Nurturing assets by listening-and by enabling communities to act

In addition to the geophysical constraints, other socioeconomic constraints leave many people in the rural periphery with little to protect themselves from shocks. Poor health care, limited access to education, information and technical assistance, and high urban unemployment reduce the opportunities for outmigration and lower the remittances sent back to the village communities. Many developing countries have been ill prepared to help people on their rural periphery address problems and get connected to the economic mainstream.

Lacking access to information, education, and training, subsistence-based communities have difficulty improving their health and diversifying their off-farm activities. The costs of addressing malnutrition are manageable, yet micronutrient deficiencies remain serious in an estimated 85 countries, reducing mental capacity and the ability to learn. Schooling deficiencies are poorly measured, since most systems focus more on enrollments rather than on completion rates or the relevance of curricula. Poor access to health and education services increase the incidence of mental handicaps and low productivity, blocking opportunities for marginalized communities to advance.

This section looks at how communities can nurture their assets and find ways out of poverty through a combination of public sector or centrally initiated and top-down policies (as found in Tunisia), and locally initiated and bottom-up changes that work their way up to power centers (Morocco). Peru's mining sector, for instance, looks at a recent attempt at shifting to shared development among communities, companies, and the government. The way marginal rural groups in some European countries got out of poverty 100 years ago also reveals important lessons, showing how much more difficult it is for developing countries today (box 4.4).

Box 4.4 What worked then (Europe, 1900) is much harder now (developing countries, 2000) At the turn of the last century, many of Europe's poor peasants inhabited marginal lands. They got out of poverty traps thanks to ingenuity, to inclusive and flexible institutions, and to favorable circumstances that do not exist for the rural periphery today. Technical innovations attracted unskilled workers and encouraged the migration of peasants from Europe's rural periphery to factory jobs in North America. A vibrant civil society brought about sustained and wider participation in income growth. Migration then . . . but not now Institutions never targeted policies to deal with people remaining on fragile lands, because most of them left. Open migration from Europe between 1870 and 1910 reduced pressures on Europe's poor rural areas and boosted productivity in the New World. Some 13 percent of Europe's labor force migrated to the New World during those 40 years. For Italy and Ireland, as much as 45 percent of the labor force migrated-for Scandinavia, about 25 percent. Some 80 percent of migrants were peasants or unskilled laborers with no more than primary education, but they found jobs in factories and mines. The transition took place with few legal restrictions, and government facilitated the assimilation through public education and health. For developing countries today, outmigration from the rural periphery is toward coastal urban centers and the peri-urban shantytowns, not North America, Western Europe, or other developed countries. Cumulative migration to the United States from 1970 to 2000 accounted for less than 2 percent of the labor force in Sub-Saharan Africa and less than 5 percent in Latin America and the Caribbean (the region with the highest migration ratio). Unlike 100 years ago, when peasants made up 80 percent of migrants, today professionals, skilled workers, and those with some university training make up more than half the migrants into the United States. The lowest skilled workers came from Mexico, the highest skilled workers from Asia and Africa.* Technology, wages, and jobs then The factories of the early 1900s employed unskilled workers with little schooling, at subsistence wages (under well-documented Dickensian working conditions). Henry Ford took the unprecedented decision to improve working conditions by pursuing his own interests within the context of the interests of a wider group. Increasing labor's access to assets is a distributional initiative that has efficiency gains, recognized even by hard-nosed businessmen. In 1908, after designing a reliable and affordable automobile, Henry Ford wanted to bring the unit cost down to expand sales to a mass market. In 1913 Ford and his engineers introduced the assembly line, reducing the time to assemble a car from 12 hours to 2 with the same amount of labor. Productivity shot up, and the labor required no education and little training (half of Ford's workers were poor immigrants from Italy and Eastern Europe's marginal lands). After a year of record profits, Ford more than doubled unskilled wages and reduced the work day from 10 hours to 8-even though workers were waiting in line for jobs at the lower wage. Ford's decision meant that poorly educated workers could begin to accumulate capital and savings-enabling unskilled workers to lift themselves and their families out of poverty. He reduced labor turnover from 300 percent to 23 percent and increased productivity by another 50 percent. What motivated him? He wanted to sell more cars (wages were so low at the time, that few but the wealthy could afford them). And he wanted to block the establishment of a labor union. In the following 50 years, interest groups in the United States and other OECD countries pushed for shared growth, creating institutions to include more people in a wider prosperity circle. Top-down measures (such as universal public education and health care) and bottom-up measures brought about wider participation in income growth. Labor unions obtained higher wages through a combination of collective bargaining, increases in productivity, and some tightening of the labor market. Women's rights organizations gained for women the right to vote and later to become active participants in the job market. Social safety nets helped the elderly and unemployed. These and other policies all served to bring more people into managing, distributing, and benefiting from the countries' growing wealth. The policies supported inclusiveness and helped create better institutions. Technology, wages, and jobs now By the end of the 1970s production methods in all countries started changing with diminishing returns to unskilled labor and increasing returns to skills. Today, unskilled workers in developing countries face legal migration restrictions and higher skill requirements. The limited number of jobs with above-subsistence wages makes it difficult to improve the incomes of the globally large uneducated, unskilled work force. Since 1990 the high supply of unskilled workers has pointed to a global stagnation and convergence of wages at subsistence levels in many developing countries. This makes it difficult for out-migrants from rural areas (both the periphery and the overcrowded commercial rural areas) to find gainful employment in urban and peri-urban areas. Even though the informal sector accounts for the largest share of employment for the working-age population, it is not visible on the economist's radar screen. Data on the informal sector are not systematically collected. Wage rates reported in the 1990s for farm labor and unskilled construction workers (the two most likely jobs for people migrating from the rural periphery) remained low and flat in many countries (box figure). Only the Republic of Korea (at $500 a month) and the Czech Republic, Mauritius, and Tunisia saw unskilled wages approach $250 a month. Average purchasing power parity (PPP) wages for unskilled work in most of the other countries remained very low, at under $100 a month for the past decade. Farm wages show a similar trend. The average PPP equivalent wage in the OECD countries for similar work was 16 times higher for farm labor and 22 times higher for unskilled construction work.** Such a difference in wages for farm work is partly explained by legal migration restrictions and barriers to agricultural trade in the OECD countries. Wage differences between skilled and unskilled activities is even greater, highlighting the importance of education and training, both of which are totally lacking in the rural periphery of most countries. It helps explain why income inequality has become a global issue in the 21st century-and why so many people in the rural periphery have remained behind and in poverty. Many families survive by diversifying incomes through remittances from family members outside the country and from service jobs in the rural nonfarm economy, which now typically accounts for more than one-third of rural income in many countries. *U.S. Department of Commerce, U.S. Census Brief (2002), figures 4 and 5. ** See Freeman and Oostendorp (2000) Source: O'Rourke and Williamson (1995); Williamson (1997); Hatton and Williamson (1998); Raff and Summers (1986); Lacey (1986); World Bank Rural Development Strategy.

Industrial country institutions never had to deal with many of the problems facing developing countries today. The institutions that developing countries inherited were not geared to addressing the problems of large, dispersed groups living in remote, fragile areas. Today, in many cases government spending for social services is highly skewed toward the better-off in urban areas-even when a large share of the population inhabits rural areas, marginal lands, and the urban periphery (chapter 6). Many countries have highly centralized and standardized education and health delivery systems that simply do not fit the needs of remote areas-and are costly to administer. Agricultural investments and services are concentrated on the more favorable lands, even when the majority of farmers are on fragile lands. Countries are slowly changing these approaches.²⁸