D+C Development and Cooperation (No. 3, May/June 2002, p. 22-23)

"If you want to develop us, please do it!" (Poor Lao farmer). It is not the poor who are resistant to change but the socio-economic system in which they live.

Poverty reduction as an overall objective of the global development industry is not new. The only problem is that so far it has not really worked. Despite several decades of economic growth and huge development aid disbursements, the number of countries the United Nations calls "least developed" (those with a per capita income of less than 900 USD a year) has in fact nearly doubled since 1971, from 25 to 49. In the last decade (1990 - 2000) - and despite all development efforts - not even one country was able to graduate from this group to a higher income level, maybe with the exception of Botswana.

Meanwhile, poverty reduction has generated its own history. This programme has covered a wide range of approaches starting from the World Bank's small-farmers-strategies in the 1970's via the costly structural adjustment policies of the 1980's to the recent poverty reduction strategies of the 1990's. Once more, the next development decade (2000 - 2010) has written "Attacking Poverty" on its banner.

It seems that something must have gone wrong along the way. What (bitter?) lessons have been learnt from previous experience? Have they been factored into the new set of policies? Were there possibly some fundamental flaws which were overlooked, and can better results be expected during the next period? Or do the many failures and disappointments demonstrate that there is some systemic "resistance to change" by those in power in the least developed countries and perhaps also by the poor themselves?

1. What can the rural poor really
expect from poverty reduction
programmes?

In Asia, for example, 70 per cent of the people still earn their livelihood in the agricultural sector; most of the poor among them live in a kind of rural subsistence economy. People who live in a subsistence economy are naturally conservative. They are busy securing their survival and are very reluctant to take risks. Their living standard is measured in amounts of rice harvested; their wealth is measured in numbers of livestock. Within this simple framework, poor peasants behave very rationally. For example, a shift from food crops to cash crops, such as from rice to coffee or tapioca, would immediately endanger their subsistence in case of failure. Furthermore, the poor do not have the knowledge and skills to change their crops quickly in response to market demands. Moving from a subsistence economy to a commodity economy is therefore a big step for small farmers.

However, poor people are always happy to receive handouts from the government like fertilizer, seeds, medicine or blankets. Roads, bridges and schools are also very welcome. Who would refuse a gift? From their point of view, it is the responsibility of the government to distribute goods and services in form of aidprogrammes as a way to share some of the prosperity of the city people with them. Nevertheless, as they see no direct and immediate benefit for themselves, they tend to take a rather passive attitude to change. Development workers have often complained about this common apathy and about the lack of will among the poor themselves to improve their situation. In the final analysis, rural development is more a problem of providing the right economic incentives for change than of overcoming traditional thinking and a conservative attitude.

2. What kind of incentives are
necessary to achieve increased
production in the countryside?

In most poor countries the key to rural development is the problem of land ownership rights and of legal security. As long as people do not own the land that they cultivate, they are not interested in making any investments, be they in the form of labour or capital. Once a farmer has an ownership title and considers the land as his own, he will refrain from over-using the soil but shift crops and plant new trees. Moreover, he can then use his land as collateral for credits or even sell it and buy land somewhere else. It has been a valuable experience that in countries where most people own the land they cultivate such as Taiwan or the northern part of Thailand, rural productivity is much higher than in countries where land ownership is not clear or even non-existent.

In addition to clear and irrevocable ownership rights, the rule of law is another crucial factor for development. People must feel safe from abuse of power by local elites and corrupt government officials. They must be able to enforce their basic rights in an impartial court of law. Furthermore, they must be safe from land expropriation without adequate compensation and from resettlement against their will. In other words, it is primarily their very stakeholdership in the rural economy that will motivate them to increase their production. Of course, the other necessary incentives are access to markets, a fair price for their products and the availability of goods and services.

3. Poverty reduction programmes,
if not accompanied by parallel
institutional reforms, run the risk of
creating a modern version of the
cargo cult.

Cargo cults spread during World War II in the highlands of Papua New Guinea at a time when several US cargo planes loaded with food supplies crashed into the hills. Suddenly, the native people could enjoy an abundant amount of goods, which literally fell down on them like a "gift from heaven". In the hope of attracting some more of these "silvery birds", the local hilltribes constructed primitive models of airplanes, sat around them in a circle, and prayed that more "cargo" would drop on their territory. As this happened in some areas (albeit as a result of the air battle between Japan and the USA), it strengthened the belief in the cargo cult as some magical way to overcome poverty - at least for a short time.

There is a high risk that aid programmes under the banner of poverty reduction will create new "cargo cults" in the 49 least developed countries if they continue to carry out their "business as usual" and do not put strong emphasis on the rule of law and civil rights. Unfortunately, the setting up of reliable legal and social institutions in poor countries (which often seems to be the "software" of the development industry accompanying disbursements) is, in fact, as decades of experience have shown, the hard part of the process. But it is also indispensable for achieving any tangible results.

For example, take the Lao PDR, a country which fits well into this pattern. In 1986, when the first market reforms were introduced after the failure of socialism in the Soviet Union, foreign assistance accounted for 6.25 per cent of Laos' small GDP. Already by 1988, it had increased to over 10%. Now foreign aid contributes more than 20 per cent (2001) to the GDP and demand for additional funds is rising to finance new poverty reduction programmes and a second recapitalisation of the ailing state banking sector (the last recapitalisation was in 1994!).

These figures show that the Lao PDR despite all foreign aid transfers is further drifting away from economic self-sufficiency and has become another aid-dependent country rather than being on the road of sustainable development. Moreover, Laos is also a good example for the fact, that in most cases aid can not buy reforms but rather tends to delay changes as aid serves the government as a stop-gap measure.

Why have there been until now only modest results in the areas of land reform, rule of law and the guarantee of basic civil rights? Why have people's participation and people's ownership as a strategy hardly taken root at all in the least developed countries? The answer must be sought in the role of powerful local groups and their vested interests, who obviously benefit from the prevailing status quo and a loose legal environment. A cargo cult promises bounty for all recipients; poverty reduction, however, means changing the rural power structure, too.

Conclusion

To insist on the rule of law, on people's participation in the development process, and on transparency and accountability, is again nothing new. The World Bank's Development Report "Attacking Poverty" (2000/2001) puts great emphasis on these points (p. 99 - 112). The report also states that "good political and administrative institutions go hand in hand with economic growth". The potential of economic development is quite limited if it works in a framework of social undevelopment and official indifference. Again the question is, why has so little been achieved in this field during previous decades? Was it the wrong medicine and why were the poor results of the aid programmes so carefully ignored by the international donor community?

Looking at the political systems of the 49 least developed countries, it is obvious that most of these countries are "more democratic in principle than in practice" - as the report puts it politely. Many of them are ruled by military or civil authoritarian regimes which are more used to giving orders than to listening to the grievances of the poor. Other governments, such as India, are "genuinely democratic at most levels but have historically found it difficult that political accountability reaches all levels of decision making, particularly for the poor".

To sum up, it seems that resistance to change is equally shared by the cumbersome and often incompetent bureaucracies of the poor countries and the equally cumbersome international donor community, which has so far conveniently kept the call for more rural democracy and people's rights on the backburner. The major reason for the reluctance of the donor community to pursue the battle for the rule of law and the fight against endemic corruption was to avoid massive political confrontation with the receiver countries.

Would it not have been better to create proper incentives for the performance of poor countries, namely by halting loans to nations that do not manage their economies and their reform commitments effectively and increasing financial and technical support to those that do? Why could the World Bank and the IMF not organize a procedure of "competitive bidding" for financial assistance by the least developed countries where good governance, the implementation of reforms and budget transparency are taken more into account?

The next decade will show how determined both local governments and donors are to tackle these problems for the sake of a better future.