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Sending farmers off their land
February 16, 2011, Wednesday
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Print Edition
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EDITOR'S note:
This is the last of three articles adapted from the World Bank report titled "Reducing Inequality for Shared Growth in China: Strategy and Policy Options for Guangdong Province." Please visit www.worldbank.org/china for the original version.
A KEY source of inequality is regional disparity in growth.
Without intergovernmental transfer, the spatially unbalanced growth and regional disparity in income distribution will be fully translated into regional disparity in access to key social services, such as education and health care.
The transfer of government revenue from richer regions to poorer regions weakens incentives for revenue generation. But a well-designed transfer system can achieve the optimal balance between equity and incentives.
The minimum living allowance (dibao) program is the main policy instrument for the Guangdong government to address absolute poverty for rural and urban residents.
The program is designed to provide direct transfers to households whose average net per capita incomes are below a locally defined threshold of minimum living standard.
Despite the impressive progress made by Guangdong in sustaining and expanding its rural dibao program, a review of implementation experience indicates that the program has yet to achieve its objectives. The key issues hindering the achievement of objectives include level of program coverage, amount of fiscal input, design of some key policy features, and administration of the program.
Low coverage
Coverage of the rural dibao program is low compared to the levels of poverty in Guangdong. Results from the 2007 rural household survey show that the program reached less than 5 percent of poor rural households, measured against a poverty line of US$2 per day.
While the program is designed as an entitlement program with the stated principle "all who are eligible shall receive benefit," in reality, the depth and breadth of the program are not driven by basic needs but are largely determined by local fiscal capacity. The principle of cost sharing is sound, but it may be necessary to introduce provincial funding more biased in favor of the poorest regions and ensure that budget allocations at the local level are ring-fenced.
The fundamental cause of urban-rural income inequality in a developing economy is often development itself.
When an economy develops, its urban sector enjoys higher productivity and faster growth than the rural sector, leading to a gap in incomes between rural and urban households.
The basic approach to closing this gap is to help rural labor move to urban jobs, allowing the rural population to share urban income in a productivity enhancing manner. This approach seems very appropriate for Guangdong for several reasons.
Wage income
First, 88 percent of the rural poor are from households in which no working-age members have lost the ability to work. Second, wage income already accounted for 56.9 percent of net income for rural households in Guangdong in 2007, compared to 38.6 percent for China overall. Third, industrialization and urbanization in the Pearl River Delta region have created a huge number of urban jobs.
While transferring rural labor to off-farm - and in most cases urban - jobs will ultimately help improve rural income and reduce inequality, analysis is needed to understand the profile of the farmers, and to identify the appropriate policy actions required. This implies two main questions:
First, how many rural laborers remain in Guangdong who are not needed for agricultural activities, and what are their characteristics? Second, what are the main barriers that prevent Guangdong's labor market from being highly mobile, and how can such barriers be removed to facilitate the transfers?
If government policies for labor transfer need to focus on laborers who are "transferable," the first step is to determine the size of Guangdong's pool of transferable labor.
An analysis of the rural household survey data collected by the Guangdong provincial Bureau of Statistics suggests that about 60 percent of the province's rural labor force may already be transferred in the sense that their working time is devoted to off-farm activities, which include local off-farm activities (35 percent) and migrant off-farm work (25 percent).
This does not imply, however, that the remaining 40 percent can all be transferred. A more in-depth analysis of the profile of the remaining labor is needed.
We conclude that out of the 11.67 million non-transferred rural laborers in Guangdong Province in 2007, 4.35 million, or 37.3 percent, are transferable. This pool includes 1.54 million, or 13.2 percent, who could potentially be transferred to migrant jobs, and 2.8 million, or 24 percent, who would do better with local off-farm activities.
This is the last of three articles adapted from the World Bank report titled "Reducing Inequality for Shared Growth in China: Strategy and Policy Options for Guangdong Province." Please visit www.worldbank.org/china for the original version.
A KEY source of inequality is regional disparity in growth.
Without intergovernmental transfer, the spatially unbalanced growth and regional disparity in income distribution will be fully translated into regional disparity in access to key social services, such as education and health care.
The transfer of government revenue from richer regions to poorer regions weakens incentives for revenue generation. But a well-designed transfer system can achieve the optimal balance between equity and incentives.
The minimum living allowance (dibao) program is the main policy instrument for the Guangdong government to address absolute poverty for rural and urban residents.
The program is designed to provide direct transfers to households whose average net per capita incomes are below a locally defined threshold of minimum living standard.
Despite the impressive progress made by Guangdong in sustaining and expanding its rural dibao program, a review of implementation experience indicates that the program has yet to achieve its objectives. The key issues hindering the achievement of objectives include level of program coverage, amount of fiscal input, design of some key policy features, and administration of the program.
Low coverage
Coverage of the rural dibao program is low compared to the levels of poverty in Guangdong. Results from the 2007 rural household survey show that the program reached less than 5 percent of poor rural households, measured against a poverty line of US$2 per day.
While the program is designed as an entitlement program with the stated principle "all who are eligible shall receive benefit," in reality, the depth and breadth of the program are not driven by basic needs but are largely determined by local fiscal capacity. The principle of cost sharing is sound, but it may be necessary to introduce provincial funding more biased in favor of the poorest regions and ensure that budget allocations at the local level are ring-fenced.
The fundamental cause of urban-rural income inequality in a developing economy is often development itself.
When an economy develops, its urban sector enjoys higher productivity and faster growth than the rural sector, leading to a gap in incomes between rural and urban households.
The basic approach to closing this gap is to help rural labor move to urban jobs, allowing the rural population to share urban income in a productivity enhancing manner. This approach seems very appropriate for Guangdong for several reasons.
Wage income
First, 88 percent of the rural poor are from households in which no working-age members have lost the ability to work. Second, wage income already accounted for 56.9 percent of net income for rural households in Guangdong in 2007, compared to 38.6 percent for China overall. Third, industrialization and urbanization in the Pearl River Delta region have created a huge number of urban jobs.
While transferring rural labor to off-farm - and in most cases urban - jobs will ultimately help improve rural income and reduce inequality, analysis is needed to understand the profile of the farmers, and to identify the appropriate policy actions required. This implies two main questions:
First, how many rural laborers remain in Guangdong who are not needed for agricultural activities, and what are their characteristics? Second, what are the main barriers that prevent Guangdong's labor market from being highly mobile, and how can such barriers be removed to facilitate the transfers?
If government policies for labor transfer need to focus on laborers who are "transferable," the first step is to determine the size of Guangdong's pool of transferable labor.
An analysis of the rural household survey data collected by the Guangdong provincial Bureau of Statistics suggests that about 60 percent of the province's rural labor force may already be transferred in the sense that their working time is devoted to off-farm activities, which include local off-farm activities (35 percent) and migrant off-farm work (25 percent).
This does not imply, however, that the remaining 40 percent can all be transferred. A more in-depth analysis of the profile of the remaining labor is needed.
We conclude that out of the 11.67 million non-transferred rural laborers in Guangdong Province in 2007, 4.35 million, or 37.3 percent, are transferable. This pool includes 1.54 million, or 13.2 percent, who could potentially be transferred to migrant jobs, and 2.8 million, or 24 percent, who would do better with local off-farm activities.
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