The Role Of Government

The consensus on the appropriate role of government in the agricultural economy has shifted over time toward less direct management of economic activities and fewer controls on prices and quantities of factors and outputs. Although the concept of 'market failure' in the private sector has long been recognized in economics, the awareness of 'government failure' is now much greater than before. Much of government failure can be attributed to inappropriate institutional incentives and weak fiscal policies, but nevertheless it is a reality. Rapid turnover of Ministers of Agriculture and principal staff members can greatly hinder the process of developing and implementing consistent policies. On the other hand, government needs to play a leading role in mobilizing consensuses about appropriate development policies and translating them into concrete actions. It also needs to correct with indirect measures the most egregious kinds of market failure.

Uma Lele, Robert Emerson and Richard Beilock, drawing on contributions by Joseph Stiglitz, have aptly summarized the state of the debate on the role of government in agricultural development:

The new institutional economics stresses that the nature of contractual arrangements, and the income and wealth distribution, matter because they affect the incentives and multiplier effects from agriculture (Stiglitz, 1993)7. . .. Therefore Stiglitz argues that the advice to adopt market systems is too simplistic when problems of unequal land distribution, imperfect information and incomplete risk markets are serious.. . . Notwithstanding these risks, agriculture under centrally planned systems of management has worked less well than under market conditions, for many reasons. First, under the public sector, organization and management of agriculture, and institutional surrogates for markets, tend to be poorly organized to adapt to information and incentives. Also, information tends to be poorly processed owing, in part, to the hierarchical relations which vest decision-making authority away from the scene of economic activity. Shirking becomes a central problem, individual initiative tends to be lacking, soft budget constraints replace hard budget constraints, and job and salary security inhibit quick responses to new and critical information. Thus the reduction of risks faced by farmers tends to be achieved at huge costs under the public system of management.

Then what should be the role of government, if not in production or distribution? The non-controversial roles of government have been clear enough: protection of property rights, enforcing contractual obligations to foster competition, and the provision of public goods such as agricultural research, technology, information and infrastructure. The more controversial roles involve redistributing assets through forced mea

7. Joseph E. Stiglitz, 'Incentives, Organizational Structures and Contractual Choice in the Reform of Socialist Agriculture', in A. Braverman, K. M. Brooks and C. Csaki (Eds), The Agricultural Transition in Central and Eastern Europe and the Former USSR, The World Bank, Washington, DC, USA, 1993.

sures, stabilizing prices, absorbing risks and providing credit. If the government goes where private markets fear to tread, it needs to do so cautiously and with considerable safeguards.8

Gale Johnson has provided a clear definition of six traditional areas in which government action is needed. One of them is correcting market failures, but he is cautious in his prescriptions for entry into this area, emphasizing mainly the provision of education. His remarks, excerpted, are as follows:

Provision of public goods

.. . there are some goods and services that a competitive market would not supply at all or would provide in less than optimal amounts. These include public goods where consumption is not exclusive, such as maintenance of law and order, protection of civil rights, national defense, public parks, agricultural research, and some forms of communication.. . .

Competitive markets may not be optimal

There ... are goods and services that societies believe will either not be provided in adequate amounts by competitive markets owing to economies of scale (public utilities), or not be utilized in socially optimal amounts by certain segments of the population. The latter is the argument for providing free primary and secondary education. . ..

Because of the path-breaking work of. . . Theodore W. Schultz (1964)9, the important role of investment in human capital in economic growth has received increasing consideration. The evidence is now very strong that investment in human capital through universal access to primary and secondary education contributes to economic growth, while at the same time limiting or preventing increases in inequality as economic growth occurs. Taiwan and the Republic of Korea provide important lessons for developing countries in this regard. Each gave quite early emphasis to making primary and secondary education universally available. They not only enjoyed rapid growth but each achieved growth without a significant increase in inequality.

Development of infrastructure

Rural infrastructure has not received the same attention and emphasis as it has in urban areas. This was especially the case in socialist countries where the neglect of roads left a high percentage of villages and farm households inaccessible .. . throughout the year, or for a large part of the year, owing to the poor quality of existing roads. . . .

Support of research

The recent unparalleled rates of growth of food production in developing countries owe much to the provision of a public good, agricultural research. There is overwhelming evidence of the high rates of return to investments in agricultural research (Evenson et al., 1979)10.. . .


Market information is essential for the efficient functioning of markets. In developing economies and those in transition, such information is unlikely to be adequately supplied by market institutions and, unfortunately, little is

8. Uma Lele, Robert Emerson and Richard Beilock, 'Revisiting Structural Transformation: Ethics, Politics and Economics of Underdevelopment', in G. H. Peters and D. D. Hedley (Eds), in Agricultural Competitiveness: Market Forces and Policy Choice, Proceedings of the 22nd International Conference of Agricultural Economists, International Association of Agricultural Economists, Dartmouth Publishing Company, Aldershot, UK, 1995, pp. 183-184 [emphases added].

9. Theodore W. Schultz, Transforming Traditional Agriculture, Indiana University Press, Bloomington, IN, USA, 1964.

10. R. Evenson, P. E. Waggoner and V. W. Ruttan, 'Economic Benefits from Research', Science, 205, 1979, pp.


being done, especially in economies in transition, to provide it systematically.. . .


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