From Individual Behavior to National Aggregates
What is Feasible?
"Trickle-Down Growth"
Growth With Redistribution
This strategic approach to food security can be understood more clearly if it is developed into a simple model of economic development. A framework borrowed from Reutlinger and Selowsky (1976) is used here to organize the discussion (see Figure 2). A calorie-income relationship, illustrated in Panel A, is used to identify a "poverty line" and a "famine line" (World Bank, 1986, Annex A). The standard Engel relationship in panel A portrays a representative consumer or household whose income (Y) determines calorie intake (C) according to a semi-logarithmic function, conditional on food prices (P). When food prices are held at their "average" level (PA), the relationship shows that individual i will be below the poverty line C* when Yi is below Y*. A further reduction in income to YF would make the individual vulnerable to severe hunger. Famine would be widespread if individual i is representative of a broad class of individuals.2
2 There is an entire body of literature devoted to estimating the calorie-income relationship illustrated in Panel A of Figure 2 and to examining the significance of any relationship between calorie intake and severe health consequences, such as infant mortality or shortened life expectancy (Srinivasan, 1981, Poleman, 1981, Behrman and Deolalikar, 1988). The perspective here draws on Reutlinger and Selowsky (1976), Alderman (1986), and Alderman and Paxson (1992).
Panel A illustrates what happens to individual i when there are exogenous shocks to the food system, shown as equally likely "good" shocks, when food prices are low (PL), and "bad" shocks, when food prices are high (PH). When prices are high, more income is required to stay above the poverty line or the famine line. Obviously, factors other than food prices might affect similar vulnerabilities in particular households: illness, death of a wage earner, an additional child, and so on. The framework here abstracts from such idiosyncratic shocks to focus on individual income (or household income, where unitary decision making makes that a sensible approach) or economy-wide shocks.
The translation from individual behavior to national indicators of poverty or vulnerability to famine is shown in Panel B of Figure 1, which displays the distribution of income for the society. The starting point for the discussion is Y0|D0, where average per capita income YA is distributed in a log linear fashion, with each income quintile having double the per capita income of the quintile below (see Table 1 for illustrative data). Such a distribution means the top quintile has a per capita income that is 16 times higher than the bottom quintile, a "poor" but not "bad" distribution of income. For comparison, Indonesia started its modern growth process in the late 1960s with a top 20/bottom 20 ratio of 7.5:1, whereas, in the 1970s, it was 15:1 in the Philippines and more than 30:1 in Brazil.
Table 1 offers a concrete idea of income levels that might be appropriate for this discussion. To start, the society has an average income per capita of $310 per year (about the level of India in the mid-1990s), distributed in such a way that the lowest quintile has an income per capita of $50 and the top quintile $800. The poverty line is drawn such that Y* = $200 and C* would be on the order of 2,100 kilocalories per capita per day.3 Panels A and B can be read in combination to indicate the national degree of poverty and vulnerability to famine. To start, 60 percent of the population has incomes at or below the poverty line, and 30 percent is vulnerable to famine. This is a very poor, famine-prone society. The question is, how does such a society achieve food security?
3 For convenience, all individuals in each income quintile are assumed to have the average income of that quintile However, income distribution in Panel B is drawn continuously after the first quintile to reflect the smooth distribution likely after incomes rise above a subsistence floor.
Figure 2. Poverty, Famine, and Food Security
A: Calorie-Income Relationship
B: Cumulative Distribution of Income
Y0 | D0 = Starting point (widespread poverty and prone to famine)
Y0 | D1 = "Revolution" (static redistribution of income)
Y1 | D0 = "Trickle-down Growth" (no redistribution of income)
Y1 | D1 = "Redistribution with Growth"
Y2 | D1 = "Redistribution with Rapid Growth"Source: See Table 1
TABLE 1 - Illustrative Data Showing Relationships Among Poverty, Famine, Income Levels, Income Distribution and Food Prices
|
Income |
Per Capita Income, US$ | ||||
|
Quintile |
Y0/D0 |
Y0/D1 |
Y1/D0 |
Y1/D1 |
Y2/D1 |
|
Lowest |
50 |
100 |
100 |
200 |
320 |
|
Second |
100 |
160 |
200 |
319 |
494 |
|
Third |
200 |
254 |
400 |
508 |
787 |
|
Fourth |
400 |
398 |
800 |
979 |
1235 |
|
Highest |
800 |
638 |
1600 |
1276 |
12978 |
|
Average |
310 |
310 |
620 |
620 |
961 |
|
Ratio: Top 20% to Bottom 20% |
16:1 |
6.5:1 |
16:1 |
6.4:1 |
6.4:1 |
Proportion of Population Below the Poverty Line, C* (POV) or Prone to Famine, C<F (FAM), at Various Food Prices
|
P+PA |
Average price level or stabilized prices | ||||
|
POV |
0.6 |
0.5 |
0.4 |
0.2 |
0 |
|
FAM |
0.3 |
0 |
0 |
0 |
0 |
|
P=PH |
High "price shock" | ||||
|
POV |
0.72 |
0.68 |
0.52 |
0.38 |
0 |
|
FAM |
0.5 |
0.35 |
0.3 |
0 |
0 |
|
P=PL |
Low "price shock" | ||||
|
POV |
0.37 |
0 |
0 |
0 |
0 |
|
FAM |
0 |
0 |
0 |
0 |
0 |
Define food security as an environment in which the lowest income quintile has a near-zero probability of being vulnerable to famine. The "escape from hunger" has a more challenging definition; it requires a similar near-zero probability of falling below the poverty line (defined strictly in calorie terms). Within the framework presented here, the escape from hunger and famine can be accomplished through one or a combination of three approaches. First, incomes can grow with no change in income distribution. Second, income distribution can improve with no change in average incomes per capita. Third, the domestic food economy can be stabilized to eliminate shocks that result in PH as the prevailing price environment. The argument here, following Figure 1, is that the East and Southeast Asian approach of "growth with redistribution," relying heavily on stimulation of the rural economy, in combination with a policy to stabilize domestic food prices, is the fastest approach to managing this escape (Chenery, et al., 1974; Timmer, et al., 1983; Dasgupta, 1993; Timmer, 1995; Birdsall, et al., 1995).
Both theory and the empirical record of economic growth during the second half of the twentieth century argue that only certain combinations of growth, redistribution, and price policy are feasible as long-run strategies. In particular, two appealing strategies for overcoming hunger in the short run must be ruled out. The first, a strategy of keeping food prices low (PL) through direct subsidies and macroeconomic distortions, such as overvalued domestic currencies, eliminates all probability of famine in our illustrative society (see the bottom line in Table 1), and it ends poverty with either doubled incomes per capita (Y1) or a sharp redistribution of income (D1). The problem with this strategy, unfortunately, is one of incentive compatibility. The strategy is not sustainable because it fails to provide incentives to the rural sector and, consequently, it is unable to maintain levels of agricultural productivity (Timmer, et al., 1983; Nerlove, 1994; Taylor, 1996). Without this productivity, the entire growth process is threatened.
The second strategy that fails is an immediate redistribution of income, from D0 to D1. In Figure 2 and Table 1, this redistribution is shown as a change in the top 20/bottom 20 ratio from 16:1 to 6.4:1. These particular numbers result from doubling the income per capita of the bottom quintile, holding average income per capita at the initial level, and then maintaining a log linear distribution for the remaining income quintiles. This doubling accomplishes immediately what economic growth takes years to accomplish - the elimination of vulnerability to famines in an environment of price stability. Unfortunately, such revolutionary redistributions of income have carried powerful, negative consequences for economic growth because they disrupt property rights and incentives for investment. Without such investment, economic output cannot be maintained (Barrett, 1995; Levine and Renelt, 1992; Barro and Sala-i-Martin, 1994; Taylor, 1996).4
4 The extensive land reforms carried out in East Asia after World War II can be considered as a strategy of immediate income distribution They were carried out in revolutionary circumstances or at the instigation of foreign powers, and the reforms established a distribution of assets from which equitable growth was possible The conditions for similar reforms in other countries do not seem widely applicable in the 1990s (Tomich, et al, 1995).
Two other strategies offer more hope. The first is economic growth with unchanging income distribution (Y1|D0). On the face of it, this strategy would seem to require a very long time to eliminate vulnerability to famine and hunger (World Bank, 1986). In the event of an adverse price shock, for example, even a doubling of income per capita in the lowest quintile leaves 30 percent of the population vulnerable to famine and more than half the population below the poverty line. In addition, with such an adverse income distribution and price instability, doubling of incomes per capita is likely to be slow, requiring 20 to 30 years (growth rates of income per capita of 2.4 to 3.6 percent per year) (Williamson, 1993; Birdsall, et al., 1995). It is not surprising that such "trickle-down growth" strategies have a poor reputation among most development specialists.
However, if the probability of PH is reduced to near zero through public action to stabilize the food economy, even such a modest growth performance benefits the poor quite quickly by eliminating their vulnerability to famine. Many remain below the poverty line, 40 percent in the illustration, but they are protected from falling to the famine line because adverse price shocks are eliminated by the stabilization policy. This approach, in conjunction with urban food distributions to holders of ration cards, is a rough characterization of the Indian experience with food security.
The Indian experience is particularly interesting because the country started with a relatively egalitarian distribution of income. Because the country was so poor, however, absolute poverty was widespread, thus presenting a difficult dilemma. If substantial resources were used to subsidize food intake of the poor, sufficient funds would be diverted from productive investments to slow the rate of economic growth. Thus the strategic choice in much of South Asia-to opt for food security through distribution mechanisms that were built during British colonial rule to alleviate famines-may have sacrificed some of the potential for economic growth in order to provide "support-led" poverty alleviation (Dreze and Sen, 1989).
An alternative strategy of bringing the poor more directly into the process of economic growth offers considerably greater hope than trickle-down policies, even with effective stabilization of food prices. The alternative is, however, much more complicated to implement. Here, redistribution with growth is attempted, in order to shift from Y0|D0 to Y1|D1 in a relatively short period of time. In this strategy, incomes per capita double on average, as before, but redistribution of the increased output doubles the incomes of the poorest quintile yet again. Such a strategy, if it is possible, eliminates all vulnerability to famine, even in the face of a price shock, and nearly eliminates poverty when the growth strategy is implemented in conjunction with a policy of price stabilization. This is the Indonesian approach.
What are the barriers to such a strategy? It is clearly difficult to find a way to structure the growth process so that the poor gain in relation to the rich. Historically, the only way to do that has been a rural-oriented development strategy that raises productivity and incomes of the broad population of small farmers and other rural workers (Mellor, 1976; Tomich, et al., 1995; Timmer, et al., 1983).
Such a strategy, however, requires significant price incentives to create the rural purchasing power that, in turn, stimulates the rural growth needed to make the strategy consistent with overall macroeconomic performance. This consistency is crucial to maintaining internal economic balance (World Bank, 1993; Timmer, 1995, 1996b). Thus a growth strategy that aims at Y1|D1 is probably not feasible without a price policy that approaches PH as an average rather than as an extreme shock.
This "food price dilemma," in which poor consumers have their food intake threatened in the short run in order to fuel a long-run growth process that removes them from poverty, has been emphasized before (Ravallion, 1989; Timmer, et al., 1983; Sah and Stiglitz, 1992). But experience in East and Southeast Asia since the 1970s shows that such a strategy, when implemented in the context of large-scale investments in rural infrastructure, human capital, and agricultural research, can lead to economic growth and an increase in average incomes per capita of 5 percent per year or more, with the rate of growth in the bottom two quintiles faster than that in the top (World Bank, 1993; Huppi and Ravallion, 1991; Timmer, 1995).
With doubling times of 10 to 15 years for incomes per capita and redistribution in favor of the poor, the "rural-oriented, price-led" strategy has the potential to reach outcome Y2|D1, illustrated in Figure 2 and Table 1, and shown for the 1970-1995 experience of Indonesia in Figure 3. With this strategy, the escape from hunger and famine is as complete as in the United States, Western Europe, and Japan. At the rates of growth experienced by Malaysia, Thailand, and Indonesia since the mid-1960s, the escape has been managed in less than two decades.5
5 It should be noted that the income gap between "rich" and "poor" continued to widen in Indonesia between 1970 and 1995, despite the faster growth rate of the incomes of the poor during that period. In the bottom quintile, for example, per capita incomes increased by $336 (in 1995 US$) in the 25-year period, whereas incomes of the top quintile increased by $1,374. Even highly successful poverty alleviation does not necessarily solve the problems of income distribution, especially in the political arena.
