Consumption

The important point to appreciate is that, in theory, there is no necessity for all of these functions to be carried out by the same organization or, indeed, by the same sector of the economy As [the World Bank] states:

12. Joseph E. Stiglitz, An Agenda for Development in the Twenty-First Century', Keynote Address in Boris Pleskovic and Joseph E. Stiglitz (Eds), Annual World Bank Conference on Development Economics, 1997, The World Bank, Washington, DC, USA, 1998, pp. 22-23.

Public production or marketing of seed may well be a necessary first step to show the existence of a market and to make seed available, pending the development of private seed

companies.13

.. . [There would be] a possible need for the government to continue to fund, wholly or partially, some activities even though these may not be carried out exclusively by the parastatal. For example, if the seed industry is mainly concerned with the production of high yielding varieties of self-pollinated seed . .. farmers can save seed for several generations without a major decline in yields. This makes it difficult for seed companies to recover the full cost of improved seed from seed sales.. . . Without a subsidy the wider benefits to society stemming from improved seeds would be lost. While this funding could be injected through private sector companies, the private sector may still be unwilling to invest sufficient resources in these activities and this might require a permanent parastatal involvement.14

Bardhan has underscored the role of government in stimulating agricultural development in the modern context, and has described issues in the decentralization of governmental functions:

Even with all its limitations (of administrative capacity as well as vulnerability to wasteful rent-seeking processes) the State can play at least as a catalyst in the initial stages in pump-priming agricultural finance and underwriting risks (while being careful to avoid the associated moral hazard of encouraging dependency). It can take the initiative in establishing commodity exchanges, generating and disseminating information, allowing for contingent contracts, and arbitration in contract disputes. . ..

In the post-reform period in many developing countries public investment in agriculture has been on the decline. Given the undoubted complementarities between public and private investment in this field, it is not surprising that private investment has been slow to make up for this deficiency. In particular, falling public investment in agricultural research and development in many countries is slowing the rate of technological progress in agriculture, and the decline of investments in maintenance and repair of irrigation and drainage systems, rural roads and in prevention of soil erosion have curtailed the effectiveness of earlier investments in agriculture. (Recent IFPRI projections for China suggest that each yuan invested in the coming decades in research and irrigation could yield returns of between 3.6 and 4.8 yuan.) The issue of public investment will be increasingly important also in the case of biotechnology research to develop technologies in plant and livestock breeding and in native crops suited to local conditions (sorghum in Africa, millet in India), a need that is likely to be neglected by the patent-protected multi-national biotechnology companies. . .

In public investments in agriculture the emphasis is shifting from massive State investment in large dams ... to better local management of existing irrigation systems and minor irrigation projects under some form of community control to improve the effectiveness of investments. In a comparison of the mode of operation of canal irrigation bureaucracy in [South] Korea and India, Wade (1997)15 finds the former to be more sensitive to the needs of the local farmers and thus more effective. The

13. Operations Evaluation Department, The Seed Industry in South Asia, The World Bank, Washington, DC, USA, 1996.

14. Lawrence D. Smith, Agricultural Parastatal Reform," paper prepared for the Policy Assistance Division, Food and Agriculture Organization of the United Nations, August 31, 1998, pp. 7-8 [emphasis in original].

15. R. Wade, 'How infrastructure agencies motivate staff: canal irrigation in India and the Republic of Korea', in A. Mody (Ed.), Infrastructure Strategies in East Asia, Economic Development Institute, The World Bank, Washington, DC, USA, 1997.

Indian canal systems are large, centralized hierarchies in charge of all functions. .. . Their ways of operation. . . and source of finance ... are totally insensitive to the need for developing and drawing upon local social capital.16 In contrast, in Korea there are functionally separate organizations in the canal systems: the implementation and routine maintenance tasks ... are delegated to the Farmland Improvement Associations, one per catchment area, which are staffed by local part-time farmers .. . knowledgeable about changing local conditions, dependent for their salary and operational budget largely on the user fees paid by the farmers, and continually drawing upon local trust relationships.

The same problems of low accountability to the local population affect the volume and particularly quality of provision of local public goods and services in many developing countries. . . . Fisman and Gatti (1999)17 document a significant negative correlation in crosscountry data between the subnational share of total government spending and various measures of corruption, controlling for other factors, suggesting that decentralization can mitigate corruption. Of course, the adverse effects of lack of local accountability on the quality of public goods and services show up in even less tangible forms of leakages and targeting failures than what the measures of corruption indicate.

Going beyond the impact of local accountability on the quality of service in publicly supplied facilities, it is important to note that a local community organization, if it has a stable membership and well-developed structures for transmitting private information and norms among the members, may have the potential for better management of common property resources. . ..

A major problem that hinders most schemes of decentralized governance is related to distributive conflicts. In areas of high social and economic inequality, the problem of 'capture' of the local governing agencies by the local elite can be severe, and the poor and the weaker sections of the population may be left grievously exposed to their mercies and their malfeasance. . .. Similarly, collusion among the elite groups may be easier at the local level than at the national level. . . .1S

At any level, an effective government for agriculture has an active commitment to the sector's development and yet is aware of the limitations of government action and the danger of creating serious distortions in the economy if the policies are not well conceived. It is a government that supports development intelligently, by diagnosing accurately and continuously problems that emerge and playing a facilitating or enabling role for the sector's growth. It is a government whose institutions are strong and have developed out of a country's own historical experience and social context. While most governments provide infrastructure, agricultural research services and other public goods as indicated by Gale Johnson, the legitimate role of government in promoting development may be framed in a broader way. Dani Rodrik has provided an illuminating perspective on the role of government and the nature of its institutions and the policy reform process:

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