Funcionamiento y manejo de máquinas de encuadernación en rústica

The approach of ‘developmental coordination’ [Dorward et al, 2005a] offers an alternative new institutionalist view on the role of the government in the process of market development⁶². The foundations of the developmental coordination approach are based on a critical assessment of neoliberalist market policies in Sub-Saharan Africa and also the success of government intervention in other developing country markets. Whilst it is accepted that the neoclassical theory underpinning liberal market policy may have certain benefits in an environment of with better information, more sophisticated institutions and more effective regulation, in the case of rural Africa orthodox theory offers an inadequate response to development challenges.

The Green Revolution⁶³ [Dorward et al, 2004] and the growth of the Asian Tigers [Dorward et al, 2005] are highlighted as examples of successful government led intervention.

Dorward et al [2004] find that the case of the Green Revolution suggests that active government intervention is necessary to stimulate market activity at critical stages of agricultural market development [p1]. Whilst not directly related to agriculture the experience of the East Asian Tigers⁶⁴, is widely observed as an example of the government resolving the coordination failures that inhibit market growth in developing countries

62 This approach is developed in a series of papers including Dorward et al [2004], Kydd and Dorward [2004], Dorward et al [2005a, 2005b], and Poulton et al [2006].

63 The Green Revolution refers to the agriculture-based development that took place throughout India, South America and South East Asia post 1945.

64 This is also referred to as the East Asian Growth miracle.

62 investment risk in the rural environment, which undermines ‘the very process of exchange and specialisation necessary for economic growth’ [p 959]. Transaction risk is at the centre of a ‘mutually self-sustaining cycle of underdevelopment’, known as a ‘low level equilibrium’ [Kydd and Dorward, 2004; Rosentein-Rodan, 1943; Hoff, 2000]. As can be seen from figure 2.2, the unattractive trading environment [blue], helps to sustain the low level of economic development [red], which in turn sustains the unattractive trading environment. As such, the market becomes trapped in a self-sustaining cycle of underdevelopment.

Figure 2.2 – The Low Level Equilibrium Trap

Source: adapted from Dorward et al [2003]

63 The concept of a poverty cycle caused by coordination failures was first seen in Rosenstein-Rodan’s [1943] ‘big push’ theory. Rosenstein-Rodan argued that it does not pay for a firm to make an investment in a market, where the surrounding market participants are not willing to make the investments required to develop other areas of the market. Therefore, a ‘big push’ or series of simultaneous investments is required to lift the market out of its stage of underdevelopment. Similarly, Kydd and Dorward [2004, p960] argue that the depth and persistence of coordination failure within a low-level equilibrium prevents the standard transaction cost economics solution of negotiation and institutional innovations by private actors.

2.3.2 - Overcoming Coordination Failure

The approach of developmental coordination argues that in markets where there are extensive coordination failures it will be necessary for the government to take an active role in encouraging market development. Indeed, the level of support for government intervention is greater than that suggested in the orthodox NIE understanding. Where appropriate the government must extend its role beyond the provision of public goods, through a range of coordinative activities including more active intervention in private goods markets [Dorward et al, 2005]. As such, the Cocobod’s functions of providing buyer credit, input subsidies, pesticides as a public good, warehousing, and price stabilisation are broadly conducive with the developmental coordination model.

Poulton et al [2004] contend that development in rural African commodity markets requires a balance of competition and coordination. Coordination is defined as:

‘Effort or measures designed to make players within a market system act in a common or complementary way or toward a common goal. This may also require effort or measures designed to prevent players from pursuing contrary paths or goals. Coordination may be undertaken by private agents acting collectively or may be orchestrated by state agents defining the boundaries within which private agents can act’ [Poulton et al, 2004, p 521].

64 Coordination can either occur vertically between actors in different segments of the supply chain, or horizontally between actors in the same segment of the supply chain. The term horizontal coordination has also been used to describe the role of Africa’s former government marketing boards. Where administered by the government, horizontal coordination takes place either where the government puts in place constraints that force the private sector to act towards a common goal, or where the government uses their collective organisational capacity to provide public and private goods themselves.

As noted by Poulton et al [2004], the concept of balance between competition and coordination is very important and by no means do the authors promote an interventionist government under all circumstances. The type and level of government intervention must be closely linked with the prevailing conditions in the market and therefore a critical assessment of interventionist policy is required [Dorward et al, 2005].

Kydd and Dorward [2004] consider two mechanisms through which the government can overcome the risk of coordination failure and place a market on a positive development path. The first mechanism is named coordination, and the first stage of this process involves the identification of the critical missing links in a supply chain that are leading to coordination failure. This is a deliberative process that requires a careful analysis of supply chain functions, leading to strategic investment in problematic areas [Kydd and Dorward, 2004, p 964].

Coordination can take a variety of forms including:

 Local or endogenous coordination, which evolves slowly between private actors at the local level.

 Externally assisted ‘soft’ coordination, such as government or NGO support for the development of farmer groups.

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 Hard coordination, ‘where some strong central coordinating body with a mandate from the government ensures investments across the supply chain with highly credible coordinated commitments’ [Kydd and Dorward, 2004, p 964].

Several functions of the Cocobod may be viewed as ‘hard’ coordination, and indeed, Kydd and Dorward directly associate the parastatal system with this coordination type. Earlier it was noted that coordination failures constrain agricultural intensification by simultaneously depressing investments across the same set of mutually dependent investors. However, where the government is active it is able to make the simultaneous investments required to kick start markets. Direct intervention by the government is recommended at the early stages of development when market failures such as information asymmetries, thin markets and insecure property rights, create a situation where risks are too high for private sector investment. Commenting in the parastatal system Kydd and Dorward [2004, p 952] find that:

‘State intervention offered a means of addressing all these problems: it could provide a coordination mechanism across trading, infrastructural, research and extension investments and activities; it could access official finance sources; it could coordinate with farmers; it could both reduce and take on investment risk in ways that the private sector could not’.

The authors of the ‘developmental coordination’ approach do not refute that Africa’s former government parastatals⁶⁵ have had a very mixed record of success [Dorward et al, 1998, Kydd et al, 2001]. They do, however, find that parastatals demonstrated a certain degree of success in overcoming the coordination failures, which are pervasive within many of the now fully liberalised African agriculture markets. For example, the government was able to avoid the market failures that have now led to missing markets for farmers’ inputs and credit within many liberalised markets [Shepherd and Farolfi, 1999;

Kherallah et al, 2000; Poulton et al, 2006]. Furthermore, Dorward et al [1998a] and

65 As noted in chapter one the majority of government parastatals were dismantled during the World Bank’s structural adjustment programs throughout the 1980’s & 90’s.

66 Shepherd and Farolfi [1999] find that parastatals also had an advantage in quality control.

Operating as the monopoly seller the government has the capacity to provide such services as public goods, without suffering the risk of free-riding witnessed in the private sector.

Dorward et al [2005] find that criticisms⁶⁶ of the parastatal system, ‘should not mask the institutional challenges that they were originally set up to address’ [p 13]. Furthermore, it can also be argued that such criticisms are reflective of the macro institutional environment and not the micro institutional arrangements, which the parastatals used to some success in achieving coordination throughout the local market [Dorward et al, 2005].

As such, we are encouraged to view parastatals as an investment in specific institutional arrangements, providing ‘a particular institutional fix, to a specific set of linkage problems’

[Dorward et al, 2005, p13].

In light of this, Kydd and Dorward [2004] argue that where a parastatal is able to strategically focus on the areas in which assistance is needed most, it can be a powerful mechanism in helping to place agricultural markets on a positive development path.

Indeed, in the case of the Ghanaian Cocobod, which has undergone restructuring and rationalisation in recent years, it will be interesting to observe the performance of a strategically focused parastatal. In its current form the only functions of the Cocobod that might be considered ‘hard’ coordination are the provision of pesticides as a public good, quality control and the Cocobod’s monopoly control over warehousing. Therefore, an analysis of the Cocobod’s performance in these areas, alongside a consideration of whether these functions could be provided more effectively by the private sector, will be key to our understanding of the need for ‘hard’ coordination in the Ghanaian case.

The second mechanism identified by Kydd and Dorward [2004] through which the government can kick-start market development, is lowering the threshold for private sector investment in the supply chain. There are two suggested ways through which to lower the investment threshold: by lowering the costs of transacting, and by raising the

66 Please refer to chapter one for a detailed discussion surrounding the criticisms of the parastatal system.

67 expected returns of investment [Kydd and Dorward, 2004, p 964]. The process of lowering the investment threshold is undertaken at a more advanced stage of market development, where based on the institutional development achieved through ‘hard’ coordination, the risk of coordination failure has been reduced.

At this stage, the government plays a more supportive role through investment in communications and market infrastructure, encouraging the development of farmer or trader associations, price interventions, input subsidies, technical research, and farmer extension [Kydd and Dorward, 2004, pg 967]. Under this classification, the Cocobod are engaged in threshold shifting through the function of price stabilisation, the provision of fertilisers on subsidy to farmers, agricultural research, and the provision low interest credit to buyers.

Lowering the investment threshold should also lead to the development of endogenous or

‘local’ coordination mechanisms within the private sector. Local coordination mechanisms include farmer organisations [co-ops], buyers associations, and, interlocked transactions between traders and farmers. During this phase of market development the government is no longer the only agent with a mandate to promote coordination and the private sector must begin to take responsibility in this area.