3. PRECONDITIONS: FOSTERING AN ENABLING ENVIRONMENT FOR EFFECTIVE NRM PROGRAMS

Apart from government adoption of decentralization policies, an enabling macroeconomic environment is also required. Many natural resource management activities include the use of private and common resources (see the description of the distinction between resource systems and resource units in section 0). Sustainable natural resource management is inextricably linked to the productivity of agriculture. Cleaver and Donovan (1995) note that low productivity farming caused by policy distortions is leading to increased degradation of land, water, and forest resources. Empirical research spanning the last 40 years has identified some clear policy failures. Fortunately, it has also identified potential policy interventions which can provide the necessary incentives for individuals to implement sustainable resource practices.^[6] This chapter will demonstrate that, in addition to increasing the productivity of smallholder agriculture, there is also a requirement for policies that create an enabling environment for the voluntary supply of effective collective action institutions. It is beyond the scope of this paper to prescribe detailed policy instruments. Nevertheless, it is important to review the policies and preconditions which are known to be necessary for creating an enabling environment so that practitioners are aware of the need for policy integration. Table 1 summarizes the policy interventions. The following discussion explains their relationship to the adoption of sustainable natural resource management and the supply of effective institutions for collective action.

3.1 MACROECONOMIC ENVIRONMENT

Instability in an economy is generally destructive of the sorts of investments in resource management upon which sustainability depends (World Bank, 1997a). Instability can lead to high inflation rates which reduces smallholder profitability. It also reduces the incentives for investments in farm improvements because farmers are forced to use higher long-term discount rates. Krueger, Schiff, and Valdes’ (1991) analysis of eighteen countries found that many macroeconomic policies act as indirect taxes on agriculture. For example, overvalued exchange rates, import duties and industrial protection, were three times the direct tax (e.g. export taxes) on agriculture. Efficiency gains inherent in reducing price distortions are therefore likely to lead to increased efficiency of resource use.

Table 1 Policy matrix - summary of policy instruments and their desired impact

3.2 REDUCE URBAN BIASES

Policies implemented in many developing countries have failed to recognize the importance of agriculture in rural growth. Haggblade and Hazell (1989) and Binswanger (1983) demonstrate that nonfarm growth and poverty reduction are strongly correlated with agricultural income. Employment intensive agricultural technologies focused on small and medium sized farms result in substantial increases in rural incomes because consumption demand for non-farm goods is created. Despite the predominance of rural poverty in many developing countries, urban biases in terms of industrial protection and agricultural taxation persist. Moreover, Lipton (1977) notes that they are many other forms of urban biases especially in regard to the provision of productive infrastructure and social services. Given that sustainable management of natural resources is partially dependent upon private investments on smallholdings, policy and investment biases which neglect rural areas encourage migration to urban areas. This encourages farmers to use higher discount rates because they have less confidence that investments made by them will be inherited by their children and grandchildren. Smallholder profitability is also affected by excessive agricultural taxes. Moreover, Krueger, Schiff, and Valdes (1991) found that resources provided to agriculture, through measures such as subsidized credit, infrastructure, research and extension, were not equal to the resources extracted. This is not an argument to increase the economic subsidies for agriculture. On the contrary, it has also been found that subsidies tend to be captured by large farms encouraging the persistence of inefficient, capital intensive, large farms (Binswanger, Deininger, and Feder (1993). In essence, the recommendation is to reduce agricultural taxes and economic subsidies which distort the market.

3.3 INVEST IN RURAL INFRASTRUCTURE AND COMMUNICATIONS

The extent of rural infrastructure will strongly influence the incentives that are required to make individuals invest in sustainable natural resource management. In particular, the presence of markets and the ease with they can be accessed will affect the profitability of farms. Without supportive rural infrastructure, greater incentives will need to be provided to encourage individual investment in sustainable natural resource management activities because the financial and economic returns will be lower. Consequently, there should be the same degree of progressivity for urban and rural sectors. That means that there should be proportionately similar state budgetary allocations for rural infrastructure (e.g. rural roads, electricity and water supply) as for the urban sector. These can be based on formulae relating population density and geographic area.

3.4 LAND POLICIES

Natural resource management activities such as soil and water conservation, irrigation development and watershed development are reliant upon both individual investments on private property and also collective investments on common pool resources. This section will first examine the issues regarding private property regimes before examining the policy issues concerning common property regimes.

3.4.1 Private property issues

In relation to private landholdings, Migot-Adholla and Bruce (1994) and Feder and Nishio (1997) found that investments in land improvement were correlated with the degree of “security of tenure” that farmers had over their land. “Security of tenure” is defined as the right of continuous unchallenged use of land; formal titles or certificates were found to be affirmations of the social guarantee, they did not create it. The studies found regional variability in the link between land registration and economic benefits associated with land improvements. In rural Africa, land registration was found to have little impact on productivity, land-attached investment or credit access. However, data from Latin America, Caribbean and Asia found that land-attached investments, productivity and economic benefits were correlated with land registration. Box 3 synthesizes the results from these studies.

Experience of previous land titling programs suggest that land redistribution has been poorly executed. In Africa, cadastral surveys have been the main means by which urban elite and dominant ethnic groups have stripped pastoralists and other unintensive or seasonal users of rights to land. To overcome these and other problems, it is recommended that landholders (beneficiaries) are closely involved in the registration process. Furthermore, it is found that local institutions for collective action enhance landholder involvement and improve prospects for equitable outcomes.

In areas where landholdings are highly inequitable with concentrations of large capital intensive and inefficient farms, there is a case for using new market based land reform (MBLR) instruments for promoting equitable distribution. Innovative programs supported by the Bank in South Africa, and more recently in Brazil, show considerable promise. These are based on the observation that policy distortions (macroeconomic conditions, non-farm investment options, tax policies and agricultural policies) help to sustain inefficient large farms which could fruitfully be parceled out and sold off to small-farmers. Distortions mean that market land prices are unrealistically high and often exceed the capitalized value of farm profits. MBLR starts by reducing policy distortions with the net result that the market price of land decreases. A combination of grants and loans administered through local institutions are then used to assist poor smallholders and landless workers to finance the purchase of land on the market (Binswanger, 1991 and Heath and Binswanger, 1996).

3.4.2 Common property issues

Let us now turn to property rights governing common pool resources. Bromley and Cernea (1989) found that resource degradation in the developing countries was partially attributable to the break-down in indigenous common property regimes. A common property regime is similar to a private property regime in that individuals have rights and duties associated with ownership; it represents private ownership for a group or institution. In contrast, state property regimes are characterized by ownership and control resting with the state. It is argued that many resource degradation problems arose because powerful rulers and colonial administrators dissolved indigenous institutional arrangements governing the use and management of common property and transferred the rights to the state - in effect, nationalizing land.^[7] As already mentioned in section 0, neither state property regimes, private property regimes nor open-access regimes have been successful at fostering sustainable management of natural resources. Policies therefore need to focus on preserving common property regimes where there exist and re-establishing them where they have been eroded.

Where indigenous institutions and their associated tenurial arrangements for common land persist (e.g. in some Amerindian populations in Latin America), Richards (1997) argues convincingly for policies to officially recognize those rights and legally demarcate indigenous territories. Still, there are many instances where traditional arrangements have been severely eroded or completely dissolved. In these situations, revitalizing common property regimes is much more difficult. Policies such as Joint Forest Management (JFM) in India have sought to foster partnerships between state and communities for the sustainable management of forests. However, JFM policies are intermediate options; ownership of land remains with the state and only the products are apportioned with the local communities in exchange for their compliance with protecting the forest. Where implemented, JFM policies have proved to be moderately successful. Nevertheless, despite their success, they have not been extended to other areas. This is partly because of political unwillingness to continue the partnerships which have accentuated the ineffectiveness of the forestry department. There is a case for more radical policies which transfer ownership back to local institutions that are collectively owned and managed. Box 4 presents some examples of failed policies and potential prerequisites for property rights governing common pool resources.

3.4.3 Formal water markets

In most countries the state owns water resources. As in the case of land, state ownership of a common pool resource such as water results in cost inefficiencies in supply and use. For the state to set water prices in order to encourage rational use will be administratively difficult and could also be socially and politically disruptive. Some authors have therefore speculated that establishing tradable water rights for owners could create sufficient incentive to conserve water, minimize losses, and keep costs to a minimum. In addition. establishing tradable water rights could also create an opportunity for the state to levy taxes on water consumption and generate revenue. In practice, however, water rights are difficult to define and measure. Moreover, as with land, it is apparent that local institutional arrangements are essential to manage allocation and distribution of water. Examples from Chile, Mexico and USA suggest that introducing tradable water rights is most effective in areas where water resources are scarce, where there are institutional mechanisms to implement trades, and where there is a political will to establish appropriate legislation. (see Thobani, 1997 and Shah, Zilberman and Chakravorty, 1993 for good overviews of the issues).

3.5 LEGAL FRAMEWORK FOR LOCAL LEVEL INSTITUTIONS

It is desirable to have a legal framework for local level institutions even for groups as diverse as forest management and women’s small-scale enterprises (Uphoff, 1986). Legal status is often required in order to enable institutions to have autonomous authority and control over their own affairs. For example, institutions require a legal status to allow them to: enter into contractual agreements with providers of technical assistance; collect users fees and levy sanctions; own and manage property; manage village development funds for operation and maintenance of subprojects, and, directly access loans from financial institutions or act as guarantors for members to secure loans.

Formulating new legislation needs to take account of existing beneficial but uncodified practices, for example land tenure practices mentioned above. Moreover, the new legislation needs to allow sufficient room for maneuver to enable members to have authority and control over governance and operational rules of the institution (see section 0 which explains the characteristics of long enduring institutions). For example, in Thailand the government imposed a uniform system of local irrigator’s associations, with standard bylaws, centrally sanctioned personnel, and so on. However, farmers had already evolved their own irrigation systems for generations through their own associations which were not uniform. This created a tension between government legislation and the indigenous practices resulting in noncompliance with the legislation. This example emphasizes the point that if legal frameworks are rigidly or complexly formulated they can be disabling rather than enabling.

Legislation also needs to take into account the requirement for simple and transparent procedures for registration. If the transaction costs are too high, less mature institutions will be excluded. In Brazil, the 1988 Constitutional reform required the formation of thousands of Community Associations as conduits for public investments at the community level. The process of registration was initially complex, requiring an announcement in the press and then registration at municipal level, and finally registration with de-concentrated federal government units. The system was proving to be a bottleneck to the evolution and registration of CAs and has subsequently been modified and simplified in a number of states.

It is evident that sustainable NRM and supply of local institutions for collective action requires more than decentralization of fiscal and administrative authority. Sound macroeconomic policies, investment in rural communications and policies governing property rights and legal status of local institutions are also required to foster an enabling environment. Although this chapter has been termed “preconditions”, it is not necessary for all these policies to be enacted prior to initiating an NRM program; they can be introduced concurrently. However, the sequencing and integration of policies is essential in order to leverage the greatest potential for sustainable NRM.