors.

- Improved Governance
- Macro Management
- Human Resources Development
- Emphasis on factor endowments
- Enactment of key legislations to improve climate for private investments. 
- Improvement of Infrastructure. 

The future of Bihar would depend on five key variables.

1. To what extent fiscal federalism works in a manner which is in line with the spirit of the constitution? This concerns four components. 

The compensatory additional central investment in a State considering that in the near future private investment will remain shy.

To what extent will the State be enabled to take fuller advantage of Central investments already made, namely a higher percentage of allocation from Central power projects? The present agreements are discriminatory and unequal. These agreements do not enable the State to secure a fair percentage of the energy produced in the State. 

Permitting the development of downstream industries from existing Central investment, say from the Barauni refinery as well as other investments which may be in the offing. 

A degree of fairness in access to raw material inputs like coal for new power generating companies necessary to meet the energy deficiency in the State.

2. The State has to succeed in harnessing its rich water potential through the optimum utilisation of resources and adoption of new technology. It’ll prove their comparative factor advantage in agriculture. The extent to which agricultural productivity can be enhanced by diversified agriculture practices, creating and implementing an enabling policy framework. 

There is also a broader issue of mitigation and adaptation to Global Warming and Climate Change. Does it make sense for planners in India to pursue, say water intensive cultivation in other parts of India which are water deficient than say North Bihar, where water is abundant? What special assistance can be given for enabling Bihar to become the food granary of India

In Punjab water aquifers have fallen significantly and rice production may become increasingly more expensive. This is an opportunity for Bihar to enhance both the production and productivity of its agriculture even as further research and development is needed to develop strains and cropping patterns which better factor the consequences of global warming.

3. To what extent can its very young population be harnessed and vocational skills imparted to create the “Missing Middle”. This entails increasing urbanization very significantly through many more satellite towns and skill inculcation programme which can provide gainful employment activities outside agriculture sector, even while agriculture can gain advantages of externalities in scale instead of an exclusive reliance on agricultural produces. 

4. To what extent can Bihar leverage its political power to create an enabling international framework on sharing our river basins, particularly with Nepal for generating irrigation and hydel potential to optimise the resources of this region.

5. The issue of whether Bihar can rewrite its history, and foster new green shoots of investments, employment and diversification in its activity patterns?
All these, of course require continued good governance and stable policy framework and institutions which can incentivise private investment.

The restoration of Bihar’s lost glory will demonstrate the success of strategic initiatives and technology can do to one of the most backward and densely populated regions in India. Unless backward States become growth drivers, India would find it difficult to grow at 9 per cent. In some ways the future of India is linked with the future of Bihar.

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