SAGA Proposal: Possibilities for Public Policy

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SAGA Research Proposal:

1.2.3.3 Possibilities for Public Policy

Even though there are many traditional and modern strategies for dealing with risks, it is clear that they are far from adequate in Africa. After all, the highly variable welfare measures observed in Africa are inclusive of all the existing strategies to stabilize welfare. The fact that they remain so volatile is an indication of the limits of what is available to the poor in Africa. Clearly, there is a need for public policy to reduce the vulnerability of the poor, and by so doing, to increase the prospects for investment and accumulation that are necessary to reduce poverty. Here, as in education and health, the record in Africa is sobering. Extensive food aid distribution to the continent has largely failed to stabilize food availability (Barrett 2001), and often misses the needy (Barrett 1998; Clay, Molla and Habtewold 1999; Jayne et al. 2001; Barrett and Clay 2000). Donors and governments have been working hard at innovations to reduce vulnerability, but little has taken hold sustainably in Africa thus far. For example, the World Development Report (2001) considers seven specific public policy tools for dealing with vulnerability: health insurance, old age assistance and pensions, unemployment insurance and assistance, workfare programs, social funds, microfinance programs, and cash transfers. Of these, none is a common feature of African economies. Health insurance, old age pensions, and unemployment insurance are limited to the tiny formal sector and even there, inflation has made their real value uncertain. While there are scattered experiments with workfare and microfinance, none have taken hold generally. Social funds have become quite popular, but despite their origin as an attempt to mitigate the negative impacts of adjustment policies, they are almost exclusively a mechanism for locally-controlled investment decisions, not a social safety net. Cash transfers are almost non-existent.

Understanding why these public policy options do not work in Africa, and whether they can work in Africa, is an important area for research, as is thinking about the possibilities for alternative policies or institutions that might be effective in Africa. Our consortium is already exploring innovative responses such as the use of rainfall-contingent workfare schemes to absorb episodically surplus labor and protect vital natural resources (Barrett and Arcese 1998; Barrett 1999), wealth-conditional cattle restocking among drought-stricken pastoralists (McPeak 2001; McPeak and Barrett 2001), food-for-school schemes (Barrett, Holden and Clay 2001), and alternatives to quarantines for animal disease control in Kenya (Barrett et al. 2001). But there remains very little research available to guide policy makers on the trade-offs for different public policy interventions aimed at reducing vulnerability.

One area for policy-oriented research is the possibility for more effective insurance and capital markets, especially micro insurance and safe banking. Insurance markets can work only if participants face risks that are not highly correlated with one another. Prevailing wisdom holds that risk in rural areas is covariate, but recent research finds that much risk is household-specific (Townsend 1994; Lybbert, Barrett, Desta, and Coppock 2001). This raises the possibility that locally run micro insurance schemes could actually reduce individual vulnerability significantly and thereby stimulate investment and growth. Safe banking, especially in rural areas, may be another way to break out of the vulnerability poverty trap. If people can save in a secure, liquid financial institution, they can self-insure by accumulating assets. Bank Rakyat Indonesia’s unit desa are an example of a successful implementation of such a strategy, having reached millions of small depositors and borrowers in a cost-efficient manner (Patten and Rosengard 1991; Chaves and Gonzalez-Vega 1996).

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