Death of a farmer
Those of you in Eco 340 have been reading Pietra Rivoli's Travels of a T-Shirt which includes an extended account of the history of cotton farming in the US and around the world. Before the United States took the spot in the 19th century, India was the world's largest cotton producer.
Today's New York Times has an article on "On India’s Farms, a Plague of Suicide," about the difficult adjustment that many small farmers in India have been facing, and how a significant number have committed suicide in the face of mounting debts. The difficulty of competing on world markets in the face of cotton subsidies by advanced industrial nations is mentioned, but it's clear from the article that this is only one small part of the story. Different farmers have been more or less good at adopting and adapting to new technologies that involve much higher capital outlays and credit use.
We often depict Labor and Capital frictionlessly moving out of one sector into another. This article reminds us that 'adjustment' to changes in relative prices (whether they are trade-induced or not) can be slow and painful and highly disruptive to those involved. Political resistance may be sparked.
India's economic growth over the past 15 years, a period during which it has opened up to trade, has been impressive and has lifted tens of millions of people out of poverty, but the distribution of the gains has been uneven and concentrated in urban areas in this still overwhelmingly rural country.. The most recent elections provided a sharp wakeup call to the coalition government to focus more on the problem of uneven economic development and rural poverty, or be voted out of office. Partly as a response to these political pressures new rural poverty alleviation programs have been launched.
Today's New York Times has an article on "On India’s Farms, a Plague of Suicide," about the difficult adjustment that many small farmers in India have been facing, and how a significant number have committed suicide in the face of mounting debts. The difficulty of competing on world markets in the face of cotton subsidies by advanced industrial nations is mentioned, but it's clear from the article that this is only one small part of the story. Different farmers have been more or less good at adopting and adapting to new technologies that involve much higher capital outlays and credit use.
We often depict Labor and Capital frictionlessly moving out of one sector into another. This article reminds us that 'adjustment' to changes in relative prices (whether they are trade-induced or not) can be slow and painful and highly disruptive to those involved. Political resistance may be sparked.
India's economic growth over the past 15 years, a period during which it has opened up to trade, has been impressive and has lifted tens of millions of people out of poverty, but the distribution of the gains has been uneven and concentrated in urban areas in this still overwhelmingly rural country.. The most recent elections provided a sharp wakeup call to the coalition government to focus more on the problem of uneven economic development and rural poverty, or be voted out of office. Partly as a response to these political pressures new rural poverty alleviation programs have been launched.
Comments
As The Economist pointed out in the June 1, 2006 article entitled “Still in the Way,” according to the World Bank’s 2006 ease of doing business index India ranked 116: 2 places below Iraq, 56 below Pakistan, and 25 below China. The article went on to summarize a number of factors that currently prevent more labor intensive industries, such as manufacturing from developing in India which include: outright bans on foreign direct investment (FDI) in retail trade; caps on FDI in transportation, banking, insurance, and telecommunications; archaic labor laws, such the one which bars establishments with more than 100 workers from laying off employees without permission of the state government; and endemic governmental corruption. The FA article that Mr. Beaty cited in his post outlines many of the same critiques. I would argue the both articles paint similar pictures: India’s failure to more fully liberalize their economy has trapped lower-skilled farmers on the razor’s edge of subsistence agriculture.
Without the disincentives that are currently stifling the growth of India’s more labor intensive industries, the farmers who as Professor Conning points out are “less good at adopting and adapting to new technologies that involve much higher capital outlays and credit use” would have other options for survival (such as sewing textiles for a multinational).
I would also argue that the HOS model does not necessarily call for India to “produce a billion software engineers and financial consultants…from dal and cotton pickers…,” rather with a bit of creativity it could be used to illustrate that India is not utilizing – or its government is not allowing it to utilize its natural endowment of labor.