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omega007:
The Direct Approach: Targeted Programs for the Poor
While the indirect approach focuses on the policy framework which will generate a growth process which ensures an adequate flow of benefits to the poor, the direct approach relies on targeted programs aimed directly at increasing incomes of identified poverty groups. The distinction between the two approaches is not always watertight. For example, policies such as land reforms and also special programs for small farmers, which were discussed earlier as part of the general policy framework which influences the nature of growth, could also be described as elements of a direct approach. However, there are two types of programs which unambiguously exemplify the direct approach and these are: (i) employment programs aimed at providing wage employment for the poor; and (ii) financial assistance programs aimed at generating additional income for the poor from self-employment. Both types of programs figure prominently in the poverty alleviation strategies adopted by many Asian countries, especially in South Asia.
Targeted programs have an obvious appeal in situations where the growth process is not producing a sufficiently rapid reduction in poverty, and especially so where poverty persists on a large scale. In such situations, there is a good case for a parallel thrust in combating poverty through targeted programs which can reach identified groups in greatest need of support and can do so in the short term. An important element in the appeal of such programs is that they are seen to be a visible response of the government delivering immediate benefits to groups which otherwise may be bypassed, or even actively marginalized, by the growth process. Since the programs require budgetary resources, they compete with other public investment priorities for scarce resources and there is the possibility of a trade-off with other growth promoting activity. However, proponents of these programs argue that they should not be seen as mere doles but as an integral part of the overall development strategy, contributing to the growth process like other productive investments. Thus, employment programs in rural areas, if properly planned as part of a strategy for rural development, can help to create economically productive or socially useful assets for the whole rural economy such as, for example, minor irrigation works, water conservation structures, land development schemes, social forestry, rural roads, schools and rural drinking water schemes. Similarly, self-employment schemes can be viewed as stimulating productive self-employment in activities which fit into and support the overall scheme of development of the area. It is useful to evaluate the experience with these programs against the background of these expectations.
Wage Employment Programs. Direct provision of wage employ¬ment is obviously an attractive instrument for poverty alleviation wherever the poor depend heavily upon wage employment for their income and also suffer from considerable unemployment and underemployment. Bangladesh, India and Pakistan have all experimented with direct employ¬ment programs aimed at providing supplementary wage employment to the rural poor while also providing productive or socially useful assets to the community.
India's experience is perhaps the most extensive, beginning with the Rural Manpower Programme in 1960, which was followed by a variety of similar employment programs. At the State level, there is the well-known Employment Guarantee Scheme (EGS) in Maharashtra which was intro¬duced in 1972. At the national level, the Food-for-Work Programme was introduced in 1977 and was replaced by the National Rural Employment Programme (NREP) in 1980. To this was added the Rural Landless Employ¬ment Guarantee Programme (RLEGP) in 1983. The NREP and RLEGP were two very similar rural employment schemes, differing mainly in the arrangements for sharing the cost between the Centre and the States. In 1989 these two programs were merged into a single and expanded new program called the Jawahar Rozgar Yojana (Jawahar Employment Programme, thus named after India's first Prime Minister Jawaharlal Nehru whose birth centenary was celebrated during 1988/89).
The new employment program involves an annual allocation of finan¬cial resources amounting to about 0.65 per cent of gross national product (GNP). It is estimated to create approximately 650 million man-days of unskilled employment per year, which amounts to about 1.8 million man-days per day. Estimates based on the National Sample Survey suggest that unemployment on a "daily status" basis in rural India is a little over 7 per cent of the work force or approximately 18 million, i.e., on a typical day, 18 million persons are looking for work and unable to find it. The employment program can therefore provide jobs for approximately 10 per cent of the unemployed in rural India. Since some of those reporting unemployment will be from higher income groups seeking better jobs, the impact in terms of actually providing supplemental employment for the poor is probably greater than 10 per cent. Even so, the scale of additional employment provided remains modest in relation to the size of the unemployment problem. This problem is even more marked in Bangladesh where the Food-for-Work Programme is estimated to provide employment for only 2-3 per cent of the unemployed.
An important issue in determining the potential for direct employ¬ment programs relates to the resource cost involved. The Indian employ¬ment program, which presently caters to over 10 per cent of rural unemployment, already involves a level of expenditure which is about 30 per cent of the annual public sector investment expenditure on irrigation and agriculture. In a situation where total resources for investment are scarce, increased allocations to direct employment generation programs have to be weighed against the equally urgent need to increase investment in other key sectors such as irrigation. In fact, the promotion of labour-using agricultural growth, as discussed earlier, depends crucially upon greater investment in irrigation, water management and land development schemes. How much of a trade-off is involved obviously depends on whether the employment programs are viewed principally as programs for creating employment in the short term or whether they are dovetailed into a program for undertaking investment in the creation of productive or social¬ly useful assets which are needed in any case.
Past experience in regard to the usefulness of the assets created through employment programs in India has been extensively studied and the conclusions are somewhat mixed. A number of shortcomings have been noted in various studies.
First, a common complaint is that the quality of the assets created under employment programs in the past has been poor and the assets are typically not durable. This has been repeatedly found in the case with rural roads built under these programs which are either washed away or deteriorate impossibly in every monsoon season. One reason for lack of durability is the tendency to maximize the wage component of the expen¬diture, in order to maximize employment which leads to inadequate provision being made for material inputs which are crucial to ensure durability. It is obviously important to ensure that employment works conform technically with required standards if the assets created are also to be durable. This in turn may mean accepting somewhat less employment from any given level of expenditure.
Second, the programs have not been as successful as they should have been in ensuring that resources are devoted to potentially productive works such as renovation of tanks, minor irrigation works and soil conservation. Such works constitute investment activity which could greatly increase land productivity and enhance the long-term employment generation capability of local agriculture. However, this can only be achieved if the employment programs are integrated with designed area and watershed plans in which specific works are clearly identified for implementation through employment programs. This calls for considerable expertise in field-level planning and a high degree of organizational efficiency at the implementation level.
Third, employment programs aimed at creating productive assets have also been criticized on the grounds that the assets created, such as irrigation works or even roads, ultimately enhance the value of land and the benefits therefore accrue mainly to upper income land owning groups and not to the poor. This is certainly true, especially where land ownership is highly concentrated, but this problem should not be overplayed if our concern is primarily with poverty alleviation and not with inequality. Effective local level planning of employment works should be able to ensure a reasonably favourable outcome in terms of the distribution of user benefits. For one thing, conscious efforts can be made to ensure that wherever possible, a part of the program should be directed at improvements on land owned by small or marginal farmers. Similarly, where the program in¬volves building houses, a part of the program could be directed exclusively to low-income housing, a device which has been tried in India. Even where the program benefits cannot be targeted, as in the case of land improvement which mainly benefits the non-poor, it should be recognized that the poor could derive some continuing benefits. For example, land improvement based on irrigation is likely to encourage greater total labour use per hectare and the poor would benefit from the additional employment creation.
Fourth, an issue which is sometimes raised is that those employed are very often not from the target group. This is perhaps a less serious criticism than the others. As long as the wages paid are the barest minimum, we can assume that the beneficiaries will be mainly if not wholly from the target group. The real danger of leakage arises less from employment of non-target group beneficiaries than from misappropriation of funds where expenditure is incurred but no employment takes place.
These are undoubtedly serious problems, but many of them can be resolved by improved management in terms of better planning and better monitoring. Even more important is the need for institutional and or¬ganizational changes involving greater decentralization of planning and decision making to local elected bodies with direct involvement of beneficiaries in the planning and implementation process. Those issues are currently under consideration in India and major efforts are being made to bring about such decentralization in both planning and implementation of beneficiary oriented anti-poverty programs.

omega007:
Promotion of Self-Employment for the Poor. Another set of tar¬geted programs aimed at directly generating additional incomes for the poor are those focusing on self-employment possibilities. The basic idea is that members of poor households can be assisted to set up as independent self-employed producers engaged in commodity production or provision of services with a fairly small capital investment. These ventures can be financed by provision of subsidized credit, which is made available on special terms and through special procedures (e.g., without collateral security) in order to overcome some of the problems which limit access of the poor to institutional credit. The administering agency normally also undertakes to examine the technical and economic viability of the project to ensure that it is capable of becoming a self-sustaining source of addition¬al income. In this process, it also provides marketing advice. Typically, the self-employment ventures are on a very small scale, employing mainly family labour.
Such programs are part of the strategy for poverty alleviation in most countries in South Asia. In India there is the Integrated Rural Develop¬ment Programme (IRDP). In Bangladesh there is the Grameen Bank (GB) and also similar schemes run by the Bureau of Manpower Employment and Training (BMET), Bangladesh Small and Cottage Industries Corporation (BSCIC) and the Bangladesh Rural Advancement Committee (BRAC). In Sri Lanka there are programs of the National Youth Service Council (NYSCO) and others by the Central Bank and the Women's Bureau.
The scale of the programs varies from country to country. The Indian IRDP covers approximately 3 million beneficiaries per year with the avowed objective of taking each beneficiary household above the poverty line. Since the total number of households below the poverty line in rural India is estimated at about 55 million, coverage of 3 million beneficiaries per year could make a significant impact over time if the program were as effective as expected. By contrast, the coverage of the Bangladesh and Sri Lanka programs is much more modest compared with the scale of the problem.
The experience with these programs in several countries has been reviewed and the Indian experience has been extensively studied.  There are several issues of concern.
One of the issues is whether these programs, which involve a substan¬tial subsidy element, can be successfully targeted so that only those who are eligible become beneficiaries. The experience in this regard is mixed. The Sri Lankan experience shows that most of the beneficiaries were not from the target group. In Bangladesh, the experience varies, with beneficiaries of the Grameen Bank schemes being mostly from the target group, but other schemes less so. India's experience with the IRDP has been fairly good in this respect, with 70 per cent of the beneficiaries belonging to the target group. Considering that further improvements in implementation are pos¬sible, we can confidently conclude that effective targeting is possible.
Another issue relates to the effectiveness of these programs in generating additional income for the beneficiaries. There are bound to be many cases of clear failure reflecting situations where either there has been outright misappropriation of funds or more likely the assets provided for the self-employment venture (milch cattle, goats, bullock carts, pumpsets, sewing machines, etc.) have been sold in a relatively short time and the proceeds consumed. Some of these cases where the asset is lost may reflect poor viability of the project to begin with. Some may arise from the fact that a poor household may be compelled to sell even an asset which is earning a reasonably high rate of return in times of distress because it cannot get access to credit on reasonable terms to tide over temporary difficulties. On balance, the Indian experience shows that the number of such cases of loss of assets is not unduly large. A survey of beneficiaries in 1987 showed that in fully 72 per cent of the cases the assets were found to be intact and operational after two years.
From the fact that assets are retained in operational order, we can conclude that they are found to be productive, but this does not indicate the quantum of additional income generated from the household. Such quantification of the additional income due to these assets is extremely difficult in practice. Base line estimates of income are typically unreliable and it is also difficult to take account of the effects of inflation over time. However, available studies suggest that the IRDP has contributed to raising incomes of beneficiary families subject to two qualifications. One qualification relates to the criticism that in many cases the increase in income is insufficient to achieve the objective of taking the household above the poverty line. This is not however a particularly serious objection since it may only reflect the fact that the investment undertaken was not large enough given the income level of the beneficiary and the gap between this level and the poverty line. A more serious problem noticed in some studies is that the initial increase in income is often not sustained over a longer period. In other words, the self-employment activity often deteriorates over time instead of becoming a self-sustaining viable enterprise. An interesting hypothesis is that this probably happens because the self-employed producers assisted under this program are not assured of continued preferential access to credit. For example, a unit may get its initial credit requirement under the special dispensation of the self-employment scheme, but if no similar provision is made to cater to its subsequent credit needs, it may be difficult for the unit to survive over time.
The key issue in assessing the economic viability of such self-employ¬ment programs must relate to the rate of return earned in such invest¬ments. Alam reports a very low figure of 4.9 per cent for profits earned as a percentage of total investment in the Grameen Bank schemes.  However, it is possible that profit in this calculation is understated because much depends on the imputed value of own labour. An alternative approach is to look at the incremental capital output ratio (ICOR), which is perhaps easier to measure than the rate of return and may in any case be more appropriate where there is significant underemployment. On this count, the results for the Indian programs are quite encouraging. A recent longitudinal study of IRDP in one of the Indian States, Uttar Pradesh, shows that the average ICORs obtained were as low as 1.5 if the accounting is over a two-year period and 2.0 over a four-year period for those households which retained their assets. This excludes investments made in the failure cases where the assets were lost. If we include the investments of households which had lost their assets after four years, the ICOR rises to about 3.0. This is higher than is typically thought to be the case for self-employment schemes, but it is certainly significantly lower than the average ICOR of about 4.6 for the economy as a whole.
One dimension in which the IRDP has not performed well thus far is that of repayment of loans. In the study quoted above, whereas 72 per cent of all beneficiaries had the assets intact after two years, only 28 per cent had no credit overdues. In other words, over 60 per cent of the beneficiaries who still retained their assets after two years had not made timely repay¬ments. This is undoubtedly a serious problem since a credit-based scheme can only be viable if credit is repaid. However, it is possible that this percentage can be significantly improved through better monitoring and implementation. One of the problems in implementing these programs is that an impression is often created among beneficiaries that the credit does not need to be repaid, leading to avoidable overdues. Greater involvement and follow up by the banks could lead to much better results. In this respect, the performance of the Grameen Bank in Bangladesh is very much better with much lower overdues.
To summarize, the experience gained with self-employment schemes suggests that there are many problems which need to be resolved if these schemes are to become a truly effective instrument for poverty alleviation. It is certainly not easy to set up poor households as independent producers. Simply providing them with cheap credit or cheap credit plus a capital subsidy will not ensure the establishment of a viable source of additional income. At the same time, it cannot be denied that there is a substantial scope for promoting household-based production activities catering to the local market and requiring only a minimum of skills. Well-designed systems for providing credit, not just initially on a one-shot basis but also on a continuing basis to meet the economically justifiable needs of the enterprise, could enable large numbers of poor households to expand their income-earning capability. If this is combined with an element of training and marketing advice, and also supported by possible cooperative market¬ing arrangements, where appropriate, it could provide the basis for self-sustaining viable production which could help in poverty alleviation.
Conclusion
The conclusion which emerges from this discussion is eclectic. As Bhagwati points out, the optimal strategy for poverty alleviation is bound to be a mixed strategy involving some combination of the direct and indirect approach. The indirect approach has the advantage that since it focuses on the operation of the whole economy, successful indirect strategies are likely quantitatively to make a much larger impact than any possible direct intervention programs, which are bound to be severely constrained by budgetary considerations. On the other hand, since the approach depends on the overall pace and pattern of growth, it may not be able to provide adequate income support to all groups. In the longer run, the impact of a labour absorbing, skill-based growth process is bound to be the decisive factor in removing poverty, but in the short run it may not provide a solution for particular groups bypassed or marginalized by development.
The direct approach has the advantage of responding immediately and visibly in support of identified target groups. Its main disadvantage is that it necessarily involves a heavy draft on budgetary resources which most low- income countries can ill afford. The resource requirement of the direct approach brings in the possibility of a trade-off between the two approaches since resources used for directly targeted interventions can also be used to support particular aspects of the overall growth strategy, especially those which are most likely to have the maximum indirect effect on poverty. Needless to say such trade-offs can be quantified only through the use of general equilibrium models. All such quantifications are subject to numerous well known limitations, but where they are feasible they can throw useful light on the cost effectiveness of direct targeted programs.
An interesting example of explicit quantification of trade-offs is a recent study which examines the cost effectiveness of large-scale rural works programs in India as instruments for raising incomes of the rural poor.  The study finds that even if the program is financed by a reduction in the general level of investment in the economy, the cost in terms of reduction in GDP growth over a 20-year horizon is quite modest, while the benefit in terms of income levels of the poorest classes is very substantial. For example, they estimate that a rural works program requiring invest¬ment of 6 per cent of GDP to begin with and a declining percentage over time would, on certain favourable but not impossible assumptions about the effectiveness of targeting and productivity of investment, involve a slow¬down in growth of only 0.25 per cent per year over the 20-year horizon. Terminal year GDP per capita would be lower by only 4.6 per cent but the income of the two poorest classes in the rural areas in the terminal year would be 40 per cent higher than in the base run. The volume of resources envisaged in these simulations is of course massive and feasible levels of investment in such employment programs are likely to be much lower in practice. The benefits would also be correspondingly smaller, but the simulations indicate that the cost of these benefits, in terms of growth foregone, may not be very large. What the simulations establish is that if a rapid increase in the incomes of the poor to some minimum level is a matter of priority, targeted programs on some suitable scale may well be an essential requirement.
It is important to recognize that while some elements of a direct approach are unavoidable as long as significant poverty persists, it is perhaps best to view this as a necessary safety net while relying on broader based growth processes to provide sustained growth in income levels for the bulk of the population. This underscores the importance of ensuring that the total policy framework is such as to ensure that growth is as broad based as possible. Failure to ensure this will lead to an inherently unstable situation in which development strategy choices are made which fail to make full use of the potential for reducing poverty through growth, and this in turn generates pressures to expand schemes for direct intervention. A successful strategy is surely one in which the need for the direct approach diminishes gradually.

omega007:
I got this article from ADR ...  ;D

bball92:
holy epic crap >> i sincerely hope that i dont have to memorize that for the exam :S

Freaked12:

--- Quote from: bball92 on May 25, 2009, 02:26:26 pm ---holy epic crap >> i sincerely hope that i dont have to memorize that for the exam :S

--- End quote ---


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